Before revision:  From a microeconomic perspective, the interfirm buyer-seller network is a result of a firm's strategic link renewal processes. There has been substantial research that models strategic link formation processes, but the economy-wide consequences of such strategic behaviors are not clear. We address these two questions using a unique dataset for the Japanese interfirm buyer-seller network. We take a structural equation modeling, and show that a large proportion of fluctuation in the average log growth rate of firms can be explained by the network and that link renewal by firms decreases the standard deviation of the log growth rate.
After revision:  From a microeconomic perspective, the interfirm buyer-seller network is a result of a firm's myopic decisions to avoid other firms' negative shocks and share their positive shocks. We show that the current network is often the best network configuration, which improves both the propagation of positive shocks and the avoidance of negative shocks compared with previous networks. Furthermore, we show that for positive shocks, the future network is often better than the current network in the sense that it propagates positive shocks better than the current network. This is explained by the network and that link renewal by firms decreases the standard deviation of the log growth rate.