Complexity Of Production Processes And The Need For Proximity

This paper studies the effect of globalization on the geography of trade. More specifically we present the deepening integration process (i.e. the fall in transport costs) and the need for proximity as two sides of the same phe-nomenon. We propose a theoretical model in which both international fragmentation and increasing need for proximity in input-output relationships are endogenous responses to an exogenous fall in transport costs. Indeed, in a Dixit-Stiglitz’ framework, a fall in transport costs increases the varieties of tasks making production process more complex. This increasing complexity implies that input-output linkages require a higher level of coordination. Coordination is assumed to be achieved more easily between nearby than between distant countries.