Working Paper: NBER ID: w30954
Authors: Costas Arkolakis; Federico Huneeus; Yuhei Miyauchi
Abstract: 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.
Keywords: production networks; trade flows; economic activity; welfare; Chile
JEL Codes: F10; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher revenue (H27) | More suppliers and buyers (L81) |
| Higher population density (R23) | More suppliers and buyers (L81) |
| Geographic distance (R12) | Decay of extensive margin (number of relationships) (C41) |
| Geographic distance (R12) | Decay of intensive margin (transaction volume) (D25) |
| Endogenous formation of production networks (D85) | Larger and more dispersed effects of trade cost shocks (F12) |