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Production networks and volatility in the colombian manufacturing industry

Abstract:

Output volatility is a useful indicator to assess the stability growth, investment, and employment of any economy. Previous research has shown that an input-output structure dominated by few sectors, enables the transmission of sector-level shocks via central activities to the rest of the economy, amplifying the effect of microeconomic shocks into aggregate output volatility. This paper studies the structure of the industrial input-output network in Colombia between 1982 and 2012 to understand its role as a source of industrial output volatility. We build a series of unique input-output networks at the product level, based on industrial survey data on production at the plant level for Colombia. The richness of the data allows us to study the structural properties of the network by characterizing the distribution of first- and second-order degree sequences. The impact of the intersectoral network in the propagation of sector-level shocks into output volatility in the manufacturing industry is quite central. The input-output industrial network in Colombia is composed of few very central inputs providers connected among them and many other products with smaller importance as input suppliers. Such heterogeneous structure amplifies the impact of the intersectoral network on output volatility 3.3 times on average, versus the impact that a balanced structure would have on aggregate volatility.

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Economic and Technological Innovation

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