Geography Reference
In-Depth Information
his 'hills and mountains' (Leamer 2007). The global economy is becoming
spikier. As Fujita et al. (1999) demonstrate, the reason for this is that when
agglomeration economies are allied with falling spatial transport costs, the
existence of such agglomeration economies can lead to situations in which
intermediate production locations such as
Y
disappear altogether. This is
partly because the previous economic raison d'être of the former interme-
diate production location now vanishes, and also because the low distance
costs no longer provide any possibility for 'protection' from the major
urban centres and the maintenance of limited local monopoly power.
In the presence of agglomeration economies the same result can also be
generated in a situation where border tariffs are reduced or removed.
Therefore, the combination of both falling transport costs and falling
tariffs reinforces the whole process.
The equilibrium land prices at each location in the global economy
AB
are
given by the envelope of the individual bid-rent curves, and as in Figure 7.1,
these are depicted in Figure 7.2 in bold. As we see, the envelope rental curves
are now far more curved and convex than previously. Assuming that land
and labour prices are highly correlated, because of the need to maintain local
real wages at competitive levels, we can assume that the envelope land price
curves also closely resemble the spatial variations in both local incomes and
productivity levels. The differences between the major centres and the rela-
tively smaller centres will tend to increase. This is not to say that all major
centres will increase relative to smaller centres, as it will also depend on the
range of technologies and industries present in particular cities and regions:
as seen in Chapters 4 and 5, different industries and technologies rise and
fall over time. However, the arguments outlined earlier still do imply that
globalization will lead to increasing differences between the fortunes of
regions and cities even within the same country. This is because particular
major urban centres will benefit from the increasing scale advantages asso-
ciated with being nodes in global exchange networks.
We can also consider the effects of these various changes in spatial
transactions costs on the distribution of income and productivity. In
Figure 7.1, if the areas denoted as
X
L
,
Y
L
and
Z
L
also define the borders
of the individual national or regional market areas within the global
economy
AB
, the transition from the environment depicted in Figure 7.1
to that depicted in Figure 7.2 would imply that the differences between the
locations had increased, resulting in income or productivity divergence.
On the other hand, if there were only two countries or regions, whereby
one country or region contained only city
X
and the other country or
region contained both cities
Y
and
Z
, the transition from the environ-
ment depicted in Figure 7.1 to that depicted in Figure 7.2 would imply
that the differences between the two countries or regions had decreased,
