Distance decay for supply and demand potentials

Börje Johansson and Johan Klaesson

Letters in Spatial and Resource Sciences, 2017, vol. 10, issue 1, No 7, 87-108

Abstract: Abstract This paper introduces a model framework which identifies the economic activity of each local economy (location) and observes the time distance between each pair of locations. Time distance for interaction inside local economies is taken as reference. Two models of location patterns are formulated on the basis of principles adhering to new economic geography (NEG). The first model describes how business service firms (classified into three levels of knowledge intensity) select locations with a favorable demand potential, depicting a location’s access to customer demand. The second model takes the location of business-service supply as given and describes how other firms select locations with a favorable supply potential, depicting the access to business-service supply. In order to calculate each location’s demand and supply potentials we need distance-decay parameters for interaction outside the local economy. When estimating the two models we develop an approach where the distance-decay (time sensitivity) parameters are determined endogenously as an integral part of estimating location choice parameters. The exercise can be appreciated as a test of NEG principles.

Keywords: Demand potential; Supply potential; Location of sectors; Distance decay; Time sensitivity; NEG principles (search for similar items in EconPapers)
JEL-codes: C21 L84 R11 R12 R30 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1007/s12076-016-0173-7

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