Demir, Banu. <br/><br/>
O-Ring Production Networks / 
Banu Demir, Ana Cecília Fieler, Daniel Xu, Kelly Kaili Yang. 
 - Cambridge, Mass.  National Bureau of Economic Research  2021. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w28433 .
 - Working Paper Series (National Bureau of Economic Research)  no. w28433. .
<br/><br/> February 2021. 
<br/><br/> We study a production network where quality choices are interconnected across firms. High-quality firms are skill intensive and trade more with other high-quality firms. Using data from Turkish firms, we document strong assortative matching of skills in the production network. A firm-specific export demand shock from a rich country increases the firm's skill intensity and shifts the firm toward skill-intensive domestic partners. We develop a quantitative model with heterogeneous firms, endogenous quality choices, and network formation. An economy-wide export demand shock of 5 percent induces exporters and non-exporters to upgrade quality, raising the average wage by 1.2 percent.  This effect is about nine times the effect in a special case of the model with no interconnection of quality choices. 
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