Germs, Roads and Trade: Theory and Evidence on the Value of Diversification in Global Sourcing
This paper studies how diversification in global sourcing improves firm resilience to supply chain disruptions. I build a model in which firms select into importing, taking into account domestic and international trade costs. The model predicts that firms which are more geographically diversified in sourcing are more resilient to supply chain disruptions. Reductions in trade costs induce firms to further diversify their sourcing strategies. I then exploit the 2003 SARS epidemic as a natural experiment to examine the resilience of Chinese manufacturing importers. Firm imports fell by 7.9% on average when the trade route was hit by SARS, but fell by as much as 52% for firms without any diversification. Estimation based on sufficient statistics indicates that the disruption led to smaller increases in marginal cost for firms with more trade routes for imports and reduced total Chinese manufacturing outputs by about 0.7% at the peak of the epidemic. Furthermore, connectivity to roads increased firms’ resilience to the SARS epidemic by facilitating diversification in global sourcing.

Please sign up for meetings below:
Date: 22 January 2019, 14:30 (Tuesday, 2nd week, Hilary 2019)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room C
Speaker: Hanwei Huang (University College of London/City University of Hong Kong)
Organising department: Department of Economics
Part of: International Trade Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Melis Boya