Industrial Dynamics, Product Cycles, and Employment Structure

Working Paper

INDUSTRIAL DYNAMICS.

PRODUCT CYCLES, AND EldPU)YldENT SrRuCTURE

61 E.

Andersson

B.

Johansson

International Institute for Applied Systems Analysis

A-2361 Laxenburg, Austria

INDU!WRIAL DYNAMICS, PRODUCI' CYCLES.

AND

EldPLOYKENT SIXUCTITRE

1 E.

Andersson

B.

Johansson

February 1984 WP-84-9

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS

2361 Laxenburg, Austria

FORFPYORD AND ABEZR11CT

The objective of the Forest Sector Project a t

IIASA

is to study long- t e r m development alternatives for the forest sector on a global basis.

The emphasis in the project is on issues of major relevance t o industrial and government policy makers in the diffeerent regions of t h e world, who are responsible for industrial and natural resource strategies and t o related trade policies.

The key elements of structural change in the forest industry a r e related to th.e changing pattern of demand, supply capacity and trade.

I t

is obvious t h a t technological change, t o a large extent triggered off by evolving Research and Development strategies, plays a major role in this process of s t r u c t u r a l change a t the global level. Conclusions from this article a r e as follows:

The forest sector is developing into an integrated systems industry in t h e same way as large parts of chemical a n d other process industries, with similar requirements on coordinative capacities and support from logistical infrastructure. This makes location to highly developed economies an advantage for t h e integrative parts of t h e sector.

It is a low

R

&

D

industry, however measured, in a comparison with other manufacturing industries. This may cause problems for t h e sector in inter-industrial competition for labor and capi- tal resources. For t h e non-integrative forest industry, like mechanical wood processing, i t means a long-term process of relocation from the

OECD

region to less developed regions of the world.

Within t h e

OECD

region t h e forest sector will continue t o be located primarly in sparsely populated areas. Continued loca- tion outside t h e major densely populated knowledge c e n t r e s of t h e world can a c c e n t u a t e t h e technological development prob- lems of t h e sector, unless properly c o u n t e r a c t e d by new

R

& D strategies.

This paper, which is based on product cycle theory, h a s been written in collaboration between t h e Regional Issues Project a n d t h e Forest Sec- t o r Project a t IIASA

h e E. Andersson Leader

Regional Issues Project

Markku Kallio Leader

Forest Sector Project

CONTENTS

1.1 Product Cycles and Labor Mobility 1.2 Product Cycles a n d Spatial Relocations

2. PRODUCT CYCLES AND TECHNOLOGY CHANGE I N A GLOBAL

PERSPECTIVE 5

2.1 Products, Sectors a n d Jobs

2.2 Product Cycles in a Global Perspective

3. DYNAMICS OF KNOWLEDGE INTENSITY IN PRODUCTION PROCESSES 11 3.1 Dynamics of Market Shares, Costs and Technology 11 3.2 Profit Criteria a n d Market Entry 14 3.3 Production Scale a n d Dynamics of Knowledge Intensity 17 3.4 Product Development a n d Knowledge Intensity 22 4. THE SPATIAL ELEMENT IN INDUSTRIAL STRUCTURAL CHANGE

PROCESSES 26

4.1 Empirical Observations on Product Cycles and P a t t e r n s

of Location 26

4.2 Product Cycle P h e n o m e n a in t h e OECD-Region 27 4.3 Accessibility, Land Values, a n d Birthplaces for

New Production 32

4.4 The Nature of Comparative Knowledge Advantage a t t h e

Micro-Regional Scale 34

4.5 On t h e Importance of Regional Specialization a n d t h e

Availability of Knowledge for t h e Locational P a t t e r n 39

5. DYNAMICS OF PRODUCTION UNITS AND LABOR PRODUCTIVITY 42 5.1 Productivity Distributions and Time Invariances with

Illustrations f r o m t h e Forest Sector in Sweden 5.2 Dynamics of Exit, Entry a n d Productivity 5.3 Average a n d Best Practice Productivity Change 6. INDUSTRIAL SCENARIOS AND THE PRODUCT CYCLES

6.1 From World Trade t o Regional Labor Markets 6.2 Outline of t h e Programming Model

6.3 Scenarios Assessed a t t h e National Level for t h e Industry a s a Whole

6.4 Regional Consequences of t h e Scenarios

6.5 The OECD-Product Cycle and Sectoral Restructuring in t h e Programing Scenarios

7. SUMMARY AND CONCLUSIONS APPENDIX A

A 1 Determination of Trade Shares

A 2 Observations on Trade Share Dynamics APPENDIX B

REFERENCES

INDUSXML

DYNAMICS,

PRODUm CYCLeS,

AND

ENF'LOYMENT

SlXUCTURE

by

A.E.

Andersson a n d

B.

Johansson

1.

INTRODUCTION

1.1 Product Cycles and Labor Mobility

Policy formation, a s regards industrial change, includes national a n d regional policies for r e s e a r c h a n d development

(R

&

D),

investment p a t t e r n s , education and retraining programs for t h e labor force. This process is, in a fundamental way, characterized by genuine uncertainty.

Steady s t a t e growth ultimately means change without development, i.e., a change with constant industrial investment a n d employment shares.

When development takes place i n t h e environment of a country a n d a region, such an internal steady s t a t e becomes in f a c t undesirable.

Changes i n t h e environment comprise development of international m a r k e t s for existing products and factors of production; i t also includes

the emergence of new products and production techniques a s well a s international and national institutional changes.

In this paper we shall relate t h e above types of changes to product cycles t h a t can be observed on a global scale, and t o changes in produc- tion and communication technologies, as well as t o t h e development of new products. A fundamental part in this process of change is gradual spatial relocation of industrial activities within and among countries.

In order t o be viable beyond t h e short t e r m perspective, industrial change processes m u s t include labor mobility in several dimensions. In particular, t h e r e m u s t exist a n e t positive transition away from declining and obsolete industrial activities over to new activities which a r e emerg- ing a n d expanding. Such a mobility combined with spatial mobility must generally also include changes in knowledge a n d skills of t h e labor force.

The corresponding education effort constitute a n investment process which is as vital a s t h e investment in fixed capital (production tech- niques) and R &

D.

We can also identify a welfare problem associated with such labor mobility which is forced by external changes. Hence, industrial policy in general will also be associated with welfare policy.

In the subsequent sections we attempt t o assess (i) s t r u c t u r a l impacts of observed product cycles in t h e world economy, (ii) labor market effects of transitions (in the industrialized economies) towards production with a high "knowledge content", and (iii) production rigidi- ties and labor m a r k e t inertia in t h e process of s t r u c t u r a l change.

