Shock Propagation within Multi-sector Firms *

Abstract

This paper studies the role of multi-sector firms in the cross-sectoral propagation of economic shocks. By leveraging an increase in import competition from China as a source of a negative economic shock, we show that the employment of an establishment in a given industry is negatively affected by shocks that hit establishments operating in other industries within the same firm. We explore a range of explanations for our findings, emphasizing the role of within-firm input-output linkages and within-firm diversification across sectors. At the sectoral level, shocks that propagate through firms' internal networks have a sizable impact on industry-level employment dynamics.

Keywords: D22, F14, F40, L14, L22 Multi-sector firms, networks, shock propagation, firm diversification

JEL Classification: D22, F14, F40, L14, L22