Working Paper: CEPR ID: DP15741
Authors: Banu Demir; Cecilia Fieler; Yi Daniel Xu; Kelly Kaili Yang
Abstract: We study a production network where quality choices are interconnected across firms. High-quality firms are skill intensive and trade more with other high-quality firms. Using data from Turkish firms, we document strong assortative matching of skills in the production network. A firm-specific export demand shock from a rich country increases the firm's skill intensity and shifts the firm toward skill-intensive domestic partners. We develop a quantitative model with heterogeneous firms, endogenous quality choices, and network formation. An economy-wide export demand shock of 5 percent induces exporters and non-exporters to upgrade quality, raising the average wage by 1.2 percent. This effect is about nine times the effect in a special case of the model with no interconnection of quality choices.
Keywords: No keywords provided
JEL Codes: F14; O30; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firm-specific export demand shock from a rich country (F14) | Firm's skill intensity (J24) |
| Firm-specific export demand shock from a rich country (F14) | Shift toward skill-intensive domestic partners (J24) |
| 5% increase in export demand (F10) | 0.21% increase in firm's wages (J39) |
| Economy-wide export demand shock of 5% (F41) | Average wage increases by 12% (J31) |
| Firm's average wage increases by 1 log point (J31) | Average wage of suppliers increases by 0.434 log points (J39) |