IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/30954.html

Production Network Formation, Trade, and Welfare

Author

Listed:
  • Costas Arkolakis
  • Federico Huneeus
  • Yuhei Miyauchi

Abstract

We study the aggregate implications of endogenous production network formation in a multi-location general equilibrium trade model. Firms form supplier and buyer linkages under matching frictions, generating a gravity structure of production networks. We analytically characterize the welfare gains from trade cost reductions relative to a benchmark model with fixed production networks. We calibrate the model to Chilean firm-to-firm data and show that it matches observed domestic and international network responses to tariff reductions. We find that endogenous networks substantially increase the welfare gains from trade, due to inefficiently low equilibrium networks and amplification effects through relationship-formation costs.

Suggested Citation

  • Costas Arkolakis & Federico Huneeus & Yuhei Miyauchi, 2023. "Production Network Formation, Trade, and Welfare," NBER Working Papers 30954, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30954
    Note: ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w30954.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alessandro Ferrari & Lorenzo Pesaresi, 2025. "Specialization, Complexity & Resilience in Supply Chains," Papers 2509.08981, arXiv.org, revised Jan 2026.
    2. Chacha, Peter Wankuru & Kirui, Benard Kipyegon & Wiedemann, Verena, 2024. "Supply Chains in Times of Crisis: Evidence from Kenya’s Production Network," World Development, Elsevier, vol. 173(C).
    3. Xu, Le & Yu, Yang & Zanetti, Francesco, 2025. "The adoption and termination of suppliers over the business cycle," Journal of Monetary Economics, Elsevier, vol. 151(C).
    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. Bacilieri, Andrea & Borsos, András & Astudillo-Estévez, Pablo & Lafond, François, 2023. "Firm-level production networks: what do we (really) know?," INET Oxford Working Papers 2023-08, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    6. Liu, Rui & Zheng, Linhao & Chen, Zheang & Cheng, Mengyao & Ren, Yuzhuo, 2024. "Digitalization through supply chains: Evidence from the customer concentration of Chinese listed companies," Economic Modelling, Elsevier, vol. 134(C).
    7. Dhyne, Emmanuel & Kikkawa, Ayumu Ken & Kong, Xianglong & Mogstad, Magne & Tintelnot, Felix, 2023. "Endogenous production networks with fixed costs," Journal of International Economics, Elsevier, vol. 145(C).
    8. Shi, Lifan & Li, Xing & Chen, Xi, 2025. "How does FDI affect enterprises' OFDI through trade networks?," International Review of Economics & Finance, Elsevier, vol. 97(C).
    9. Alessio Baldassarre & Danilo Carullo & Paolo Caro & Elisa Fusco & Pasquale Giacobbe & Carlo Orecchia, 2025. "A New Approach to Measure Italian Regional Trade Flows with Administrative Micro Firm-Level Data," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 11(1), pages 65-101, March.
    10. Fujiy,Brian C. & Ghose,Devaki & Khanna,Gaurav, 2024. "Production Networks and Firm-level Elasticities of Substitution," Policy Research Working Paper Series 10782, The World Bank.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:30954. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.