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The Localization of Interfirm Transaction Relationships

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  • Kentaro Nakajima
  • Yukiko Saito
  • Iichiro Uesugi

Abstract

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, 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 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.

Suggested Citation

  • Kentaro Nakajima & Yukiko Saito & Iichiro Uesugi, 2012. "The Localization of Interfirm Transaction Relationships," ERSA conference papers ersa12p503, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa12p503
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    References listed on IDEAS

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    1. 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).
    2. Pierre-Philippe Combes & Thierry Mayer & Jacques-François Thisse, 2008. "Economic Geography: The Integration of Regions and Nations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00311000, HAL.
    3. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117, Elsevier.
    4. Gilles Duranton & Henry G. Overman, 2005. "Testing for Localization Using Micro-Geographic Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 1077-1106.
    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 Umeno & Uesugi, Iichiro, 2012. "Measuring economic localization: Evidence from Japanese firm-level data," Journal of the Japanese and International Economies, Elsevier, vol. 26(2), pages 201-220.
    7. 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.
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    Cited by:

    1. MORI Tomoya & SAKAGUCHI Shosei, 2018. "Collaborative Knowledge Creation: Evidence from Japanese patent data," Discussion papers 18068, Research Institute of Economy, Trade and Industry (RIETI).
    2. Hazama, Makoto & Uesugi, Iichiro, 2017. "Measuring the systemic risk in interfirm transaction networks," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 259-281.
    3. Todo, Yasuyuki & Matous, Petr & Inoue, Hiroyasu, 2016. "The strength of long ties and the weakness of strong ties: Knowledge diffusion through supply chain networks," Research Policy, Elsevier, vol. 45(9), pages 1890-1906.
    4. Petr MATOUS & TODO Yasuyuki, 2014. "The Effects of Endogenous Interdependencies on Trade Network Formation across Space among Major Japanese Firms," Discussion papers 14020, Research Institute of Economy, Trade and Industry (RIETI).
    5. Tomoya Mori & Shosei Sakaguchi, 2019. "Creation of knowledge through exchanges of knowledge: Evidence from Japanese patent data," Papers 1908.01256, arXiv.org, revised Aug 2020.
    6. Hazem KRICHENE & ARATA Yoshiyuki & Abhijit CHAKRABORTY & FUJIWARA Yoshi & INOUE Hiroyasu, 2018. "How Firms Choose their Partners in the Japanese Supplier-Customer Network? An application of the exponential random graph model," Discussion papers 18011, Research Institute of Economy, Trade and Industry (RIETI).
    7. Kono, Tatsuhito & Nakajima, Kentaro & Ozane, Kanta, 2023. "Quantitative Impact Analysis of the Centralization of Firms in the Tokyo Metropolitan Area Considering Firm-to-Firm Trade Networks," MPRA Paper 117594, University Library of Munich, Germany.

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