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The Localization of Interfirm Transaction Relationships

  • Kentaro Nakajima


  • Yukiko Saito
  • Iichiro Uesugi

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 be- tween transaction partners to examine the localization of transaction relationships. We find the following. First, ntrols 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 indi- cates that physical distance is a key factor in firmsÂf 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 cor- related. However, there are a number of exceptions and we provide potential explanations for these.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa12p503.

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Date of creation: Oct 2012
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Handle: RePEc:wiw:wiwrsa:ersa12p503
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  1. Nakajima, Kentaro & Saito, Yukiko Umeno & Uesugi, Iichiro, 2011. "Measuring Economic Localization: Evidence from Japanese Firm-level Data," Working Paper Series 10, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University.
  2. Gilles Duranton & Henry Overman, 2002. "Testing for Localisation Using Micro-Geographic Data," CEP Discussion Papers dp0540, Centre for Economic Performance, LSE.
  3. Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
  4. Rosenthal, Stuart S. & Strange, William C., 2001. "The Determinants of Agglomeration," Journal of Urban Economics, Elsevier, vol. 50(2), pages 191-229, September.
  5. 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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