Aggregate Shocks, Domestic Trade Collapse and Regional Realignment

71 Pages Posted: 29 Jun 2021 Last revised: 5 Oct 2021

See all articles by Anindya S. Chakrabati

Anindya S. Chakrabati

Indian Institute of Management (IIM), Ahmedabad

Kanika Mahajan

Ashoka University

Shekhar Tomar

Indian School of Business

Date Written: June 17, 2021

Abstract

How does trade within a country respond to aggregate shocks? Using novel administrative plant and product level data, we show that COVID-19 induced shutdown in March 2020 led to a collapse in domestic trade across regions in India. Well after the movement restrictions were lifted, trade continues to suffer while GDP recovers. We show that regional realignment, a shift from inter- to intra-region sales and input-sourcing, led by plants more dependent on inter-region sales (inputs) before the shock, drives the trade collapse. On the product side, those with a higher pre-pandemic scope to expand into the home market witness greater realignment, accounting for 7.6 percent of the sales growth in the last quarter of 2020. Our results control for other competing channels like changes in demand and are robust to a variety of specifications.

Keywords: Trade Collapse, Supply chain, Aggregate Shock, Realignment

JEL Classification: F14, E32, L23, L6

Suggested Citation

Chakrabati, Anindya S. and Mahajan, Kanika and Tomar, Shekhar, Aggregate Shocks, Domestic Trade Collapse and Regional Realignment (June 17, 2021). Available at SSRN: https://ssrn.com/abstract=3869005 or http://dx.doi.org/10.2139/ssrn.3869005

Anindya S. Chakrabati

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Kanika Mahajan

Ashoka University ( email )

University Campus, Plot #2,
Rajiv Gandhi Education City
Kundli, Haryana 131028
India

Shekhar Tomar (Contact Author)

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

HOME PAGE: http://shekhartomar.com

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