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BIMSA Digital Economy Lab Seminar
Intersectoral Distortions, Endogenous Production Networks and Structural Change
Intersectoral Distortions, Endogenous Production Networks and Structural Change
Speaker
Time
Friday, December 26, 2025 3:00 PM - 4:00 PM
Venue
A3-2-303
Online
Zoom 435 529 7909
(BIMSA)
Abstract
This paper investigates the role of endogenous production network evolution in driving structural transformation. We develop a multi-sector general equilibrium framework with endogenous input-output linkages, where firms make “make-or-buy” decisions subject to sector-specific intersectoral trade frictions. Quantifying the model using U.S. data from 1960 to 2021, we document that the service sector experienced a significantly faster decline in distortions compared to manufacturing, leading to increased network density and centrality for services. The calibrated model accounts for 82.9% of the observed increase in the service sector's value-added share relative to manufacturing. Counterfactual analyses reveal that evolving intersectoral frictions are a primary driver of structural change; holding these frictions constant, the model generates only 43.3% of the observed shift. These findings highlight that endogenous network reconstruction, driven by asymmetric friction reductions, is a distinct and quantitative significant mechanism behind the rise of the service sector.