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.