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 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 asymmetry in cost between severing a link and link formation. We also investigate the role of the network in aggregate fluctuations and show that at least 37%DIFDELCMD < \\%%% %DIF < of the aggregate fluctuations can be explained by the network effect.\end{abstract} 
Buyer--seller relationships among firms can be regarded as a longitudinal network in which the connectivity pattern evolves as each firm receives productivity shocks. Based on a data set describing the evolution of buyer--seller links among 55,608 firms over a decade and structural equation modeling, we find some evidence that interfirm networks evolve reflecting a firm's local decisions to mitigate adverse effects from neighbor firms through interfirm linkage, while enjoying positive effects from them. As a result, link renewal tends to have a positive impact on the growth rates of firms. We also investigate the role of networks in aggregate fluctuations %DIFDELCMD < \\%%% %DIF < of the aggregate fluctuations can be explained by the network effect.\end{abstract} .
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A firm's buyer--seller relationships can be characterized
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patterns evolve
pattern evolves
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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
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networks
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show that the evolution of the interfirm buyer--seller network is a result of a
find some evidence that interfirm networks evolve reflecting a
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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 asymmetry in cost between severing a link and link formation.
local decisions to mitigate adverse effects from neighbor firms through interfirm linkage, while enjoying positive effects from them. As a result, link renewal tends to have a positive impact on the growth rates of firms.
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the network
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and show that at least 37
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