IDEAS home Printed from https://ideas.repec.org/p/red/sed017/381.html
   My bibliography  Save this paper

Trade and Domestic Production Networks

Author

Listed:
  • Magne Mogstad

    (University of Chicago)

  • Emmanuel Dhyne

    (National Bank of Belgium)

  • Ayumu Kikkawa

    (University of Chicago)

  • Felix Tintelnot

    (University of Chicago)

Abstract

In this paper we study how international trade affects firm efficiency and real wages in Belgium. Both in our theory and observed data firms trade with each other and external shocks transmit along the firm-to-firm production network. We first document the transmission of external trade shocks in reduced-form equations based on an exogenous network structure. We then develop and estimate a model of firm-to-firm trade, external trade, and endogenous network formation.

Suggested Citation

  • Magne Mogstad & Emmanuel Dhyne & Ayumu Kikkawa & Felix Tintelnot, 2017. "Trade and Domestic Production Networks," 2017 Meeting Papers 381, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:381
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2017/paper_381.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
    2. Peter Arendorf Bache & Anders Laugesen, 2013. "Monotone Comparative Statics for the Industry Composition," Economics Working Papers 2013-10, Department of Economics and Business Economics, Aarhus University.
    3. Joaquin Blaum & Claire LeLarge & Michael Peters, 2015. "The Gains from Input Trade in Firm-Based Models of Importing," NBER Working Papers 21504, National Bureau of Economic Research, Inc.
    4. Yukiko Saito & Makoto Nirei & Vasco Carvalho, 2014. "Supply Chain Disruptions: Evidence from Great East Japan Earthquake," 2014 Meeting Papers 595, Society for Economic Dynamics.
    5. David Rezza Baqaee & Emmanuel Farhi, 2019. "The Macroeconomic Impact of Microeconomic Shocks: Beyond Hulten's Theorem," Econometrica, Econometric Society, vol. 87(4), pages 1155-1203, July.
    6. Pol Antras & Davin Chor & Thibault Fally & Russell Hillberry, 2012. "Measuring the Upstreamness of Production and Trade Flows," American Economic Review, American Economic Association, vol. 102(3), pages 412-416, May.
    7. Thomas Chaney, 2014. "The Network Structure of International Trade," American Economic Review, American Economic Association, vol. 104(11), pages 3600-3634, November.
    8. Charles R. Hulten, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 511-518.
    9. Vasco M. Carvalho & Nico Voigtländer, 2014. "Input Diffusion and the Evolution of Production Networks," NBER Working Papers 20025, National Bureau of Economic Research, Inc.
    10. Felix Tintelnot, 2017. "Global Production with Export Platforms," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 157-209.
    11. Ran Spiegler, 2016. "Bayesian Networks and Boundedly Rational Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1243-1290.
    12. Joaquin Blaum & Claire Lelarge & Michael Peters, 2018. "The Gains from Input Trade with Heterogeneous Importers," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(4), pages 77-127, October.
    13. Christoph E. Boehm & Aaron Flaaen & Nitya Pandalai-Nayar, 2019. "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tōhoku Earthquake," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 60-75, March.
    14. Kalina Manova & Glenn Magerman & Emmanuel Dhyne & Andreas Moxnes & Andrew Bernard, 2017. "The Origins of Firm Heterogeneity: A Production Network Approach," 2017 Meeting Papers 487, Society for Economic Dynamics.
    15. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    16. Vasco M. Carvalho & Basile Grassi, 2019. "Large Firm Dynamics and the Business Cycle," American Economic Review, American Economic Association, vol. 109(4), pages 1375-1425, April.
    17. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    18. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1727-1767.
    19. Alonso de Gortari & Pol Antras, 2016. "On the Geography of Global Value Chains," 2016 Meeting Papers 1252, Society for Economic Dynamics.
