O-Ring Production Networks / Banu Demir, Ana Cecília Fieler, Daniel Xu, Kelly Kaili Yang.

Format:

Book

Author/Creator:

Demir, Banu.

Contributor:

Fieler, Ana Cecília.

Xu, Daniel.

Yang, Kelly Kaili.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28433.

NBER working paper series no. w28433

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

We study a production network where quality choices are interconnected across firms. High-quality firms are skill intensive and trade more with other high-quality firms. Using data from Turkish firms, we document strong assortative matching of skills in the production network. A firm-specific export demand shock from a rich country increases the firm's skill intensity and shifts the firm toward skill-intensive domestic partners. We develop a quantitative model with heterogeneous firms, endogenous quality choices, and network formation. An economy-wide export demand shock of 5 percent induces exporters and non-exporters to upgrade quality, raising the average wage by 1.2 percent. This effect is about nine times the effect in a special case of the model with no interconnection of quality choices.

Notes:

February 2021.

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