Production Networks, Geography, and Firm Performance

Author Name Andrew B. BERNARD (Dartmouth College) / Andreas MOXNES (University of Oslo) / SAITO Yukiko (Senior Fellow, RIETI)
Creation Date/NO. March 2016 16-E-055
Research Project Geospatial Networks and Spillover Effects in Inter-organizational Economic Activities
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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 firms' marginal production costs. We test the theory by exploiting the opening of a high-speed train line (shinkansen) 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, which are consistent with the model.

Published: Bernard, Andrew, Andreas Moxnes, and Yukiko Saito, 2019. "Production networks, geography and firm performance," Journal of Political Economy, Vol. 127(2), pp. 639-688