Working paper

• Friend-of-a-Friend in Production Networks: Micro Estimates and Macro Implications, 2025 (joint with Makoto Nirei)

  • The friend-of-a-friend effect is the idea that when two firms share a common trading partner, a new link between them is likely to form. We quantify this effect in production networks, where the shared partner acts as relational capital, facilitating new connections. First, we develop a general equilibrium (GE) model that endogenizes firms’ link formation and incorporates the friend-of-a-friend mechanism. We show that the GE model simplifies to a dyad-level logit specification, enabling us to estimate the friend-of-a-friend effect using a quadruple-based conditional logit that controls for buyer and supplier fixed effects. Analyzing a dynamic panel of Japanese firm-to-firm transactions provides strong evidence of the friend-of-a-friend effect, with a magnitude comparable to other important factors like physical distance and sectoral proximity. Finally, we evaluate the macroeconomic impact through a counterfactual analysis within a calibrated GE model. Results indicate that removing the friend-of-a-friend effect decreases welfare by 0.6% and changes the propagation of firm-level shocks by altering the network structure.

• Inter-Firm Network Growth Over Firm Life Cycle and Its Macroeconomic Implications, 2025 (joint with Makoto Nirei), [slide]

  • This paper investigates the network growth pattern of young firms and its macroeconomic implications. Using panel data on firm-to-firm trade and financial surveys in Japan, we show that young firms face delays in acquiring new partners due to matching frictions, even after accounting for typical age-dependent growth factors. To explain this pattern, we develop a general equilibrium model incorporating dynamic network formation of heterogeneous firms, distorted by an age-specific networking wedge. Using the calibrated model, we identify the macroeconomic significance of the wedge. The elimination of this wedge raises welfare by 2.4% through faster network formation of young firms and reorganized supply chains. Furthermore, when comparing two policy simulations—one promoting supplier accumulation and the other promoting customer accumulation—we find that the former is twice as effective in improving welfare, due to the difference in the efficiency of the two resulting network structures across the entire economy.

• Disentangling Supply and Demand Shocks in a Network Economy, 2025 (joint with Daisuke Fujii and Taisuke Nakata), submitted