Working Paper: NBER ID: w16571
Authors: David K. Levine
Abstract: More advanced technologies demand higher degrees of specialization - and longer chains of production connecting raw inputs to final outputs. Longer production chains are subject to a "weakest link" effect: they are more fragile and more prone to failure. Optimal chain length is determined by the trade-off between the gains to specialization and the higher failure rate associated with longer chain length. There is a kind of reverse "Keynesian multiplier" that magnifies the effect of real shocks. Consequently, more advanced economies should have higher unemployment rates and be more prone to crisis. The implications of the theory both for measurement and government policy are examined.
Keywords: No keywords provided
JEL Codes: A1; A10; D00; E00; E01
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| longer production chains (L23) | higher likelihood of economic crises (F65) |
| failure of a single link in a production chain (D20) | cascade of failures throughout the chain (G33) |
| cascade of failures throughout the chain (G33) | increased unemployment (J65) |
| cascade of failures throughout the chain (G33) | reduced output (E23) |
| length of production chains (D20) | degree of specialization in capitalist economies (P19) |
| degree of specialization in capitalist economies (P19) | vulnerability to crises (H12) |
| length of production chains (D20) | higher unemployment rates (J64) |
| real shocks to the economy (E39) | amplified effects due to fragility of longer chains (F12) |