NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Production Networks, Geography and Firm Performance

Andrew B. Bernard, Andreas Moxnes, Yukiko U. Saito

NBER Working Paper No. 21082
Issued in April 2015
NBER Program(s):Industrial Organization, International Trade and Investment

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.

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Document Object Identifier (DOI): 10.3386/w21082

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