Assessing the Supply Chain Effect of Natural Disasters: Evidence from Chinese Manufacturers

Abstract

To what degree can adverse shocks propagate along global value chains? Investigating the international propagation of the US hurricane season in 2005, we show that Chinese processing manufacturers with tight trade linkages to the United States reduced their US intermediate imports between July and October 2005, leading to a temporary decline of exports. However, we do not find consistent evidence of international propagation of supply shocks along global value chains. Moreover, we find that firms with more diversified suppliers tend to be less affected, pointing to sourcing diversification as a way to increase resilience to adverse shocks.

Keywords: production networks, resilience, diversification, shock transmission, supply chains, natural disasters