How production networks amplify economic growth.
James McNerney1,2,3, Charles Savoie4, Francesco Caravelli5
1Center for International Development, Kennedy School of Government, Harvard University, Cambridge, MA 02139; james.mcnerney@gmail.com.
Summary
Technological progress drives economic growth by propagating through production networks. Longer production chains accelerate price reductions for industries and boost overall economic growth for countries.
Area of Science:
- Economics
- Economic Growth Models
- Network Theory
Background:
- Standard economic growth models treat technology aggregately.
- Economies function as networks where producers transform goods through production chains.
- Technological advancements are key drivers of long-term economic expansion.
Purpose of the Study:
- To analyze how production network structures amplify technological improvements.
- To predict the impact of production chain length on industry price reduction and national economic growth.
Main Methods:
- Development of a network-based economic model.
- Analysis of technological propagation along production chains.
- Empirical validation using World Input Output Database data.
Main Results:
- Longer production chains within an industry correlate with faster price reductions.
- Extended production chains at a national level are associated with accelerated economic growth.
- Model predictions show strong agreement with empirical data, improving over time.
Conclusions:
- Production chains significantly influence long-term economic dynamics, including price evolution, output growth, and structural change.
- Network effects in production amplify the impact of technological progress.
- The structure of production networks is crucial for understanding economic development.
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