Does “network closure” beef up firms’ performance?

Abstract

In this paper we study whether “network closure” in the supply chain can explain the heterogeneity observed in firms’ performance. Using unique panel data on trade flows among beef farms in the Italian region of Piedmont, we analyze a sequential supply chain characterized by the co-existence of two production goods: domestic cattle, of lower quality but less risky, and imported cattle, of higher quality but exposed to higher risks. Our findings indicate that network closure, a characteristic commonly linked to the enhancement of trustworthy relations and mutual cooperation, is associated with an increase in the performance of farms adopting the riskier production system. On the other hand, network closure does not affect the performance of farms using the more traditional and mature technology. Thus, trust may promote the use of inputs of superior quality.