Business Networks and Performance: A Spatial Approach

second round of input to the local economy triggers the regional multiplier assumed to
be:

k = ----г---------¹-------й------

^kr 1 -[(с - m ) + (i-g )](1 -t )

where c is the marginal propensity to consume, m is the marginal propensity to
consume imported products, i is the marginal propensity to invest in the local economy,
g is the marginal propensity of reducing government spending as local income
increases and t is the tax rate. Taking into account the multiplier in equation (1) and the
third and subsequent rounds of impacts of a new enterprise, the impacts of all

aforementioned rounds on regional income will be:

An examination of equation (2) shows the numerical importance of ∆X_r , i.e, the
additional regional income due to the firm’s exporting activities and of c_F - m_F , i.e., the
firm’s marginal propensity to consume locally produced products.

We may assume that firms accessing various types of networks as these were defined
above may show higher levels of exports and/or higher levels of a marginal propensity
to use locally produced inputs. Firms accessing vertical (in spatial terms) networks of
customers may show higher levels of exports or indeed export a higher percentage of its
production. On the other hand, firms accessing horizontal (in spatial terms) networks of
suppliers may show a higher propensity to use locally produced inputs. Horizontal
networks of suppliers may provide an advantage to their members in terms either of a
steady flow of inputs and/or of lower and pre-determined prices. Furthermore, the type
of network agreements (formal vs informal) and other types of networks such as
financial networks may also play an important role in facilitating or inhibiting increased
regional exports and increased use of locally produced materials.

Figure 1 presents the graphical representation of this hypothesis by adapting a
previously formulated hypothesis of Kneafsey et al (2001). In this hypothesis we
assume the operation of two spatial types of networks in the economy and society of the
case study regions:

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