LIFT: Leveraging Inter-Firm Transactions

OECD member countries are increasingly interested in policies to help firms respond to disruptions due to climate change, the digital transition, or foreign supply chain shocks. Firms have been dividing their production processes into an increasing number of stages, each performed by a different domestic or foreign firm. This can amplify potential shocks and complicates the design of business support policies, in particular targeting, as the risk of spillovers rises with firm linkages.

A new type of data has become available to study shocks and spillovers in these fragmented production networks: firm-to-firm transaction data. These datasets currently exist in at least 15 countries. Transaction data capture sales and purchases made between firms in a domestic economy, most often as a by-product of value-added tax (VAT) records.

To maximise the benefits of these data for policy makers, LIFT co-ordinates an international network of national administrations, practitioners and researchers with access and interest in using firm-to-firm transaction data. Research using this data is gaining momentum, but differences in data and methodology make cross-country comparisons difficult to interpret, while existing datasets in other countries remain untapped. The objective is to use this network of stakeholders that either manage or use these data to work on common policy questions with a shared methodology and unlock new data sources for policy-relevant analysis.

Although focused on policy, the network will also hold workshops, conferences and be a focal point for the research community. The network will also strive to produce quality research suitable for peer-reviewed academic publications.

The network is especially interested in the following topics:

• Supply chain resilience. Transaction data can help track supply shocks through the domestic production network and uncover hidden dependencies. For example, early factory closures in China due to COVID-19 in January 2020 affected the purchases and sales not only of Estonian firms importing from China, but also of their domestic buyers and their domestic sellers.
   
• Industrial policy. Policymakers can leverage transaction data to understand spillovers when designing industrial policies. For example, the increased price of carbon permits on the European Trading Scheme in 2018 led to higher electricity efficiency and CO2 efficiency of the Estonian firms involved in the ETS and of their buyers, but not of their suppliers. 
   
• Productivity growth. Policymakers are increasingly understanding the importance of global supply chains for enhanced productivity. Firms that supply high-productivity firms often learn from their buyers and increase their productivity as well.

The LIFT Network is actively recruiting the participation of new countries for these projects.

The network relies on a distributed microdata analysis methodology, leveraging the collaboration of the LIFT team with national experts accessing the relevant microdata. The network welcomes government institutions, central banks and researchers to participate.

The main requirements to participate in the LIFT network are outlined below.

Access to:

• Value-added tax (VAT) data with who-to-whom reporting on all transactions between firms.

Minimum set of variables:

• Consistent unit ID (firm or establishment) over time.
• Industrial Classification or ability to link the VAT data to administrative or survey data containing firm characteristics (industry, turnover, employment).

The LIFT network is a partnership by the OECD's Directorate for Science, Technology and Innovation, which runs the project, and the European Commission's DG GROW.