1.2 Key concepts and theories in economic geography
4 min read•august 15, 2024
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 explain patterns of . They show how factors like market size and lead to the formation of economic hubs and clusters, driving and shaping the global .
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, , 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 , 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 , 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
- 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 between urban centers and rural areas
- The concept of 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
- 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
- are the benefits that firms in the same industry gain from clustering together
- Access to specialized labor, , and the development of specialized infrastructure and services
- Examples: the concentration of fashion designers in Paris, the clustering of tech startups in San Francisco
- 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
- 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 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
Key Terms to Review (18)
Agglomeration Economies: Agglomeration economies refer to the benefits that firms and individuals experience when they are located near each other in concentrated areas. This phenomenon enhances productivity and efficiency, as it fosters collaboration, reduces transportation costs, and encourages innovation due to the close proximity of resources, labor, and markets.
Core-Periphery Patterns: Core-periphery patterns describe the spatial and economic relationships between developed 'core' regions and less developed 'periphery' regions within a country or globally. These patterns highlight the concentration of wealth, resources, and economic activities in core areas, while peripheral regions often experience lower levels of investment and economic opportunities, resulting in uneven development.
Cumulative Causation: Cumulative causation refers to a process where an initial change in the economy leads to a series of interconnected changes that amplify the initial effect. This concept highlights how economic growth in one area can trigger further development and growth, creating a self-reinforcing cycle. Understanding this term is crucial as it relates to various processes like regional development, migration, and urbanization, illustrating how spatial disparities can emerge and persist over time.
Economic Concentration: Economic concentration refers to the degree to which a small number of firms or entities dominate a particular market or industry. This concept is essential for understanding how resources, production, and wealth are distributed within economies and the implications for competition, innovation, and regulation. High levels of economic concentration can lead to monopolistic practices, reduced consumer choices, and increased inequalities in wealth distribution.
Economic disparity: Economic disparity refers to the uneven distribution of wealth, income, and resources among different individuals, groups, or regions within a society or across countries. This phenomenon highlights the gaps in economic opportunities and living standards, often leading to social tensions and inequalities. Understanding economic disparity is crucial in analyzing the dynamics of global economies and the varying development levels in different regions.
Economic landscape: The economic landscape refers to the spatial distribution and organization of economic activities and resources within a specific area, highlighting how geography influences economic processes. This concept connects various aspects such as the types of industries present, the location of markets, and how resources are utilized in different regions, shaping both local economies and global trade patterns.
External Economies: External economies refer to the cost advantages that firms experience as a result of the growth and concentration of an industry within a particular geographic area. This concept highlights how the proximity to suppliers, specialized labor, and infrastructure can lower production costs and enhance competitiveness for businesses operating in the same region. Understanding external economies is crucial for analyzing how spatial factors influence economic activities and the distribution of industries.
Industrial clusters: Industrial clusters are geographical concentrations of interconnected businesses, suppliers, and associated institutions in a particular field. They facilitate collaboration, innovation, and competitiveness by allowing firms to share resources, access specialized labor, and benefit from economies of scale. The presence of these clusters underscores the importance of spatial organization in economic activity, highlighting how location impacts business performance and regional development.
Knowledge Spillovers: Knowledge spillovers refer to the unintended and informal exchange of knowledge and ideas that occurs when individuals or firms interact, leading to enhanced innovation and productivity. This phenomenon often takes place in regions where firms are clustered together, as proximity allows for easier communication and collaboration, enabling the sharing of insights and expertise that can benefit others in the same area. Knowledge spillovers play a crucial role in economic development, driving competitiveness and fostering new industries.
Localization economies: Localization economies refer to the economic benefits that firms gain by being located in a particular geographic area, which enhances their productivity and competitiveness. These advantages arise from factors such as shared suppliers, specialized labor markets, and the exchange of knowledge among firms within the same industry. This concept is crucial for understanding how specific industries cluster in particular regions and how these clusters contribute to regional economic growth.
Market Access: Market access refers to the ability of a company or economy to enter and compete in a market, influencing economic activities and development through geographical, logistical, and regulatory factors. This concept is vital as it shapes trade patterns, determines the success of businesses in different locations, and plays a crucial role in how resources are allocated within economies.
New Economic Geography: New Economic Geography (NEG) is a theoretical framework that seeks to explain the spatial distribution of economic activities by incorporating factors like increasing returns to scale, transportation costs, and the role of agglomeration. This perspective emphasizes how economic activities cluster in certain areas, driven by both market dynamics and the behavior of firms and consumers, leading to regional disparities and varying levels of economic development.
Paul Krugman: Paul Krugman is an American economist, awarded the Nobel Prize in Economic Sciences in 2008, who is well-known for his work on international trade and economic geography. His theories emphasize how economies of scale and transportation costs shape patterns of trade and the location of economic activities, highlighting the importance of geographical factors in economic processes.
Regional Specialization: Regional specialization refers to the process by which specific regions concentrate on producing certain goods or services based on their unique resources, skills, and economic advantages. This phenomenon often leads to increased efficiency and productivity, as regions capitalize on their strengths, fostering innovation and competitive advantages in particular sectors. As regions become specialized, they contribute to broader economic patterns and spatial distributions of economic activities across different areas.
Resource Allocation: Resource allocation refers to the process of distributing available resources, such as land, labor, and capital, in a way that maximizes efficiency and meets the needs of society. It plays a crucial role in shaping economic activities, influencing patterns of production, consumption, and trade, while determining how resources are utilized in different geographical contexts. Understanding resource allocation is essential for analyzing economic systems and spatial dynamics in various regions.
Transportation Costs: Transportation costs refer to the expenses incurred in moving goods and services from one location to another. These costs are vital in determining the viability of trade, influencing where businesses choose to locate, and affecting the overall spatial distribution of economic activities. Understanding transportation costs helps reveal the dynamics of industrial location, the formation of industrial districts, and the patterns of international trade.
Urbanization Economies: Urbanization economies refer to the benefits that firms and individuals experience when they locate in urban areas, driven by the concentration of resources, labor, and markets. These economies arise from the increased efficiency and productivity that come with higher population density, allowing for better access to services, suppliers, and a larger customer base. Urbanization economies are crucial in understanding how cities function and grow, highlighting their role in economic geography and how agglomeration leads to clustering of industries.
Walter Christaller: Walter Christaller was a German geographer known for developing the Central Place Theory in the 1930s, which explains the spatial distribution of economic activities and urban centers based on their size and function. His work laid the foundation for understanding how cities serve as central places that provide goods and services to surrounding areas, influencing various aspects of economic geography, location theory, and urban systems.