Journal of Political Economy Vol. 130 No. 7 2022

The Origins of Firm Heterogeneity: A Production Network Approach

Andrew B. Bernard¹; Emmanuel Dhyne^2,3; Glenn Magerman^4,3; Kalina Manova⁵; Andreas Moxnes^6,7

¹ National Bureau of Economic Research · ² University of Mons · ³ National Bank of Belgium · ⁴ Université Libre de Bruxelles · ⁵ University College London · ⁶ Economic Policy Institute · ⁷ University of Oslo

Abstract

We explore firm size heterogeneity in production networks. In comprehensive data for Belgium, firms with more customers have higher total sales but lower sales and lower market shares per customer. Downstream factors, especially the number of customers, explain the vast majority of firm size dispersion. We rationalize these facts with a model of network formation and two-dimensional firm heterogeneity. Higher productivity generates more matches and larger market shares among customers. Higher relationship capability generates more customers and higher sales. Model estimates suggest a strong negative correlation between productivity and relationship capability and potentially large welfare gains from improving relationship capability.

DOI

10.1086/719759

Volume

130

Issue

7

Pages

1765-1804

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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