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

Glenn Magerman (), Alberto Palazzolo (), Emmanuel Dhyne (), András Borsos (), Dmitry Kulikov (), Andrea Linarello (), Alari Paulus (), Giacomo Romanini () and Martín Saldías ()
Additional contact information
Glenn Magerman: ECARES, ULB; CEPR, Cesifo
Alberto Palazzolo: National Bank of Belgium, Economics and Research Department
Emmanuel Dhyne: National Bank of Belgium, Economics and Research Department
András Borsos: Magyar Nemzeti Bank
Dmitry Kulikov: Eesti Pank
Andrea Linarello: Banca d’Italia
Alari Paulus: Eesti Pank
Giacomo Romanini: Banca d’Italia
Martín Saldías: Banco de Portugal

No 496, Working Paper Research from National Bank of Belgium

Abstract: How much a firm’s shocks move the aggregate, and how they propagate to other firms, both depend on its position in the network of firm-to-firm trade. As 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 facts stand out. First, firm size and centrality summarize 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 the number of customers a firm has, 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 are heavy-tailed, spanning several orders of magnitude. Fourth, firm-to-firm networks differ structurally from IO 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 vertical position, and cross-country differences in where firms sit along production chains generate heterogeneous aggregate responses to a common shock. We provide these moments as calibration targets and as a guide to when sector-level structure is an adequate approximation and when firm-level detail is first-order.

Keywords: firm-to-firm production networks; input–output analysis; granularity; monetary policy transmission; firm heterogeneity. (search for similar items in EconPapers)
JEL-codes: C81 D57 E52 L14 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202609-496

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