Aggregate Shocks, Domestic Trade Collapse and Regional Realignment
Authors: Anindya S. Chakrabarti, Kanika Mahajan, Shekhar Tomar
Abstract: How does trade within a country respond to aggregate shocks? Using novel administrative data, we show that COVID-19 induced shutdown in March 2020 led to a collapse in domestic trade across regions in India. Well after the movement restrictions were lifted, trade continues to suffer while GDP recovers as plants shift from inter- to intra-region sales and input-sourcing. Plants more dependent on inter-region sales (inputs) lead this regional realignment. Additionally, products with a higher pre-pandemic scope to expand into the home market witness greater realignment, accounting for 7.6 percent of the sales growth in the last quarter of 2020.