Abstract
In 2011, Japanese firms suffered severe losses as a result of the Great East Japan Earthquake and the Thailand floods. Firms incurred continual damage because they depended on spatially dispersed supply chains. The fragmentation of foreign and domestic trade proceeds as a dispersion force. As a result, secondary or tertiary subcontractors sometimes provide distinctive parts independently. However, such a structure has in fact caused contiguous damage to these firms. To capture the characteristics of supply chains over space and the cascade of spatial risks, we set up a two-level structure of circles in which firms can be categorized. The top circle is occupied by intermediate goods producers who provide differentiated inputs for the final goods producers in the second circle. We assume that scale economy works with respect to the variety of intermediate goods. Thus, final goods producers purchase inputs from intermediate goods producers in different locations, paying transport costs in the process. We then evaluate the two-level structure in terms of location-specific hazards such as earthquakes. A more dispersed supply chain corresponds to a greater likelihood that final goods producers would suffer losses from the spatial risk. Simulation results reveal that the expected damage may be less for intermediate goods producers with more dispersed locations. Conversely, final goods producers may be better served by being spatially concentrated.
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- 1.
Natural disasters cause human losses as well as economic damage. The Great East Japan Earthquake on 11 March 2011 caused 21,613 fatalities and missing people (The Fire and Disaster Management Agency, Japan, 2014).
- 2.
See ESCAP (2013, 157–158) for the shock in detail.
- 3.
While Wisner et al. (2004) proposed the definition of disaster or disaster risk because of the interaction between vulnerability and hazards, the World Bank and the United Nations (2010) adopted a similar definition. A hazard is a natural or man-made phenomenon capable of inflicting harm on communities (Gilbert 2013).
- 4.
Kull and Closs (2008) pointed out that increased inventory in a tiered supply chain might increase supply risk rather than decrease it.
- 5.
See Venables (1996) for a model of vertically linked industries in the context of the New Economic Geography, although no distances occur among firms within a supply chain in each region.
- 6.
This assumption of differentiated inputs comes from the example of ‘Renesas Shock,’ as described above.
- 7.
In the case of the Japanese automobile industry, for example, clients pay the transport cost of their inputs.
- 8.
FOB price is the price effective for the trade at the plant only, and does not include the transport cost. FOB price is also referred to as the mill price. See Beckmann (1976).
- 9.
- 10.
- 11.
In traditional economic theory, risk itself is given exogenously, and agents should decide whether or not to take it, which is different from the definition of risk given by Wisner et al. (2004) in Footnote 3.
- 12.
In reality, producers seem to balance the fixed costs or communication costs due to dispersion of plants with their risk aversion.
- 13.
Although changing the parameter values is interesting as comparative statics or sensitivity analysis, we could extract the essential characteristics of the supply chain by using this setting at this stage.
- 14.
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Acknowledgments
This work was supported by the Japan Research Center for Transport Policy. Earlier versions of this paper were presented at the Annual Congresses of European Regional Science Association in Bratislava and Palermo, the NECTAR conference at the Azores, the Third Asian Seminar in Regional Science at Hualien, and the Applied Regional Science Conference at Naha. The author would like to thank the discussants and participants at the conferences, particularly Masahisa Fujita and Olaf Jonkeren, who provided insightful comments. He thanks Shigeyoshi Tanaka and Youdai Yamada for useful comments. This chapter was based on Kuroda (2014). He would like to thank Aura Reggiani and Networks and Spatial Economics for their helpful comments. Any error in this chapter is the author’s sole responsibility.
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Kuroda, T. (2015). Supply Chain, Transportation, and Spatial Risk. In: Ishikawa, T. (eds) Firms’ Location Selections and Regional Policy in the Global Economy. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55366-3_3
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DOI: https://doi.org/10.1007/978-4-431-55366-3_3
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