Demand Shock along the Supply Chain: The Bullwhip Effect of Covid-19 in Chinese Exports

Authors

Kaichong Zhang, Macalester CollegeFollow

Document Type

Honors Project - Open Access

Comments

I would like to express my special gratitude to my advisors, Professor Felix L Friedt and Professor Amy Damon, my Economics Honors Thesis committee members, Professor Liang Ding and Professor David Shuman, as well as my Honors Thesis classmates who gave me excellent supports and illuminating comments to my research project.

Abstract

This study investigates the bullwhip effect of Covid-19 on global supply chains from the Chinese perspective. The bullwhip effect refers to the amplification of demand shock along the supply chain, and my baseline estimates show that a $1\%$ increase in foreign new cases (a proxy for foreign demand shock) reduces exports of downstream products and that of upstream industries by $2.1\%$ and $4.5\%$ respectively. The estimates also suggest that whether industries are concentrated or not generates ambiguous effects on exports that vary from different empirical specifications. In addition, a heterogeneity analysis suggests that the bullwhip effect is stronger in regional supply chains among geographically proximate countries and countries that are closely connected in terms of the trade volume. Furthermore, a dynamic analysis shows that the outbreak of Covid-19 in foreign countries causes a lagged import substitution towards Chinese products that reverses the initially negative demand shock. Unlike the initial adverse effect, I find that the lagged import substitution does not amplify along the supply chain, but mostly affects downstream industries.

Recommended Citation

Zhang, Kaichong, "Demand Shock along the Supply Chain: The Bullwhip Effect of Covid-19 in Chinese Exports" (2021). Economics Honors Projects. 108.
https://digitalcommons.macalester.edu/economics_honors_projects/108