INPUT LINKAGES AND THE TRANSMISSION OF SHOCKS: FIRM-LEVEL EVIDENCE FROM THE 2011 TŌHOKU EARTHQUAKE

Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. The scope for trade linkages to generate cross-country spillovers depends on the elasticity of substitu...

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Bibliographic Details
Published in:The review of economics and statistics 2019-03, Vol.101 (1), p.60-75
Main Authors: Boehm, Christoph E., Flaaen, Aaron, Pandalai-Nayar, Nitya
Format: Article
Language:English
Subjects:
Earthquakes
Economic models
Elasticity
Falls
Imports
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Summary:Using novel firm-level microdata and leveraging a natural experiment, this paper provides causal evidence for the role of trade and multinational firms in the cross-country transmission of shocks. The scope for trade linkages to generate cross-country spillovers depends on the elasticity of substitution with respect to domestic inputs. Using the 2011 Tōhoku earthquake as an exogenous shock, we structurally estimate production elasticities at the firm level and find greater complementarities in input usage than previously thought. For Japanese affiliates in the United States, output falls roughly one-for-one with declines in imports, consistent with a relationship between imported and domestic inputs that is close to Leontief.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest_a_00750