    20. James Tybout & David Jinkins & Daniel Yi Xu & Jonathan Eaton, 2016. "Two-sided Search in International Markets," 2016 Meeting Papers 973, Society for Economic Dynamics.
    21. Fujii, Daisuke & Ono, Yukako & Saito, Yukiko Umeno, 2017. "Indirect exports and wholesalers: Evidence from interfirm transaction network data," Japan and the World Economy, Elsevier, vol. 44(C), pages 35-47.
    22. Monarch, Ryan & Park, Jooyoun & Sivadasan, Jagadeesh, 2017. "Domestic gains from offshoring? Evidence from TAA-linked U.S. microdata," Journal of International Economics, Elsevier, vol. 105(C), pages 150-173.
    23. Gita Gopinath & Brent Neiman, 2014. "Trade Adjustment and Productivity in Large Crises," American Economic Review, American Economic Association, vol. 104(3), pages 793-831, March.
    24. Ahn, JaeBin & Khandelwal, Amit K. & Wei, Shang-Jin, 2011. "The role of intermediaries in facilitating trade," Journal of International Economics, Elsevier, vol. 84(1), pages 73-85, May.
    25. Saki Bigio, 2013. "Financial Frictions in Production Networks," 2013 Meeting Papers 121, Society for Economic Dynamics.
    26. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
    27. Eduardo Morales & Gloria Sheu & Andrés Zahler, 2014. "Gravity and Extended Gravity: Using Moment Inequalities to Estimate a Model of Export Entry," NBER Working Papers 19916, National Bureau of Economic Research, Inc.
    28. Sharat Ganapati, 2018. "The Modern Wholesaler: Global Sourcing, Domestic Distribution, and Scale Economies," Working Papers 18-49, Center for Economic Studies, U.S. Census Bureau.
    29. Andrew B. Bernard & Andreas Moxnes & Yukiko U. Saito, 2019. "Production Networks, Geography, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 127(2), pages 639-688.
    30. Taiji Furusawa & Tomohiko Inui & Keiko Ito & Heiwai Tang, 2017. "Global Sourcing and Domestic Production Networks," CESifo Working Paper Series 6658, CESifo.
    31. David Rezza Baqaee, 2018. "Cascading Failures in Production Networks," Econometrica, Econometric Society, vol. 86(5), pages 1819-1838, September.
    32. Emmanuel Dhyne & Cedric Duprez, 2017. "It’s a Small, Small World... A Guided Tour of the Belgian Production Network," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 84-96, Spring.
    33. Ezra Oberfield & Devesh Raval, 2012. "Micro data and macro technology," Working Paper Series WP-2012-11, Federal Reserve Bank of Chicago.
    34. Stefania Garetto, 2013. "Input Sourcing and Multinational Production," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 118-151, April.
    35. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, May.
    36. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
    37. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    38. Glenn Magerman & Karolien De Bruyne & Emmanuel Dhyne & Jan Van Hove, 2016. "Heterogeneous firms and the micro origins of aggregate fluctuations," Working Paper Research 312, National Bank of Belgium.
    39. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.),Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    40. Jean-Noël Barrot & Julien Sauvagnat, 2016. "Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1543-1592.
    41. Jan De Loecker & Catherine Fuss & Jo Van Biesebroeck, 2014. "International competition and firm performance: evidence from Belgium," Working Papers of Department of Economics, Leuven 553099, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    42. Fabian Eckert & Costas Arkolakis, 2017. "Combinatorial Discrete Choice," 2017 Meeting Papers 249, Society for Economic Dynamics.
    43. Saki Bigio & Jennifer La’O, 2016. "Distortions in Production Networks," NBER Working Papers 22212, National Bureau of Economic Research, Inc.
    44. David Hummels & Rasmus J?rgensen & Jakob Munch & Chong Xiang, 2014. "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data," American Economic Review, American Economic Association, vol. 104(6), pages 1597-1629, June.
