Abstract Based on micro-level data constructed from the China Customs Database, the CSMAR Database and the CEPII-BACI Database at the supplier-customer-year level, this study examines the direction of impact and the mechanisms through which external demand influences the markup rates of upstream supplier firms via supply chain spillovers. The study shows that external demand shocks transmitted downstream exert a significant inhibitory effect on the markup rates of upstream supplier firms. The mechanism analysis indicates that external demand shocks generate market size effects and competitive effects. Among them, the competitive effect plays a dominant role. It weakens the pricing power of upstream supplier enterprises and reduces their markup rates. Heterogeneity analysis reveals that downstream-transmitted external demand has a notably more significant negative impact on the markup rates of supplier firms characterized by high upstream customer concentration, labor-intensive operations, small to medium scale, non-high productivity and those positioned upstream in the industrial chain. This study not only provides a new perspective for understanding the impact of external circulation on domestic circulation under the dual-circulation framework, but also offers empirical evidence for assessing the spillover effects of external demand shocks within supply chain networks, as well as valuable references for domestic enterprises to cope with external demand fluctuations and achieve high-quality development.
2026, Vol. 43 
