Granular Linkages, Supplier Cost Shocks & Export Performance

TL;DR

This paper investigates how the highly skewed foreign supplier networks of firms influence the impact of supplier shocks on domestic export performance, using Argentinean customs data and a theoretical model.

Contribution

It introduces a novel theoretical framework of heterogeneous firms with search frictions in foreign supplier markets, supported by empirical evidence from detailed transaction data.

Findings

Firms typically have only two foreign suppliers on average.

Firms concentrate import value on their top supplier.

Significant frictions and import-export complementarities are identified.

Abstract

This paper presents evidence on the granular nature of firms' network of foreign suppliers and studies its implications for the impact of supplier shocks on domestic firms' performance. To demonstrate this, I use customs level information on transactions between Argentinean firms and foreign firms. I highlight two novel stylized facts: (i) the distribution of domestic firms' number of foreign suppliers is highly skewed with the median firm reporting linkages with only two, (ii) firms focus imported value on one top-supplier, even when controlling for firm size. Motivated by these facts I construct a theoretical framework of heterogeneous firms subject to search frictions in the market for foreign suppliers. Through a calibration exercise I study the framework's predictions and test them in the data using a shift-share identification strategy. Results present evidence of significant frictions in the market for foreign suppliers and strong import-export complementarities.