Dissertation

Three Essays on Endogenous Production-Network Formation

Howard, Jacob Bryan

2020

Overview

This dissertation studies the consequences of globalization in a setting where firms endogenously form production networks to purchase inputs and sell their output. I investigate how a trade shock leads to changes in the production-network. I then examine how these changes in the production network will translate into changes in unemployment, wages, wage inequality and other labor market variable. My coauthor and I also quantify the extent to which changes in the production-network have driven changes in the spatial distribution of CO2 emissions and emissions intensities across the United States. In the final chapter I use firm sales data to quantify how the domestic production-network of establishments located in the United States has changed in response to trade shocks. In the first chapter of my dissertation I build a model where firms face labor market frictions when searching for employees. Firms combine labor with inputs that they must source from their endogenously formed relationships with suppliers. I first show how differences in labor-market-frictions across sectors drive changes in the number of each firm's supplier and customer-firm linkages. I then quantify how labor market variables -such as unemployment, wages and intra-sector wage inequality- respond to trade shocks. I decompose these changes into intensive- and extensive-margin-effects, where the extensive-margin-effects capture how production-networks change in response to the trade shock. In the second chapter my coauthor and I quantify the extent to which trade shocks drive changes in firm agglomeration. We build a model where firms endogenously decide to locate inland or on the coast. Firms can choose to produce in-house or outsource their production through their endogenously formed production network. For firms that locate on the coast, there is a tradeoff between the relatively high fixed cost of locating on the coast and the relatively low variable cost of exporting to foreign trading partners. The intensity of coastal agglomeration is driven by the assumption that firms must endogenously form their production-networks. Exporters choose to locate on the coast to save on exporting costs. Medium sized firms will endogenously form firm-to-firm relationships with large firms. Hence medium firms, who do not export, will also locate on the coast, leaving only the smallest firms remaining inland. When a firm chooses to produce in house they emit carbon which is subject to a tax. The firm can either choose to pay the tax, or invest in abatement technology. We quantify the extent to which these agglomeration forces lead to changes in emissions and emissions intensity after a trade shock, through production and abatement. In my final chapter I utilize Compustat firm supply chain data to quantify the role of face-to-face interaction (via airline travel) in the formation of firm-to-firm production networks. The hypothesis tested in this chapter is that firms will be much more likely to form production-network linkages if employees of the firms are able to easily meet face-to-face. Using public flight data from the Bureau of Transportation I create a dataset of flights between US airports. I measure the role of direct flights between location pairs in the creation of firm linkages between these destination pairs.

• Publisher: ProQuest Dissertations & Theses
• Subject: Economics
• ISBN: 9798645451523