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Distortions in Production Networks

2016
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Release : 2016
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Book Synopsis Distortions in Production Networks by : Saki Bigio

Download or read book Distortions in Production Networks written by Saki Bigio. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt: How does an economy's production structure determine its macroeconomic response to sectoral distortions? We study a static framework in which production is organized in an input-output network and firms' production decisions are distorted. We show how sectoral distortions manifest at the aggregate level via two channels: total factor productivity and the labor wedge. The strength of each channel depends jointly on the input-output structure and the distribution of shocks. Near efficiency, distortions generate zero first-order effects on TFP but non-zero first-order effects on the labor wedge; the latter we show to be determined by the sector's network "centrality." We apply the model to the 2008-09 Financial Crisis and find that the U.S. input-ouput network may have amplified financial distortions by roughly a factor of two relative to a counterfactual economy devoid of intermediate good trade.

The Dynamic Impact of Real Distortions in Production Networks

2022
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Release : 2022
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Book Synopsis The Dynamic Impact of Real Distortions in Production Networks by : Chunyang Fu

Download or read book The Dynamic Impact of Real Distortions in Production Networks written by Chunyang Fu. This book was released on 2022. Available in PDF, EPUB and Kindle. Book excerpt: We analytically characterize the comparative statics and transitory dynamics of the macroeconomy after a one-time real distortion changes by assuming supply chain adjustment costs. We analytically decompose the comparative static effects into economic structure channel and technology channel. And supply chain adjustment costs act as buffer effects that reduce the magnitudes of aforementioned two channels in the transitory dynamics. We find that distortion changes in sectors that generate significant sales through distant linkages to consumers are disproportionately damaging to the economy. Our results are robust in more general setups such as general constant return to scale production functions and heterogeneous supply chain adjustment costs across sectors.

Endogenous Production Networks

2017 Business networks
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Release : 2017
Genre : Business networks
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Book Synopsis Endogenous Production Networks by : Daron Acemoglu

Download or read book Endogenous Production Networks written by Daron Acemoglu. This book was released on 2017. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable model of endogenous production networks. Each one of a number of products can be produced by combining labor and an endogenous subset of the other products as inputs. Different combinations of inputs generate (prespecified) levels of productivity. Markets are "contestable" in the sense that production technologies are available to a large number of potential producers. We establish the existence and uniqueness of an equilibrium with an endogenous production network and provide comparative static results on how prices and endogenous technology choices (and thus the production network) respond to changes in parameters. These results show that improvements in technology (or reductions in distortions) spread throughout the economy via input-output linkages and reduce all prices, and under reasonable restrictions on the menu of production technologies, also lead to a denser production network. Using a dynamic version of the model, we show that the endogenous evolution of the production network could be a powerful force towards sustained economic growth. At the root of this result is the fact that the arrival of a few new products expands the set of technological possibilities of all existing industries by a large amount -- that is, if there are n products, the arrival of one more new product increases the combinations of inputs that each existing product can use from 2n-1 to 2n , thus enabling significantly more pronounced cost reductions from the choice of optimal technology combinations. These cost reductions then spread to other industries that benefit from lower input prices and are further incentivized to adopt additional inputs. Keywords: economic growth, economic networks, input-output linkages, network formation organization of production, production network, productivity. JEL Classification: C67, O41, L23, E10, E23.

Input Diffusion and the Evolution of Production Networks

2014 Economics
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Release : 2014
Genre : Economics
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Book Synopsis Input Diffusion and the Evolution of Production Networks by : Vasco M. Carvalho

Download or read book Input Diffusion and the Evolution of Production Networks written by Vasco M. Carvalho. This book was released on 2014. Available in PDF, EPUB and Kindle. Book excerpt: The adoption and diffusion of inputs in the production network is at the heart of technological progress. What determines which inputs are initially considered and eventually adopted by innovators? We examine the evolution of input linkages from a network perspective, starting from a stylized model of network formation. Producers direct their search for new inputs along vertical linkages, screening the network neighborhood of existing suppliers to identify potentially useful inputs. A subset of these is then adopted, following a tradeoff between the benefits from input variety and the costs of customizing new inputs. Guided by this framework, we document a novel stylized fact at both the sector and the firm level: producers are more likely to adopt inputs that are already used -- directly or indirectly -- by their current suppliers. In particular, using disaggregated input-output data, we show that initial network proximity of a sector in 1967 significantly increases the likelihood of adoption throughout the subsequent four decades. A one-standard deviation decrease in network distance is associated with an increase in the adoption probability by one third to one half. Similarly, U.S. firms are significantly more likely to develop new input linkages among their suppliers' network neighborhood. Our results imply that the existing production network plays a crucial role in the diffusion of inputs and the evolution of technology.

Production Networks and Economic Policy

2019 Business networks
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Release : 2019
Genre : Business networks
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Book Synopsis Production Networks and Economic Policy by : Basile Grassi

Download or read book Production Networks and Economic Policy written by Basile Grassi. This book was released on 2019. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we show how to combine data on input-output tables and recent insights from the theory of production networks in order to inform policy. We first describe the information contained in input-output tables compiled by statistical agencies, and show how to derive relevant statistics of production networks. We then discuss the implications of production networks for policy intervention in a series of domains, such as fiscal policy, industrial policy, or, finance. Finally, we present a quantitative exercise applied to French data in order to illustrate that production networks shape the overall impact of competition policy on the economy.

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