Geography Reference
In-Depth Information
generally be tied to knowledge centres that may be far from the produc-
tion sites. The global economy therefore appears to be simultaneously
characterized both by global flattening and local steepening, the outcome
of which is to make the world more curved, more uneven and more spiky
(McCann 2005, 2008).
The evidence in favour of the contemporary role played by agglomera-
tion economies in shaping economic geography is now so overwhelming
that it is more or less beyond question (Venables 2006). Yet, much of the
reason why agglomeration has once again become so important is related
to the increasing spatial transactions costs associated with engaging in high-
value knowledge activities. At the same time, for many output activities or
low-knowledge input activities, spatial transactions costs have fallen. In
order to understand the impacts of these simultaneous changes it is useful
to consider the arguments of Krugman and Venables (1995), who analyse
the case in which economies produce two sets of outputs, one under condi-
tions of constant returns to scale and the other under increasing returns to
scale. Krugman and Venables (1995) demonstrate that with high transport
(spatial transactions) costs all countries have similar production patterns,
because high transport costs act as a trade barrier, thereby encouraging
local production. However, as transport (spatial transactions) costs begin
to fall an increasing centre-periphery divergence emerges and regions in the
periphery suffer decline. Finally, as transport costs fall to very low levels,
convergence starts to occur. The outcome of these changes is that the rela-
tionship between degree of spatial concentration (agglomeration) and the
level of transport (spatial transactions) costs exhibits an ∩- shaped form.
The question therefore arises as to where in the Krugman-Venables
framework does the global economy currently stand? While the 'flat
world' thesis implicitly assumes that we are at the third stage in such a
framework, the above arguments suggest that this is not the case. The
evidence indicates that high knowledge-intensive activities are increasingly
produced in increasing returns to scale (agglomeration) environments,
while low knowledge-intensive activities are increasingly produced in
environments of constant returns to scale not requiring a high degree of
proximity. At the same time, we recall that although there is evidence that
spatial transactions costs in general have fallen due to decreasing shipment
costs, there is also sign that they have probably not fallen by very much,
if not even arisen overall. The combination of these various observations
implies that we are currently in the second stage of the Krugman-Venables
transition process. In order to explain this we will employ a diagrammatic
approach (Figure 7.1).
Figure 7.1 depicts a one-dimensional economic geography model of the
global economy which spans the distance
AB
. In this particular spatial
