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Global Production Networks

Paper Session

Friday, Jan. 5, 2018 10:15 AM - 12:15 PM

Pennsylvania Convention Center, 107-A
Hosted By: American Economic Association
  • Chair: Kalina Manova, University of Oxford

On the Geography of Global Value Chains

Pol Antras
,
Harvard University
Alonso de Gortari
,
Harvard University

Abstract

This paper develops a multi-stage general-equilibrium model of global value chains (GVCs) and studies the specialization of countries within GVCs in a world with barriers to international trade. With costly trade, the optimal location of production of a given stage in a GVC is not only a function of the marginal cost at which that stage can be produced in a given country, but is also shaped by the proximity of that location to the precedent and the subsequent desired locations of production. We show that, other things equal, it is optimal to locate relatively downstream stages of production in relatively central locations. We also develop a tractable, quantifiable version of our model that illustrates how changes in trade frictions affect the extent to which various countries participate in domestic, regional or global value chains, and traces the real income consequences of these changes.

The Origins of Firm Heterogeneity: A Production Network Approach

Andrew Bernard
,
Dartmouth College
Emmanuel Dhyne
,
National Bank of Belgium
Glenn Magerman
,
Free University of Brussels
Kalina Manova
,
University of Oxford
Andreas Moxnes
,
University of Oslo

Abstract

This 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

Banu Demir
,
Bilkent University
Beata Javorcik
,
University of Oxford
Tomasz Michalski
,
HEC Paris
Evren Ors
,
HEC Paris

Abstract

We 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.
Discussant(s)
Thibault Fally
,
University of California-Berkeley
Felix Tintelnot
,
University of Chicago
Robert Johnson
,
Dartmouth College
JEL Classifications
  • F1 - Trade
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location