Trade disruptions and reshoring

Abstract

Firms are increasingly concerned about the resilience of their sales and sourcing decisions. Using administrative data, we show that a temporary disruption in trade due to state border closures in India led to a persistent trade collapse within the country—interstate trade relative to intrastate remains five percent lower even six months after all restrictions were lifted. Reshoring explains this phenomenon as plants more dependent on interstate sales (input-sourcing) shift from inter- to intrastate sales (input-sourcing). State borders rather than distance are salient in explaining the observed substitution. We propose a novel product-level measure that determines the extent of reshoring.