Production networks and war

0551674 - NHÚ 2022 RIV GB eng V - Výzkumná zpráva
Korovkin, Vasily - Makarin, A.
Production networks and war.
London: Centre for Economic Policy Research, 2021. 30 s. CEPR discussion paper series, 16759. ISSN 0265-8003
Grant CEP: GA ČR(CZ) GA19-25383S
Institucionální podpora: RVO:67985998
Klíčová slova: conflict * trade * firms
Obor OECD: Applied Economics, Econometrics
https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16759

How do severe shocks such as war alter the economy? We study how a country's production network is affected by a devastating but localized conflict. Using unique transaction-level data on Ukrainian railway shipments, we uncover several novel indirect effects of conflict on firms. First, we document substantial propagation effects on interfirm trade---trade declines even between partners outside the conflict areas if one of them had traded with those areas before the start of the war. The magnitude of such second-degree effect of conflict is one-third of the first-degree effect. Ignoring this propagation would lead to an underestimate of the total impact of conflict on trade by about 67%. Second, war induces sudden changes in the production-network structure that influence firm performance. Specifically, we find that firms that exogenously became more central---after the conflict practically cut off certain regions from the rest of Ukraine---received a relative boost to their revenues and profits. Finally, in a production-network model, we separately estimate the effects of the exogenous firm removal and the subsequent endogenous network adjustment on firm revenue distribution. At the median, network adjustment compensates for 80% of the network-destruction effect a year after the conflict onset.
Trvalý link: http://hdl.handle.net/11104/0326910