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Endogenous Production Networks
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Book Synopsis Endogenous Production Networks by : Daron Acemoglu
Download or read book Endogenous Production Networks written by Daron Acemoglu and published by . This book was released on 2017 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable model of endogenous production networks. Each one of a number of products can be produced by combining labor and an endogenous subset of the other products as inputs. Different combinations of inputs generate (prespecified) levels of productivity. Markets are "contestable" in the sense that production technologies are available to a large number of potential producers. We establish the existence and uniqueness of an equilibrium with an endogenous production network and provide comparative static results on how prices and endogenous technology choices (and thus the production network) respond to changes in parameters. These results show that improvements in technology (or reductions in distortions) spread throughout the economy via input-output linkages and reduce all prices, and under reasonable restrictions on the menu of production technologies, also lead to a denser production network. Using a dynamic version of the model, we show that the endogenous evolution of the production network could be a powerful force towards sustained economic growth. At the root of this result is the fact that the arrival of a few new products expands the set of technological possibilities of all existing industries by a large amount -- that is, if there are n products, the arrival of one more new product increases the combinations of inputs that each existing product can use from 2n-1 to 2n , thus enabling significantly more pronounced cost reductions from the choice of optimal technology combinations. These cost reductions then spread to other industries that benefit from lower input prices and are further incentivized to adopt additional inputs. Keywords: economic growth, economic networks, input-output linkages, network formation organization of production, production network, productivity. JEL Classification: C67, O41, L23, E10, E23.
Book Synopsis Endogenous Production Networks with Fixed Costs by : Emmanuel Dhyne
Download or read book Endogenous Production Networks with Fixed Costs written by Emmanuel Dhyne and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a tractable model of endogenous production networks with fixed costs associated with the formation of links between firms. The model consists of a finite number of firm types producing differentiated products. Each firm is characterized by firm-specific parameters describing its CES production function, firm-specific domestic and foreign demand shifters, and a firm-specific set of potential suppliers and buyers. We consider versions of the model in which either the buyer or the supplier initiates the formation of links, and versions in which the production network can be cyclic or acyclic. Our main theoretical result is that the closed economy equilibrium is unique if the set of feasible networks consists only of networks that are acyclic and the buyer initiates the link formation while having full bargaining power in price negotiations with the supplier. We provide examples of multiple equilibria if the supplier initiates the link formation in both cyclic and acyclic feasible networks or if the buyer initiates the link formation in a cyclic production network. We take the acyclic production network model to Belgian data on firm-to-firm production networks and show that it approximates well the salient features of the network. The endogenous network model generates substantial churn in domestic firm-to-firm linkages in response to trade shocks. However, the endogenous network model generates only moderately different welfare changes compared to a model with fixed linkages, suggesting that exogenous production networks can approximate the welfare response to trade shocks reasonably well.
Book Synopsis The Macroeconomic Implications of Endogenous Production Networks by : Yimei Zou
Download or read book The Macroeconomic Implications of Endogenous Production Networks written by Yimei Zou and published by . This book was released on 2018 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis explores the macroeconomic implications of endogenous production networks, defined as the collection of input-output linkages in the economy. In the first chapter, I develop a model of international trade to study how production networks adjust to the forces of globalization. Due to the inefficiency of the market equilibrium, the welfare implications of trade liberalization is ambiguous in general. Calibrating the model to trade data between the United States and the rest of the world, I find that a significant part of the welfare gains from trade arises from the endogenous rearrangement of linkages among firms. The second chapter studies the formation of input-output linkages in the context of economic growth. I establish theoretically that, with endogenous input-output linkages, the static cross-industry difference in linkage fixed costs can lead to different productivity growth rates, which in turn give rise to structural changes. A simple calibration of the model to the U.S. economy suggests that, comparing to a model with a fixed production network, the endogenous adjustment of linkages and the resulting structural changes double the welfare gains from a technology shock that lowers the linkage fixed cost universally.
