Journal of Political Economy Vol. 127 No. 2 2019

Production Networks, Geography, and Firm Performance

Andrew B. Bernard^1,2; Andreas Moxnes^3,4,2; Yukiko Saito^5,6

¹ National Bureau of Economic Research · ² Centre for Economic Policy Research · ³ Economic Policy Institute · ⁴ University of Oslo · ⁵ Waseda University · ⁶ Research Institute of Economy, Trade and Industry

Abstract

This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm's marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms' buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.

DOI

10.1086/700764

Volume

127

Issue

2

Pages

639-688

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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