Granular Origin of Comovement in Fluctuations

We study the origin of comovement in economic fluctuations across regions in India through a unique administrative dataset on plant-level sales. Regional sales exhibit a high level of comovement that can be traced to a small number of large plants located in different regions, indicating a granular nature of regional comovement. Quantitatively, the top 10 plants from each region explain almost two-thirds of the total variation in regional comovement. We test three channels for comovement, viz. through aggregate regional trade, large granular plants, or granular multi-plant firms located in different regions. We and that inter-region sales of multi-plant firms is the most dominant factor behind regional comovement and subsumes both aggregate trade and plant-level effects.