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Production Chains

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  • David K. Levine

Abstract

More advanced technologies demand higher degrees of specialization – and longer chains of production connecting raw inputs to final outputs. Longer production chains are subject to a “weakest link” effect: they are more fragile and more prone to failure. Optimal chain length is determined by the trade-off between the gains to specialization and the higher failure rate associated with longer chain length. There is a kind of reverse “Keynesian multiplier” that magnifies the effect of real shocks. Consequently, more advanced economies should have higher unemployment rates and be more prone to crisis. The implications of the theory both for measurement and government policy are examined.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16571.

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Date of creation: Dec 2010
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Publication status: published as David Levine, 2012. "Production Chains," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 271-282, July.
Handle: RePEc:nbr:nberwo:16571

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Cited by:
  1. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes," NBER Working Papers 17511, National Bureau of Economic Research, Inc.
  2. Arnaud Costinot & Jonathan E. Vogel & Su Wang, 2011. "An Elementary Theory of Global Supply Chains," CESifo Working Paper Series 3402, CESifo Group Munich.

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