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Production Chains

  • David Levine

    (Washington University in St. Louis)

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 may have lower utilization of resources and be more prone to crisis. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2012.01.003
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 15 (2012)
Issue (Month): 3 (July)
Pages: 271-282

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Handle: RePEc:red:issued:11-41
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