Resilience of Japanese Multinational Enterprise Production Networks during the COVID-19 Pandemic

Abstract

Abstract We use COVID-19 as an exogenous shock to analyze the impact of the COVID-19 pandemic on Japanese multinational affiliates’ performance, determining that the pandemic adversely impacted performance in general, but severe disruptions did not last longer than one year. The COVID-19 shock also affected global transaction networks, and affiliates’ total sales were severely affected by procurement challenges. Regarding heterogeneous effects, affiliates actively engaged in trade experienced worse conditions than local-oriented firms. Finally, we explore whether and which local backward linkages could mitigate such shocks, concluding that affiliates’ local procurement from companies beyond only Japanese firms could gain resilience.