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Does Demand Uncertainty Infl uence Location of Industry?

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Author Info

  • Baniak, Andrzej

    ()
    (Department of Economics, Central European University)

  • Cukrowski, Jacek

    ()
    (UNDP Regional Bureau for Europe and CIS, Bratislava Regional Centre)

  • Dunin-Wasowicz, Stefan

    (Center for Social and Economic Research)

Abstract

The analysis presented in this paper shows that in countries with relatively high wages risk-averse fi rms operating in perfectly competitive markets will reduce production of commodities with high uncertainty of demand. Such commodities will be produced mainly in countries having suffi ciently lower labor costs. Thus, an increase in demand uncertainty may shift the production from developed to developing countries even though additional per unit transaction and transportation costs in the latter offset the advantage of lower wages. The predictions of the model are then checked through an analysis of the toy industry concerning the level of demand uncertainty and location of outsourced production activities.

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Bibliographic Info

Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

Volume (Year): 59 (2006)
Issue (Month): 4 ()
Pages: 419-435

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Handle: RePEc:ris:ecoint:0069

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Keywords: Demand uncertainty; risk aversion; production allocation;

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