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Financial Constraints and propagation of shocks in production network

Banu Demir, Beata Javorcik (), Tomasz K. Michalski and Evren Ors

No 2020-23, Discussion Papers from University of Nottingham, GEP

Abstract: This study finds that even small unexpected supply shocks propagate downstream through production networks and are amplified by firms with short-term financial constraints. The unexpected 2011 increase in the tax on imports purchased with foreign-sourced trade credit is examined using data capturing almost all Turkish supplier-customer links. The identification strategy exploits the heterogeneous impact of the shock on importers. The results indicate that this relatively minor, non-localized shock had a non-trivial economic impact on exposed firms and propagated downstream through affected suppliers. Additional empirical tests, motivated by a simple theory, demonstrate that low-liquidity firms amplified its transmission.

Keywords: production networks; shock transmission; financing constraints; liquidity (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-fdg and nep-net
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Related works:
Working Paper: Financial Constraints and Propagation of Shocks in Production Networks (2020) Downloads
Working Paper: Financial Constraints and Propagation of Shocks in Production Networks (2020) Downloads
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