Intermediate goods and the location of productive activity

Pontes, José Pedro

doi:10.1007/s00168-004-0206-9

“…1 In particular, welfare aspects of capital agglomeration 3 (Pflüger and Südekum 2008), the location decisions of firms (Pontes 2005;Pontes and Parr 2005) and the economics of the induction of a clustering process have been subject to thorough investigation stressing, among other things, the importance of spatial economies of scale and scope. Many countries have spatial differences in production and productivity, mostly because of economic distance between lagging and leading areas.…”

Section: Introductionmentioning

confidence: 99%

Regional investment under uncertain costs of location

Бролл

¹

,

Roldán-Ponce

²

,

Wahl

³

2013

Ann Reg Sci

4

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Due to globalization competitive firms face increasing economic opportunities for locating their activities in countries, regions and cities that provide the best business environment for their specific needs. In our study we focus on the impact of economic risk and risk preferences upon regional allocation of investments. The source of risk stems from the difference in stochastic costs of location across regions. A comparative static analysis shows that capital allocation depends upon the firms' risk preferences. As a result regional agglomeration of investments may occur although the objective of the regional policy is aimed at the opposite. Our findings demonstrate the suitability of the two-moment approach as an alternative to the expected utility approach. The impact of changes in distribution parameters, such as the expected costs of location, the variance of costs of location and the correlation between locational costs, can be fully characterized via the elasticity of risk aversion. Elements of risk preferences beyond risk aversion prove to be very important to evaluate regional politics. This insight is of interest for empirical research in regional economics. Terms of use: Documents in JEL-Classification: R12, R30, R38Keywords: Regional allocation, regional economics, regional policy, agglomeration, two-moment decision model 2 Abstract Due to globalization competitive firms face increasing economic opportunities for locating their activities in countries, regions and cities that provide the best business environment for their specific needs. In our study we focus on the impact of economic risk and risk preferences upon regional allocation of investments. The source of risk stems from the difference in stochastic costs of location across regions. A comparative static analysis shows that capital allocation depends upon the firms' risk preferences. As a result regional agglomeration of investments may occur although the objective of the regional policy is aimed at the opposite. Our findings demonstrate the suitability of the two-moment approach as an alternative to the expected utility approach. The impact of changes in distribution parameters, such as the expected costs of location, the variance of costs of location and the correlation between locational costs, can be fully characterized via the elasticity of risk aversion. Elements of risk preferences beyond risk aversion prove to be very important to evaluate regional politics. This insight is o...

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“…1 In particular, welfare aspects of capital agglomeration (Pflüger and Südekum 2008), the location decisions of firms (Pontes 2005;Pontes and Parr 2005) and the economics of the induction of a clustering process have been subject to thorough investigation stressing, among other things, the importance of spatial economies of scale and scope.…”

Section: Introductionmentioning

confidence: 99%

Regional Investment Under Uncertain Costs of Location

Бролл¹,

Roldán-Ponce²,

Wahl

³

2012

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Due to globalization competitive firms face increasing economic opportunities for locating their activities in countries, regions and cities that provide the best business environment for their specific needs. In our study we focus on the impact of economic risk and risk preferences upon regional allocation of investments. The source of risk stems from the difference in stochastic costs of location across regions. A comparative static analysis shows that capital allocation depends upon the firms' risk preferences. As a result regional agglomeration of investments may occur although the objective of the regional policy is aimed at the opposite. Our findings demonstrate the suitability of the two-moment approach as an alternative to the expected utility approach. The impact of changes in distribution parameters, such as the expected costs of location, the variance of costs of location and the correlation between locational costs, can be fully characterized via the elasticity of risk aversion. Elements of risk preferences beyond risk aversion prove to be very important to evaluate regional politics. This insight is of interest for empirical research in regional economics. Terms of use: Documents in JEL-Classification: R12, R30, R38Keywords: Regional allocation, regional economics, regional policy, agglomeration, two-moment decision model 2 Abstract Due to globalization competitive firms face increasing economic opportunities for locating their activities in countries, regions and cities that provide the best business environment for their specific needs. In our study we focus on the impact of economic risk and risk preferences upon regional allocation of investments. The source of risk stems from the difference in stochastic costs of location across regions. A comparative static analysis shows that capital allocation depends upon the firms' risk preferences. As a result regional agglomeration of investments may occur although the objective of the regional policy is aimed at the opposite. Our findings demonstrate the suitability of the two-moment approach as an alternative to the expected utility approach. The impact of changes in distribution parameters, such as the expected costs of location, the variance of costs of location and the correlation between locational costs, can be fully characterized via the elasticity of risk aversion. Elements of risk preferences beyond risk aversion prove to be very important to evaluate regional politics. This insight is o...

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“…1 In particular, economic development aspects of capital agglomeration (OECD 2005), the location decisions of international firms (Pontes (2005), and the economics of the induction of a clustering process have been subject to thorough investigation stressing, among other things, the importance of spatial economies of scale and scope (Fujita et al (1999), OECD (2007a), Baldwin and Wyplosz (2009)). …”

Section: Introductionmentioning

confidence: 99%

Spatial Allocation of Capital: The Role of Risk Preferences

Бролл¹,

Roldán-Ponce²,

Wahl

³

2010

SSRN Journal

20

0

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper considers a model of spatial allocation of investment capital under uncertainty. We demonstrate that the spatial concentration of economic activity depends upon properties of risk preferences deeper than risk aversion. The degree of so-called relative prudence unambiguously decides whether or not the diversi cation of income risk favours the geographic dispersion of economic activity. In our framework we relate risk diversi cation with economic integration. Then there exists risk preferences so that spatial concentration of industry and capital is not a ected by the degree of economic integration or segmentation of the regions. We also study the impact of net return regressibility upon spatial allocation. Terms of use: Documents in Udo Broll Antonio Roldán-Ponce T e c h n i s c h e U n i v e r s i t ä t D r e s d e n T e c h n i s c h e U n i v e r s i tät Dresden, Dresden, Germany F a c u l t y o f B u s i n e s s a n d E c o n o m i c s U n i v e r s i d a d A u t o noma deJEL-Classification: D81, R12, R30, R38

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Intermediate goods and the location of productive activity

Abstract: R10, R30, C71,

Cited by 5 publications

References 11 publications

Regional investment under uncertain costs of location

Regional investment under uncertain costs of location

Regional Investment Under Uncertain Costs of Location

Spatial Allocation of Capital: The Role of Risk Preferences

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