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Production networks, geography and firm performance

Author

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  • Bernard, Andrew B.
  • Moxnes, Andreas
  • Saito, Yukiko U.

Abstract

This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm’s marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms’ buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.

Suggested Citation

  • Bernard, Andrew B. & Moxnes, Andreas & Saito, Yukiko U., 2016. "Production networks, geography and firm performance," LSE Research Online Documents on Economics 67664, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:67664
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    Keywords

    production networks; trade; productivity; infrastructure;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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