Finally, we illustrate how these aspects were considered in r e c e n t indus- trial scenarios for t h e Swedish economy.

1.2 Product Cycles and Spatial Relocations

In section 4 we provide some illustrative evidence of m a j o r product cycles on a n aggregate level in t h e world economy. In section 2 a n d 3 basic a s s u m p t i o n s about spatial industrial dynamics a r e i n t r o d u c e d by incorporating comparative advantages i n a dynamic framework. Figure 1.1 i l l u s t r a t e t h e time-space dynamics in t h e p r o d u c t cycle t h e o r y out- lined i n t h i s paper. The probability t h a t new products/processes a r e developed a n d initially introduced in a region is a s s u m e d t o i n c r e a s e with t h e i n t e n s i t y a n d composition a c c u r a c y of b o w l e d g e i n a region. As production scale i n c r e a s e s a n d t h e production t e c h n i q u e i s gradually improved, r o u t i n i z e d a n d simplified, t h e knowledge r e q u i r e m e n t s decreases correspondingly. In this way o t h e r regions with different wage levels a n d f a c t o r prices provide m o r e advantageous locations. As a consequence production processes a r e successively r e l o c a t e d in t h e world economy a t a technology-specific speed.

The relocation process is a f u n d a m e n t a l p a r t of t h e cornpetition in t h e world economy. Regions a n d c o u n t r i e s , in which a specific type of production was introduced a t a n early stage, suffer f r o m s t r u t u r a l change problems when new competitors emerge. Simultaneously new products a n d processes a r e gradually i n t r o d u c e d a n d t h i s also i n c r e a s e s the t e n s i o n o n already existing industrial technologies in various regions.

When t h e i n t e r n a t i o n a l economy goes t h r o u g h s u c h a process of s t r u c t u r a l change, i n d u s t r i e s in regions a n d nations have t o react. When a n established a n d m a t u r e s e g m e n t of a n industrial s e c t o r grows obsolete, i t s p a t t e r n of reaction t o e x t e r n a l distortions of i t s ma.rkets h a s

Spatial distribution of knowledge i n t e n s i t y as a driving force:

Availability in t i m e Accessibility in space

Development a n d introduction of products a n d processes in initiating,

knowledge-in tensive regions:

First phase

Relocation of production t o

adopting l e s s h o w l e d g e - i n t e n s i v e regions i n t h e initiating

country: Second phase

Introduction of similar production in o t h e r c o u n t r i e s with location in regions with comparatively lower knowledge i n t e n s i t y Second or t h i r d phase

Introduction a t a l a t e r s t a g e t o regions over t h e world with comparatively low h o w l e d g e advantage

FSgure ^1.1. illustration of product and technology transitions in space and time.

a conservative c h a r a c t e r . The responses frequently include (i) i n t e n s i v e s e a r c h f o r l a b o r a n d f a c t o r s a v i n g c h a n g e s in t h e p r o d u c t i o n t e c h n i q u e ; (ii) i n c r e a s e d s c a l e of p o d u c t i o n a n d c o r r e s p o n d i n g l y i m p r o v e d l o g i s t i c s a n d m a r k e t i n g s y s t e m s in an a t t e m p t t o a u g m e n t e x p o r t s .

A t

t h e s a m e t i m e t h e policy s y s t e m is often forced t o p r o t e c t t h e t h r e a t e n e d produc- tion.

The p a t t e r n c ~ f reaction which we have stylized above, reinforces already strong rig idities which s t e m from the fact t h a t production a n d h s t r i b u t i o n techn'iques a r e embodied i n t h e fixed capital as well a s t h e knowledge and ski1 .ls of t h e persons employed i n production units. Fixed capital, like buildi ngs and equipment, a r e generally spatially immobile and often unadapti ible t o o t h e r uses. However, in m a n y modern societies this feature is also s h a r e d by t h e labor force.

In s u m m a r y , all t h e s e o b s e r v a t i o n s i n d i c a t e that p r o d u c t c y c l e s i n v o l v e b o t h develr ~ p r n e n t of n e w p r o d u c t s a n d s p a t i a l r e l o c a t i o n , a s w e l l as c o n s e r v a t i v e r e : r i s t a n c e t o change f r o m a l r e a d y e s t a b l i s h e d i n d u s t r i e s w h i c h are g r o w i n g absolete a n d h a v e f a d e d t o r e n e w t h e i r t e c h n o l o g y .

2. PRODUCT CYC: L.ES

AND TECHNOLOGY

CHANGE

IN

A GLOBAL PERSPECTIYE

2.1

Products, Secl tors and Jobs

Variables in n nodels of economic dynamics a r e usually categorized by m e a n s of n o t i o n s like sector, product and type of job (employment category). A l t h o u ~ ;h such variables a r e used a s analytical concepts t h e y do n o t refer t o oabservables representing analytical variables, b u t t o aggregate observat .ions of t h e following type:

(iii) pr(t )zr(t ! )

= x p i ( t

)zi

( t

)

l € I

where

t

denotes a1 I observation period and

I

is a n index s e t , referring t o a product group, ; i n aggregate s e c t o r o r an aggregate category of jobs (employment c a t e gory), a n d where zi and z1 a r e accounting variables

(representing volume or quantity) and

pi

and pl a r e price indices (including wages). Observations confined t o types (ii) and (iii) can only be unambiguously related t o analytical variables if ~ ~ ( t ) / p l ( t ) and

zi

(t )/ z I ( t ) r e m a i n unchanged over time. The aggregate quantity z I ( t ) is obviously also a kind of index as long as t h e categories i d a r e hetero- genous. Once again, t h e aggregate observations r e m a i n unambiguous only if z i ( t ) / zI(t ) is fixed.

The conclusions drawn observations made above a r e , of course, discouraging if we recognize t h a t t h e analysis of industrial dynamics should focus o n t h e changes of p i ( t ) / p I ( t ) and z i ( t ) / z I ( t ) . One may argue t h a t if this is t h e case, t h e n t h e observation process should be refined t o t h e aggregation level indicated by index i instead of

I.

A t t h e same t i m e dynamic models easily become intractable when t h e dimen- sionality is increased in this way.

One obvious approach t o managing this problem i s t o identify several levels of aggregation a n d characterize each level with a distribu- tion over t h e relevant categories.

If

one follows this approach, t h e dynamics will be modeled a s a process in which t h e p e r t i n e n t distribu- tions change.

In t h e subsequent analysis we a r e recognizing sectors a s aggregates obtained by making a compromise between two classification principles:

similarity with regard t o t h e s t r u c t u r e of (i) input, and (ii) output. This m e a n s t h a t sectors m u s t be considered heterogenous in both dirnen- sions. In particular, we a r e applying t h e following conceptual model:

An

economic sector is characterized by a multivariate distribution over its

(i) categories of inputs, (ii) categories of jobs, and

(iii) types of commodities produced.

