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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.

Endogenous Production Networks with Fixed Costs

2023
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Release : 2023
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Book Synopsis Endogenous Production Networks with Fixed Costs by : Emmanuel Dhyne

Download or read book Endogenous Production Networks with Fixed Costs written by Emmanuel Dhyne. This book was released on 2023. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a tractable model of endogenous production networks with fixed costs associated with the formation of links between firms. The model consists of a finite number of firm types producing differentiated products. Each firm is characterized by firm-specific parameters describing its CES production function, firm-specific domestic and foreign demand shifters, and a firm-specific set of potential suppliers and buyers. We consider versions of the model in which either the buyer or the supplier initiates the formation of links, and versions in which the production network can be cyclic or acyclic. Our main theoretical result is that the closed economy equilibrium is unique if the set of feasible networks consists only of networks that are acyclic and the buyer initiates the link formation while having full bargaining power in price negotiations with the supplier. We provide examples of multiple equilibria if the supplier initiates the link formation in both cyclic and acyclic feasible networks or if the buyer initiates the link formation in a cyclic production network. We take the acyclic production network model to Belgian data on firm-to-firm production networks and show that it approximates well the salient features of the network. The endogenous network model generates substantial churn in domestic firm-to-firm linkages in response to trade shocks. However, the endogenous network model generates only moderately different welfare changes compared to a model with fixed linkages, suggesting that exogenous production networks can approximate the welfare response to trade shocks reasonably well.

The Macroeconomic Implications of Endogenous Production Networks

2018
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Release : 2018
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Book Synopsis The Macroeconomic Implications of Endogenous Production Networks by : Yimei Zou

Download or read book The Macroeconomic Implications of Endogenous Production Networks written by Yimei Zou. This book was released on 2018. Available in PDF, EPUB and Kindle. Book excerpt: This thesis explores the macroeconomic implications of endogenous production networks, defined as the collection of input-output linkages in the economy. In the first chapter, I develop a model of international trade to study how production networks adjust to the forces of globalization. Due to the inefficiency of the market equilibrium, the welfare implications of trade liberalization is ambiguous in general. Calibrating the model to trade data between the United States and the rest of the world, I find that a significant part of the welfare gains from trade arises from the endogenous rearrangement of linkages among firms. The second chapter studies the formation of input-output linkages in the context of economic growth. I establish theoretically that, with endogenous input-output linkages, the static cross-industry difference in linkage fixed costs can lead to different productivity growth rates, which in turn give rise to structural changes. A simple calibration of the model to the U.S. economy suggests that, comparing to a model with a fixed production network, the endogenous adjustment of linkages and the resulting structural changes double the welfare gains from a technology shock that lowers the linkage fixed cost universally.

Endogenous Growth in Production Networks

2018
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Release : 2018
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Book Synopsis Endogenous Growth in Production Networks by : Stanislao Gualdi

Download or read book Endogenous Growth in Production Networks written by Stanislao Gualdi. This book was released on 2018. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the interplay between technological change and macro-economic dynamics in an agent-based model of the formation of production networks. On the one hand, production networks form the structure that determines economic dynamics in the short run. On the other hand, their evolution reflects the long-term impacts of competition and innovation on the economy. We account for process innovation via increasing variety in the input mix and hence increasing connectivity in the network. In turn, product innovation induces a direct growth of the firm's productivity and the potential destruction of links. The interplay between both processes generates complex technological dynamics in which phases of process and product innovation successively dominate. The model reproduces a wealth of stylized facts about industrial dynamics and technological progress, in particular the persistence of heterogeneity among firms and Wright's law for the growth of productivity within a technological paradigm. We illustrate the potential of the model for the analysis of industrial policy via a preliminary set of policy experiments in which we investigate the impact on innovators' success of feed-in tariffs and of priority market access.

Endogenous Spatial Production Networks

2021
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Release : 2021
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Book Synopsis Endogenous Spatial Production Networks by : Piyush Panigrahi

Download or read book Endogenous Spatial Production Networks written by Piyush Panigrahi. This book was released on 2021. Available in PDF, EPUB and Kindle. Book excerpt:

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