CFCM Seminar: Daniel Xu (Duke University)

Location
Zoom
Date(s)
Thursday 19th November 2020 (14:00-15:15)
Description

O-Ring Production Networks (with Banu Demir, Ana Cecilia Fieler and Kelly Kaili Yang)

Abstract:   We study a production network where quality choices are interconnected across firms. High-quality firms are skill intensive and disproportionately source inputs from and sell output to other high-quality firms. Consistent with the theory, we document strong assortative matching of skills in the network of Turkish manufacturing firms. In the data, a firm-specific trade shock from a rich country increases the firm's skill intensity and shifts the firm toward skill-intensive domestic partners. We develop a quantitative model with heterogeneous firms, endogenous quality choices, and network formation. Parameter estimates indicate strong complementarity of quality in production. A common export demand shock of 5% would induce broad quality upgrading among both exporters and domestic firms, raising average wage by 1:2%. The foreign demand for higher quality is magnifi in general equilibrium because the larger presence of high-quality firms in the production network makes it more profitable for other firms to upgrade.

Centre for Finance, Credit and Macroeconomics

Sir Clive Granger Building
University of Nottingham
University Park
Nottingham, NG7 2RD

Enquiries: hilary.hughes@nottingham.ac.uk