Working Paper: CEPR ID: DP4294
Authors: James Harrigan; Anthony J. Venables
Abstract: An important element of the cost of distance is time taken in delivering final and intermediate goods. We argue that time costs are qualitatively different from direct monetary costs such as freight charges. The difference arises because of uncertainty. Unsynchronized deliveries can disrupt production, and delivery time can force producers to order components before demand and cost uncertainties are resolved. Using several related models we show that this can cause clustering of component production. If final assembly takes place in two locations and component production has increasing returns to scale, then component production will tend to cluster around just one of the assembly plants.
Keywords: clustering; just-in-time; location; trade
JEL Codes: F10; L00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| delivery time uncertainty (C69) | production delays (D25) |
| production delays (D25) | location decisions of component producers (R32) |
| delivery time uncertainty (C69) | clustering of component producers (L23) |
| timeliness in delivery (L87) | clustering of component producers (L23) |
| increasing returns to scale in component production (L23) | clustering of component production (L23) |
| clustering of component production (L23) | efficient outcome in presence of time costs (D61) |