How Do Trade and Communication Costs Shape the Spatial Organization Of Firms?
Toshitaka Gokan (),
Sergey Kichko and
Jacques Thisse ()
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Toshitaka Gokan: National Research University Higher School of Economics
No WP BRP 191/EC/2018, HSE Working papers from National Research University Higher School of Economics
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 to fewer firms going multinational. By contrast, less expensive communication flows leads to more investment abroad. The reason for this difference in results is that the two types of spatial frictions differ in nature: in the proximity-concentration trade-off, lower trade costs weaken the need for proximity, while lower communication costs foster deconcentration.
Keywords: trade costs; communication costs; spatial fragmentation of firms (search for similar items in EconPapers)
JEL-codes: F12 F21 R12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-int
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Published in WP BRP Series: Economics / EC, April 2018, pages 1-49
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Working Paper: How Do Trade and Communication Costs Shape the Spatial Organization of Firms? (2019)
Working Paper: How do trade and communication costs shape the spatial organization of firms? (2019)
Working Paper: How do trade and communication costs shape the spatial organization of firms? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:191/ec/2018
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