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Aggregating Distortions in Networks with Multi-Product Firms

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  • Yasutaka Koike-Mori
  • Antonio Martner

Abstract

We investigate the role of multi-product firms in shaping resource misallocation within production networks and its impact on aggregate total factor productivity (TFP) growth. Using administrative data on product transactions between all the for-mal Chilean firms, we provide evidence that demand shocks to one product affect the production of other products within the same firm, suggesting firms engage in joint production. We develop a framework to measure resource misallocation in production networks with joint production, deriving non-parametric sufficient statistics to quantify these effects. Applying the framework to Chile, we find that reallocation effects, considering joint production, explain 86% of observed aggregate TFP growth for the 2016-2022 period. Ignoring joint production leads to overestimating resource misallocation.

Suggested Citation

  • Yasutaka Koike-Mori & Antonio Martner, 2024. "Aggregating Distortions in Networks with Multi-Product Firms," Working Papers Central Bank of Chile 1022, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:1022
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