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Sparse Production Networks

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  • Bernard, Andrew
  • Zi, Yuan

Abstract

Firm-to-firm connections in domestic and international production networks play a fundamental role in economic outcomes. Firm heterogeneity and the sparse nature of firm-to-firm connections implicitly discipline network structure. We find that a large group of well-established statistical relationships are not useful in improving our understanding of production networks. We propose an "elementary" model for production networks based on random matching and firm heterogeneity and characterize the families of statistics and data generating processes that may raise underidentification concerns in more complex models. The elementary model is a useful benchmark in developing "instructive" statistics and informing model construction and selection.

Suggested Citation

  • Bernard, Andrew & Zi, Yuan, 2022. "Sparse Production Networks," CEPR Discussion Papers 17667, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17667
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    2. Koenig, Pamina & Krautheim, Sebastian & Löhnert, Claudius & Verdier, Thierry, 2025. "Local global watchdogs: Trade, sourcing and the internationalization of social activism," Journal of International Economics, Elsevier, vol. 157(C).
    3. Costas Arkolakis & Federico Huneeus & Yuhei Miyauchi, 2023. "Production Network Formation, Trade, and Welfare," NBER Working Papers 30954, National Bureau of Economic Research, Inc.
    4. Wiedemann, Verena Christina & Kirui, Benard K. & Khandelwal, Vatsal & Chacha, Peter W., 2024. "Spatial Inequality and Informality in Kenya’s Firm Network," Policy Research Working Paper Series 10932, The World Bank.
    5. Herkenhoff, Philipp & Krautheim, Sebastian & Sauré, Philip, 2024. "A simple model of buyer–seller networks in international trade," European Economic Review, Elsevier, vol. 170(C).
    6. David P√©rez Reyna & Angie Rozada-Najar & Fausto Suaza, 2025. "Productive Banks Lend to Productive Firms," Documentos CEDE 21298, Universidad de los Andes, Facultad de Economía, CEDE.

    More about this item

    Keywords

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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