Endogenous Production Networks and Learning-by-Networking

Abstract

This paper analyzes the interaction between firm heterogeneity, domestic and international production networks, and firm productivity. A detailed analysis of 2006-2017 data shows that input- output linkages across Turkish manufacturing firms provide an amplification mechanism for shocks. After finding strong evidence that supports the asymmetry of the firm-level production networks, I build a model that lays a theoretical foundation upon which establish a linkage between productivity and performance in production networks. Empirical results support the theoretical model and demonstrate the close relationship between the sophistication of a firm’s production network, its productivity, and its entry decision regarding export markets. This study provides evidence on how firms become more productive if they are part of a sophisticated production network while proposing a hypothesis of learning- by-networking with other firms in their production network. Productivity gains also correlated to the firm’s network position in the supply chain, industry class, and the diversity of its export destinations.