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Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks

58 Pages Posted: 22 Apr 2014 Last revised: 14 May 2016

Jean-Noel Barrot

Massachusetts Institute of Technology (MIT)

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Date Written: October 1, 2015

Abstract

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

Suggested Citation

Barrot, Jean-Noel and Sauvagnat, Julien, Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks (October 1, 2015). Quarterly Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2427421 or http://dx.doi.org/10.2139/ssrn.2427421

Jean-Noel Barrot (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Julien Sauvagnat

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

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