Intangible Input Complementarities Along Supply Chains

We study whether buyer-supplier relationships feature complementarities in intangible inputs. Using administrative data from the Dominican Republic, we show that foreign demand routed through intangible-intensive buyers raises a supplier’s own intangible purchase share, while demand from other buyers has no effect. Two event studies on firms not previously exposed to intangible-producing partners provide further evidence. Forming a first link with an intangible-industry buyer raises the probability of any intangible purchase by about 4 percentage points, and hiring a worker from an intangible-producing firm for the first time has an effect of the same size. A general equilibrium production network model with endogenous intangible input use, knowledge transfer through worker mobility, and endogenous intangible prices implies that supply-chain complementarities account for about 15 percent of aggregate intangible purchases and about 4 percent of output.