Publications
Publications
- 2023
- HBS Working Paper Series
Estimating Productivity in the Presence of Spillovers: Firm-Level Evidence from the U.S. Production Network
By: Ebehi Iyoha
Abstract
This paper examines the extent to which productivity gains are transmitted across U.S. firms through buyer-supplier relationships. Many empirical studies measure firm-to-firm spillovers using firm-level productivity estimates derived from control function approaches. However, these methods implicitly rule out the interdependence of firms' outcomes and decisions through productivity spillovers. To address this limitation, I develop a framework to jointly estimate network effects and firm-level productivity, while accounting for common productivity shocks across firms and non-random buyer-supplier matching. Using this method, I characterize productivity spillovers over the US production network from 1977 to 2016. My results suggest that having 1% more productive trading partners on average leads to 0.076% higher productivity in the long run. Supplier spillovers, which are driven by both large and small firms, are 4 times greater than buyer effects, which are primarily generated by large firms. Heterogeneity in spillovers within and across sectors also has implications for overall productivity growth: aggregate spillovers tend to be much larger when manufacturers are central in the production network than when retailers and wholesalers are more central.
Keywords
Citation
Iyoha, Ebehi. "Estimating Productivity in the Presence of Spillovers: Firm-Level Evidence from the U.S. Production Network." Harvard Business School Working Paper, No. 24-033, December 2023. (Winner of the Young Economists' Essay Award at the 2021 Annual Conference of the European Association for Research in Industrial Economics (EARIE))