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Transactions as a Source of Agglomeration Economies: Buyer-seller matching in the Japanese manufacturing industry

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  • NAKAJIMA Kentaro

Abstract

This paper empirically examines whether the geographical proximity of transaction partners improves firms' profits by using actual microdata on inter-firm transactions. I model the formation of transaction partners between newly entering firms and existing ones as a two-sided, many-to-many matching game with transferable utility and estimate the structural parameters of the model. The results show that the average distance to the transaction partners negatively affects firms' structural revenues. This strongly suggests that the existence of agglomeration economies results from inter-firm transactions that occur between geographically close firms. Furthermore, this effect is larger for entrant firms than for existing ones.

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File URL: http://www.rieti.go.jp/jp/publications/dp/12e021.pdf
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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12021.

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Length: 18 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:eti:dpaper:12021

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  1. Jeremy T. Fox, 2008. "Estimating Matching Games with Transfers," NBER Working Papers 14382, National Bureau of Economic Research, Inc.
  2. Jeremy T. Fox, 2010. "Identification in matching games," Quantitative Economics, Econometric Society, vol. 1(2), pages 203-254, November.
  3. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  4. William Kerr & Edward Glaeser & Glenn Ellison, 2007. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," Working Papers 07-13, Center for Economic Studies, U.S. Census Bureau.
  5. NAKAJIMA Kentaro & SAITO Yukiko & UESUGI Iichiro, 2013. "Role of Inter-firm Transactions on Industrial Agglomeration: Evidence from Japanese firm-level data," Discussion papers 13021, Research Institute of Economy, Trade and Industry (RIETI).
  6. Victor Chernozhukov & Han Hong & Elie Tamer, 2007. "Estimation and Confidence Regions for Parameter Sets in Econometric Models," Econometrica, Econometric Society, vol. 75(5), pages 1243-1284, 09.
  7. Joseph P. Romano & Azeem M. Shaikh, 2010. "Inference for the Identified Set in Partially Identified Econometric Models," Econometrica, Econometric Society, vol. 78(1), pages 169-211, 01.
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