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Localization of Interfirm Transaction Relationships and Industry Agglomeration

  • NAKAJIMA Kentaro
  • SAITO Yukiko Umeno
  • UESUGI Iichiro

Using a unique dataset of more than 140,000 manufacturing firms in Japan containing information on their suppliers and customers, this paper looks at the physical distances between transaction partners to examine the localization of transaction relationships. We find the following. First, based on a counterfactual that controls for the location of firms and their potential partners, transaction relationships in about 90%-95% of the 150 three-digit manufacturing industries can be labeled as localized at distances of 40km or less. This indicates that physical distance is a key factor in firms' choice of transaction partners. Second, based on a counterfactual that controls for the average distance of transaction relationships in the manufacturing sector as a whole, we find that about 40% of industries transaction relationships are localized at short distances not exceeding 40km. Third, the extents of industrial localization and localization of transaction relationships are positively correlated. However, there are a number of exceptions, for which we provide potential explanations.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12023.

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Length: 26 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:eti:dpaper:12023
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  1. Glenn Ellison & Edward L. Glaeser & William R. Kerr, 2007. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," Harvard Business School Working Papers 07-064, Harvard Business School.
  2. Gilles Duranton & Henry G Overman, 2006. "Exploring the Detailed Location Patterns of UK Manufacturing Industries using Microgeographic Data," Working Papers tecipa-248, University of Toronto, Department of Economics.
  3. Yasusada Murata & Ryo Nakajima & Ryosuke Okamoto & Ryuichi Tamura, 2011. "Localized knowledge spillovers and patent citations: A distance-based approach," GRIPS Discussion Papers 11-11, National Graduate Institute for Policy Studies.
  4. NAKAJIMA Kentaro & SAITO Yukiko & UESUGI Iichiro, 2010. "Measuring Economic Localization: Evidence from Japanese firm-level data," Discussion papers 10030, Research Institute of Economy, Trade and Industry (RIETI).
  5. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  6. 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).
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