Financial Constraints and Propagation of Shocks in Production Networks
Beata Javorcik,
Banu Demir,
Tomasz Michalski and
Evren Örs,
No 15316, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
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 small shock had a non-trivial economic impact on exposed firms and propagated downstream through affected suppliers. Empirical tests, motivated by a simple theory, demonstrate that low-liquidity firms amplified its transmission.
Keywords: Production networks; Shock transmission; Financing constraints; Liquidity (search for similar items in EconPapers)
JEL-codes: E23 F14 F61 G23 L14 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (9)
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Related works:
Journal Article: Financial Constraints and Propagation of Shocks in Production Networks (2024) 
Working Paper: Financial Constraints and Propagation of Shocks in Production Networks (2020) 
Working Paper: Financial Constraints and propagation of shocks in production network (2020) 
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