GEP Seminar: Jing Cai (University of Maryland)

Title: Firm-to-firm access in production networks

Abstract: We use randomized referrals to improve firm-to-firm access between 700 supplier and client firms in China doing business in the same county and industry. We establish two main results. (1) A key barrier to access is pessimistic beliefs about the value of partners. Information about the partner does not, but a small subsidy does lead to new partnerships. New partners increase firms' beliefs about and search for additional partners, as well as the number of non-referred partners. (2) Access changes industry equilibrium by expanding, not just reallocating, the production network and economic activity. Firms increase the number of partners and improve business performance; suppliers and clients engage in complementary upgrading in quality and variety; and detectable indirect effects are positive. These results are consistent with a framework in which access improves performance by creating new business ideas, and suggest that improving access may be important even in contexts that lack tangible barriers.