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The transmission of foreign shocks to the Estonian production network

Author

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  • Andrew Green
  • Louise Guillouet
  • Guy Lalanne

Abstract

Supply chain resilience is a key topic for industrial policymakers, generating demand for rigorous evidence. This paper uses a unique set of firm-to-firm transaction data – Estonian value-added tax data – to provide new empirical estimates for a key concern for policy makers: the domestic propagation of a foreign shock to the supply chain. This paper uses the early Covid-19 lockdowns in China as a quasi-random supply shock to Estonian importers and then measures its propagation through the domestic production network. The difference-in-differences identification strategy captures a substantial negative shock to importers (-6% on imports, -6% on domestic sales, -2% on domestic purchases) which is further propagated downstream to their domestic buyers (-3% on purchases, -5% on sales) and to their domestic suppliers (-7% on sales, -4% on purchases). Firms that held higher inventories and sourced from a more diverse set of suppliers experienced smaller declines in output suggesting possible mitigation strategies.

Suggested Citation

  • Andrew Green & Louise Guillouet & Guy Lalanne, 2025. "The transmission of foreign shocks to the Estonian production network," OECD Science, Technology and Industry Working Papers 2025/12, OECD Publishing.
    • Handle: RePEc:oec:stiaaa:2025/12-en
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    More about this item

    Keywords

    Diversification; Inventories; Spillovers; Supply Chains; Trade Shocks; VAT Data;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F6 - International Economics - - Economic Impacts of Globalization
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

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