Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks

By Jean-Noël Barrot, Julien Sauvagnat. 2016

986 citations recorded by the source corpus.

This article examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant market value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy. JEL Codes: L14, E23, E32.

Subfields: Economics and Econometrics, Finance, Soil Science

View Paper: https://www.semanticscholar.org/paper/9d8b3601c32112f1d966e1488c527985fb5a8eda

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Citations in the corpus

Systemic Risk in Financial Networks: A Survey (2020, positive): “…of input-output networks and supply chains can induce small shocks to magnify in a similar manner as a financial network can amplify shocks to returns and affect asset prices (e.g., Acemoglu, Carvalho, Ozdaglar & Tahbaz-Salehi (2012); Barrot & Sauvagnat (2016); Ramı́rez (2017); Herskovic (2018)).”
Corporate Innovation Along the Supply Chain (2018, neutral): “Though it is common in the literature to use corporate headquarters as the main location of firm production and operation (e.g., Barrot and Sauvagnat 2016), one potential concern is that not all firm activities are concentrated at the headquarters locations.”
Monetary Policy Through Production Networks: Evidence from the Stock Market (2017, background): “Acemoglu, Akcigit, and Kerr (2016) and Barrot and Sauvagnat (2016) show that networks are empirically important for aggregate fluctuations as well as for the propagation of federal spending, trade, technology, and knowledge shocks.”
Trade Network Centrality and Currency Risk Premia (2019, neutral): “A survey of the connection between prices and exchange rates can be found in Burstein and Gopinath (2014). Research on the relation between exchange rates and interest rates began with tests of the uncovered interest parity (UIP) condition by Bilson (1978) and Fama (1984).”
The propagation of monetary policy shocks in a heterogeneous production economy (2018, background): “Acemoglu, Akcigit, and Kerr (2015) and Barrot and Sauvagnat (2016) show empirical evidence for the propagation of idiosyncratic supply shocks through the I/O structure.”
The Sustainability Footprint of Institutional Investors (2018, positive): “For instance, Barrot and Sauvagnat (2016) use natural disasters to Page 29 study how idiosyncratic firm-level shocks propagate in production networks.”
Supply Chain Disruptions: Evidence from the Great East Japan Earthquake* (2016, background): “On March 11, 2011, a magnitude 9.0 earthquake occurred off the northeast coast of Japan.”