Aggregating Distortions in Networks with Multi-Product Firms

Yasutaka Koike-Mori and Antonio Martner

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: We investigate the role of multi-product firms in shaping resource misallocation within production networks and its impact on aggregate total factor productivity (TFP) growth. Using administrative data on product transactions between all the for-mal Chilean firms, we provide evidence that demand shocks to one product affect the production of other products within the same firm, suggesting firms engage in joint production. We develop a framework to measure resource misallocation in production networks with joint production, deriving non-parametric sufficient statistics to quantify these effects. Applying the framework to Chile, we find that reallocation effects, considering joint production, explain 86% of observed aggregate TFP growth for the 2016-2022 period. Ignoring joint production leads to overestimating resource misallocation.

Date: 2024-08
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:1022

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