Supply Chain Dynamics and Resilience of the Economy during a Crisis

Recently, supply chain disruptions are prevalent worldwide. When there are disruptions, firms restructure their supply chains to minimize negative impacts. The ability to restructure is the key for firms to be resilient against shocks. However, there is little evidence on how firms react to supply chain disruptions. We exploit large-scale firm-level transaction data and focus on the Great East Japan Earthquake in 2011. It was a massive but local shock in that only firms in the disaster area received direct negative impacts. First, we found a sudden shift of supplier choice diverting away from the disaster area. Second, although firms overall increased the number of suppliers, they geographically concentrated the supply chains outside the disaster area. This finding is robust across different measures of geographic concentration. Finally, we showed that firm productivity is a determinant of the ability to find alternative suppliers. These results suggest that supply chain disruptions would concentrate the spatial distribution of economic activities and that the effect would be driven by productive firms.