Publication Date: November 2021
Revision Date: June 2022
I develop a model of endogenous production network formation between spatially distant ﬁrms. Unlike other such models, it is tractable even for very large numbers of ﬁrms, that is, it delivers closed-form predictions for ﬁrm-to-ﬁrm trade, it can be estimated via maximum likelihood, and it can be used for ﬁrm-level counterfactual analysis. I exploit novel micro-data on Indian ﬁrm-to-ﬁrm production networks for estimation. The estimated model implies that upon market integration across Indian states, over half of the variation in changes in ﬁrms’ sales to other ﬁrms can be explained by endogenous changes in network structure.
Keywords: production networks, international trade, economic geography
JEL Classification Codes: F11, F12, D24, C67, C68, L11, O11, O12, R12, R15, D85CFDP 2314