Network of Firms and the Aggregate Economy: Evidence from Costa Rica

There has been a recent effort to better understanding the role of firm linkages in production and aggregate stability. The more recent views present the idea that a shock to a single firm (or sector) could have a larger impact if it also affects other firms connected to this firm through a network of input-output linkages. However, most of the advances in the area have been theoretical and the testable implications of the models have been mainly explored only at the sector level due to data unavailability. This project will use an administrative firm-level transactions dataset for the universe of Costa Rican firms to construct a measure of connectivity between firms and study how shocks propagate through the network. In particular, the project will study the effect of place-based reforms related to the entry of multinational firms and FDI on domestic firms’ productivity. The nature of the dataset involves highly confidential information which could only be accessed from a secured computer at the Central Bank of Costa Rica. The main objective of the trip was to establish a protocol with the Central Bank in order to start an academic collaboration with this institution. Fortunately, negotiations were fruitful and I was able to start a co-authorship after the trip.