Working Paper: CEPR ID: DP15056
Authors: Sudipto Dasgupta; Chen Chen; Thanh Huynh; Ying Xia
Abstract: We show that increasing competition changes the location of economic activity and, in turn, affects supply chain relationships. Using establishment-level data, we find that when upstream product markets become more competitive, suppliers are more likely to relocate their establishments closer to customers. Following the supplier’s relocation, its sales to the customer increase, its relationship with the customer is less likely to be terminated, and its innovation is more aligned with the customer’s innovation. However, the improved relationship, by causing the supplier to engage more in innovation dedicated to the customer, adversely affects creative innovation, which is known to drive growth.
Keywords: establishment relocation; supply chain; product market competition; knowledge spillover
JEL Codes: G30; L1; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tariff cuts (F13) | increasing competition in upstream product markets (L13) |
| tariff cuts (F13) | suppliers relocate their establishments closer to their customers (R32) |
| increasing competition in upstream product markets (L13) | suppliers relocate their establishments closer to their customers (R32) |
| suppliers relocate their establishments closer to their customers (R32) | suppliers experience a significant increase in sales (L81) |
| suppliers relocate their establishments closer to their customers (R32) | decrease the likelihood of relationship termination (J12) |
| suppliers relocate their establishments closer to their customers (R32) | suppliers' innovation becomes more exploitative (O36) |