    45. Utar, Hale & Ruiz, Luis B. Torres, 2013. "International competition and industrial evolution: Evidence from the impact of Chinese competition on Mexican maquiladoras," Journal of Development Economics, Elsevier, vol. 105(C), pages 267-287.
    46. Ossa, Ralph, 2015. "Why trade matters after all," Journal of International Economics, Elsevier, vol. 97(2), pages 266-277.
    47. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
    48. Katherine Ho, 2009. "Insurer-Provider Networks in the Medical Care Market," American Economic Review, American Economic Association, vol. 99(1), pages 393-430, March.
    49. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
    50. Amiti, Mary & Dai, Mi & Feenstra, Robert & Romalis, John, 2017. "How Did China's WTO Entry Benefit U.S. Consumers?," CEPR Discussion Papers 12076, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Andrew B. Bernard & Andreas Moxnes, 2018. "Networks and Trade," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 65-85, August.
    2. Robert C. Johnson, 2018. "Measuring Global Value Chains," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 207-236, August.
    3. Esposito, Federico, 2019. "Demand Risk and Diversification through Trade," MPRA Paper 99875, University Library of Munich, Germany.
    4. Muscillo, Alessio & Pin, Paolo & Razzolini, Tiziano & Serti, Francesco, 2018. "Does "Network Closure" Beef up Import Premium?," IZA Discussion Papers 12036, Institute of Labor Economics (IZA).
    5. Carvalho, Vasco M & Tahbaz-Salehi, Alireza, 2018. "Production Networks: A Primer," CEPR Discussion Papers 13421, C.E.P.R. Discussion Papers.
    6. Johannes Boehm & Ezra Oberfield, 2018. "Misallocation in the Market for Inputs: Enforcement and the Organization of Production," Sciences Po publications 2018-04, Sciences Po.
    7. LI Zhigang & WEI Shang-Jin & ZHANG Hongyong, 2018. "Production Chains, Exchange Rate Shocks, and Firm Performance," Discussion papers 18058, Research Institute of Economy, Trade and Industry (RIETI).
    8. Hansman, Christopher & Hjort, Jonas & Le�n, Gianmarco & Teachout, Matthieu, 2017. "Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters," CEPR Discussion Papers 12518, C.E.P.R. Discussion Papers.
    9. Taiji Furusawa & Tomohiko Inui & Keiko Ito & Heiwai Tang, 2017. "Global Sourcing and Domestic Production Networks," CESifo Working Paper Series 6658, CESifo.
    10. David Baqaee & Emmanuel Farhi, 2019. "Networks, Barriers, and Trade," NBER Working Papers 26108, National Bureau of Economic Research, Inc.
    11. Kun Jiang & Wolfgang Keller & Larry D. Qiu & William Ridley, 2018. "International Joint Ventures and Internal vs. External Technology Transfer: Evidence from China," CESifo Working Paper Series 7065, CESifo.
    12. Daron Acemoglu & Pablo D. Azar, 2020. "Endogenous Production Networks," Econometrica, Econometric Society, vol. 88(1), pages 33-82, January.
    13. Emmanuel Dhyne & Glenn Magerman & Ayumu Ken kikkawa, 2019. "Imperfect Competition in Firm-to-Firm Trade," Working Papers ECARES 2019-05, ULB -- Universite Libre de Bruxelles.
    14. Cynthia Kinnan & Krislert Samphantharak & Robert Townsend & Diego Vera-Cossio, 2019. "Insurance and Propagation in Village Networks," PIER Discussion Papers 115, Puey Ungphakorn Institute for Economic Research, revised Sep 2019.
    15. Kirill Borusyak & Xavier Jaravel, 2018. "The Distributional Effects of Trade: Theory and Evidence from the United States," 2018 Meeting Papers 284, Society for Economic Dynamics.
    16. Cédric Duprez & Glenn Magerman, 2019. "Price Updating with Production Networks," Working Papers ECARES 2019-07, ULB -- Universite Libre de Bruxelles.
    17. Georgiadis, Georgios & Gräb, Johannes & Khalil, Makram, 2019. "Global value chain participation and exchange rate pass-through," Working Paper Series 2327, European Central Bank.

    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    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:red:sed017:381. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.