Chapter 2 Equilibrium locations of upstream and downstream firms

This paper explores the interaction between upstream firms and downstream firms in a two-region general equilibrium model. In many countries, lower tariff rates are set for intermediate manufactured goods and higher tariff rates are set for final manufactured goods. The derived results imply that such settings of tariff rates tend to preserve a symmetric spread of upstream and downstream firms, and continuing tariff reduction may cause core-periphery structures. In the case in which the circular causality between upstream and downstream firms is focused as agglomeration forces, the present model is fully solved. Thus, we find that (1) the present model displays, at most, three interior steady states, (2) when the asymmetric steady-states exist, they are unstable and (3) location displays hysteresis when the transport costs of intermediate manufactured goods are sufficiently high.Developing countries, Developed countries, Economic geography, Econometric model, Trade theory, Tariff, Spatial economics, Upstream and downstream firms

On the sustainability of a monocentric city : lower transport costs from new transport facilities

This paper proposes a general equilibrium model of a monocentric city based on Fujita and Krugman (1995). Two rates of transport costs per distance and for the same good are introduced. The model assumes that lower transport costs are available at a few points on a line. These lower costs represent new transport facilities, such as high-speed motorways and railways. Findings is that new transport facilities connecting the city and hinterlands strengthen the lock-in effects, which describes whether a city remains where it is forever after being created. Furthermore, the effect intensifies with better agricultural technologies and a larger population in the economy. The relationship between indirect utility and population size has an inverted U-shape, even if new transport facilities are used. However, the population size that maximizes indirect utility is smaller than that found in Fujita and Krugman (1995)

The location of manufacturing firms and imperfect information in transport market

It is well know that transport charges are not symmetric: fronthaul and backhaul costs on a route may differ, because they are affected by the distribution of economic acitivities. This paper develops a two-regional general equilibrium model in which transport costs are determined endogenously as a result of a search and matching process. It is shown that economies or diseconomies of transport density emerge, depending on the search costs of transport firms and the relative importance of the possibility of backhaul transportation. It is found that the symmetry of the distribution of economic activity may break owing to economies of transport density when the additional search costs are small enough

Online and offline sales in a spatial economy

This study analyzes the interplay between cost-sharing and imperfect information among online firms competing with offline firms within an industry. By incorporating firm level quality, it shows how the intensity of cost-sharing, local market size, the number of regions being serviced, and the transport costs affect the expected quality of products, the "richness" of the varieties sold in the online market and social welfare. One of our results shows that a high intensity of costsharing, such as costs relating to the warehouse provided by the online platform, forces the lowest-quality firms to exit the online market but has no impact on the entry of higher-quality firms into the offline market. As a result, the average quality of products sold in the online market improves and the product variety decreases. Consequently, the welfare remains unchanged

Predicting Long-Term Effects of Infrastructure Development Projects in Continental South East Asia: IDE Geographical Simulation Model

It is important to develop a rigorous economic geography model for predicting changes in the location of population and industries across regions in the process of economic integration. The IDE Geographical Simulation Model (IDE-GSM) has been developed for two major objectives: (1) to determine the dynamics of locations of population and industries in East Asia in the long term, and (2) to analyze the impact of specific infrastructure projects on the regional economy at sub-national levels. The basic structure of the IDE-GSM is introduced in this article and accompanied with results of test analyses on the effects of the East West Economic Corridor on regions in Continental South East Asia. Results indicate that border costs appear to play a big role in the location choice of populations and industries, often a more important role than physical infrastructures themselves.Economic geography; Infrastructure development; Custom clearance

Search, matching, and self-organization of a marketplace

In many developing countries, clusters of small shops are the typical market-place. We investigate an economic model in which, between buyers and sellers in a marketplace, a circular causality including the search process produces agglomeration forces, given the initial location of the marketplace location exogenously in a linear city. We conclude that initial number of buyers and sellers is important in forming a large marketplace

Agglomeration economies in Vietnam : a firm-level analysis

This paper examines the effects of agglomeration economies on firm‐level productivity in Vietnam. By using Vietnamese firm‐level data and the cluster detection method proposed by Mori and Smith (2013), we estimate the agglomeration economies for firm‐level productivity. Specifically, we consider the different effects of agglomeration economies for localization and urbanization, as well as across types of firms; state‐owned, private, and foreign‐owned firms. Furthermore, we decompose the agglomeration economies into the three sources of the effect; inter‐industry transaction relationships, knowledge spillovers, and labor pooling. We find the following results. First, localization economies actually improve firm‐level productivity in Vietnam, with firms in the clustered areas having higher productivities. However, the localization economies do not improve the productivity of the state‐owned firms. Second, urbanization economies improve productivity only for foreign‐owned firms. State‐owned and private firms do not benefit from urbanization economies. From the decomposition of agglomeration economies, we find that agglomeration economies formed through transactions work only for private firms. On the other hand, agglomeration economies formed through knowledge spillovers and labor pooling work for foreign‐owned firms

Economic impacts of economic corridors in Mongolia : an application of IDE-GSM

In this paper, we tried to estimate the economic impacts of the Central Asia Regional Economic Cooperation (CAREC) Economic Corridor 4a, 4b, and 4c projects, which enhance the connectivity between Mongolia and its surrounding countries, using a computational general equilibrium model based on spatial economics. The estimation results show that the economic impacts for Corridor 4b, which connects China and Russia through Ulaanbaatar, the capital of Mongolia, are the highest compared with the other two corridors. Apart from Mongolia, Corridor 4b also economically impacts China, EU, and Russia; thus, cooperation among these four parties might be a suitable arrangement for development. The evaluation of large-scale economic development of corridors is not very easy without proper evaluation tools

How do trade and communication costs shape the spatial organization of firms?

We show how trade and communication costs interact to shape the way firms organize their　activities across space. We consider the following three organizational types: (i) integrated firms　in which all activities are conducted at the same location, (ii) horizontal firms, which operate　several plants producing the same good at different locations, and (iii) vertical firms, which　perform distinct activities at separated locations. We find necessary and sufficient conditions for　the three types of organization to coexist within the same country, whereas firms located in the　other country are all spatially integrated. We then study how trade and communication costs　affect firms’ organizational choices. First, lower trade costs lead fewer firms to go multinational.By contrast, less expensive communication flows leads to more investment abroad. The reasonfor this difference in results is that the two types of spatial frictions differ in nature: in theproximity-concentration trade-off, lower trade costs weaken the need for proximity, whilelower communication costs foster deconcentration

Does the coexistence of online and offline firms improve welfare?

This study shows how the coexistence of online and offline firms affectsconsumer welfare. By introducing two dimensions of heterogeneity inproductivity and quality, we find that the consumers\u27 indirect utility under thecoexistence of online and offline firms is higher than that of only offline firms.Specifically, we show that: (1) if the initial investment of online firms is smallenough or if the initial investment of offline firms is large enough, or (2) if thefixed costs of offline firms are sufficiently large under the general distribution ofproductivity and quality. Additionally, we find that the cutoff productivity levelof domestic online firms increases due to the cost-saving of the fixed costsamong online exporting firms, leading to the higher indirect utility compared tothe indirect utility without cost-saving