Scalable Suppliers in Global Trade Networks

Brandon Tan

No 2026/183, IMF Working Papers from International Monetary Fund

Abstract: Whether exporters can take advantage of increases in foreign demand depends on the scalability of their input suppliers—that is, suppliers’ ability to expand production when demand rises. Using bilateral trade data linked to international input-output tables, I measure supplier scalability at the country-industry level and examine how it shapes downstream export growth. I find that supplier scalability varies sharply across industries within countries, that scalable suppliers tend to be connected to scalable suppliers themselves, and that downstream country-sectors exposed to more scalable suppliers respond more strongly to positive foreign demand shocks in sectors with relationship-sticky inputs. I rationalize these facts in a multicountry, multi-sector general-equilibrium trade model with input-output linkages, heterogeneous upward-sloping supplier supply curves, and gradually adjusting sourcing relationships. In the calibrated model, supplier bottlenecks substantially attenuate the export and welfare gains from a global demand expansion, while relationship stickiness determines where bottlenecks bind. Counterfactuals show that supplier upgrading and pre-arranged access to flexible sourcing networks are most valuable when targeted toward economically central, relationship-sticky, and bottleneck-exposed parts of the production network.

Keywords: Scalability; trade; production networks (search for similar items in EconPapers)
Pages: 33
Date: 2026-08-28
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