Working Paper: NBER ID: w10404
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. Unsynchronised 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 generates hitherto unexplored incentives for clustering. 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: timeliness; trade; agglomeration; economic geography; just-in-time production
JEL Codes: F1; L0; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased delivery uncertainty (D89) | increased costs (J32) |
| increased delivery uncertainty (D89) | increased production delays (D25) |
| increased production delays (D25) | increased costs (J32) |
| increased costs (J32) | incentivizes clustering (C38) |
| increased delivery uncertainty (D89) | incentivizes clustering (C38) |
| concentration of component production around a single assembler (L23) | minimizes risk of delays (L91) |
| minimized risk of delays (R41) | enhances productivity and efficiency (O49) |
| uncertainty about demand and costs (D89) | contributes to clustering effect (R32) |