The origins of firm heterogeneity: A production network approach

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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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 362

Classification and Topics

• Classification: Wirtschaft ; Trade: General ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Trade and Labor Market Interactions
• Subject: Production Networks ; productivity ; firm size heterogeneity ; Betriebsgröße ; Unternehmensnetzwerk ; Produktivität ; Belgien

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bernard, Andrew B. ; Dhyne, Emmanuel ; Magerman, Glenn ; Manova, Kalina ; Moxnes, Andreas
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/207742
• Last update: 10.03.2025, 11:43 AM CET