Essays on Firm Networks

Abstract

I study how firms’ production, political and ownership networks influence the performance of firms and the economy. In the first chapter, I use a firm-to-firm transaction dataset to evaluate quantitatively how shocks propagate through production networks when their underlying links are costly to form and adjust. By combining a new set of facts consistent with adjustment frictions in these relationships with a tractable dynamic general equilibrium model with endogenous production networks, I show that these adjustment frictions are quantitatively important for how aggregate output responds to shocks. I apply this mechanism to the propagation of trade shocks in Chile during the Great Recession.

In the second chapter, together with In Song Kim (MIT), we study the causal effect of firm lobbying activities on the misallocation of resources through the distortion of firm size. To accomplish this, we propose a new instrument that exploits variation in the value of firms’ political connections in the US Congress. We combine micro reduced-form facts, including the instrumental variable approach, with a macro model of firms where lobbying activity is endogenous and show quantitatively the aggregate productivity losses coming from lobbying activity in the US.

Finally, in the third chapter, together with Cristobal Huneeus (Unholster), Borja Larrain (PUC-Chile), Mauricio Larrain (PUC-Chile) and Mounu Prem (Universidad del Rosario), we study whether business groups (BGs) can be beneficial for affiliated firms through the formation of internal labor markets (ILMs) that improve the allocation of their workers. By combining an employer-employee dataset merged with the ownership network of firms affiliated to BGs we show that BG firms use intensively their network with other firms within the BG to reallocate workers. We explore different hypothesis of why BGs benefit from these ILMs and test whether these BGs benefit from this internal reallocation. Our results are consistent with the idea that ownership networks between firms facilitate the accumulation and transfer of intangible inputs such as management practices.