Geography Reference
In-Depth Information
resulting in income and productivity convergence. As such, the outcomes
depend in part on the definition of the spatial units, and this is known to
economic geographers as the modifiable unit area problem (Openshaw
and Taylor 1979). However, observation of the increasing convexity of the
envelope curves demonstrates that the transition from the environment
in Figure 7.1 to that in Figure 7.2 is associated with increasing inequality
across space. Therefore, from the perspective of economic geography, as
we move to a world of falling spatial shipment costs for low value goods
and routine activities while at the same time increasing spatial transactions
costs for high-value activities and functions, the world will become more
unequal and more spiky, as new rounds of unevenness are superimposed
on the previous spatial structure (Warf 1995; Harvey 2006).
As Leamer (2007) points out, rather than the world shrinking or becom-
ing flatter, economic activity is dispersing, but from the perspective of eco-
nomic geography dispersal and flattening are very different phenomena.
The arguments presented here suggest that, at the global scale, the various
institutional, technological and organizational changes which have taken
place since the late 1980s mean that we are currently in the second phase
of the Krugman-Venables framework. This phase is characterized by an
increasing centre-periphery divergence in which regions and countries in
the periphery tend to suffer, whereas those which are centrally located
benefit from agglomeration effects. More specifically, the divergence
between central and peripheral areas is manifested by an increasing dis-
tinction between the locations of high versus low knowledge-intensive
activities. Obviously, these general arguments and observations are not
meant to imply that all central regions will benefit and all peripheral
regions will suffer from globalization. The actual observed outcomes will
depend on the nature and scale of the economic activities already located
within the countries and regions (Fujita et al. 1999). However, regions
which include large and diverse agglomerations will tend to benefit from
falling distance-transport costs, as the advantages of scale give rise to
what Krugman (2007) terms 'home-market' effects, whereby the scale of
the local region and its hinterland allows local firms to develop econo-
mies of scale in production, which then allow them to service much wider
market areas. For firms which are mobile - such as, by definition, MNEs
- locating in a major city or region therefore not only provides for a large
domestic market, but also for a high export capability. In contrast, regions
without such agglomerations will find it increasingly difficult to attract
investment from MNEs wishing to export or to access wider market areas.
Indeed, even centrally located regions without such large and diverse
agglomerations within them, as is the case of region
Y
in Figure 7.1 above,
will tend to suffer. Regarding the increasing role of areas of economic
