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Input varieties and growth : a micro-to-macro analysis

Author

Listed:
  • David R. Baqaee

    (University of California)

  • Ariel Burstein

    (E University of California)

  • Cédric Duprez

    (Economics and Research Department, National Bank of Belgium and University of Mons)

  • Emmanuel Farhi

    (tragically passed away in July 2020.)

Abstract

We investigate the effects of input variety creation and destruction on both micro- and macroeconomic outcomes using detailed data from Belgium. Our microeconomic analysis establishes that the elasticity of downstream firms’ marginal cost to supplier separation captures the area under the input demand curve, and this elasticity can be utilized to calibrate love-of-variety and Schumpeterian models. Empirically, we estimate that marginal costs rise by 0.6% for every 1% of suppliers lost. Our macroeconomic analysis develops a growth-accounting framework that captures the role of supply chain churn for aggregate growth. Using firm-level production network data and estimated microeconomic elasticities, we show that supplier churn can plausibly account for a large portion of the trend component of growth in aggregate productivity. Our findings highlight the crucial role of input entry and exit in driving economic growth.

Suggested Citation

  • David R. Baqaee & Ariel Burstein & Cédric Duprez & Emmanuel Farhi, 2023. "Input varieties and growth : a micro-to-macro analysis," Working Paper Research 443, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202310-443
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    File URL: https://www.nbb.be/nl/articles/input-varieties-and-growth-micro-macro-analysis
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    More about this item

    Keywords

    growth; churn; exit; entry;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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