cover image: Production Networks and Firm-level Elasticities of Substitution (English)


Production Networks and Firm-level Elasticities of Substitution (English)

22 May 2024

This paper provides one of the first estimates of elasticities of substitution across suppliers within the same product. This paper estimates these elasticities using new real-time administrative tax data on firm-to-firm transactions, with product-level prices and quantities, leveraging geographic and temporal variation from India's Covid-19 lockdowns to derive causal estimates of these elasticities. Suppliers are highly complementary even at this granular level, with an estimated elasticity of $0.55$. The paper shows that the quality of institutions, input specificity, inventories, and time horizons explain the low elasticity. These firm-level complementarities amplify the propagation of negative shocks through production networks, and make connected firms important for shock propagation. In policy counterfactuals, the paper shows that given these complementarities, allowing more connected firms to operate in the face of shocks mitigates output declines non-linearly with the size of the productivity shock.
trade coronavirus covid-19 other world


Fujiy,Brian C., Ghose,Devaki, Khanna,Gaurav

Disclosure Date
Disclosure Status
Doc Name
Production Networks and Firm-level Elasticities of Substitution
Originating Unit
Off of Sr VP Dev Econ/Chief Econ (DECVP)
Product Line
Research Activity
Published in
United States of America
Rel Proj ID
1W-Trade, Migration, And Human Capital -- P175495
Series Name
Policy Research working paper ; no. WPS 10782; INFRASTRUCTURE; COVID-19 (Coronavirus);
TF No/Name
TF0B7101-Trade and technology and panjiva project
Unit Owning
DECRG: Trade & Intl. Integration (DECTI)
Version Type
Volume No

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