Beyond firm size: network position and shock transmission in firm-to-firm production networks across five economies

Glenn Magerman (), Alberto Palazzolo (), Emmanuel Dhyne (), Andras Borsos (), Dmitry Kulikov (), Andrea Linarello (), Alari Paulus (), Giacomo Romanini and Martin Saldias ()
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Glenn Magerman: ECARES, ULB, CEPR, CESifo
Alberto Palazzolo: ECARES, ULB, National Bank of Belgium
Emmanuel Dhyne: National Bank of Belgium
Andras Borsos: Magyar Nemzeti Bank
Dmitry Kulikov: Eesti Pank
Andrea Linarello: Bank of Italy
Alari Paulus: Eesti Pank
Martin Saldias: Banco de Portugal

No 1549, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: How much a firm's shocks affect aggregate outcomes, and how they propagate to other firms, depends on the firm's position within the network of firm-to-firm trade. Because data on firm-level networks are available for few economies, quantitative work typically relies on firm size and/or input-output tables as proxies. Using administrative VAT records and tax filings, we build harmonized production networks for five European economies (Belgium, Estonia, Hungary, Italy, and Portugal) and measure firms' positions directly. Five findings stand out. First, firm size and centrality capture a firm's first-order aggregate impact, but not its vertical position along production chains, which is orthogonal to size and governs how shocks propagate across firms. Second, firm size is itself a function of the network: roughly half of within-industry size dispersion reflects differences in the number of customers rather than a primitive such as productivity. Third, granularity runs along several dimensions beyond firm size, network sales, transaction values, and the number of customers, which are all heavy-tailed and span several orders of magnitude. Fourth, firm-to-firm networks differ structurally from input-output tables: they are orders of magnitude sparser, "roundabout" production disappears, and input shares vary widely even within narrow sector pairs. These patterns are stable across all five economies and persist within narrowly defined industries, reflecting firm-level characteristics rather than sectoral composition or country-specific factors. Finally, these distinctions are economically relevant: firm-level responses to monetary policy vary systematically with their vertical position and cross-country differences in firms' positions along production chains generate heterogeneous aggregate responses to a common shock. We propose using these moments as calibration targets and as a guide for assessing whether sector-level structure provides an adequate approximation and for identifying when firm-level heterogeneity is first-order.

Keywords: firm heterogeneity; production network; input-output linkages; multi-country (search for similar items in EconPapers)
JEL-codes: D22 D57 D85 E23 L14 (search for similar items in EconPapers)
Date: 2026-10
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Related works:
Working Paper: Beyond firm size: network position and shock transmission in firm-to-firm production networks across five economies (2026)
Working Paper: Beyond firm size: network position and shock transmission in firm-to-firm production networks across five economies (2026)
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