Diversification and resilience of firms in the agrifood supply chain

Abstract

Are diversified firms more resilient to negative market shocks than specialized firms? We answer this question in the context of the COVID-19 pandemic by analyzing data from small- and medium-sized firms in the U.S. agrifood supply chain. We first develop revenue-based measures of firms' vertical (across supply-chain segment) and horizontal (within supply-chain segment) diversification. We then compare post pandemic outcomes of more diversified and less diversified firms using several inverse-probability weighting techniques. We find that vertical diversification reduces firms' resilience, whereas horizontal diversification increases firms' resilience.