Production Network and Propagation of Shocks: An Empirical Study based on China Listed Firms

The macroeconomic shocks can propagate along the production network and cause larger macroeconomic fluctuations. This paper utilizes China listed firms data and government spending shocks from 2011 to 2018 to investigate the direction and magnitude of propagation of government spending shocks. My results at the firm level suggest that demand shocks propagate upstream and downstream simultaneously, and the position of a firm in the supply chain can affect the magnitude of this kind of amplification effect. Also, the magnitude of the downstream network effect is greater than that of the upstream.