International Influences on Japanese Supply Chains

This paper investigates the transmission mechanism of Chinese productivity shocks through industry-level and firm-level networks in the Japanese manufacturing sector using an instrumental variable approach. We find that increased Chinese productivity in a particular industry negatively affects Japanese suppliers of Japanese firms in that industry (upstream propagation) and positively affects their Japanese corporate customers (downstream propagation). This contrasts the recently studied case of the United States, which did not lead to evidence for downstream propagation of such shocks.