Financial Constraints and Propagation of Shocks in Production Networks

Banu Demir, Beata Javorcik, Tomasz Michalski and Evren Ors
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Banu Demir: Bilkent University and CEPR
Evren Ors: HEC Paris and GREGHEC

The Review of Economics and Statistics, 2024, vol. 106, issue 2, 437-454

Abstract: We examine the propagation of a small unexpected supply shock through a production network and the role financial constraints play in its transmission. Using data on almost all Turkish supplier-customer links, we exploit the heterogeneous impact of an unexpected import-tax increase for identification. We find that this relatively minor shock had a nontrivial economic impact on exposed firms and propagated downstream through affected suppliers. Importantly, we show that low-liquidity firms amplified its transmission.

Date: 2024
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https://doi.org/10.1162/rest_a_01162
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Related works:
Working Paper: Financial Constraints and Propagation of Shocks in Production Networks (2020)
Working Paper: Financial Constraints and Propagation of Shocks in Production Networks (2020)
Working Paper: Financial Constraints and propagation of shocks in production network (2020)
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