Working Paper: CEPR ID: DP10551
Authors: Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito
Abstract: This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm's marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms' buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.
Keywords: firm-to-firm networks; infrastructure; productivity; trade
JEL Codes: D22; D85; F14; L10; L14; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Kyushu Shinkansen opening (L92) | improved connectivity (D85) |
| improved connectivity (D85) | enhanced buyer-supplier relationships (L14) |
| enhanced buyer-supplier relationships (L14) | improved firm performance (L25) |
| reduction in search and trade costs (F12) | enhanced buyer-supplier relationships (L14) |
| input intensity (C67) | improved firm performance (L25) |
| proximity to new stations (R53) | increased number of suppliers (D16) |
| increased number of suppliers (D16) | improved firm performance (L25) |
| proximity to new stations (R53) | expanded sourcing locations (O36) |
| expanded sourcing locations (O36) | improved firm performance (L25) |