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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.

Suggested Citation

  • David K. Levine, 2010. "Production Chains," NBER Working Papers 16571, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16571
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    Cited by:

    1. Evert Meijers & Martijn Burger & Masahisa Fujita & Nobuaki Hamaguchi, 2016. "Supply chain internationalization in East Asia: Inclusiveness and risks," Papers in Regional Science, Wiley Blackwell, vol. 95(1), pages 81-100, March.
    2. Shaowen Luo & Kwok Ping Tsang, 2020. "China And World Output Impact Of The Hubei Lockdown During The Coronavirus Outbreak," Contemporary Economic Policy, Western Economic Association International, vol. 38(4), pages 583-592, October.
    3. Charles D. Brummitt & Kenan Huremović & Paolo Pin & Matthew H. Bonds & Fernando Vega-Redondo, 2017. "Contagious disruptions and complexity traps in economic development," Nature Human Behaviour, Nature, vol. 1(9), pages 665-672, September.
    4. Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 109-144.
    5. Candau, Fabien & Rey, Serge, 2014. "The effect of the euro on aeronautic trade: A French regional analysis," Economic Modelling, Elsevier, vol. 41(C), pages 345-355.
    6. Wanida Ngienthi & Yan Ma & Fumio Dei, 2013. "Supermodularity and Global Supply Chains without the South," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 562-567, August.
    7. Roberto Roson & Martina Sartori, 2016. "Input--output linkages and the propagation of domestic productivity shocks: assessing alternative theories with stochastic simulation," Economic Systems Research, Taylor & Francis Journals, vol. 28(1), pages 38-54, March.
    8. Randall Wright & Yuet‐Yee Wong, 2014. "Buyers, Sellers, And Middlemen: Variations On Search‐Theoretic Themes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 375-397, May.
    9. Alberto BUCCI & Vladimir MATVEENKO, 2015. "Horizontal Differentiation and Economic Growth under Non–Homotheticity," Departmental Working Papers 2015-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    10. Alberto Bucci & Vladimir Matveenko, 2017. "Horizontal differentiation and economic growth under non-CES aggregate production function," Journal of Economics, Springer, vol. 120(1), pages 1-29, January.

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    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • A10 - General Economics and Teaching - - General Economics - - - General
    • D00 - Microeconomics - - General - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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