Production Networks, Geography and Firm Performance

Andreas Moxnes, Andrew Bernard & Yukiko Saito

Photo: Journal of Political Economy

Published in:

Journal of Political Economy, September 2018.

DOI: 10.1086/700764


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.

Published Oct. 25, 2018 3:48 PM - Last modified Oct. 25, 2018 3:48 PM