I,-.

concrete t e r m s this may be perceived as a distribution of produc- tion techniques referring t o a s e t of production units, each with input coefficients, a production capacity and a characteristic product mix which a r e fixed in t h e short-medium t e r m . According t o (2.2), intra- sectoral change will be described by changes of a multivariate distribu- tion. This is in contra-distinction t o intersectoral change which in our case refers t o t h e development of aggregate measures of t h e relative importance of various sectors (sales value, number of persons employed, etc.).

2.2 Product Cycles in a Global Perspective

From t h e perspective outlined in t h e preceding section, industrial dynamics may schematically be decomposed into t h r e e basic dimen- sions: (i) process change comprising decline and exit of old as well as e n t r y a n d expansion of new production techniques, (ii) product change incorporating decline and disappearance of commodities as well as emer- gence of new or modified products, (iii) m a r k e t change referring t o changing prices of inputs and of products supplied. For industrial pro- d u c t s those changes take place in an international context of factor sup- ply and output demand.

Two different paradigms can be used to understand t h e development of world trade, t h e international p a t t e r n s of activity locations, and t h e

corresponding specialization of economies. These two approaches t o explaining i n t e r n a t i o n a l i n d u s t r i a l i n t e r a c t i o n s a r e (i) t h e t h e o r y of comparative advantages, a n d (ii) t h e t h e o r y of p r o d u c t cycles. The l a t t e r a t t e m p t s t o c a p t u r e t h e dynamic a s p e c t s of c h a n g e , while t h e first usu- ally i s f o r m u l a t e d in t h e form of c o m p a r a t i v e statics.

The t h e o r y of comparative a d v a n t a g e s claims t h a t e a c h region or c o u n t r y t e n d s t o specialize in t h e production a n d export of those c o m - modities i n which i t s cost level is s e e n a s relatively m o s t competitive vis d vis o t h e r regions.

A special version of t h i s t h e o r y i s t h e f a c t o r proportions t h e o r y (Ohlin, 1933).

I t

predicts a n d p r e s c r i b e s a specialization i n t h e produc- tion of goods which r e q u i r e i n p u t s of f a c t o r s of production which a r e relatively a b u n d a n t i n t h e country. Also i n t h i s c a s e t h e relevant cri- t e r i o n i s t h e relative o r comparative position of t h e country.

I t

became fairly c l e a r in t h e 60's a n d t h e 70's t h a t t h e usefulness of t h e factor pro- portions explanation of specialization p a t t e r n s crucially depends o n a p r o p e r delimitation of t h e t y p e s of i n p u t factors considered in t h e analysis. A classical subdivision of f a c t o r s of production i n t o capital, l a b o r a n d l a n d i s not sufficient i n t h i s r e s p e c t . Leontief's pioneering work (1953) made i t evident t h a t t h e c o n c e p t of capital m u s t be widened t o i n c l u d e educational and o t h e r c h a r a c t e r i s t i c s of t h e labor force in o r d e r t o s h e d any light on t h e i n t e r n a t i o n a l division of labor. Also, i t i s n e c e s s a r y t o identify how- t h e r e q u i r e m e n t s of labor force c h a r a c t e r i s t i c s varies between t h e production of different commodities a n d associated production techniques. This essentially m e a n s t h a t knowledge a n d i t s expansion t h r o u g h r e s e a r c h arid development becomes a f u n d a m e n t a l

factor in determining f u t u r e international patterns of location a n d inter- national market specialization.

The consequences of knowledge development on international pat- t e r n s of location and specialization may be discussed qualitatively in t h e medium-term range (10-15 years). The theory of product cycles is designed t o provide an understanding of these phenomena (Vernon, 1966). This theory essentially s t a t e s t h a t each product undergoes a development cycle in which each new commodity enters t h e most highly developed regions of t h e world after a phase of research, implementation development, a n d laboratory testing. The product is then primarily pro- duced in t h e region with a comparative advantage in t e r m s of a high

R

&

D

level. The product is exported from this region t o other regions. When t h e product has m a t u r e d in t e r m s of process development (design of pro- duction techniques) a n d m a r k e t penetration, t h e region of original intro- duction and specialization looses i t s comparative advantage and t h e pro- duction becomes regionally decentralized.

Figure 2.2 illustrates t h e product cycle p a t t e r n s among t h e

OECD-

countries during t h e last 10-15 years. The upper left a r e a in t h e diagram characterizes t h e commodities and t h e associated production in which

OECD

has a comparative advantage, and a corresponding high degree of specialization. This specialization is a t t h e same time non-decreasing.

The arrows in t h e figure show a transition process in which products over time move t o stages of gradually reduced comparative advantages.

Kgure 2.1. Chanrcterization of products and associated production 7 according to ^a product cycle description of OECD economies

---

1 1 -

PRoDuCTs

'

L---,---,

t

H I G H DEGREE OF SPECIALIZATION I N THE OECD- REGION

LOW DEGREE OF SPECIALIZATION I N OECD-REGION

I I

'RE SPECIALIZATION INCRWES

I

THE SPECIALIZATION I S DE- OR REMAINS UNCHANGED I N THE

I

CREASING I N THE OECD-REGION

OECD-REGION ^I _I

I I I

o Systems o r i e n t e d p r o d u c t s I

I

High c a p i t a l i n t e n s i t y and p r o d u c t i o n p r o c e s s e s combined w i t h

I

1 ( i ) l o w l e v e l of R&D, and o C a p i t a l and R&D i n t e n s i v e

I.

p r o d u c t i o n ( i i ) low s k i l l r e q u i r e m e n t s

I I

o P r o d u c t s which a r e d i s t a n c e s e n s i t i v e

4e+

^I

o Design dependent p r o d u c t s

I

I I

o High income dependent I I

p r o d u c t s

...

---,

8

^I

P r o d u c t s i n i n d u s t r i e s which

I

⁰ Labor i n t e n s i v e produc- a r e p r o t e c t e d by t h e p o l i t i -

I

t i o n combined w i t h low

c a l system ^I

I c a p i t a l and R&D r e q u i r e - ments

I

o N a t u r a l r e s o u r c e s

I I o r i e n t e d p r o d u c t i o n .

I I

3.

DYNAMICS

OF KNOWLEDGE

INTENSITY LN

PRODUCTION PROCESSES

3.1 Dynamics of Market Shares. Costs and Technology

In this section we outline a conceptual framework which can serve to make more precise s t a t e m e n t s about t h e various phases in a product cycle development. This is done by considerating t h e introduction of a new product and t h e associated process ( a combined product and a pro- cess innovation).

