ability to trade and transport goods over this period, thereby inducing variation in input prices at the supplier level. Second, we obtain new granular and high-frequency administrative data on the universe of firm-to-firm transactions for a state in India, with unique information on unit values and HS-product classifications. This previously unused data on prices and purchase quantities at the buyer-supplier level, combined with exogenous variation in prices induced by the lockdown, allows us to estimate new elasticities at the firm level and across different suppliers of a product.

We first document whether the lockdown indeed induced variation in prices we need to estimate these elasticities. We begin by presenting reduced-form evidence that leverages the nationwide, sudden, and unprecedented lockdown imposed by the Indian government in March 2020. Importantly, these lockdowns induced geographic variation: districts were categorized into _Green_ (mild lockdown), _Orange_ (medium lockdown), and _Red_ (severe lockdown). Since the lockdowns were sudden and unexpected, they were likely implemented independent of economic fundamentals and induced strong variation in transactions between firms across India.<sup>3</sup> We show, conditional on high-dimensional fixed effects, that these adverse supply shocks led to a sharp increase in unit values (prices), and dramatic fall in transactions of intermediate inputs, if either buyers or sellers were located in high lockdown zones.

We estimate the elasticity of substitution across suppliers leveraging the variation in prices we document in our reduced form. To do this, we construct a standard multi-sector firm-level model of input-output linkages with a production function augmented with substitution across suppliers within the same product category. Our model is intentionally parsimonious to fix ideas, but importantly, unlike standard trade models with Constant Elasticity of Substitution across products, it does not assume that suppliers of the same product are perfect substitutes. We derive analytical expressions that connect the relative values of quantities purchased of the same product from different suppliers to the equilibrium relative prices. A combination of this analytical framework, and the lockdown-induced variation in sellers’ marginal costs and transportation costs allows us to estimate how substitutable the different suppliers are, within each product category.

Yet, Covid-19 was not just a supply shock. The pandemic outbreak was a combination of exogenous shocks to the quantities of factors supplied, the productivity of producers, and the composition of final demand by consumers across industries (Baqaee and Farhi, 2020). To estimate the elasticity of substitution across suppliers of inputs, we leverage variation in input prices driven by the sudden restrictions in economic activity in lockdown districts where these suppliers were located. In addition, we leverage variation in trade costs arising from transportation restrictions in districts through which the goods need to pass from the seller to the buyer. While our instruments help derive the necessary variation, to further isolate supply shocks from other shocks, we control

> 3See the BBC (link), and The Wire (link)

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