Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks
58 Pages Posted: 22 Apr 2014 Last revised: 14 May 2016
Date Written: October 1, 2015
This paper examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy.
Keywords: input-output linkages, customer-supplier relationships, input specificity
JEL Classification: L14, E32, E23, E44
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