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

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