The sale of final goods relies on a consistent production line. Each firm must have reliable intermediate outputs in time, quantity, quality, and price. When these lines break down, there can be significant disruption to production and economic growth. Additionally, access to firms and input goods drive production choices; a firm can only create products for which they have the inputs. In this way, firm-to-firm networks are central to industrial policy choices. Further, it is not unusual for intermediate goods to be traded internationally when one country works on the early section of the supply chain and another, or many, complete the chain. Thus, cross-border trade can have great impacts on domestic economies. This project delves into how international trade shocks and resulting changes in firm-to-firm relationships can impact economic growth trajectories.
The research team looks at intercountry trade and production networks in Uganda and Rwanda from 2010 to 2021. Within this time period, particular moments will be of note in the analyses: exchange rate changes, the 2019 closure of the Uganda-Rwanda border, and supply chain shocks related to COVID-19. The data used are dispensed by the International Growth Centre and cover monthly firm value-added tax, which includes all firm-to-firm transactions. Alterations to trade policies, exchange rates, and COVID-19 lockdowns allow for a clear understanding of causation rather than correlation in the models.
This project will provide evidence on macro impacts when production networks break down. Oftentimes these networks are more likely to break down in lower-income countries, making the issue particularly relevant to a wide range of countries. In particular, this research will develop a new understanding of Rwandan-Ugandan production networks, as merging information on both is a novel design. Increased information on these relationships can be used to form domestic industrial policy and international trade policy in order to affect structural change.