The persistent role of proximity in vertical relations: Evidence from the European car industry

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Abstract:

It is sometimes argued that in a global economy many of the traditional
roles of proximity have become less important. Yet there is persistent evidence
that proximity still shapes economic activity. This paper investigates the role
of proximity in the choice of external suppliers in the European automotive
industry. We conceptually break it down into three complementary dimensions:
physical proximity, cultural proximity, and proximity to clusters. Using
a supplier choice model, we find that each of the three dimensions has strong independent
explanatory power for the formation of buyer-supplier relationships
and that cultural proximity has the strongest effects. The effect of geographical
proximity has become stronger over time at very short distances, but weaker at
longer distances. The positive effect of clusters is limited to vertical clusters of
suppliers that do not produce direct substitutes.