Symmetry, Centrality and Stability: Evidence from Chinese Production Networks

Abstract

This paper studies the granular and network origins of economic growth stability from the perspective of an emerging and transitional country like China. To do so, we construct a unique large-scale micro supply chain network data of Chinese firms to complement the conventional input-output tables. We show that the interplay of individual (firm and sector) centrality and aggregate network symmetry channels microeconomic shocks into macroeconomic fluctuations. Specifically, at the individual level, firms or sectors with higher network centrality tend to have greater output fluctuations; while at the aggregate level, more symmetric production networks are associated with less severe output fluctuations. We also find the importance of efficiency and trade in reducing the volatility. Moreover, the distributions of Chinese firm- and sector-level production network heterogeneities are fat-tailed, indicating that even the light-tailed micro-level shocks could generate large economic fluctuations and downturns in China.

Keywords: Chinese economy, Growth stability, Production network, Symmetry, Centrality