Economic geography and interfirm transaction networks

Abstract

Recent years have seen a remarkable expansion of empirical research using microdata on interfirm transactions that capture disaggregated firm-level transaction relationships. This chapter reviews the background to and recent empirical research on this issue. The chapter starts with a review of studies examining transaction networks without the use of transactions microdata and then shows the limitations of such research. Following this, a definition of transactions microdata and specific examples are provided. Finally, recent empirical research using transactions microdata is reviewed. The review focuses on the following three important questions. How substantial are geographic frictions in the formation of interfirm transaction networks? How great is the impact of networks on the behavior of agents within such networks? And to what extent does a geographically localized shock propagate through such networks? Finally, the future outlook in this line of research is considered.