Using equity market reactions and network analysis to infer global supply chain interdependencies in the context of COVID-19

Abstract

While the COVID-19 pandemic has exposed the vulnerabilities of “just-in-time” international supply chains and is set to further accelerate their reconfigurations, very little is known about how global production networks are linked together at the firm level, making it difficult to assess where the dependencies lie. In this study, we use firm-level data on customer-supplier relationships from over 170 economies and network analysis tools to map global supply chain dependencies and shed light on the complex interconnections that facilitated the propagation of COVID-19’s economic impact. Leveraging the early virus outbreak in China as an exogenous shock, we first study the equity price responses of China-linked firms to news of virus-induced lockdowns, finding that markets priced in significant transmission effects of the coronavirus shock across global supply chains. Then, we dive deeper into the production networks of three globalised industries, whose unique and convoluted network structures may serve as a reminder that “reshoring” supply chains is easier said than done.