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The 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 to 95% of the 150 three-digit manufacturing industries can be labelled 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 in about 40?% of industries transaction relationships are localized at short distances of up to 40km. Third, the extent of industrial localization and the extent of the localization of transaction relationships are positively correlated. However, there are a number of exceptions and we provide potential explanations for these.

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Paper provided by Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University in its series Working Paper Series with number 17.

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Length: 25 p.
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:hit:cinwps:17
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  1. Glenn Ellison & Edward L. Glaeser & William R. Kerr, 2010. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," American Economic Review, American Economic Association, vol. 100(3), pages 1195-1213, June.
  2. 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).
  3. Gilles Duranton & Henry G. Overman, 2006. "Exploring the detailed location patterns of UK manufacturing industries using microgeographic data," LSE Research Online Documents on Economics 19794, London School of Economics and Political Science, LSE Library.
  4. Yasusada Murata & Ryo Nakajima & Ryosuke Okamoto & Ryuichi Tamura, 2011. "Localized knowledge spillovers and patent citations: A distance-based approach," Tsukuba Economics Working Papers 2010-010, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  5. 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).
  6. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
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