A t i t s initial phase t h e process requires a high knowledge intensity, which we represent by a n intensity variable u

=

^K/ (n.

+

L ) where K; is t h e amount of labor with special skill and knowledge and L is the remaining part of t h e labor force. Hence, 0 l u s l .

The product cycle analysis requires a spatial dimension which we represent by demand regions s

E R

and supply regions

~ E R .

The growth of demand in region s . d S ( p , t ) , is expressed by a logistic function

where NS(pS,t) denotes t h e potential demand level a t time t , given t h e price level

pS,

and where b and a are positive parameters. The delivery from region r t o region s is expressed as

where Brs(t) i s a time evolving share function. We observe t h a t pTs(t)rO and NS(pS,t)rO a t all points in time. Also, if T is the region in which the innovation/introduction occurs a t time

t =

0, we have t h a t BrS(0)

=

1. A fundamental aspect of product cycle phenomena is expressed by t h e

time paths of t h e share coefficients

PrS.

In section 4 t h e variable

8

is used a s an indicator of t h e specialization in region s , where

Consider now t h e case

prS > pkS

1 0 . How can we identify t h e rea- sons f o r such a difference and, in particular, how is a situation

pm>O

^and

pks =

⁰ preserved a n d which factors can bring about a change in t h e situation? The following formula for determining t h e s h a r e coefficient can be derived from alternative theoretical models i n spatial theory*:

where

6'

denotes production cost per unit supply in region T , and c r s unit transportation cost on the link ( r , s ) , a n d where qrS(t) r e p r e s e n t the

"memory effect" of past flows s u c h t h a t q T S ( t ) can be given a probability interpretation. In particular, xT(l-)

=

0 implies q r S ( t )

=

0.

W e may illustrate a threshold phenomenon in t h e product cycle development by considering t h e case in which t h e commodity is only produced in t h e introduction region T so t h a t

=

1 and

plCS =

0. Let t h e profit function per unit output of t h e plant(s) in region T be

where

pr

i s t h e price, cT non-labor related costs, average labor input

* We may relate this expression t o (i) t h e Logit model (McFadden, 1975), (ii) random choice theory a s outlint:d by Leonardi (1983), and (iii) entropy Iorrnulations (Lesse, 1983). See also Andersson, Persson (1982) and Johansson, Batten (1983) from which formula (3.4) has been collected and where i t is based on a probabilistic argument combined with a learning prc- cess.

coefficient, w: t h e unit costs related to knowledge intensive employment and w r t h e unit costs related t o the remaining p a r t of t h e labor force. In general, w:

>

w r a n d the ratio ~ : U ~ / W ~ ( ~ - - L L ~ ) is a cost m e a s u r e of t h e knowledge intensity. We may also say t h a t w: is t h e regional price asso- ciated with t h e knowledge intensity u r . For a new product we may, in accordance with t h e product cycle theory, assume t h a t u r = u k

=

'1L while w:

<

w t if T is t h e initiating region.

An essential feature of the model sketched below is t h a t u r ( t ) will be reduced over time a s production is automated and routinized in com- bination with increased scale. Another important element of t h e change process is a reduction in c r due t o process innovations based on increased scale of production. A t h i r d component of t h e development cycle is t h e introduction of labor saving production techniques as t h e process "matures", and this is expressed by a falling labor input coefficient 1'.

In

summary, we g e n e r a t e a product cycle dynamics on t h e basis of the following assumption in relation t o (3.5):

If

^region r has higher knowledge intensity t h a n k and if t h e specific product is introduced in T and prevented from e n t r y in k , then

(i> l T w &

<

1 w,, ^{k k}

(ii) l r w r

>

^{l k w k (3.6)}

(iii) '1L falls a s

z r

grows

The formulation in (3.4) may be combined with various assumptions about how t h e market s h a r e coefficients change over time. One possible

specification is t h e following:

where

zT

denotes supply capacity, W ( T ) weighting factors, and AT' a priori probabilities for t h e direction of export efforts related t o new capa- city. In p a r t i c u l a r hrS i s needed t o allow for c h a n g e s from s t a t e z k ( t )

=

0 t o z k ( t +A)>O, since s u c h a sudden i n c r e a s e h a s t o be distributed over potential m a r k e t s . The dynamics r e l a t e d t o ( 3 . 4 ) a n d ( 3 . 7 ) a r e described f u r t h e r in t h e Appendix.

3.2 Profit Criteria and Market Ehtry

Assume t h a t price competition prevails in importing regions in t h e s e n s e t h a t exporters from region T receive t h e price pS -cfS in region s . Then t h e condition for region k t o e n t e r t h e m a r k e t by investing in new capacity z k ( t ) > z k ( t

-A) =

0 m a y be expressed a s follows

where 7? r e p r e s e n t s a threshold level below which t h e investment costs a r e n o t covered. Observe also t h a t t h e i n v e s t m e n t decision in g e n e r a l should distinguish between expected sales z k a n d new capacity

Zk.

F u r t h e r details a r e given in t h e Appendix.

The decision in region ^T t o r e t a i n t h e capacity '2 only r e q u i r e s t h a t

s i n c e in region r t h e i n v e s t m e n t s r e p r e s e n t s u n k c o s t s . Let w' -

=

w ' ( l - u i ) + ~ ~ u i . Then we m a y conclude t h a t region ^T h a s a specific advantage from being first on t h e m a r k e t :

PROPOSITION 2: Let

p' =

JI&,C'

=

c k , z T

>

0 a n d

zk =

0 a n d l e t t h e assumption in (3.6) hold. According t o t h e conditions in (3.0) a n d (3.9) region k i s prevented t o e n t r y also when l r v l r r lkiZk a s long a s

(i)

27

5 z s d S ( p S , t ) , a n d (ii) L T U ~ ~

< L ~ + W iik. ~

The basic e l e m e n t in t h e proposition i s t h a t as long a s l'Gr

<

l k v l k

+

region T will always be capable of supplying t h e a m o u n t 5' a t a lower p r i c e t h a n region k . For d e m a n d l a r g e r t h a n 2 new i n v e s t m e n t s a r e n e c e s s a r y a n d t h e n ^T will have a competitive advantage only if l'ul'

+

Tif

<

^{z k w k}

+ 2.

