Abstract:
We study the correlation structure of firm growth rates. We show that most firms are correlated because of their exposure to a common factor but that firms linked through the supply chain exhibit a stronger correlation on average than firms that are not. Removing this common factor significantly reduces the average correlation between two firms with no relationship in the supply chain while maintaining a significant correlation between two firms that are linked. We then investigate if this observation can be used to reconstruct the topology of a supply chain network using Gaussian Markov Models.
Citation:
Mungo, L. & Moran, J. (2023). 'Revealing production networks from firm growth dynamics'. INET Oxford Working Paper No. 2023-02.