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Direct and network effects of idiosyncratic TFP shocks

Author

Listed:
  • Kristina Barauskaite

    (European Central Bank
    ISM University of Management and Economics)

  • Anh Dinh Minh Nguyen

    (Bank of Lithuania
    Vilnius University)

Abstract

This study investigates the direct and intersectoral network effects of idiosyncratic TFP shocks on sectors’ growth in the context of US manufacturing industries. To deal with the potential endogeneity of TFP, we propose a novel set of instruments for contemporaneous regressors. These instruments are technology shocks identified via sign restriction from sectoral SVAR models. Using US input–output tables and industry-level data, we quantify direct and network-based effects of the shocks. Our results show that a positive idiosyncratic technology shock induces large positive direct and network effects on sectoral growth. In terms of the network effect, we find that the shocks propagate mostly downstream the network.

Suggested Citation

  • Kristina Barauskaite & Anh Dinh Minh Nguyen, 2021. "Direct and network effects of idiosyncratic TFP shocks," Empirical Economics, Springer, vol. 60(6), pages 2765-2793, June.
  • Handle: RePEc:spr:empeco:v:60:y:2021:i:6:d:10.1007_s00181-020-02009-9
    DOI: 10.1007/s00181-020-02009-9
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    More about this item

    Keywords

    Input–output linkages; Network; Instrumental variables; Idiosyncratic TFP shocks; Sectoral growth; US manufacturing industry;
    All these keywords.

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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