Having introduced t h e price conditions in (3.7) i t is e s s e n t i a l t o m a k e t h e following observation:

REMARK 1: Consider t h e t h i r d condition in (3.8). Firstly, a s shown in t h e Appendix, a completely dispersed t r a d e p a t t e r n

(PTS >

0 for all r a n d s) is only compatible with t h e weaker con- dition ( p ' - ~ ~ ) ~ , z ' ~

<

~ s ( p S - ~ * ) z r s , ~ T

>

⁰ if prices a r e non-

dispersed so t h a t p' = p S for all s . Secondly, as shown in t h e Appendix, this condition together with t h e information theory criterion applied in (3.4) implies t h a t

PfS

in (3.4) changes for

m e3.1: Cost levels and price levelp* in two regions T and k

.

3.3 Production Scale and Dynamics of Knowledge Intensity

The situation outlined in Figure 3.1, which refers to Proposition 1 . does not indicate how t h e relocation of production a n d changes i n spe- cialization m a y c o m e about. In t h i s section we sketch part of t h i s pro- cess by analyzing t h e change in production scale a n d in r e q u i r e m e n t s with r e g a r d t o knowledge intensity.

Consider first t h e potential m a r k e t N S ( p S , t ) and i t s change, a n d l e t p 5 ( t )

= tT

+cTS for t

<

t o . If p S ( t ) is too high, t h e m a r k e t is inactive, and N S ( p S ( t ) , t )

=

^0. Assume t h a t a t time t

>

to p S has a value s u c h t h a t

P(pS

( t ) , t )

>

O a n d

$

² 0. This implies t h a t d S ( p S ( t ) , t ) will grow, a n d the supplying region

r

will experience t h e following demand pull during t h e interval t a n d t

+

At

where

A z w

=

z T S ( t + A t ) - z f S ( t ) , A/3w=#3w(t+At)-lgrs(t) and

AdS

=

d S ( p S ( t + A t )

-

d S ( p S ( t ) . t )

Since we have a s s u m e d t h a t AdS ² 0, t h e demand for delivery from T t o s is growing i f

Ads/ ( d S + A d S )

>

-APT'/ /3"

which can evidently be satisfied also for APrS

<

⁰ a s long a s AdS is large enough.

With growing delivery from T s u c h t h a t t h e demand is matched, t h e production i s increasing, a n d t h e scale of production may also i n c r e a s e

in a way which r e d u c e s cost of production, a n d t h i s m a y finally lower t h e price pr a n d t h e r e b y reinforce t h e d e m a n d growth in t h e different regions.

According t o t h e assumption i n (3.6),

zL

is gradually r e d u c e d during t h i s phase of t h e cycle. The d e c r e a s e in zL is a s s u m e d t o be a r e s u l t of t h e growth of t h e production. A gradual fall i n

zL

affects t h e profit cri- t e r i o n in (3.7). For region k t h e following situation m a y e m e r g e

p S - c k c k * - k p

> +

for c e r t a i n m a r k e t links ( k , s ) . However, t h e c h a n g e process dzL/ dt

<

0 t a k e s place over t h e e n t i r e s y s t e m , t h a t is, i t also o c c u r s i n region r . Hence, ul,k(t)

>

w,l(t) still m a y prevent region k f r o m e n t e r i n g t h e m a r k e t . There a r e essentially two factors which independently or jointly bring about t h e switch f r o m z k ( t )

=

0 t o z k ( t + 7 ) > 0 . given a reduction in 11 during t a n d

t

+T. Those factors a r e

(i) Region k h a s b e t t e r accessibility t h a n r t o c e r t a i n m a r k e t s s , s u c h t h a t c b

<

^{c m}

(ii) Region k h a s a lower c o s t level t h a n r with r e g a r d t o t h e c o s t f a c t o r ( 1 4 ) so t h a t w k l k ( l - E )

<

a ~ ~ ~ ' ( 1 - 1 2 ) .

Let

.

^.

rriZ(ii) = p S - ~ i - w ; ~ l ~ - w i ( l - i i ) l i ,

denote profit in region i on deliveries t o s , a n d recall t h a t t h e assump- tion in (3.6) s t a t e s t h a t

a n d

l'wT

>

^lkwk

We c a n s u m m a r i z e t h e a r g u m e n t s above in Proposition 2 a n d R e m a r k 2 PROPOSITION 2 Let c k = c T a n d c r S & c k s , a n d let nrS(iL)-*(G) = ~ > 0 . Then given assumption (3.6) t h e r e is always a s h i f t f r o m u - t o

A A ,

s u c h t h a t fls ( c

-A;)

-7rkS

(c

- ~ c ) < o .

PROOF! Observe t h a t (i) (cks-cTs) ^I 0 a n d (ii) [ l k w k - l r w r ]

<

0.

Since

rr"

(ii)-+s(ZL)=/L=(c~ - ~ ~ ~ ) + ( 1 - 2 ) [ l k w k - l ' W ' ] + ' 1 ~ [ ~ k ~ y k - ~ ~ w ; ] (i) and (ii) imply t h a t

p

<

~ [ l w; -lrw;]

Evidently t h e r e is always a positive E

<

ⁱⁱ s u c h t h a t for A11

= ZL-E

we have (iii)

1 <

Aii[lkw;-lrw:]

Then we finally note t h a t

~ ~ T s ( E - A z L ) - ~ ~ ( G - A G )

=

/ . ~ + ~ ' 1 1 [ 1 ~ ~ ~ - - 1 ~ ~ ~ ] - ~ c [ l ~ W y k - l ~ u ~ ; ]

<

0 as a consequence of (ii) and (iii). Q.E.D.

The trade-off between t h e cost components l T w ' ( l - Z ) and lrwi2L is regulated by t h e development of G ( t ) . This cost composition is illus- t r a t e d in Figure 3.2 in which a downward movement of t h e

iZ/

(1-2) line brings about t h e type of shift described in Froposition

2.

Proposition 2 r e p r e s e n t s a d i r e c t continuation of Proposition I. a n d is obtained by adding t h e effect of a falling T i to t h e latter. In t h e follow- ing r e m a r k we also observe t h a t t h e s t r u c t u r a l change in profitability

can be related t o transportation cost differentials

REMARK2 Let all assumptions in proposition 2 be t r u e with t h e following exception c m

>

^{c k S and} l r w r > l k w k Then t h e state- m e n t in t h e Proposition obviously remains unchanged.

The phenomenon in Proposition 2 implies t h a t region r is losing m a r k e t s over time. When this phenomenon involves a growing p a r t of region r ' s markets, t h e n i t s industry is growing obsolete.

REMARK 3: Consider a situation such t h a t

nks =

rrrs. ^UJ;

<

w,k a n d w r

>

w k . Suppose t h a t C ( t ) continues t o decrease. If production techniques remain fixed except for t h e fall in G ( t ) , region r will gradually be forced o u t from m a r k e t s ; t h e only remaining measures for region r t o safe- guard t h e established market s h a r e with a n unchanged product is either protection by m e a n s of subsidies and/or introduction of new techniques which reduce c r and l r .

