Aggregate fluctuations in adaptive production networks

Michael D. König, Andrei Levchenko, Tim Rogers and Fabrizio Zilibotti
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Michael D. König: a Centre for Economic Policy Research, London, EC1V 0DX, United Kingdom;; b KOF Swiss Economic Institute, ETH Zurich, 8092 Zurich, Switzerland;; c Tinbergen Institute and Department of Spatial Economics, Vrije Universiteit (VU) Amsterdam, 1081 HV Amsterdam, the Netherlands;
Tim Rogers: f Centre for Networks and Collective Behaviour, Department of Mathematical Sciences, University of Bath, BA2 7AY Bath, United Kingdom;
Fabrizio Zilibotti: a Centre for Economic Policy Research, London, EC1V 0DX, United Kingdom;; e National Bureau of Economic Research, Cambridge, MA 02138-5398;; g Department of Economics, Yale University, New Haven, CT 06520-8268

Proceedings of the National Academy of Sciences, 2022, vol. 119, issue 38, e2203730119

Abstract: Economic production is organized in supply chain networks. The resilience of supply chains is, therefore, crucial for robust economic growth. Governments have discussed policies to improve the resilience of supply chains, including the notion of reshoring parts of the supply chains to reduce dependence on foreign suppliers. A calibrated version of our theory predicts that restricting buyer–supplier links via such policies reduces output and increases economic fluctuations and that economic instability can be amplified through network adaptivity.

Date: 2022
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