This paper adapts to Italy the criteria proposed by the European Commission to identify intermediate goods exposed to supply risk and proposes a methodology to assess the impact that possible sharp reductions in the imports of these goods from countries with high geopolitical risk could have on the value added of Italian firms, using a stress test approach.
We estimate that 515 out of around 6,000 imported non-energy intermediate goods are exposed to supply risk in Italy. Assuming a scenario in which these goods cannot be replaced in the short term and their imports are halved, the median loss in value added for the approximately 8,000 firms that use them directly would be around 35 per cent. The reduction in the economy’s total value added would be between 0.2 and 2.2 per cent, depending on the assumed elasticity of substitution of supply-risk inputs by other inputs in the production processes.
