1.2 Key concepts and theories in economic geography

Economic geography explores how economic activities are distributed across space. Key concepts like location, scale, and distance shape economic landscapes, influencing where businesses set up and how they interact. These ideas help us understand why some areas thrive economically while others lag behind.

Theories like central place theory and new economic geography explain patterns of economic concentration. They show how factors like market size and transportation costs lead to the formation of economic hubs and clusters, driving regional specialization and shaping the global economic landscape.

Core Concepts in Economic Geography

Location, Space, and Scale

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• Location refers to the specific position or site where economic activities take place
  • The choice of location for economic activities is influenced by various factors (access to resources, markets, labor, transportation networks)
• Space in economic geography refers to the broader geographic context within which economic activities occur
  • Encompasses the physical, social, and cultural dimensions of the environment that shape economic processes and outcomes
• Scale is a fundamental concept that refers to the spatial extent or level at which economic processes operate
  • Economic activities can be analyzed at different scales (local, regional, national, global)

Distance and Economic Landscapes

• The concept of distance, both physical and social, plays a crucial role in shaping economic interactions and the spatial organization of economic activities
  • Distance influences transportation costs, market access, and the flow of goods, people, and information
  • Examples: transportation costs for shipping goods, travel time for commuting to work
• Economic landscapes are the visible manifestations of economic activities in geographic space
  • Shaped by the interplay of various economic, social, and political processes operating at different scales
  • Examples: urban skylines, industrial parks, agricultural landscapes

Key Theories of Economic Geography

Central Place Theory

• Central place theory, developed by Walter Christaller, seeks to explain the spatial arrangement and hierarchy of settlements based on the provision of goods and services
  • Suggests that settlements (central places) of different sizes and functions emerge to serve the needs of surrounding areas
  • Examples: small towns providing basic services, large cities offering specialized goods
• According to central place theory, settlements are organized in a hierarchical system
  • Higher-order centers provide a greater range of goods and services to larger market areas
  • Lower-order centers offer more basic goods and services to smaller market areas
  • Example: a regional city with a university and specialized healthcare services vs. a small town with grocery stores and gas stations

New Economic Geography

• The new economic geography, pioneered by Paul Krugman, emphasizes the role of increasing returns, transportation costs, and market size in shaping the geographic concentration of economic activities
• New economic geography models explain the emergence of core-periphery patterns
  • Economic activities tend to concentrate in core regions with larger markets and better access to resources
  • Peripheral regions lag behind in economic development
  • Examples: the concentration of high-tech industries in Silicon Valley, the economic disparity between urban centers and rural areas
• The concept of cumulative causation is central to new economic geography
  • Initial advantages in a location can lead to self-reinforcing processes of growth and agglomeration
  • Firms and workers are attracted to areas with higher economic activity
  • Example: the growth of the financial industry in New York City, attracting more firms and talent over time
• New economic geography highlights the importance of transportation costs in determining the spatial distribution of economic activities
  • Lower transportation costs facilitate the concentration of production in fewer locations
  • Higher costs promote dispersal of economic activities
  • Examples: the impact of containerization on global trade, the decentralization of manufacturing to lower-cost regions

Agglomeration Economies and Clustering

Benefits of Agglomeration

• Agglomeration economies refer to the benefits that firms derive from locating near one another
  • Concentration of economic activities in a particular area can lead to increased productivity, innovation, and competitiveness
• Localization economies are the benefits that firms in the same industry gain from clustering together
  • Access to specialized labor, knowledge spillovers, and the development of specialized infrastructure and services
  • Examples: the concentration of fashion designers in Paris, the clustering of tech startups in San Francisco
• Urbanization economies are the advantages that firms across different industries obtain from being located in larger urban areas
  • Access to a diverse labor pool, large consumer markets, and the availability of advanced infrastructure and services
  • Examples: the benefits of being located in a major city like London or Tokyo

Industrial Clusters and Regional Specialization

• Industrial clusters are geographic concentrations of interconnected firms, suppliers, and related institutions in a particular industry
  • Clusters facilitate knowledge sharing, innovation, and the development of specialized skills and infrastructure
  • Examples: the automotive cluster in Detroit, the wine cluster in Napa Valley
• The concept of external economies explains how the concentration of economic activities in a region can generate positive externalities
  • Knowledge spillovers and the development of a skilled labor pool benefit all firms in the area
  • Example: the spillover effects of research universities on the local technology industry
• The formation and growth of clusters are often driven by historical accidents, local entrepreneurship, and the presence of key anchor firms or institutions
  • These factors attract related economic activities to the region
  • Examples: the role of Stanford University in the development of Silicon Valley, the influence of the film industry on the growth of Hollywood
• Clustering can lead to the development of regional specialization, where certain regions become known for their expertise in specific industries or sectors
  • Specialization can enhance the competitiveness and resilience of the regional economy
  • Examples: the specialization of the Swiss watch industry, the concentration of the pharmaceutical industry in Basel, Switzerland