2025/01/07 by Le Xu, Yang Yu, Francesco Zanetti
Economics, Econometrics and Finance · #Firm Innovation and Growth #Global trade and economics #Market Dynamics and Volatility
paper · doi:10.1016/j.jmoneco.2025.103730
openalex publication_date 2025/01/07 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/27
We assemble a firm-level dataset to study the adoption and termination of suppliers over business cycles. We document that the aggregate number and rate of adoption of suppliers are procyclical. The rate of termination is acyclical at the aggregate level, and the cyclicality of termination encompasses large differences across producers. To account for these new facts, we develop a model with optimizing producers that incur separate costs for management, adoption, and termination of suppliers. These costs alter the incentives to scale up production and to replace existing with new suppliers. Sufficiently high convexity in management relative to adjustment costs is crucial to replicating the observed cyclicality in the adoption and termination rates at the producer and aggregate levels. We study the welfare implications of credit injections and subsidies on new inputs—the two main classes of supply-chain policies adopted in the U.S. since the COVID-19 pandemic. Credit injections generally outperform subsidies on new inputs, except when aggregate TFP is exceptionally high. • Aggregate rate of adoption of suppliers is procyclical. • Aggregate rate of termination is acyclical and heterogeneous across producers. • Separate costs for management, adoption, and termination of suppliers are important. • Supply chain policies of credit injections outperform subsidies on new inputs. • Sufficiently high convexity in management relative to adjustment costs is required.