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Production Network Structure, Service Share, and Aggregate Volatility

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  • Jorge Miranda Pinto

    (University of Queensland)

Abstract

This paper shows that GDP growth volatility declines with production network diversification. To account for this evidence, I build a multisector model with CES technologies and a cost of complexity in the bundle of intermediates. Production network diversification decreases volatility when intermediate inputs and labor are substitute inputs. U.S. sectoral data suggest that labor and intermediates are substitutes in service sectors. Therefore, a calibrated model that then also matches each country's production network can quantitatively generate the empirical patterns. The model also explains why service-oriented countries are less volatile: service sectors have a more diversified set of suppliers. (Copyright: Elsevier)

Suggested Citation

  • Jorge Miranda Pinto, 2021. "Production Network Structure, Service Share, and Aggregate Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 146-173, January.
    • Handle: RePEc:red:issued:19-157
    DOI: 10.1016/j.red.2020.07.001
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    1. Kevin Genna & Christian Ghiglino & Kazuo Nishimura & Alain Venditti, 2021. "Knowledge-Based Structural Change," Working Papers halshs-03164854, HAL.
    2. Gnangnon, Sèna Kimm, 2023. "The Quality of Aid for Trade Flows and Economic Complexity," EconStor Preprints 271538, ZBW - Leibniz Information Centre for Economics.
    3. Andrew T. Foerster & Andreas Hornstein & Pierre-Daniel G. Sarte & Mark W. Watson, 2022. "Aggregate Implications of Changing Sectoral Trends," Journal of Political Economy, University of Chicago Press, vol. 130(12), pages 3286-3333.
    4. Miranda-Pinto, Jorge, 2018. "A note on optimal sectoral policies in production networks," Economics Letters, Elsevier, vol. 172(C), pages 152-156.
    5. Gnangnon, Sèna Kimm, 2022. "Effect of the utilization of non-reciprocal trade preferences offered by the QUAD countries on beneficiary countries' economic complexity," Journal of the Japanese and International Economies, Elsevier, vol. 65(C).
    6. Sophie Osotimehin & Latchezar Popov, 2023. "Misallocation and Intersectoral linkages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 177-198, December.
    7. Behrens, Kristian & Kichko, Sergei & Thisse, Jacques-Francois, 2024. "Working from home: Too much of a good thing?," Regional Science and Urban Economics, Elsevier, vol. 105(C).
    8. Caraiani, Petre, 2019. "Oil shocks and production network structure: Evidence from the OECD," Energy Economics, Elsevier, vol. 84(C).
    9. Andrew T. Foerster & Eric LaRose & Pierre-Daniel G. Sarte, 2018. "Idiosyncratic Sectoral Growth, Balanced Growth, and Sectoral Linkages," Economic Quarterly, Federal Reserve Bank of Richmond, issue 2Q, pages 79-101.
    10. Jorge Miranda-Pinto & Eric R. Young, 2022. "Flexibility and Frictions in Multisector Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(3), pages 450-480, July.
    11. Miranda-Pinto, Jorge & Silva, Alvaro & Young, Eric R., 2023. "Business cycle asymmetry and input-output structure: The role of firm-to-firm networks," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 1-20.
    12. Sèna Kimm Gnangnon, 2023. "Do unilateral trade preferences help reduce poverty in beneficiary countries?," International Journal of Economic Policy Studies, Springer, vol. 17(1), pages 249-288, February.
    13. Gnangnon, Sèna Kimm, 2023. "Effect of the duration of membership in the GATT/WTO on economic growth volatility," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 448-467.
    14. Gnangnon, Sèna Kimm, 2021. "Do Unilateral Trade Preferences Help Reduce Poverty in Beneficiary Countries?," EconStor Preprints 247346, ZBW - Leibniz Information Centre for Economics.
    15. Miranda-Pinto, Jorge & Young, Eric R., 2019. "Comparing dynamic multisector models," Economics Letters, Elsevier, vol. 181(C), pages 28-32.

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    More about this item

    Keywords

    Input-output structure; Volatility; Service share; Elasticity of substitution;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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