Book Synopsis Endogenous Production Networks and Supply Chain Disruptions by : Nuriye Melisa Bilgin
Download or read book Endogenous Production Networks and Supply Chain Disruptions written by Nuriye Melisa Bilgin and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the role of production networks and provides a causal estimate of how supply chains affect prices and productivity. Leveraging unique firm-level production network data from Turkey, a country with high inflation and expansionary monetary policy, I isolate the supply shock by exploiting the disruption from Chinese suppliers due to the lockdown. I document that firms relying on imports from China raise their prices by 11 % and experience a 24 % decrease in productivity following the supply chain disruption. To explore the mechanism, I further extend the analysis at the firm-product level and uncover that the effect on labor productivity is primarily driven by the intermediate and capital goods. Guided by the empirical findings, I propose a theoretical framework where firms are heterogeneous regarding their core and network productivities. The firm's supplier matches shape these network productivities as firms select into productive or low-cost suppliers to maximize their profits. I show that the endogeneity of the production network also originates from interdependent choices. In this way, this paper offers a new layer of firm heterogeneity as supply chain choices. Finally, I calibrate the model to analyze the implications of expanding the firm's supply chain. Counterfactual supply chains, with lower fixed costs associated with Chinese suppliers, translate into a decrease of 1.2 % in aggregate prices.
Book Synopsis Endogenous Growth in Production Networks by : Stanislao Gualdi
Download or read book Endogenous Growth in Production Networks written by Stanislao Gualdi and published by . This book was released on 2018 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the interplay between technological change and macro-economic dynamics in an agent-based model of the formation of production networks. On the one hand, production networks form the structure that determines economic dynamics in the short run. On the other hand, their evolution reflects the long-term impacts of competition and innovation on the economy. We account for process innovation via increasing variety in the input mix and hence increasing connectivity in the network. In turn, product innovation induces a direct growth of the firm's productivity and the potential destruction of links. The interplay between both processes generates complex technological dynamics in which phases of process and product innovation successively dominate. The model reproduces a wealth of stylized facts about industrial dynamics and technological progress, in particular the persistence of heterogeneity among firms and Wright's law for the growth of productivity within a technological paradigm. We illustrate the potential of the model for the analysis of industrial policy via a preliminary set of policy experiments in which we investigate the impact on innovators' success of feed-in tariffs and of priority market access.
Book Synopsis Endogenous Spatial Production Networks by : Piyush Panigrahi
Download or read book Endogenous Spatial Production Networks written by Piyush Panigrahi and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Cascades and Fluctuations in an Economy with an Endogenous Production Network by : Mathieu Taschereau-Dumouchel
Download or read book Cascades and Fluctuations in an Economy with an Endogenous Production Network written by Mathieu Taschereau-Dumouchel and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a simple theory of production in which the network of input-output linkages is endogenously determined by the firms' decisions to operate. Since producers benefit from having multiple suppliers, the economy features complementarities between the operating decisions of nearby firms. As a result, tightly connected clusters of producers emerge around productive firms. In addition, after a firm is hit by a severe shock, a cascade of shutdowns might spread from neighbor to neighbor as the network reorganizes itself. While well-connected firms are better able to withstand shocks, they trigger larger cascades upon shut down. The theory also predicts how the shape of the network interacts with the business cycle. As in the U.S. data, periods of low economic activity feature fewer well-connected producers and less clustering among firms. Once calibrated, the model predicts that allowing the network to reorganize itself in response to shocks leads to substantially smaller variations in aggregate output, suggesting that endogenous changes in the shape of the production network have a significant impact on the aggregation of microeconomic shocks into macroeconomic fluctuations.
