Global Production Networks
Friday, Jan. 5, 2018 10:15 AM - 12:15 PM
- Chair: Kalina Manova, University of Oxford
The Origins of Firm Heterogeneity: A Production Network Approach
AbstractThis paper evaluates the firm size distribution and firm growth in the presence of production networks. Firms can be large because they (i) have more suppliers and customers, (ii) attract larger or better suppliers and customers, and (iii) find better matches along these supplier-buyer relationships. In a simple model of monopolistic competition, firms sell to other firms as well as to final demand. The model presents a decomposition of firm size into various structural components along supplier, buyer and match characteristics. Using unique data on supplier-buyer relationships across the universe of firms covering all economic activities in Belgium, we present three key results. First, the production network explains all of the variance of the size distribution relative to sales to final demand. Second, inter-firm demand vastly dominates the traditional productivity channel on the supply side. Third, on both the demand and supply sides, the extensive margin dominates the intensive margin. In other words, firms are big because they have many rather than important customers/suppliers.
Financial Constraints and Propagation of Shocks in Production Networks
AbstractWe examine the role of financing constraints in propagation of an unexpected supply shock through a country’s production network. Working with a database that covers quasi-totality of supplier-customer links in an open economy, we find that even a small economic shock can be propagated and amplified by liquidity-constrained firms. Using a Bartik-type instrument for exposure to the shock, we find that liquidity constrained suppliers exposed to the shock transmit it to their downstream customers. This is not true of suppliers who are not liquidity constrained.
- F1 - Trade
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location