Shocks to Supply Chains and Market Dynamics in a Crisis

Supply chain disruptions and demand shocks related to the ongoing pandemic and economic crisis pose an unprecedented challenge for firms across the globe. In this project, Peter Chacha, Benard Kirui and Verena Wiedemann aim to better understand the impact of these shocks on formal firms and production networks in Kenya. They will draw upon administrative tax records to help policymakers quantify and better understand the direct consequences of COVID-19 related shocks on formal firms. In addition, the rich data set will enable them to map Kenya’s formal domestic production network as well as its links to global supply chains. This will be used to study the indirect transmission of shocks through inter-firm linkages and the impact on firm-to-firm relationships in Kenya.

The project's research design is built around the use of up-to-date, granular administrative data on firm-level outcomes and business-to-business transactions. The researchers will combine information from various data sources to get a comprehensive picture of the impact of COVID-19 related shocks on several different firm outcomes, firm-to-firm relationships and pre-crisis firm characteristics and market structures. COVID-19-related international and domestic shocks will be identified from a global database on COVID-19 government response measures, a database on domestic measures in Kenya, which will be constructed for the purpose of this project, as well as information on the country of origin of international trading partners from customs records and the location of domestic firms from tax registration forms. Using this data, and where available, further complementary secondary data, the researchers will generate stylised facts and exploit firm- and sector-level variation in the exposure to domestic and international shocks to better understand the impact of the crisis on supply chains and firms in Kenya.

Several aspects of this project are of relevance to policy making. The project will help policy makers to better understand the context-specific magnitude of the impact of COVID-19-related shocks on economic activity. While the crisis persists, alleviation of cash flows to businesses remains a top priority for the Government of Kenya. The project seeks to identify sectors and clusters of firms that have been particularly affected by the pandemic and inform the design of sector-specific policies by Kenyan authorities that are well-targeted, and effective. In addition, as globalisation and international economic integration has slowed substantially in recent years, a trend accelerated by the current pandemic, domestic and regional markets will grow in importance for policy makers in developing countries. This trend highlights the need for more research on the functioning of domestic markets and spatial distributional consequences of trade policies and shocks, a highly policy-relevant strand of the academic literature the researchers seek to build and expand on.

Authors

Peter Chacha

University of Cape Town

Benard Kirui

Kenya Revenue Authority

Verena Wiedemann

University of Oxford