Production network structure, service share, and aggregate volatility

This paper shows that GDP growth volatility declines with production network diversification. To account for this evidence, I build a multisector model CES technologies and cost of complexity in the bundle intermediates. Production diversification decreases when intermediate inputs labor are substitute inputs. U.S. sectoral data suggest intermediates substitutes service sectors. Therefore, calibrated then also matches each country's can quantitatively generate empirical patterns. The explains why service-oriented countries less volatile: sectors have more diversified set suppliers.