Are there spillover effects of large firms’ growth in supply chain networks? Evidence from the Korean economy

Previous literature has found that inter-firm cooperation leads to higher growth rates for small and medium enterprises (SMEs). However, these studies have focused only on direct effects, such as subcontracting, rather than on spillover effects in supply chain networks (SCNs). Regarding the spillover effects, this article investigates whether a large firm’s growth leads to the growth of the directly and indirectly related SMEs in its SCN, using Korean firm-level data with the system Generalized Method of Moments (GMM) approach. The estimation results show that increases in the sales of large firms significantly affect the growth rates of the related SMEs. These effects, however, diminish as the relationship with the large firm goes down from the first vendor to the second vendor and from the second vendor to the third vendor. In the case of Korea, when a large firm grows by 1%, the first vendor grows by 0.38–0.44%, but the growth rates of the second and third vendors are only 0.036–0.047% and 0.003–0.005%, respectively. Thus, while there are spillover effects, the effects are weak. We discuss what these findings mean for national economic growth.