Capability Reproduction and Industrial Persistence: Relocation Thresholds, Fragmentation, and Structural Change

Why do some advanced manufacturing clusters remain geographically persistent despite globalization and production fragmentation? Existing research explains industrial concentration through agglomeration economies or production dispersion through fragmentation and global value chains, but provides limited explanation for the persistence of capability-intensive activities. This paper develops a dynamic model of industrial location centered on capability reproduction. Regional production capabilities are conceptualized as productive coordination capacities reproduced through localized learning, repeated interaction, and inter-firm problem-solving. Capability accumulation simultaneously enhances productivity and increases relocation costs, generating endogenous relocation thresholds. The model produces path dependence, multiple long-run industrial configurations, and hysteresis, whereby temporary shocks may induce irreversible industrial restructuring. It also explains how fragmentation and persistence can coexist because capability-intensive activities remain selectively anchored while more modular activities become geographically mobile. Japanese semiconductor and automotive manufacturing are used as empirical illustrations. JEL codes R12, F23, L23