Question

could you please explain this

Tacit knowledge (and geographic proximity)

Transaction costs; governance-based view of the firm

• TNC Transnationalization and OLI paradigm

• Localization economies /externalities (Alfred Marshall)

• Untraded interdependencies (Michael Storper)

Core-periphery model (Immanuel Wallerstein)

Answer 1

Tacit knowledge is knowledge which we cannot transfer easily by the means of speaking or it cannot be adequately passed onto another person anyhow. It is not gained by the means of books or print media but it is what a person experiences in his life.

Geographic proximity refers to a geographic location in which all the firms are located and where there is a ready market that is everything is in a functional distance, the resources, customers and the firm basically an economically proximate area.

Transaction costs are costs that a firm has to incur in order to enter any market, basically transaction costs occur in making any transaction that is the buying or selling of a good. example would be transportation costs, advertisement costs, commission etc.

Governance-based view of the firm is the way that firm should be managed and governed. It has guidelines regarding the laws, management, ethics, code of conduct, marketing etc and how a firm should be run and reviewed and a way of viewing a firm.

TNC's or MNC's are multinational corporations which have their set up in two or more countries and they function globally. They have manufacturing units set in countries with cheap labour and they produce the goods at lower cost and sell at the market price to earn super normal profits.

OLI paradigm stands for ownership, location and internalization paradigm it was a term given by John H Dunning. OLI paradigm is also known as eclectic paradigm, it is a three tier evaluation system by which a firm decides whether or not it should invest in foreign direct investment. It says that if a cost of carrying out a transaction internally is less then the firm will avoid reaching the open market.

Localization economies, this term was alfred marshal and it says that firm gather or localise in an area to take advantage of the economies of scale which means that as a firm grows in size its productivity increases by taking advantage of the positive externalities of the other firms. example: a cluster of firms benefit from each other by gaining customers and producing complimentary goods.

Untraded interdependencies is the territorial development of the economies and says that the region where the firm is located is an essential part of capitalistic economy. The participants in the untraded intedependencies generate various assets in the process of development and the region or location acts as the path for growth or development. As the regional economics takes into account the inputs of the regions and what efficient output can be generated by it.

Core periphery model given by Immanuel Wallerstein says that there is unequal distribution of power between the economies of the world and that is why the core economies dominate the periphery economies and the periphery then becomes dependent on the core economies for their trade opportunities. An example would be Britain and its colonies, where Britain is the core and the peripheries have been molded in a way that suits the needs of the core, hence they are depended on the core.