Churning and Reallocation in a Firm-to-Firm Production Network
AbstractThis paper presents new facts on the evolution of buyer-seller linkages in a domestic production network providing new evidence on firm size dynamics. With data covering all the VAT-eligible firms in Belgium from 2002 -2014, we find substantial churning of suppliers and buyers every year with the median (mean) buyer-supplier connection lasting one (1.5) year. More than 45 percent of connections and 25 of connection value are new in any given year and added and dropped connections come disproportionately from pairs of continuing firms. As firms grow, they add
buyers and suppliers even as the sales distribution across their buyers is relatively unchanged. This invariance is coupled with substantial growth in the pairwise transaction value over the lifespan of the connection and smaller than average values in new connections.