Networks of Firms and the Aggregate Economy
by Isabela Manelici and Jose-P. Vasquez
There has been a recent effort in better understanding the role of firm linkages in production and aggregate stability. The more recent views present the idea that a shock to a single firm (or sector) could have a larger impact if it also affects other firms connected to this firm through a network of input-output linkages. However, most of the advances in the area have been theoretical and the testable implications of the models have been mainly explored only at the sector level due to data unavailability. This project will use administrative firm-level transactions
datasets for the universe of Costa Rican and Romanian firms to construct a measure of connectivity between firms and study how shocks propagate through the network. In particular, the project will study the effect of place based reforms related to the entry of multinational firms and FDI on domestic firms productivity. The project will also estimate the magnitude of the spillovers to firms that are not directly connected to the entrant foreign firms and analyze how the aggregate impact of such policies depends on the production network structure.