Search-theoretic Approach to Securing New Suppliers: Impacts of Geographic Proximity for Importer and Non-importer

This paper empirically examines whether firms consider geographic proximity as they seek for a new supplier. While addressing the difference between importers and non-importers, we estimate the effects of geographic proximity on the dynamic process of procurement, using survey data gathered from manufacturing firms in Indonesia, Thailand, and Vietnam. We find that the firms procuring intermediate goods from nearby suppliers and locally owned firms are more likely to form new trade relationships with suppliers. The more sensitive they are about the geographic proximity of their suppliers, the more likely it is that locally dependent firms will seek out new sources of supply of raw materials. This relationship disappears for firms which import some of their inputs.