This paper shows that local economic shocks spill over to distant regions through firms' internal networks, and that such spillovers matter economically by affecting aggregate employment in those regions. Using confidential micro data from the U.S. Census Bureau, we find that establishment-level employment responds strongly to shocks in other regions in which the firm is operating. Consistent with theory, the elasticity of establishment-level employment with respect to shocks in other regions increases with firms' financial constraints. Also, establishments belonging to firm networks exhibit smaller employment elasticities with respect to (their own) local shocks. To account for the impacts of general equilibrium adjustments, we examine aggregate employment at the county level. Similar to what we found at the establishment level, we obtain large elasticities of county-level employment with respect to shocks in other counties linked through firms' internal networks.
Giroud, Xavier, and Holger Mueller. "Firms' Internal Networks and Local Economic Shocks." Columbia Business School, September 2017.
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