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Econometric Analysis of Production Networks with Dominant Units

M Pesaran () and Cynthia Fan Yang

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper builds on the work of Acemoglu et al. (2012) and considers a production network with unobserved common technological factor and establishes general conditions under which the network structure contributes to aggregate fluctuations. It introduces the notions of strongly and weakly dominant units, and shows that at most a finite number of units in the network can be strongly dominant, while the number of weakly dominant units can rise with N (the cross section dimension). This paper further establishes the equivalence between the highest degree of dominance in a network and the inverse of the shape parameter of the power law. A new extremum estimator for the degree of pervasiveness of individual units in the network is proposed, and is shown to be robust to the choice of the underlying distribution. Using Monte Carlo techniques, the proposed estimator is shown to have satisfactory small sample properties. Empirical applications to US input-output tables suggest the presence of production sectors with a high degree of pervasiveness, but their effects are not sufficiently pervasive to be considered as strongly dominant.

Keywords: aggregate fluctuations; strongly and weakly dominant units; spatial models; outdegrees; degree of pervasiveness; power law; input-output tables; US economy (search for similar items in EconPapers)
JEL-codes: C12 C13 C23 C67 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-mac and nep-net
Date: 2016-12-16
Note: mhp1
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Citations: View citations in EconPapers (7) Track citations by RSS feed

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