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FRAGMENTATION AND CLUSTERING IN VERTICALLY LINKED INDUSTRIES *
Author(s) -
Pais Joana,
Pedro Pontes José
Publication year - 2008
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.2008.00580.x
Subject(s) - economies of agglomeration , fragmentation (computing) , upstream (networking) , downstream (manufacturing) , upstream and downstream (dna) , industrial organization , vertical integration , economics , cluster analysis , final good , econometrics , business , microeconomics , production (economics) , operations management , mathematics , statistics , computer science , operating system , computer network
This paper models the location of two vertically related firms in a low labor cost country and in a country with a large market. The upstream industry is more labor intensive than the downstream industry. We find that spatial fragmentation occurs for low values of the input‐output coefficient and intermediate values of the transport rate, particularly if the countries are very asymmetric in size. Otherwise, we obtain agglomeration either in the low cost country (when the transport rate is low) or in the large market (when the transport rate is high). Multiple agglomerated equilibria arise when the transport cost of the intermediate good is significant.