Identifying Productivity Spillovers Using the Structure of Production Networks

31 Pages Posted: 8 Mar 2017

See all articles by Samuel Bazzi

Samuel Bazzi

Boston University - Department of Economics

A.V. Chari

University of Sussex - School of Business, Management and Economics

Shanthi Nataraj

RAND Corporation

Alexander D. Rothenberg

Board of Governors of the Federal Reserve System

Date Written: February 7, 2017

Abstract

Despite the importance of agglomeration externalities in theoretical work, evidence for their nature, scale, and scope remains elusive, particularly in developing countries. Identification of productivity spillovers between firms is a challenging task, and estimation typically requires, at a minimum, panel data, which are often not available in developing country contexts. In this paper, we develop a novel identification strategy that uses information on the network structure of producer relationships to provide estimates of the size of productivity spillovers. Our strategy builds on that proposed by Bramoulle et al. (2009) for estimating peer effects, and is one of the first applications of this idea to the estimation of productivity spillovers. We improve upon the network structure identification strategy by using panel data and validate it with exchange-rate induced trade shocks that provide additional identifying variation. We apply this strategy to a long panel dataset of manufacturers in Indonesia to provide new estimates of the scale and size of productivity spillovers. Our results suggest positive productivity spillovers between manufacturers in Indonesia, but estimates of TFP spillovers are considerably smaller than similar estimates based on firm-level data from the U.S. and Europe, and they are only observed in a few industries.

Suggested Citation

Bazzi, Samuel and Chari, Amalavoyal and Nataraj, Shanthi and Rothenberg, Alexander D., Identifying Productivity Spillovers Using the Structure of Production Networks (February 7, 2017). RAND Working Paper Series WR- 1182. Available at SSRN: https://ssrn.com/abstract=2929089 or http://dx.doi.org/10.2139/ssrn.2929089

Samuel Bazzi (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

Amalavoyal Chari

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

Shanthi Nataraj

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States
310-393-0411 (Phone)

HOME PAGE: http://www.rand.org/

Alexander D. Rothenberg

Board of Governors of the Federal Reserve System ( email )

20th and C Streets NW
Washington, DC 20551
United States

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