Spatial social-networking externality and firm location: a simulation model of Chile

There have already been several established approaches regarding social externalities and location decision-making of the firm. However, those usually face certain difficulties when the model is applied to the real economic system. This technical problem may be solved by testing the case of spatial structure of Chile, where particular spatial configurations characterized by extremely narrow and long geographical attributes are available. While there are various methods of investigation such as spatial econometrics and CGE models, we attempt to compose a spatial Keiretsu framework by applying numeric simulation analysis. To be precise, the simulation initially distributes firms at random across whole regions of the country in order to observe the evolution process of every individual firm together with given conditions of spatially-constrained external economies of scale, scope and complexity in each region. It is then examined the potential impact of changes in internal economies such as horizontal, lateral and vertical integrations on the efficiency of further growth with respect to expansion time and scale of firms in addition to given availability of external economies. Furthermore, sensitivity of simulation is measured to evaluate the creation of new firms as well as their evolution processes by means of repeating Monte-Carlo method. The simulation outcome may provide policy implications such as the accumulating issue of severe spatial concentration in the Metropolitan Region of the country. Finally, the analysis explores further avenues of research towards general framework of spatial social externalities