Propagation of Foreign Trade Shocks through Domestic Supply Chain Networks: Evidence from Turkish Firms

This study investigates the propagation of foreign trade-related shocks through domestic supply chain networks. By combining firm-level customs data with domestic firm-to-firm transaction data, we demonstrate that importer and exporter firms occupy a central position within Türkiye’s domestic supply chain network. These firms interact with numerous other firms and account for a significant share of total domestic trade, facilitating the transmission of external shocks through the supply chain. Our empirical analysis reveals that Turkish firms’ indirect exposure to exchange rate fluctuations, imported input price changes, and foreign demand shocks—via their suppliers or customers—is at least as significant as their direct exposure in explaining variations in gross profitability. Given the close relationship between gross profitability and value added, our results suggest that foreign trade-related shocks can significantly impact gross domestic product (GDP), both directly and indirectly.