Global supply chain interdependence and shock amplification – evidence from Covid lockdowns

BIS Working Papers  |  No 1123  | 
14 September 2023



The Covid-19 pandemic and ensuing supply disruptions have reignited a longstanding debate over the benefits of global value chains (GVCs). At the same time, although aggregate trade generally rebounded across much of the globe during the second half of 2020, there were striking divergences in performance across industry sectors. Against this backdrop, we focus on two questions – how have GVCs evolved during the Covid years, and, does GVC participation amplify negative shocks?


Our contributions are twofold. First, we construct network maps of GVCs for a birds-eye view of pre- and post-pandemic global supply chain networks. Second, in assessing the impact of lockdowns on stock market returns, our analysis builds on two strands of work – the empirical body of research studying the transmission of shocks via supply chain linkages at the firm level and the corporate finance literature that studies the effects of supply chain linkages on asset pricing.


Our network maps highlight the complexity and interconnectedness of global manufacturing production. They also reveal sizeable variations in GVC structure across different sectors, thus underscoring the need for looking beyond the aggregate data in assessing GVC shifts and shock responses. We also find that GVC links can amplify the effect of supply shocks on company share prices. This "penalty" is most pronounced on firms in cyclical industries and those that are more vulnerable to supply disruptions. Moreover, we find that network distance matters. During the pandemic, those that were more directly linked to firms in economies in lockdown tended to be more negatively affected by the lockdown announcements.


Supply disruptions from the Covid-19 pandemic raise questions about the benefits and costs of global value chain (GVC) participation and the possibility that supply chain networks may have shifted during this period. Using firm-level data on supply chain linkages, we document the evolution of GVCs during the pandemic by comparing GVC network diagrams and firms' shipment data over the course of the pandemic. Furthermore, we study how such linkages affected equity investors' reaction to pandemicrelated disruptions. Our findings suggest that GVCs contracted following the pandemic outbreak and were slow to recover in some sectors. We also find that firms with GVC links to countries undergoing Covid-related lockdowns suffered larger stock price losses than those without such links. In addition, sectoral responses to lockdown announcements varied, underscoring the need to consider sectoral differences in the study of GVC shifts.

JEL classification: F10, G12, G14, O24

Keywords: supply chain, supply networks, amplification, equity prices