This paper examines the importance of buyer-supplier relationships for firm performance. We develop a model in which firms outsource tasks and search for suppliers. Lower search and outsourcing costs lead firms to search more and find better suppliers, which in turn drives down marginal costs. We test the theory by exploiting the opening of a high-speed train line in Japan, which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive data set on firms? buyer-seller linkages, we find significant improvements in firm performance as well as creation of buyer-seller links, consistent with the model. ? 2019 by The University of Chicago. All rights reserved.

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1 April 2019

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Journal of Political Economy 127(2) , pp.639-688, 2019

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DOI: 10.1086/700764

https://www.journals.uchicago.edu/doi/10.1086/700764

This Journal article is published under the centre's Trade programme.