Supplier Churn and Growth: A Micro-to-Macro Analysis
We investigate the effects of input variety creation and destruction on both micro- and macroeconomic outcomes using detailed data from Belgium. We estimate that marginal costs rise by 0.6% for every 1% of suppliers lost. We show that this elasticity measures the area under the input demand curve relative to expenditures, and can be used to calibrate love-of-variety and quality-ladder models. We also develop a macroeconomic growth-accounting framework that quantifies the importance of supply chain churn for aggregate growth. Using firm-level production network data and estimated microeconomic elasticities, we show that supplier churn can plausibly account for a large portion of the trend component of growth in aggregate productivity. Our findings highlight the crucial role of input entry and exit in driving economic growth.
First version: June, 2022. We thank Andy Atkeson, Pablo Fajgelbaum, Marc Melitz, Ezra Oberfield, Gianluca Violante, and Jonathan Vogel for comments. We acknowledge financial support from NSF grant No. 1947611 and the Alfred P. Sloan Foundation. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the National Bank of Belgium. Emmanuel Farhi tragically passed away in July, 2020. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the National Bank of Belgium or the National Bureau of Economic Research.