Financial Constraints and Propagation of Shocks in Production Networks

Arbeitspapier

This study finds that even small unexpected supply shocks propagate downstream through production networks and are amplified by firms with short-term financial constraints. The unexpected 2011 increase in the tax on imports purchased with foreign-sourced trade credit is examined using data capturing almost all Turkish supplier-customer links. The identification strategy exploits the heterogeneous impact of the shock on importers. The results indicate that this relatively minor, non-localized shock had a non-trivial economic impact on exposed firms and propagated downstream through affected suppliers. Additional empirical tests, motivated by a simple theory, demonstrate that low-liquidity firms amplified its transmission.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8607

Classification and Topics

• Classification: Wirtschaft ; Empirical Studies of Trade ; Economic Impacts of Globalization: Microeconomic Impacts ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Transactional Relationships; Contracts and Reputation; Networks ; Macroeconomics: Production
• Subject: production networks ; shock transmission ; financing constraints ; liquidity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Demir Pakel, Banu ; Javorcik, Beata Smarzynska ; Michalski, Tomasz K. ; Ors, Evren
• Event: Veröffentlichung
• (who): Center for Economic Studies and Ifo Institute (CESifo)
• (where): Munich
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/226309
• Last update: 10.03.2025, 11:43 AM CET