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Timeliness, Trade and Agglomeration

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  • Harrigan, James
  • Venables, Anthony J.

Abstract

An important element of the cost of distance is time taken in delivering final and intermediate goods. We argue that time costs are qualitatively different from direct monetary costs such as freight charges. The difference arises because of uncertainty. Unsynchronized deliveries can disrupt production, and delivery time can force producers to order components before demand and cost uncertainties are resolved. Using several related models we show that this can cause clustering of component production. If final assembly takes place in two locations and component production has increasing returns to scale, then component production will tend to cluster around just one of the assembly plants.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4294.

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Date of creation: Mar 2004
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Handle: RePEc:cpr:ceprdp:4294

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Keywords: clustering; just-in-time; location; trade;

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References

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  1. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  2. Michael Storper & Anthony J. Venables, 2003. "Buzz: Face-to-Face Contact and the Urban Economy," CEP Discussion Papers dp0598, Centre for Economic Performance, LSE.
  3. Carolyn L. Evans & James Harrigan, 2003. "Distance, Time, and Specialization," NBER Working Papers 9729, National Bureau of Economic Research, Inc.
  4. David Hummels & Georg Schaur, 2012. "Time as a Trade Barrier," NBER Working Papers 17758, National Bureau of Economic Research, Inc.
  5. Thomas H. Klier, 1999. "Agglomeration in the U.S. auto supplier industry," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 18-34.
  6. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
  7. Cremer, Jacques, 1995. "Towards an economic theory of incentives in just-in-time manufacturing," European Economic Review, Elsevier, vol. 39(3-4), pages 432-439, April.
  8. Edward E. Leamer & Michael Storper, 2001. "The Economic Geography of the Internet Age," NBER Working Papers 8450, National Bureau of Economic Research, Inc.
  9. Anthony Venables, 2001. "Geography and International Inequalities: The Impact of New Technologies," Journal of Industry, Competition and Trade, Springer, vol. 1(2), pages 135-159, June.
  10. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  11. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 709-24, October.
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Citations

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Cited by:
  1. Jang Ping Thia, 2008. "Why Capital does not Migrate to the South: A New Economic Geography Perspective," CEP Discussion Papers dp0895, Centre for Economic Performance, LSE.
  2. Gilles Duranton & Michael Storper, 2008. "Rising trade costs? Agglomeration and trade with endogenous transaction costs," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 292-319, February.
  3. Liu, Xiaoyun & Xin, Xian, 2011. "Transportation uncertainty and international trade," Transport Policy, Elsevier, vol. 18(1), pages 156-162, January.
  4. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
  5. Harrigan, James, 2010. "Airplanes and comparative advantage," Journal of International Economics, Elsevier, vol. 82(2), pages 181-194, November.
  6. John Whalley & Xian Xin, 2007. "Regionalization, Changes in Home Bias, and the Growth of World Trade," NBER Working Papers 13023, National Bureau of Economic Research, Inc.

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