Shock Propagation within Multisector Firms
64 Pages Posted: 14 Aug 2021 Last revised: 1 Jul 2022
Date Written: June 30, 2022
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
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