Description

We study how investment networks transmit and amplify external shocks in commodity-dependent economies. Using transaction-level data on capital-goods flows between firms, we map Chile’s investment network and assess its role in the propagation of copper price shocks at the firm, sector, and aggregate level. In the data, we show that upstream suppliers expand when copper prices rise as mining increases demand for capital goods, while non-mining exporters contract. Motivated by this evidence, we build and calibrate a multi-sector small open economy model with inputoutput and investment linkages to quantify the aggregate implications of a terms-of-trade shock. A one-standard-deviation shock to global demand for mining raises GDP by 0.9%, and investment by 3.8% on impact. Absent investment linkages, the effects drop to 0.46% and -0.9%, respectively. Consistent with the data, upstream suppliers to mining benefit the most, while non-mining export sectors are worse off due to real exchange rate appreciation. A denser U.S.-calibrated network yields larger and more persistent effects.