Foreign Supply Shocks and the Structure of Trade in a Small Open Economy

Abstract

We evaluate how imports of a small open economy adjusted to foreign supply disruptions in the first year of the COVID-19 pandemic. Exploiting information on the timing, stringency, and persistence of coronavirus containment measures, we estimate their impact on the value and composition of imports. About half of the total contraction is attributed to foreign supply-sided disruptions. Contractions were more pronounced in concentrated import markets, but more severe contractions were prevented by trade partner substitution. We document systematic reallocation of market shares towards countries with large supply capacity and low COVID-19 incidence rates in the second half of 2020.