Production chains |
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Authors: | David K Levine |
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Institution: | 1. Department of Economics, Washington University in St. Louis, Campus Box 1208, St. Louis, MO 63130-4899, United States;2. Federal Reserve Bank of St. Louis, United States |
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Abstract: | More advanced technologies demand higher degrees of specialization — and longer chains of production connecting raw inputs to final outputs. Longer production chains are subject to a “weakest link” effect: they are more fragile and more prone to failure. Optimal chain length is determined by the trade-off between the gains to specialization and the higher failure rate associated with longer chain length. There is a kind of reverse “Keynesian multiplier” that magnifies the effect of real shocks. Consequently, more advanced economies may have lower utilization of resources and be more prone to crisis. |
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