Trade Disruptions and Reshoring

Abstract

Can temporary trade disruptions lead to a persistent change in plant sales and input sourcing locations? Using plant level administrative data, we show that COVID-19 induced shutdown in March 2020 led to a collapse in domestic trade across states in India, which strikingly continued even after the movement restrictions across state borders were removed. We show that the reshoring channel explains this phenomenon as plants more dependent on inter-state sales (inputs) shift from inter- to intra-state sales (input-sourcing). The extent of reshoring is captured by a novel measure, Scope for Home Expansion, that combines both demand and supply side constraints for a given product at the state level. This channel quantitatively accounts for 7.6 percent of the sales growth in the last quarter of 2020.

Keywords: Domestic trade, Reshoring, Scope for Home Expansion, Trade collapse

JEL Classification: F14, E32, L23, L6