Empirical Estimation of the Propagation of Investment Spikes over the Production Network

Makoto Nirei

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This study estimates the degree of complementarity between firm investment spikes linked by production networks. A customer firm’s increase in capital by more than 20% (an investment spike) raises its future demand for intermediate inputs, increasing the likelihood of the supplier’s spike. Similarly, a supplier’s investment spike lowers the future cost of intermediate goods demanded by its customer and induces the customer’s investment spike. We use firm-level panel data from the Japanese business survey and transaction network data to estimate this complementarity in investment decisions. The estimates show that one firm’s investment spike induces, on average, 0.088 firms to conduct investment spikes, indicating that an investment spike shock can propagate through the production network to upstream and downstream firms.

Pages: 25 pages
Date: 2024-02
New Economics Papers: this item is included in nep-ind and nep-net
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