Input varieties and growth: a micro-to-macro analysis

David Baqaee, Ariel Burstein (), Cédric Duprez and Emmanuel Farhi
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Ariel Burstein: E University of California

No 443, Working Paper Research from National Bank of Belgium

Abstract: We investigate the effects of input variety creation and destruction on both micro- and macroeconomic outcomes using detailed data from Belgium. Our microeconomic analysis establishes that the elasticity of downstream firms’ marginal cost to supplier separation captures the area under the input demand curve, and this elasticity can be utilized to calibrate love-of-variety and Schumpeterian models. Empirically, we estimate that marginal costs rise by 0.6% for every 1% of suppliers lost. Our macroeconomic analysis develops a growth-accounting framework that captures the role of supply chain churn for aggregate growth. Using firm-level production network data and estimated microeconomic elasticities, we show that supplier churn can plausibly account for a large portion of the trend component of growth in aggregate productivity. Our findings highlight the crucial role of input entry and exit in driving economic growth.

Keywords: growth; churn; exit; entry (search for similar items in EconPapers)
JEL-codes: D21 D22 E10 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2023-10
New Economics Papers: this item is included in nep-ent and nep-gro
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202310-443

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