Book Synopsis Endogenous Spatial Production Networks: Theory, Estimation, and Evidence from Indian Firm-to-Firm Linkages by : Piyush Paritosh Panigrahi
Download or read book Endogenous Spatial Production Networks: Theory, Estimation, and Evidence from Indian Firm-to-Firm Linkages written by Piyush Paritosh Panigrahi and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In modern economies, production is organized in large-scale complex networks of firms trading intermediate inputs with each other. Larger Indian firms selling inputs to other firms tend to have more customers, tend to be used more intensively by their customers, and tend to have larger customers. Motivated by these regularities, I propose a novel empirical model of trade featuring endogenous formation of input-output linkages between spatially distant firms. The empirical model consists of (a) a theoretical framework that accommodates first order features of firm-to-firm network data, (b) a maximum likelihood framework for structural estimation that is uninhibited by the scale of data, and (c) a procedure for counterfactual analysis that speaks to the effects of micro- and macro- shocks to the spatial network economy. In the model, differences in production costs across firms arise not just from differences in productivity but also from finding the most cost-effective suppliers of intermediate inputs. Firms with low production costs end up larger because they find more customers, are used more intensively by their customers and in turn their customers lower production costs and end up larger themselves. The model is estimated using novel micro-data on firm-to-firm sales between Indian firms. The model's fit is good. The estimated model implies that a 10% decline in inter-state border frictions in India leads to welfare gains ranging between 1% and 8% across districts. Moreover, over half of the variation in changes in firms' sales to other firms can be explained by endogenous changes in the network structure.
Book Synopsis Labor-market Frictions and Endogenous Production-network Formation by : Jacob B. Howard
Download or read book Labor-market Frictions and Endogenous Production-network Formation written by Jacob B. Howard and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis An Estimable Model of Production Interactions in Endogenous Networks by : Giacomo De Giorgi
Download or read book An Estimable Model of Production Interactions in Endogenous Networks written by Giacomo De Giorgi and published by . This book was released on 2021 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a model where forward-looking agents first decide to form links with each other and, then, engage in a production activity jointly with their linked peers. Exogenous linking opportunities facilitate the creation of network connections and the return to productive effort varies with the personal attributes of the connected agents. We apply our model to a purposely built dataset of college students containing information on the endogeneous networks of study partners linked with administrative records on the students' characteristics and academic performance. Identification relies upon the random assignment of students to classrooms, which generates exogenous opportunities for socialisation. Using the estimated structural parameters, we investigate the implications of two counterfactual experiments, one where students are streamed into classes by ability and one with single-sex classes.
Book Synopsis Endogenous Network Formation in Local Public Goods by : Ying Chen
Download or read book Endogenous Network Formation in Local Public Goods written by Ying Chen and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We experimentally explore public good production levels, and the endogenous formation of network structures to facilitate output sharing, among agents with heterogeneous production costs or valuations. Results corroborate the key theoretical insights of Kinateder & Merlino (2017) characterizing how agents form core-periphery networks. However, subjects often produce more and form denser networks than predicted, which sometimes reduces efficiency. There is some tendency for behaviour to converge towards the theoretical equilibrium over repeated play. Our results help us understand the emergence of the "law of the few" in real-world networks, and suggest it is driven by endogenous sorting of heterogeneous agents.
Book Synopsis Spatial Production Networks by : Costas Arkolakis
Download or read book Spatial Production Networks written by Costas Arkolakis and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use new theory and data to study how firms endogenously form production networks across regions and countries. Supplier and buyer relationships form depending on firms' productivity and geographic location. We characterize the normative and positive properties of the spatial distribution of economic activity and welfare in general equilibrium. We calibrate the model using domestic and international firm-to-firm trade data from Chile. Both iceberg trade costs and search and matching frictions are important for aggregate trade flows and production networks. Endogenous formation of production networks leads to larger and more dispersed effects of international and intra-national trade cost shocks.
Book Synopsis Endogenous Development by : Antonio Vázquez Barquero
Download or read book Endogenous Development written by Antonio Vázquez Barquero and published by Psychology Press. This book was released on 2002 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt: The beginning of the twenty first century has been characterized by the expansion of economics, politics and institutional relations. this book illustrates the local answer to the challenge of increasing competition.
