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Financial Constraints and Propagation of Shocks in Production Networks

Author

Listed:
  • Banu Demir

    (Bilkent University and CEPR)

  • Beata Javorcik

    (University of Oxford and CEPR)

  • Tomasz K. Michalski

    (HEC Paris and GREGHEC)

  • Evren Ors

    (HEC Paris and GREGHEC)

Abstract

We examine the propagation of a small unexpected supply shock through a production network and the role financial constraints play in its transmission. Using data on almost all Turkish supplier-customer links, we exploit the heterogeneous impact of an unexpected import-tax increase for identification. We find that this relatively minor shock had a nontrivial economic impact on exposed firms and propagated downstream through affected suppliers. Importantly, we show that low-liquidity firms amplified its transmission.

Suggested Citation

  • Banu Demir & Beata Javorcik & Tomasz K. Michalski & Evren Ors, 2024. "Financial Constraints and Propagation of Shocks in Production Networks," The Review of Economics and Statistics, MIT Press, vol. 106(2), pages 437-454, March.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:2:p:437-454
    DOI: 10.1162/rest_a_01162
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