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The origins of firm heterogeneity: A production network approach. National Bank of Belgium, Working Paper No. 362

Bernard, Andrew B. and Dhyne, Emmanuel and Magerman, Glenn and Manova, Kalina and Moxnes, Andreas (2019) The origins of firm heterogeneity: A production network approach. National Bank of Belgium, Working Paper No. 362. [Working Paper]

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    This paper quantifies the origins of firm size heterogeneity when firms are interconnected in a production network. Using the universe of buyer-supplier relationships in Belgium, the paper develops a set of stylized facts that motivate a model in which firms buy inputs from upstream suppliers and sell to downstream buyers and final demand. Larger firm size can come from high production capability, more or better buyers and suppliers, and/or better matches between buyers and suppliers. Downstream factors explain the vast majority of firm size heterogeneity. Firms with higher production capability have greater market shares among their customers, but also higher input costs and fewer customers. As a result, high production capability firms have lower sales unconditionally and higher sales conditional on their input prices. Counterfactual analysis suggests that the production network accounts for more than half of firm size dispersion. Taken together, our results suggest that multiple firm attributes underpin their success or failure, and that models with only one source of firm heterogeneity fail to capture the majority of firm size dispersion.

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    Item Type: Working Paper
    Uncontrolled Keywords: Production networks, productivity, firm size heterogeneity
    Subjects for non-EU documents: Countries > Belgium
    EU policies and themes > Policies & related activities > economic and financial affairs > business/private economic activity
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 29 Nov 2019 14:44
    Number of Pages: 75
    Last Modified: 29 Nov 2019 14:44

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