Book Synopsis Asia and Global Production Networks by : Benno Ferrarini
Download or read book Asia and Global Production Networks written by Benno Ferrarini and published by Edward Elgar Publishing. This book was released on 2014-10-31 with total page 393 pages. Available in PDF, EPUB and Kindle. Book excerpt: This timely book deploys new tools and measures to understand how global production networks change the nature of global economic interdependence, and how that in turn changes our understanding of which policies are appropriate in this new environment.
Book Synopsis Strategic Coupling by : Henry Wai-chung Yeung
Download or read book Strategic Coupling written by Henry Wai-chung Yeung and published by Cornell University Press. This book was released on 2016-05-24 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Strategic Coupling, Henry Wai-chung Yeung examines economic development and state-firm relations in East Asia, focusing in particular on South Korea, Taiwan, and Singapore. As a result of the massive changes of the last twenty-five years, new explanations must be found for the economic success and industrial transformation in the region. State-assisted startups and incubator firms in East Asia have become major players in the manufacture of products with a global reach: Taiwan’s Hon Hai Precision has assembled more than 500 million iPhones, for instance, and South Korea’s Samsung provides the iPhone’s semiconductor chips and retina displays. Drawing on extensive interviews with top executives and senior government officials, Yeung argues that since the late 1980s, many East Asian firms have outgrown their home states, and are no longer dependent on state support; as a result the developmental state has lost much of its capacity to steer and direct industrialization. We cannot read the performance of national firms as a direct outcome of state action. Yeung calls for a thorough renovation of the still-dominant view that states are the primary engine of industrial transformation. He stresses action by national firms and traces various global production networks to incorporate both firm-specific activities and the international political economy. He identifies two sets of dynamics in these national-global articulations known as strategic coupling: coevolution in the confluence of state, firm, and global production networks, and the various strategies pursued by East Asian firms to attain competitive positions in the global marketplace.
Book Synopsis A Markov Model of Dynamic Network Formation: A Production Network Perspective by : Xiao Yang
Download or read book A Markov Model of Dynamic Network Formation: A Production Network Perspective written by Xiao Yang and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a tractable model of dynamic network formation with heterogeneous forward-looking agents. The model bridges the gap between recent Macroeconomic models with exogenous production networks and static econometric models of networks formation games. I model network formation as a sequence of Bayesian incomplete information games in which the dynamic state dependencies of agents' strategies are Markov. This feature of aggregate state dependence allows me to investigate the role of network externality through a global interaction channel. I characterize the Bayesian Markov Perfect symmetric equilibrium by a set of fixed-point equations in conditional choice probabilities. I motivate this approach by developing a second-stage general equilibrium model of production networks in an open economy. This second stage model provides the payoff structure for the network formation and relevant Markov sufficient statistics. I propose a simple two-step maximum likelihood estimator and develop its asymptotic properties for a single large network. I apply this model to US input-output data. In counterfactual experiments, I find that network externality is quantitatively important for endogenous network formation. Furthermore, negative network externality provides an alternative explanation for network persistence. In an extension, I show how endogenous entry and exit of nodes be can jointly be formulated with endogenous network formation.
Book Synopsis Trade and Domestic Production Networks by : Felix Tintelnot
Download or read book Trade and Domestic Production Networks written by Felix Tintelnot and published by . This book was released on 2018 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use Belgian data with information on domestic firm-to-firm sales and foreign trade transactions to study how international trade affects firm efficiency and real wages. The data allow us to accurately construct the domestic production network of the Belgian economy, revealing several new empirical facts about firms' indirect exposure to foreign trade through their domestic suppliers and buyers. We use this data to develop and estimate models of domestic production networks and international trade. We first consider a model of trade with an exogenous network structure, which gives analytical solutions for the effects of a change in the price of foreign goods on firms' production costs and real wages. To examine how gains-from-trade calculations change if buyer-supplier links are allowed to form or break in response to changes in the price of foreign goods, we next develop a model of trade with endogenous network formation. We take both models to the data and compare the empirical results to those we obtain using existing approaches. This comparison highlights the relevance of data on and modeling of domestic production networks in studies of international trade.
