Diversification in Trade and Foreign Investment and Resilience to the COVID-19 Shock: Firm-level Evidence Using Japanese Customs Data

Using data from the COVID-19 period, this study examines whether firms' participation in global value chains (GVCs) makes them more resilient to external negative shocks, distinguishing between multinational and non-multinational firms and between trading and non-trading firms. Using Japanese customs data matched with firm-level data and a survey on foreign direct investment (FDI) we construct a dataset that contains export destinations, import origins, and investment destinations. We then examine which firms were more affected by the COVID-19 pandemic. We find that export growth rates are higher for firms with more diversified export destinations and import origins, and the result is more pronounced for the intermediate goods trade. However, no such effect is seen for diversification of FDI destination countries.