DEMAND-PULL VS. SUPPLY-AGGLOMERATION EFFECTS IN LOCATIONAL CHOICE OF INDUSTRY : PATTERNS WITH PRODUCT LIFE CYCLE

Abstract

In the literature of spatial economics it is stylized fact that weak economies of scale and high transportation costs induce supplies of goods and services to locate very close to their markets, and large economies of scale and low transportation costs provide an incentive to gather at one place. This paper first confirms this fact in a comparative static model and then attempts to find some empirical evidence in the industry level. We classify the applicable forces into "demand-pull "(centrifugal) and "supply-agglomeration " (centripetal). Using an observable estimator of relatively rapid growth before relocation and after relocation as an index of the weight of "history" versus "expectations", we would suggest that future growth(centrifugal forces) tends to dominate early stages of the PLC and supply-agglomeration(centripetal forces) tends to dominate later stages of the PLC, in a majority of industries studied.