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Urban and Regional Economics Seminars

Financial Constraints and Propagation of Shocks in Production Networks

Beata Javorcik (Oxford)


Friday 26 October 2018 13:00 - 14:30

32L 2.04, 2nd Floor Conference Room, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH

About this event

This study examines the role of financing constraints in propagation of an unexpected supply shock through a country's production network. The analysis, motivated by a simple theoretical model, is based on data covering quasi-totality of supplier-customer links in Turkey during the 2010-14 period. The shock in question was the increase of the tax rate applying to imports purchased on credit from 3% to 6% of the transaction value, which took place in October 2011. As utilization of trade credit varied across product varieties, the shock had a heterogenous effect across importers. The results suggest that the shock had a substantial direct effect on importers. More interestingly, the findings suggest that it was propagated and amplified primarily by firms with limited access to external liquidity. Liquidity constrained importers, exposed to the shock, transmitted it to their customers to a much larger extent than importers that were not facing liquidity constraints.

This event will take place in 32L 2.04, 2nd Floor Conference Room, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.

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This series is part of the CEP's Urban and spatial programme.