Firm-Level Propagation of The Effect of Disruption of International Trade Through Domestic Supply Chains

Risks of disruption to global supply chains are rising and threatening the sustainability of global supply chains. This study simulates how the disruption of imports from various regions affect the total production of Japanese firms. We particularly incorporate the propagation of the economic effect through domestic supply chains, using data on more than one million firms and four million supply chain ties. We find that the negative effect of disruption of intermediate imports grows exponentially as its duration and level increase because of downstream propagation. In addition, the propagation of the economic effect is substantially affected by the network topology of importers, such as the number of importers (affected nodes) and their upstreamness in supply chains, but not necessarily by their centrality. Furthermore, the negative effect of import disruption can be mitigated by reorganisation of domestic supply chains, even when the reorganisation is conducted among only network neighbours.