Belgium Study Reveals Impact of Supplier Dynamics on Economic Growth

A recent study conducted in Belgium delves into the intricate effects of input variety creation and destruction on both micro and macroeconomic outcomes. The microeconomic analysis reveals that the elasticity of downstream firms’ marginal cost to supplier separation plays a pivotal role, capturing the area under the input demand curve. Empirically, the study estimates that marginal costs increase by 0.6% for every 1% of suppliers lost.

The macroeconomic analysis introduces a growth-accounting framework that emphasizes the role of supply chain churn in aggregate growth. Leveraging firm-level production network data, the study suggests that supplier churn might significantly contribute to the trend component of growth in aggregate productivity. The findings underscore the critical role of entry and exit in the input market for driving economic growth.

Key Points:

  • Microeconomic analysis establishes a 0.6% rise in marginal costs for every 1% of suppliers lost.
  • Growth-accounting framework suggests supplier churn as a substantial contributor to aggregate productivity growth.
  • Supplier dynamics play a crucial role at both micro and macro levels, impacting structural growth and trade models.

The authors acknowledge financial support from NSF grant No. 1947611 and the Alfred P. Sloan Foundation. However, it’s important to note that the views expressed in the paper are those of the authors and may not necessarily reflect the views of the National Bank of Belgium or any other affiliated institution.

For a more detailed exploration of the study, refer to the complete paper by David R. Baqaee, Ariel Burstein, Cédric Duprez, and the late Emmanuel Farhi.