The frequently observed bias towards investments in techniques which reduce l r is usually explained by a change process in which t h e r a t i o w r / w k is growing. This means t h a t iZr/ iEk also grows.

With imitative behavior between competing regions, a process inno- vation which reduces c r and 1' will only have temporary effects. How- ever, a successive change in t h e product(s) in t e r m s of attributes and quality c a n bring about new product cycles which make use of t h e fact t h a t w:

< wt.

This is discussed in t h e subsequent section.

r U/(l-U)

W

Movement of the proportion u/(l-u) that favors region k

E

+

W k

k k- k k

A = a w u ; a = R w (1-u)

U

r r-

B =

a

wUu ; b = irwr(l-i)

Average labor cost in regions r and k is B+b and A+a, respectively.

F i i e 3.2 Knowledge intensity and average labor-related costs.

3.4 Product Development and Knowiedge Intensity

In sections 1 and 2 we have emphasized t h a t a product class (or commodity class) is generally n o t homogeneous, but constitutes a group of heterogenous commodities which a r e clustered together because of certain fundamental similarities with regard t o attributes (or charac- teristics) of t h e commodities. Following Lancaster (1971) we shall con- sider an n-dimensional characteristics space such t h a t the properties of each commodity in a specific commodity group can be described by a point in a characteristics space. Commodity i i s then described by a vector (bil,

...,

bi,) where bii

r

0 a n d a t least one bik

>

0. We assume t h a t a canonical classification of products is obtained by identifying zeros a n d non-zeros in t h e vectors (bil,

. . .

.bin).

Assuming t h a t characteristics a r e measurable we can form func- tions of t h e following kind

Z((P.

=

b j / p i

I z) (3.10)

where pi is t h e price of commodity i a n d z ; ( ~ ) equals t h e amount, z,, of characteristic g' obtained by purchasing one unit of commodity i. In order t o simplify our analysis we will introduce an attribute indez,

i,

which is obtained with the help of a transformation from vectors ( z l ,

. . .

,z,) t o a real number g. The following i s an example of s u c h a transformation:

z

=

~ n o , ( a ~ + z , ) P ~ ; u , , a .

p - >

0

j I ' I

With r e g a r d t o commodity i t h e index value becomes

(3.1 l a )

(3.1 l b )

Consider now a r e f e r e n c e index Z(*) t h a t r e p r e s e n t s t h e p r o d u c t class. Let p ( * )

=

F ( z ( * ) ) b e t h e associated demand relation, w h e r e

p

( * ) is t h e m a r k e t price of t h e r e f e r e n c e commodity when t h e sales volume is z ( * ) . We shall a s s u m e t h a t c u s t o m e r s a r e willing t o pay a h i g h e r price t h a n p ( * ) for commodity i if g ( i )

>

Z(*). We c a n m a k e s u c h an evalua- tion by keeping

where

I

i s t h e index s e t for all commodities in t h e class of which E ( * ) i s a r e f e r e n c e index. Given t h i s we c o n s t r u c t a function f s u c h t h a t

Pi = f

( Z ( i ) F ( z ( * ) )

d e n o t e s t h e price of i, given t h a t (3.12) i s satisfied. With t h i s c o n s t r u c - tion p , / p ( * )

=

f (Z(i)), a n d we c a n i n t e r p r e t f (Z) a s t h e bid-price of attribute-level ( o r quality level)

E.

S u c h a bid-price f u n c t i o n i s described in Figure 3.3 which also depicts a cost function showing how production costs, c (g), a r e increasing as

2

is augmented.

REMARK

4: An a t t r i b u t e index of the type described i n (3.1 l a ) c a n be i n t e r p r e t e d as a p r e f e r e n c e function defined o n c h a r a c - teristics.

In Figure 3.4 we illustrate how t h e required knowledge i n t e n s i t y , u , i n c r e a s e s with t h e a t t r i b u t e level 2 , a n d tiow t h e labor a n d a s s o c i a t e d costs, h ( u ) , increases a s t h e r e q u i r e d u-level grows. In Figure 3.5, we show how c (C) is derived from h ( u (Z)).

Figure 3.5 i l l u s t r a t e s how a t t r i b u t e level a n d knowledge i n t e n s i t y m a y be combined, given t h a t we have "neutralized" for o t h e r t y p e s of

Bid-price and product cost

F i e 3.3. Price and costs for alternative attribute levels.

Figure 3.4. Attribute level knowledge intensity and costs of increasing the knolrledge intensity.

Figure 3.5. Optimal (profit maximizing) combination of attribute level and knowledge intensity.

costs.

I t

also indicates a way of f u r t h e r enriching t h e analyses in sec- tions 3.1

-

3.3. On t h e production side regional differences i n t e r m s of advantages/disadvantages a r e represented by differences a s r e g a r d s t h e h ( u ) - and u ( Z ) - functions. In t h e product cycle analysis we add t h a t such differences a r e evolving over time.

Differences between m a r k e t s a r e r e p r e s e n t e d by variations in t h e bid-price function f (Z) between regions. When t h e whole vector of characteristics is utilized in t h e analysis, i t will also allow a n examina- tion of product differentiation which for a given a t t r i b u t e level may divide a m a r k e t into subsegments r e l a t e d t o specific c u s t o m e r groups.

Cost-reducing shifts i n u(Z1) and h ( u ) should be related t o r e s e a r c h and development in combination with a matching education a n d training of pertinent employment categories.

4. THE SPATIAL ELEMENT IN INDUSIXIAL SlTUCl'URAL CHANGE PROCESSES

4.1 Empirical Observations on Product Cycles and Patterns of Location

Proper testing of t h e model proposed is of course not possible a t t h e global level. Some of t h e t r a d e statistics available do, however, lend themselves t o consistency t e s t s of some m a c r o propositions formulated.

The m o s t important propositions are:

1) High knowledge intensity in production is an i m p o r t a n t predic- t,or of specialization i n favor of highly developed regions.

2) Change i n locational p a t t e r n s will occur, when t h e sectoral pro- duction technology becomes increasingly well-known.

3) Protection increases both by government controls and increased market organization investments when a sector is maturing technologically.

These hypotheses can be partially tested a t the global level on m a c r o sectoral data. Finer tests have to be performed on national, interre- gional data.

4.2 Product Cycle Phenomena in the

OECD-Region

In this section we use t h e overall description provided by Table 4.1.

