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Firm-to-firm Trade in Sticky Production Networks

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  • Kevin Lim

    (Dartmouth College)

Abstract

This paper develops a structural model of trade between heterogeneous firms in which the network of firm-level input-output linkages is determined both dynamically and endogenously. Firms vary in the size of their customer and supplier bases, occupy heterogeneous positions in different supply chains, and adjust their sets of trade partners over time. Despite the rich heterogeneity and dynamics, the model remains computationally tractable. Using both cross-sectional and panel data on trading relationships between US firms, I estimate the model's key parameters via a simulated method of moments technique and assess its fit to the data. Simulations of the model are then used to study how the structure and dynamics of the production network matter for the propagation of firm-level supply and demand shocks and their translation into aggregate effects.

Suggested Citation

  • Kevin Lim, 2017. "Firm-to-firm Trade in Sticky Production Networks," 2017 Meeting Papers 280, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:280
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    References listed on IDEAS

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    1. Glenn Magerman & Karolien De Bruyne & Emmanuel Dhyne & Jan Van Hove, 2016. "Heterogeneous Firms and the Micro Origins of Aggregate Fluctuations," Working Papers ECARES ECARES 2016-35, ULB -- Universite Libre de Bruxelles.
    2. Andrew B. Bernard & Andreas Moxnes & Yukiko U. Saito, 2019. "Production Networks, Geography, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 127(2), pages 639-688.
    3. Andrew B. Bernard & Andreas Moxnes & Karen Helene Ulltveit-Moe, 2018. "Two-Sided Heterogeneity and Trade," The Review of Economics and Statistics, MIT Press, vol. 100(3), pages 424-439, July.
    4. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    5. Daron Acemoglu & Vasco M. Carvalho & Asuman Ozdaglar & Alireza Tahbaz‐Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 80(5), pages 1977-2016, September.
    6. Demange,Gabrielle & Wooders,Myrna (ed.), 2005. "Group Formation in Economics," Cambridge Books, Cambridge University Press, number 9780521842716, September.
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    Cited by:

    1. FUJII Daisuke & SAITO Yukiko, 2019. "Firm Performance and Asymmetry of Supplier and Customer Relationships," Discussion papers 19032, Research Institute of Economy, Trade and Industry (RIETI).
    2. Andrew B. Bernard & Andreas Moxnes, 2018. "Networks and Trade," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 65-85, August.
    3. Yi Huang & Chen Lin & Sibo Liu & Heiwai Tang, 2018. "Trade Linkages and Firm Value: Evidence from the 2018 US-China “Trade War”," IHEID Working Papers 11-2018, Economics Section, The Graduate Institute of International Studies.
    4. Johannes Boehm & Ezra Oberfield, 2020. "Misallocation in the Market for Inputs: Enforcement and the Organization of Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 2007-2058.
    5. Dominik Boddin & Frank Stähler, 2018. "The Organization of International Trade," CESifo Working Paper Series 7378, CESifo.
    6. Yusuf Emre Akgündüz & Salih Fendoğlu, 2022. "Export Prices, Imported Inputs, and Domestic Supply Networks," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 383-419, September.
    7. Spray, J., 2101. "Search Externalities in Firm-to-Firm Trade," Cambridge Working Papers in Economics 2108, Faculty of Economics, University of Cambridge.
    8. Huang, Yi & Lin, Chen & Liu, Sibo & Tang, Heiwai, 2023. "Trade networks and firm value: Evidence from the U.S.-China trade war," Journal of International Economics, Elsevier, vol. 145(C).
    9. Taiji Furusawa & Tomohiko Inui & Keiko Ito & Heiwai Tang, 2017. "Global Sourcing and Domestic Production Networks," CESifo Working Paper Series 6658, CESifo.
    10. David Baqaee & Emmanuel Farhi, 2019. "Networks, Barriers, and Trade," NBER Working Papers 26108, National Bureau of Economic Research, Inc.
    11. Joseph Steinberg, 2019. "On the Source of U.S. Trade Deficits: Global Saving Glut or Domestic Saving Drought?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 31, pages 200-223, January.
    12. Piyush Panigrahi, 2021. "Endogenous Spatial Production Networks: Quantitative Implications for Trade and Productivity," CESifo Working Paper Series 9466, CESifo.
    13. FUJII Daisuke & SAITO Yukiko & SENGA Tatsuro, 2017. "The Dynamics of Inter-firm Networks and Firm Growth," Discussion papers 17110, Research Institute of Economy, Trade and Industry (RIETI).
    14. Piyush Panigrahi, 2021. "Endogenous Spatial Production Networks: Quantitative Implications for Trade & Productivity," Cowles Foundation Discussion Papers 2314, Cowles Foundation for Research in Economics, Yale University.
    15. Zhang, Yiran, 2021. "Quantitative Assessment on Frictions in Technology Market," MPRA Paper 109470, University Library of Munich, Germany.

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