Industry Linkages from Joint Production
(Updated May 21, 2020)
Does joint production within firms link up aggregate outcomes across industries? I exploit exogenous variation in foreign demand faced by US multi-industry manufacturers to identify this transmission mechanism. I find that a positive demand shock in one industry of a firm increases its sales in another the more that both industries share knowledge inputs--including R&D, IT, and other professional services. I develop a general equilibrium model of joint production and estimate that properties of knowledge inputs generate economies of scale and scope within the firm. An expansion of market size in one industry lowers prices in not only the same industry but also others. These cross-industry spillovers account for 20 percent of the aggregate response of prices to market size and manifest disproportionately among knowledge-intensive industries.