In accordance with (3.3) we shall use the following indicator, ui, as a proxy for specialization in t h e OECD-region with regard to product group i

a,

= n q / M i

(4-1)

where mi denotes intraregional trade (i.e. import into OECD-countries from other OECD-countries), and where

Mi

denotes t h e total import into t h e countries of t h e OECD-region. Change in specialization between year f and t

+

^T is simply calculated a s ui(t

+r)

- ui(t). The results in Table 4.1 were obtained with this way of measuring specialization and its change during the period 197 1- 1977.

During t h e period 1977-1980 the overall a-value decreased from 66 to 64 percent. As indicated in table 4.2 a significant restructuring also occurred in t h i s period: (i) t h e p r o t e c t i o n w a s i n c r e a s e d f o r m i n i n g a n d t h e p r o d u c t i o n of t e x t i l e s , a n d r e l e a s e d f o r c l a y , g l a s s a n d o t h e r b u i l d - i n g s m a t e r i a l s as w e l l as f o r s h i p b u i l d i n g , a n d o t h e r r n a n u f u c t u r i n g , (ii) s p e c i a l i z a t i o n in t r a n s p o r t e q u i p m e n t d e c r e a s e d a n d i r o n & s t e e l e n t e r e d

-

²⁸

-

Table 4.1. Product cycles and specialization in the OECD- region 1971- 1977.

Remark: R & D i n t e n s i t y = R & D e x p e n d i t u r e s / v a l u e added i n Sweden 1980.

Sources: OECD Trade s t a t i s t i c s , 1971-1980; SIND, 1982:16.

HIGH SPECIALIZA-

TION

LOW

SPECIALIZA- TION

the g r o u p of p r o t e c t e d s e c t o r s .

Other marked changes during t h e second half of the 70's are:

R a p i d i n c r e a s e in the 0-value for special machinery, civil engineering equipment, and data equipment.

W e may summarize certain aspects of t h e time pattern of product cycles with t h e time profile of Figure 4.1. The first part of t h e profile describes a standard logistic introduction or m a r k e t growth curve. Its

Unchanged

Or

increased Specialization

1 9 7 1 - 1 9 7 7

o Paper products

o Transport equipment o Machinery

o Pulp o Printing o Beverages o Chemical

-

~ ( 1 9 7 7 ) = 0 . 9 5

R

&

D intensity

= 6

o Shipbuilding o Clay

&

stone o Food products

o Other manufacturing o Wood products

o Wood

o Non-ferrous metals

a ( 1 9 7 7 ) = 0 . 7 4

R & D

intensity

= 2

Decreased Specialization

1 9 7 1 - 1 9 7 7

o Rubber products o Plastic products o Metal products o Iron

&

steel o Instruments

~ ( 1 9 7 7 ) = 0 . 9 3

R

&

D intensity

= 5

o Electric products o Textiles

o Clothing o Mining

o Crude rubber

o Telecommunication o Petrol

-

~ ( 1 9 7 7 ) = 0 . 5 6

R

& D

intensity

=

3

Table 4 2 . Product Categories with Changing Specialization Classfication between 1977 and 1980.

I I

1

o Special

- I

I I

I Machinery

,

I

, ^{o Civil}

^I

I

Engineering !

I

I

o Data

equip- I

ment I\

L---J

I

I

Increasing or unchanged Decreasing

u-value

^I I

u-value

I

Transport equipment

I

Pulp

^I I

>

I

Iron

&

steel

I I I I

Clay, glass etc. -

I

I

>

I I

Shipbuilding

I

I

>

-

I

I

I ^{Other m 1 - n a}

I

^{/ >}

< ^Textile

I I

< ^Petroleum

I

first phase of decline is slowed down by means of political protection measures, a n d in a second decline phase military defense motivated pro- tection may prevent t h e production in t h e country to fall below a politi- cally safeguarded level. Observe also t h a t this whole pattern may be dis- torted in statistical records when new products e n t e r under a n old classification. One may for example contemplate such a revitalization of t h e commodity group "telecommunication" (see Table 4.1).

I t

is clear from t h e tables t h a t sectors with a large self-sufficiency is markedly higher in sectors where t h e knowledge intensity i s expanding a s meas- u r e d by the Swedish

R

&

D

statistics.

S u p p l y l e v e l

S a t u r a t i o n

T

P h a s e o f m i l i t a r y

? h a s e o f p o l i t i c a l

d e f e n s e

7

Time

F i e 4.1. Expansion and decline profile of a country's supply of a specific pro- d u d group.

There is a r a t h e r g r e a t difference in table 4.2 between t h e

R

& D intensity (

R

&

D

expenditure in relation to value added) of the OECD high

a n d low specialization sectors of industry

The tendency to favor market investments in situations of maturing can be tested. The average ratio between market and

R

&

D

investment in Sweden was approximately 2 for t h e OECD high specialization indus- tries, while i t was considerably higher, about 4, for t h e

OECD

low speciali- zation sectors. This lends some support t o the hypothesis t h a t technolo- gicaly maturing change these efforts into investment in new market organization and promotion.

Table 4.3. Maturity of sectors as measured by the ratio of marketing to R dr D expenditures.

1.

Sector Maturity index

Wood products Food

Beverages

Textiles and apparels Printing prpducts Rubber

Plastics Minerals

Pulp and paper Metal products Mining

Iron and steel Chemicals Machinery Electronics Instruments

Transport equipment

Source: SIND 1982: 16 (Swedish Industrial Board)

4.3 Accessibility, Land Values. and Birthplaces for New Production

During t h e last two centuries, t h e r e has been a lot of effort devoted t o t h e explanation of p a t t e r n s of specialization in space. The dynamic theory of comparative advantages -- t h e theory of product cycles -- is a convenient vehicle for understanding and predicting macro-regional division of labor. However, product development, knowledge intensity and knowledge production

(R

&

D)

a r e all unevenly distributed also within a country and a region. As a consequence, we can observe how new product cycles are initiated with a higher frequency in c e r t a i n loca- tions t h a n in others. In order to understand t h e role of local economic environments we m u s t also recognize t h a t a t lower levels of spatial reso- lution, other factors, primarily related t o accessibility and availability of land tend t o be of g r e a t e r importance. How this competition in space works can be illustrated by Figure 4.2.

In this figure i t is assumed t h a t t h e r e i s a unique point with a maximum potential accessibility on all t h e transportation and communication net- works. Close to this c e n t e r of maximum accessibility, economic activi- ties will cluster only if t h e y have a limited need of land p e r u n i t of output combined with a large use of t r a n s p o r t a t i o ~ l a n d communication services per unit of output. This combination of characteristics is typical of a few human activities such a s lecturing, dramatic performances, e t c . Very often t h e advantage of a c e n t r a l location is a reinforced by a low relative scale of demand s u c h t h a t potential customers only add u p t o a small s h a r e of t h e population (like with t h e avant-garde forms of performing art). Other h u m a n activities like forestry a n d agriculture a r e m u c h less dependent upon a good accessibi1it.y and relatively m u c h m o r e

BIDPBICE Pb

'

_{'b, knowledge}

I I maximum

I I

F o r e s t r y , I goods I s e r v i c e s

I -

I (knowledge

a g r i c u l t u r e I I I

1

I

ACCESSIBILITY

Dominance zone I

Figure 4.2. The competition for space according to knowledge intensity of pro- duction and accessibility in space.

dependent upon land a s a n input in t h e production process.

