Working Paper: NBER ID: w28089
Authors: Cynthia Kinnan; Krislert Samphantharak; Robert Townsend; Diego A. Vera Cossio
Abstract: Firms in developing countries are embedded in supply chains and labor networks. These linkages may propagate or attenuate shocks. Using panel data from Thai villages, we document three facts: as households facing idiosyncratic shocks adjust their production, these shocks propagate to other households on both the production and consumption sides; propagation is greater via labor than supply chain links; and shocks in denser networks and to more central households propagate more, while access to formal or informal insurance reduces propagation. Social benefits from expanding safety nets may be higher than private benefits.
Keywords: entrepreneurship; risk sharing; propagation; production networks
JEL Codes: D13; D22; I15; O10; Q12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| health shocks to households (G52) | direct production-side adjustments (E23) |
| direct production-side adjustments (E23) | propagation through local networks (C45) |
| propagation through local networks (C45) | effects on linked household firms (H31) |
| closeness to shocked household (D19) | decline in total transactions (F65) |
| closeness to shocked household (D19) | decline in income (E25) |
| closeness to shocked household (D19) | decline in consumption (D12) |
| better access to insurance (G52) | less propagation of shocks (E32) |
| idiosyncratic shocks (D89) | aggregate demand shocks (E00) |