Measuring the input rank in global supply networks

Abstract

AbstractWe introduce the Input Rank as a network measure of relevance of direct and indirect suppliers in Global Value Chains. We conceive an intermediate input to be more relevant for a downstream buyer if a negative shock to that input's productivity affects that buyer more. In particular, in our framework, the relevance of any input depends on: (i) the network position of the supplier relative to the buyer, (ii) the patterns of intermediate input intensities connecting the buyer and the supplier, and (iii) the competitive pressures along supply chains. After we compute the Input Rank from both the U.S. and the world input–output tables, we provide useful insights into the crucial role of services inputs as well as on the relatively higher relevance of domestic suppliers, and suppliers coming from regionally integrated partners. Finally, we test that the Input Rank is a good predictor of vertical integration choices made by 20,489 U.S. parent companies controlling 154,836 subsidiaries worldwide.