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The Origins of Firm Heterogeneity: A Production Network Approach

Author

Listed:
  • Andrew B. Bernard
  • Emmanuel Dhyne
  • Glenn Magerman
  • Kalina Manova
  • Andreas Moxnes

Abstract

We explore firm size heterogeneity in production networks. In comprehensive data for Belgium, firms with more customers have higher total sales but lower sales and lower market shares per customer. Downstream factors, especially the number of customers, explain the vast majority of firm size dispersion. We rationalize these facts with a model of network formation and two-dimensional firm heterogeneity. Higher productivity generates more matches and larger market shares among customers. Higher relationship capability generates more customers and higher sales. Model estimates suggest a strong negative correlation between productivity and relationship capability and potentially large welfare gains from improving relationship capability.

Suggested Citation

  • Andrew B. Bernard & Emmanuel Dhyne & Glenn Magerman & Kalina Manova & Andreas Moxnes, 2022. "The Origins of Firm Heterogeneity: A Production Network Approach," Journal of Political Economy, University of Chicago Press, vol. 130(7), pages 1765-1804.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/719759
    DOI: 10.1086/719759
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    1. David Rezza Baqaee & Emmanuel Farhi, 2020. "Productivity and Misallocation in General Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 105-163.
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    5. Andrew B. Bernard & Andreas Moxnes, 2018. "Networks and Trade," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 65-85, August.
    6. Ezra Oberfield, 2014. "Misallocation in the Market for Inputs," 2014 Meeting Papers 1226, Society for Economic Dynamics.
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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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