Production chains

More advanced technologies demand higher degrees of specialization — and longer chains of production connecting raw inputs to final outputs. Longer production chains are subject to a “weakest link” effect: they are more fragile and more prone to failure. Optimal chain length is determined by the trade-off between the gains to specialization and the higher failure rate associated with longer chain length. There is a kind of reverse “Keynesian multiplier” that magnifies the effect of real shocks. Consequently, more advanced economies may have lower utilization of resources and be more prone to crisis.

► Better technology demand longer chains connecting inputs to final outputs. ► Longer production chains are more fragile due to a “weakest link” effect. ► Advanced economies may be more prone to crisis.