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BIMSA Digital Economy Lab Seminar
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.