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The Cambridge-INET Institute - continuing as the Janeway Institute

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McNerney, J., Savoie, C., Caravelli, F., Carvalho, V. M., Farmer, J. D.

How production networks amplify economic growth

JIWP Number: 2113

Abstract: Technological improvement is the most important cause of long-term economic growth. We study the effects of technology improvement in the setting of a production network, in which each producer buys input goods and converts them to other goods, selling the product to households or other producers. We show how this network amplifies the effects of technological improvements as they propagate along chains of production. Longer production chains for an industry bias it towards faster price reduction, and longer production chains for a country bias it towards faster GDP growth. These predictions are in good agreement with data and improve with the passage of time, demonstrating a key influence of production chains in price change and output growth over the long term.

Keywords: Multi-sector models, Production networks, Productivity

Author links: Vasco Carvalho  

PDF: jiwp2113.pdf

Open Access Link: 10.17863/CAM.79744

Theme: transmission