| Abstract |
This study estimates the degree of complementarity between firm investment spikes
linked by production networks. A customer firm’s increase in capital by more than
20% (an investment spike) raises its future demand for intermediate inputs, increasing
the likelihood of the supplier’s spike. Similarly, a supplier’s investment spike lowers
the future cost of the intermediate goods demanded by its customer and induces the
customer’s investment spike. We use firm-level panel data from the Japanese business
survey and transaction network data to estimate this complementarity in investment
decisions. The estimates show that, on average, one firm’s investment spike induces
0.088 firms to conduct investment spikes. This indicates that an investment spike
shock can propagate through the production network to upstream and downstream
firms.
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