Identifying Productivity Spillovers Using the Structure of Production Networks

Despite the importance of agglomeration externalities in theoretical work evidence for their nature, scale, and scope remains elusive

Abstract

Despite the importance of agglomeration externalities in theoretical work, evidence for their nature, scale, and scope remains elusive, particularly in developing countries. Identification of productivity spillovers between firms is a challenging task, and estimation typically requires, at a minimum, panel data, which are often not available in developing country contexts. In this paper, Bazzi, Chari, Nataraj and Rothenberg (2016) develop a novel identification strategy that uses information on the network structure of producer relationships to provide estimates of the size of productivity spillovers.

Their strategy builds on that proposed by Bramoull´e et al. (2009) for estimating peer effects, and is one of the first applications of this idea to the estimation of productivity spillovers. The authors improve upon the network structure identification strategy by using panel data and validate it with exchange-rate induced trade shocks that provide additional identifying variation. They apply this strategy to a long panel dataset of manufacturers in Indonesia to provide new estimates of the scale and size of productivity spillovers.

Their results suggest positive productivity spillovers between manufacturers in Indonesia, but estimates of TFP spillovers are considerably smaller than similar estimates based on firm-level data from the U.S. and Europe, and they are only observed in a few industries.

this research was funded under the Private Enterprise Development in Low-Income Countries (PEDL) Programme

Citation

Bazzi, S., Chari, A., Nataraj, S. and Rothenberg, A. (2016) Identifying Productivity Spillovers Using the Structure of Production Networks. Preliminary - not for Citation or Circulation.

Identifying Productivity Spillovers Using the Structure of Production

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