Our discussion of t h e product cycle a s a factor determining speciali- zation a n d location can also be closely related to t h e intra-national loca- tion p a t t e r n s . When new products a r e introduced on t h e m a r k e t , i t is normally a t a very limited scale of t h e market.

I t

automatically m e a n s t h a t t h e initial marketing of t h e product can only be successful i n t h e c e n t e r s of accessibility (with a maximum m a r k e t coverage). Centers of

accessibility a r e also c e n t e r s of communication, and often have a rich variety of knowledge-intensive labor supply. Such locations are there- fore preferred in t h e stage of early product development.

Finally, new production must normally be organized in non- routinized and small-scale ways, which prevents t h e use of production lines and other land consuming technological solutions.

With t h e diffusion of market demand and a s a consequence growth of the total demand level, t h e parallel diffusion of technology and t h e development of larger-scale production, the commodities become less dependent on accessibility to a national or international m a r k e t and more dependent upon large-scale operations outside t h e c e n t e r s of com- munications and information.

A t

this stage t h e bid price for land becomes less steep, since the accessibility needs are reduced and land intensity is increased. Hence, the competition process will tend t o diminish the profit level towards zero in locations with high land values, and t h e production is decentralized within the country f a r t h e r and f a r t h e r away from t h e its original birthplace, t h e center of maximal accessibility.

4.4

The

Nature of Comparative Knowledge Advantage at the Micro- Regional Scale

We have argued a t some length t h a t t h e introduction of new pro- ducts requires a high level of accessibility, especially i n t e r m s of per- sonal transportation. In order t o see this, i t might be necessary t o int.ro- duce a few concepts closely related to technological change and com- munication.

These concepts a r e h f o r m a t i o n , K n o w l e d g e , C o m p e t e n c e , a n d C r e a t i v i t y . The ordering of these concepts is not random, b u t represents a ranking.

-

h f o r m a t i o n ( o r d a t a ) is the most elementary concept.

I t

has a very limited s t r u c t u r e a n d can consequently be disaggregated a n d aggregated without losses of understanding. It is t h e smal- lest element i n t h e other concepts.

-

K n o w l e d g e is structurally ordered information. As a parable, one can see information as variables, while knowledge is a s e t of equations containing these variables.

-

C o m p e t e n c e c a n be seen a s knowledge embodied in instru- ments, social interaction p a t t e r n s and other social and physical objects. This m e a n s t h a t competence is knowledge regulated by t h e h u m a n body in its relations t o o t h e r human beings, machines and t h e environment. This implies t h a t competence c a n be subdivided i n t o a t least t h r e e specific types:

instrument-oriented sector-specific

regional specific competence

-

C r e a t i v i t y is t h e concept of t h e highest order. Creativity presumes a capacity to order and re-order information with t h e aid of a lmowledge system. We assume t h a t t h e creative process is synergetic and this implies t h a t information, knowledge, a n d competence a r e brought into an intensive i n t e r a c t i o n with each other in o r d e r to shape new knowledge, i.e. new products, new

processes, and even new scientific fields.

I t

is obvious t h a t t h e communication a n d c o m p u t e r revolution has m e a n t a very large i n c r e a s e in t h e efficiency of information collection, processing, a n d information communication.

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is however doubtful if i t h a s h a d a n y deep influence on t h e development of knowledge, com- p e t e n c e , a n d creative processes.

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could r a t h e r be a r g u e d t h a t t h e f u r t h e r down in t h i s h i e r a r c h y of concepts, t h e less i m p o r t a n t h a s telecommunication t u r n e d o u t t o be. The social dimension of knowledge a n d c o m p e t e n c e communication s e e m s t o be extremely strong a n d gives a very l a r g e relative efficiency of face t o face communication.

Summing up, i t c a n be assumed t h a t t h e t r a n s p o r t a t i o n a n d telecommunication revolution h a s primarily h a d a decentralization effect for t h o s e o c c u p a t i o n s i n v o l v e d in p r o d u c i n g a n d t r a n s p o r t i n g g o o d s a n d i n f o r m a t i o n , in t h e s e n s e d e f i n e d a b o v e . According t o t h i s hypothesis, we should expect t h a t persons involved i n knowledge, a n d c o m p e t e n c e transfers, a n d in creative activities should have a very strong t e n d e n c y t o c l u s t e r i n t h e metropolitan a r e a s a n d o t h e r c e n t e r s of e x t r e m e l y good accessibility, while information handling, (especially when i t is used t o control goods processing a n d transportation activi- ties), should be squeezed o u t of t h e s e a r e a s t o regions of lower density a n d lower short-distance accessibility.

In o r d e r t o assess t h e effect of short-distance a n d long-distance accessibility on t h e location of different occupations, a simple regression model h a s been u s e d t o illustrate how e a c h employment category's s h a r e of t o t a l employment is c o r r e l a t e d with two proxies of accessibility: (i) accessibility on long distances t o all t h e national m a r k e t s , denoted by a,

(ii) accessibility on s h o r t distances within a region, denoted by b.

bi

=

total employment within commuting distance (average dis- t a n c e 4 5 krn) in region i

where

dij

=

distance from region i t o j

SJk =

total employment in region j in occupation k

Employment in occupation k is t h e n regressed against these accessibil- ity m e a s u r e s in an equation

& =

roq'bir;!

The following table summarizes t h e effect of local accessibility (population size within t h e community region) and national accessibility.

The table clearly indicates t h e clustering intensity of knowledge creation and transmission activity in t h e large regions, possessing a good i n t r a r e - gional accessibility.

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is possible t o r e l a t e t h e occupational characteris- tics t o t h e spatial p a t t e r n of division of labor. This is done in t h e next table which is a s u m m a r y table based on table 4.4.

The table 4.5 shows a very well-structured pattern. The knowledge crea- tion and transmission occupations a r e primarily clustered in t h e group with parameter values indicating a dominance of intraregional access orientation. The services a r e also accessibility-oriented but t o a large e x t e n t towards i n t e r r e g i o n a l a c c e s s i b i l i t y . Goods manufacturing which is space consuming or embodying already m a t u r e d knowledge is oriented t o disperse location with a low population pressure on t h e land market.