Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198807 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7447
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper quantifies the origins of firm size heterogeneity when firms are interconnected in a production network. Using the universe of buyer-supplier relationships in Belgium, the paper develops a set of stylized facts that motivate a model in which firms buy inputs from upstream suppliers and sell to downstream buyers and final demand. Larger firm size can come from high production capability, more or better buyers and suppliers, and/or better matches between buyers and suppliers. Downstream factors explain the vast majority of firm size heterogeneity. Firms with higher production capability have greater market shares among their customers, but also higher input costs and fewer customers. As a result, high production capability firms have lower sales unconditionally and higher sales conditional on their input prices. Counterfactual analysis suggests that the production network accounts for more than half of firm size dispersion. Taken together, our results suggest that multiple firm attributes underpin their success or failure, and that models with only one source of firm heterogeneity fail to capture the majority of firm size dispersion.
Subjects: 
production networks
productivity
firm size heterogeneity
JEL: 
F10
F12
F16
Document Type: 
Working Paper
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