What is a production network?
- Learn about the NAICS code system for classifying industries
- Visualize and explore the U.S. economic production network
2. Overview of the U.S. Economic Production Network
There are many ways we can visualize a particular production network. For instance, how "zoomed in" is our view? Are we looking at individual businesses and how they are connected, or are we looking at entire industries (collections of businesses) as we were in the examples in the previous section?
When we're considering a real-world economy, like that of the United States, a primary factor to consider is the available data. For our purposes here, a good place to start is with industry data, and in particular, industry data at the 3-digit NAICS level.
First, a little bit of background: NAICS stands for North American Industry Classification System, which is a numerical coding scheme for classifying businesses. It was jointly developed by Mexico, Canada, and the United States in the late 1990s, and in the United States was used to replace an earlier classification system that had been the standard up until that point.
NAICS has a hierarchical structure, where each additional digit within an industry code generally (though not always) specifies an additional level of granularity. For instance, here is the hierarchy that contains "Solar Electric Power Generation" in the most recent version of NAICS:
- Code 22 (2 digits): Utilities
- Code 221 (3 digits): Utilities
- Code 2211 (4 digits): Electric Power Generation, Transmission and Distribution
- Code 22111 (5 digits): Electric Power Generation
- Code 221114 (6 digits): Solar Electric Power Generation
There are about two dozen codes at the 2-digit NAICS level, while there are hundreds of (more detailed) codes at the 6-digit NAICS level. For our purposes here, we strike a balance by focusing on the 3-digit NAICS level.
Specifically, the data visualization below shows the U.S. economic production network as it was in 2015, based on the 71 industries, including government, contained within the U.S. Bureau of Economic Analysis' annual input-output tables (which generally list industries at the 3-digit NAICS level; input-output tables will be discussed in more detail in a future module).
The visualization works by focusing on a single industry at a time. This "focus" industry is shown in red in the center of the visualization, while its direct suppliers (i.e., the industries it purchases from) are shown in orange above it and its direct customers (i.e., the industries it sells to) are shown in green below it. The percentages above the focus industry represent the fraction of the focus industry's inputs (in dollar terms) that it purchases from each of its suppliers. Similarly, the percentages below the focus industry represent the fraction of the focus industry's output (in dollar terms) that it sells to each of its customers. A pair of industries may have a mutual dependence such that they purchase from, and sell to, each other. Where these types of relationships occur, the relevant suppliers/customers are shown in purple to the right of the focus industry. For the sake of clarity, the visualization is limited to displaying the top five suppliers and the top five customers for each focus industry. Hover over an industry to see more information, and click on an industry to change the focus.
Following on the example above, the visualization is set to focus on the utilities industry by default. In 2015, the top five suppliers to this industry were: oil and gas extraction; petroleum and coal products; mining, except oil and gas; administrative and support services; and miscellaneous professional, scientific, and technical services. In that year, these five suppliers accounted for almost half of the utilities industry's inputs (when measured in dollar terms).
In 2015, the top five customers of the utilities industry were: other real estate; food services and drinking places; state and local government; other retail; and wholesale trade. In that year, these five customers accounted for about 40 percent of the utilities industry's output (when measured in dollar terms).
A focus industry's direct suppliers and customers (which are called "first-degree" connections in the terminology of networks) capture just one aspect of its connectedness within the broader U.S. production network. The visualization also displays some "second-degree" connections: a focus industry's suppliers' suppliers as well as its customers' customers. These connections are shown in grey at the top and the bottom of the visualization, respectively (and the visualization is limited to showing the top five of these second-degree connections in the same way it is with the first-degree connections).
Taking the utilities industry as an example, we see that its top five suppliers each also have top five suppliers of their own. Similarly, most of the utilities industry's customers have customers of their own. Interestingly, we note that the state and local government industry does not have any customers. This can be confirmed by clicking on its green circle, which will move state and local and government to be the focus industry. In this way, we can think of state and local government as being at the "bottom" of the production network, in the sense that its output is purchased by final consumers and not by other industries. We examine this idea in more detail in the next section on upstreamness.