Shock Propagation within Multisector Firms

Abstract

This paper documents an important role multisector firms play for the cross-sectoral propagation of shocks in the context of the China shock. In particular, we show that employment of an establishment in a given industry is negatively affected by the shock that hits establishments operating in other industries within the same firm. We explore a range of explanations for our findings, highlighting the role of firm diversification and within-firm input-output linkages across sectors. At the sectoral level, the shock that propagates through firms' internal networks has a sizable impact on industry-level employment dynamics.

Keywords: Multisector firms, networks, shock propagation, firm diversification, import competition

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