Before revision: The interfirm buyer-seller network is important from both macroeconomic and microeconomic perspectives. From a macroeconomic perspective, this network represents a form of interconnectedness that allows firm-level idiosyncratic shocksto be propagated to other firms. This propagation mechanism interferes with the averaging out process of shocks, having a possible impact on aggregate fluctuation. From a microeconomic perspective, the interfirm buyer-seller network is a result of a firm's strategic link renewal processes.
After revision: A firm's buyer--seller relationships can be characterized as a longitudinal network in which the connectivity patterns evolve as each firm faces productivity shocks. Despite its importance in characterizing the production network of an economy, little is known about how the network revises its linkage structure in the face of global and individual exogenous shocks. Using a unique data set covering 10 years of interfirm buyer--seller networks and structural equation modeling, we show that the evolution of the interfirm buyer--seller network is a result of a firm's strategic link renewal processes.