The Adoption and Termination of Suppliers over the Business Cycle

Le Xu, Yang Yu and Francesco Zanetti

No 18976, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We assemble a firm-level dataset to study the adoption and termination of suppliers over business cycles. We document that the aggregate number and rate of adoption of suppliers are procyclical. The rate of termination is acyclical at the aggregate level, and the cyclicality of termination encompasses large differences across producers. To account for these new facts, we develop a model with optimizing producers that incur separate costs for management, adoption, and termination of suppliers. These costs alter the incentives to scale up production and to replace existing with new suppliers. Sufficiently high convexity in management relative to adjustment costs is crucial to replicating the observed cyclicality in the adoption and termination rates at the producer and aggregate levels. We study the welfare implications of credit injections and subsidies on new inputs---the two main classes of supply-chain policies adopted in the U.S. since the COVID-19 pandemic. Credit injections generally outperform subsidies on new inputs, except when aggregate TFP is exceptionally high.

JEL-codes: E32 L14 L24 (search for similar items in EconPapers)
Date: 2024-04
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Related works:
Journal Article: The adoption and termination of suppliers over the business cycle (2025)
Working Paper: The Adoption and Termination of Suppliers over the Business Cycle (2024)
Working Paper: The Adoption and Termination of Suppliers over the Business Cycle (2024)
Working Paper: The Adoption and Termination of Suppliers over the Business Cycle (2024)
Working Paper: The Adoption and Termination of Suppliers over the Business Cycle (2024)
Working Paper: The Adoption and Termination of Suppliers over the Business Cycle (2024)
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