Production Chains

David Levine

No 16571, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: More advanced technologies demand higher degrees of specialization - and longer chains of production connecting raw inputs to final outputs. Longer production chains are subject to a "weakest link" effect: they are more fragile and more prone to failure. Optimal chain length is determined by the trade-off between the gains to specialization and the higher failure rate associated with longer chain length. There is a kind of reverse "Keynesian multiplier" that magnifies the effect of real shocks. Consequently, more advanced economies should have higher unemployment rates and be more prone to crisis. The implications of the theory both for measurement and government policy are examined.

JEL-codes: A1 A10 D00 E00 E01 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-cba and nep-int
Note: EFG
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Published as David Levine, 2012. "Production Chains," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 271-282, July.

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Related works:
Journal Article: Production Chains (2012)
Working Paper: Production Chains (2011)
Working Paper: Production Chains (2010)
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