Production Networks, Geography and Firm Performance
Andrew B. Bernard, Andreas Moxnes, & Yukiko U. Saito
Journal of Political Economy, Volume 127, Issue 2, February 2019.
This paper examines the importance of buyer-supplier relationships for firm performance. We develop a model in which firms outsource tasks and search for suppliers. Lower search and outsourcing costs lead firms to search more and find better suppliers, which in turn drives down marginal costs. We test the theory by exploiting the opening of a high-speed train line in Japan, which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive data set on firms’ buyer-seller linkages, we find significant improvements in firm performance as well as creation of buyer-seller links, consistent with the model.