Geography, economic growth and convergence geography matters recall core-periphery models recall geography and the Industrial Revolution (coal basins)

Geography, economic growth and convergence

geography matters

recall core-periphery models

recall geography and the Industrial Revolution (coal basins)

new economic geography: can location alone explain growth and convergence?


Towards a geography of convergence recall: a three-phased trend in the

location of production1: the rise of UK and western Europe, fall

of China, and India (1800-1880)2: North America takes the lead (1880-

1980)3: the “asian tigers” fight back (1980-

1998)


economic and demographic trends1820: a balanced geographical

distribution1913: concentration in Europe and

North America 1998: signs of a new spatial

pattern (selective dispersion)

the overall picture: selective geographical convergence

A brief history of transports and communications

trade costs: geographical distance vs economic distance

qualitative changes in transports before 1850: innovations do not affect volumes of trade

1830-50: the Revolution in transports and communication begins


Ships and canalsfrom the “Comet” (1812) to the

first steamship Atlantic cross over (1838)

1860-1880 steamships take-over sailships

1869 Suez Canal opens1914 Panama Canal opens


Trains and railroads1825: first locomotive1830: the Manchester-Liverpool line1850-70: the “golden age”; railroad

extension increase by 5 times1880-1914: international development

Revolution in communications: telegraph (1858-1866), telephone (1880-1900)


The impact on transport costs

in 20th c. a substantial decline:in 1910 sea shipping prices are

about 1/3 than in 1830

1800-1910: a drop in inland transport prices of around 90%


interwar-years: transport costs remain stable or slightly increase

after WW 2, a declining trend starts again: 1990 prices are about 50% less than in 1910

yet, it is not comparable with the ongoing drop in commodity prices


relevant changes however occur:air transport:

1960s-1990s the ratio of air to ocean shipments grows about 10 times

containers and logistics1960s-1990s the speed of ocean

shipping doublesInformation and Communication

Technologies (ICT)


it is likely that transport costs fall much more since the 1960s

even today distance is not “dead”

volumes: about 40-50% less at a distance of 2,000 km, and 70-80% less at a distance of 4,000 km


back to trade costs = transport + tariffs

foreign trade-World GDP ratio as a measure of economic distance

the impact on location:before 1820: dispersion1820-1913: concentration1945-1998: new geographies of

location are possible

Geography and growth: a model

in traditional models of economic growth, size does not matter ...while, in new economic geography size matters; assuming: (1) a relation between returns and scale(2) “cumulative causality”

plus, aggregation influences:(3) human capital(4) skill transmission


the basic “History of the world” model: two countries (N and S)

two sectors (agriculture and industry)

same wages and no migration

and the variable of trade costs


high trade cost: N specializes in industry (= higher wages)

as trade cost fall: industries move to S (= wages tend to converge)

equilibrium = “death of distance”

lesson: the decrease in trade costs explains concentration/dispersion


the core is “cumulative causality”, a circular process:(a) firms/workers move creating a

hierarchy: big and small markets(b) imperfect competition favours scale

and location advantages for big markets(c) increasing returns provide higher

wages and profits for big markets(d) big markets attract factor labour and

capital


furthermore:(a) innovation of transport technology

is the trigger of such process in 19th c.

(b) only a further decline of trade costs breaks the “circle”

(c) ... allowing firms/workforce to move to lower-cost regions

(d) and the “circle” can start once again in a new area

Case 1: North America

testing the model on late 20th c. growth in the USA1860-1914 from agricultural economy

to world industrial leader why USA? A comparison with Latin

American countriesArgentina does not keep USA pace

standard explanation: institutions and technology

Case 1: North America

a complex variant of the model: Europe, USA, rest of the World

it highlights the role of:USA protection policiesUSA open-access to work-force

migrationtransport revolution arrives just in

time

Case 2: Urbanization

globalization inside a country: moving to the city

1850-1910: migration = 34 millions urbanization = 145 millions

industrialization determines city population increase:

1800-1914: from 24 to 281 cities with over 100,000 inhabitants


nothing similar occurs in non-industrialized regions


if transport innovation overcomes market-scale bottlenecks, city population may increase

two models:size related to transport costs, fosters

specialization (wage-maximizing city)agglomeration is in itself beneficial,

unspecialized cities

Case 3: East Asia

evidence of the East Asian “miracle” of the late 20th century

a timeline:(1) Japan; (2) Asian “tigers”; (3) China

mainstream story: institutional change as the key of Asian success

including geography in the explanation: selective convergence

Case 3: East Asia

East Asian pattern: a chain of one-country-at-a-time converging1980s: Japan’s high income allows

investments in other low-wage E. Asian countries

declining intra-Asian trade costs trigger delocation in Taiwan, S. Korea, etc.

1990s Asian “tigers” converge2000s: it is China’s turn to converge

Case 3: East Asia

fitting the narrative in the model(1) only one industrialized economy(2) high wages plus declining trade

costs favour transfer of industries(3) yet, industrialization is unstable,

only one country converges while the others miss this turn

(4) growth in demand re-starts the cycle

ICTs and the death of distance?

the impact of new ICTs on location successful examples of dispersion,

and limits:a minor share of World GDP is involvedlikely automation of sectors now using

low-wage labour

but ICTs can favour concentrationproximity is at time profitable

Concluding remarks

beware of single-side explanations, though geography is important

technology and human capital can move as well

where do Continental Europe, and India fit in the one-country-at-a-time model?

Documents

Geography, economic growth and convergence geography matters recall core-periphery models recall geography and the Industrial Revolution (coal basins)