Geography Reference
In-Depth Information
Figure 2.1
Neo-classical model of regional developments.
Some criticisms
There are obvious limitations of such a model. Its suppositions are an extremely
limited world, where most factors are held constant or assumed away. In reality,
it is a model that refers to one product, not to a whole regional or national
economy, and diversity of products introduces great complication. The markets are
assumed to consume all the production and any increase in it. In the simplest
version of the model, there is no technological factor, i.e. no advance of one
region over another because of new inventions or the use of better machines. It is
not a development model either, but one for economic growth, and development,
involving some increase in production per capita, would depend on other factors
such as technology.
Capital movement
From the point of view of geographers, there are grave defects in the assumption
of zero transport costs for capital and labour. Taking capital first, most people
think of this as financial capital, money in one form or another, whereas in
reality most capital movement is through investment in physical structures such
as roads and factories. Even if it is financial capital, flows may not be easy as there
are government restrictions on international bank flows to and from many
countries. Taxes and risks of capital loss through devaluation are also variables
which are considered by those moving money around the world. In the late
1970s and the 1980s, there were indeed large money flows around the world, as
oil money from high oil prices sought placement, often in developing countries,
through banks and other institutions in the developed world. But this process has
probably been an exception rather than the normal way in which capital moves.
