8/2026 Glenn Magerman et al. Beyond firm size: network position and shock transmission in firm-to-firm production networks across five economies
Working Papers of Eesti Pank 8/2026
Glenn Magerman, Alberto Palazzolo, Emmanuel Dhyne, Andras Borsos, Dmitry Kulikov, Andrea Linarello, Alari Paulus, Giacomo Romanini, Martin Saldias
How much a firm’s shocks move the aggregate, and how they propagate to other firms, both depend on its position in the network of firm-to-firm trade. As firm-level networks are available for few economies, quantitative work typically relies on firm size and/or input–output tables as proxies. Using administrative VAT records and tax filings, we build harmonized production networks for five European economies (Belgium, Estonia, Hungary, Italy, and Portugal) and measure firms’ positions directly. Five facts stand out. First, firm size and centrality summarize a firm’s first-order aggregate impact, but not its vertical position along production chains, which is orthogonal to size and governs how shocks propagate across firms. Second, firm size is itself a function of the network: roughly half of within-industry size dispersion reflects the number of customers a firm has, rather than a primitive such as productivity. Third, granularity runs along several dimensions beyond firm size: network sales, transaction values, and the number of customers are heavy-tailed, spanning several orders of magnitude. Fourth, firm-to-firm networks differ structurally from IO tables: they are orders of magnitude sparser, “roundabout” production disappears, and input shares vary widely even within narrow sector pairs. These patterns are stable across all five economies and persist within narrowly defined industries, reflecting firm-level characteristics rather than sectoral composition or country-specific factors. Finally, these distinctions are economically relevant: firm-level responses to monetary policy vary systematically with vertical position, and cross-country differences in where firms sit along production chains generate heterogeneous aggregate responses to a common shock. We provide these moments as calibration targets and as a guide to when sector-level structure is an adequate approximation and when firm-level detail is first-order.
DOI: 10.23656/25045520/082026/0238
Keywords: Firm–to–firm production networks, input–output analysis, granularity, monetary policy transmission, firm heterogeneity
JEL Classification: C81, D57, E52, L14
Corresponding author: [email protected]
The views expressed here are those of the authors and do not necessarily represent the official views of Eesti Pank or the Eurosystem.
