Misallocation in Production Networks across Space : the Role of Firm Lobbying in the US

In this paper, I examine the role of firm lobbying in shaping the structure of US production networks, and its implications for misallocation in production networks across space. Using several instrumental variable strategies, I establish that firms that lobby have more buyers and suppliers, and such effects are more pronounced for larger firms, firms subject to more regulations, and distant buyer-supplier connections. Further examination suggests that lobbying reduces misallocation in production networks, which is especially effective in the presence of distortive regulations. A novel quantitative model of spatial production networks indicates that lobbying reduces misallocation by 22%, and explains 3.2% of the gain of aggregate productivity during 1999-2020. A model without production networks or space delivers quantitatively and even qualitatively different results