Supplier Churn and Growth: A Micro-to-Macro Analysis

Although consumer surplus from new suppliers is widely recognized as a key driver of economic growth and trade, empirical evidence quantifying its magnitude is scarce. We use Belgian data to quantify this effect and study its consequences for production at both the micro- and macroeconomic level. We instrument for changes in supplier access and find that for every 1% of suppliers gained or lost, the marginal cost of downstream firms falls or rises by 0.3%. We show that, regardless of functional forms, this elasticity measures the area under the input demand curve above the price (consumer surplus) relative to expenditures. Our estimates can be used to calibrate love-of-variety and quality ladder models. We quantify the importance of supplier addition and separation for aggregate growth by developing a growth-accounting framework. We discipline our growth-accounting formulas using firm-level production network data and our microeconomic estimates. We find that supplier churn plausibly accounts for about half of aggregate productivity growth.