Project number: K146238

Understanding the determinants of productivity and competitiveness is key in understanding differences across countries, regions and firms. Such research is also important for policymakers when designing policies for enhancing growth and reducing inequalities. A central question in in economics is why firm performance varies so much even in narrowly defined industries. Why do some firms underperform relative to others? What policies could help the underperformers? Much research has focused on answers to these questions that act at the level of the individual firm, such as access to credit. But firms do not operate in a vacuum: they are embedded in a supply chain network. And, because a large part of firm activity involves transacting with suppliers and clients, having access to the right suppliers and clients may play a key role in determining business performance.

First, we will try to understand how impotant it is for firms to be abel to trade with suppliers producing high-quality inputs. Given the number of potential suppliers, managers may only be able to consider some of them, which is called search friction. We will indentify both the importance of quality and search friction. Another important aspect of a firm is whether it can supply attractive buyers, such as multinationals. We will look at two factors that determine this: what type of information technology the firm uses and what are the characteritics of the managers.