O-Ring Production Networks
We study a production network where quality choices are interconnected across firms. High-quality firms are skill intensive and trade more with other high-quality firms. Using data from Turkish firms, we document strong assortative matching of skills in the production network. A firm-specific export demand 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. An economy-wide export demand shock of 5 percent induces exporters and non-exporters to upgrade quality, raising the average wage by 1.2 percent. This effect is about nine times the effect in a special case of the model with no interconnection of quality choices.

Link to paper: www.dropbox.com/s/mnp1z7amuutuzt9/Demir-Fieler-Xu-Yang.pdf

Please sign up for meetings here: docs.google.com/spreadsheets/d/1oFAnK-yvsv3jPAmaKUUeVdv-mw-3sJpQQnmoC0qLRa8/edit#gid=0
Date: 11 May 2021, 13:00 (Tuesday, 3rd week, Trinity 2021)
Venue: Held on Zoom
Speaker: Daniel Xu (Duke University)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Melis Clark