Economic Geography - uni-wuerzburg.de · Economic Geography - Summer Term 2016 1 Internationale Ökonomik Universität Würzburg Economic Geography Time and location Course start:

Economic Geography - Summer Term 2016

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Professor Dr. Michael Pflüger Lehrstuhl für VWL - Internationale Ökonomik Universität Würzburg

Economic Geography

Time and location Course start: Thursday April, 14, 2016, 16:00-18:00, SR 411

The lecture is accompanied by a tutorial (Übung) which gives you the opportunity to practice the material covered. Problem sets are provided via WueCampus. You are expected to work out the problems before the tutorials take place.

Exam Written Examination (60 min) at the end of the term


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I Introduction

1 Motivation and some facts

2 Overview

Readings * priority reading * Krugman, Paul, 1991, Geography and Trade

* Brakman, Steven, Harry Garretsen and Charles van Marrewijk, 2009, The New Introduction to Geographical Economics, Cambridge

University Press., Chapt. 1

* Fujita, Masahisa, Paul Krugman and Anthony Venables, 1999, The Spatial Economy, MIT Press, Chapt. 1

* World Bank, 2009, World Development Report 2009: Reshaping Economic Geography, Washington

* United Nations (2014a): World Urbanization Prospects. New York 201

* United Nations (2014b): World Urbanization Prospects. The 2014 Revision. Methodology. New York 201

Combes, P.P, Th. Mayer and J.F. Thisse, 2008, Economic Geography. The Integration of Regions and Nations, Princeton University

Press, Chapt. 1

Krugman Paul, 2009, The increasing returns revolution in trade and geography, American Economic Review 99:3, 561-571


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1 Motivation and some facts

reconsideration of space in economic activity since late 1980's: Who produces what, where?

initiated by Paul Krugman

spatial distribution of economic activity – a fairly old topic in economic analysis

revival with the modern tools of industrial organisation and with the new trade theory

label new economic geography (NEG) used by Krugman and others; also (and more adequately) called

geographical economics (e.g. by Brakman/Garretsen/Van Marrewijk)

popularised through Krugman's book: "Geography and Trade" (1991)

central aim of the NEG

explain the uneven distribution of economic activity in space, i.e. the various forms of economic

agglomeration that are observed: 'agglomeration', 'concentration', 'clustering', 'specialization'


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Highlights ... [Sources: Homepage Sveriges Riksbank; World Bank]


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economic agglomeration is observed at many geographical levels and in diverse ways

- urbanization: growth of cities and metropolises (Tokyo, London, New York, Mexiko, Shanghai, Bombay

etc..); development of the degree of urbanization: 9% (in 1300), 16% (in 1900), 37,6% (in 1990);

prediction for 2025: 57 % (according to Paul Bairoch, see Overman, Redding, Venables 2003)

- industrial clustering: (automotive industry in Detroit; fashion industry in the valley of river Po in Italy;

hightech-clusters such as the Silicon Valley or Boston Route 128; film industry in Hollywood; knife

industry in Sheffield England; industrial belts: manufacturing belt (USA and Canada); manufacturing

triangle (Ruhr, Northern France, Belgium) etc.

- regional agglomerations: Munich (Bavaria); Stuttgart (Baden-Württemberg), East- and West-Germany;

Italy's mezzogiorno, Ile-de France (metropolitan area of Paris), etc.

- global scale: North-South-divide; in 2000: , 83% of world GDP is concentrated in three regions (NAFTA:

35%; EU-15: 25%, East-Asia 23 %)

- Europe vs. USA: industry concentration is far less strong in Europe than in the United States


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Urbanization: Levels and Trends Source: United Nations (2014a:7)

Globally, more people live in urban areas than in rural areas. In 2007, for the first time in history, the global urban population exceeded the global rural population, and the world’s population has remained predominantly urban thereafter (figure I.1). The process of global urbanization has proceeded rapidly over the past six decades. In 1950, more than two-thirds (70 per cent) of people worldwide lived in rural settlements and less than one-third (30 per cent) in urban settlements. In 2014, 54 per cent of the world’s population was urban. Global urbanization is expected to continue, so that by 2050, the world will be one-third rural (34 per cent) and two-thirds urban (66 per cent), roughly the reverse of the global rural-urban population distribution of the mid-twentieth century.


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Urban Population by income group Source: United Nations (2014a:12)


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Urban Population by size of urban settlement Source: United Nations (2014a:17)


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Urban Agglomerations Source: World Bank (WDR 2009: XIX)

Tokyo

- world's largest metropolitan region at present

- 35 million inhabitants = 1/4 of Japan's population

- less than 4% of Japans land area


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Urban Agglomerations Source: United Nations (2014a:17)


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Defining Urbanization Source: United Nations (2014:4) “There exists no common global definition of what constitutes an urban settlement. As a result, the urban definition employed by national statistical offices varies widely across countries, and in some cases has even changed over time within a country. The criteria for what constitutes an urban setting may be based variously on one or a combination of characteristics, such as: administrative criteria that classify municipalities as urban; a minimum population threshold; population density; proportion employed in non-agricultural sectors; the presence of infrastructure such as paved roads, electricity, piped water or sewers; and the presence of education or health services. For example, Botswana considers as urban agglomerations of 5,000 inhabitants or more where 75 per cent of the economic activity is nonagricultural, while in France communes with 2,000 inhabitants or more living in houses separated by at most 200 metres are considered urban. Up until the 1991 census, Uganda considered as urban population centres with 1,000 inhabitants or more, but the minimum threshold was revised for the 2002 census to consider as urban only those centres with 2,000 inhabitants or more.” “In estimating the proportion urban for World Urbanization Prospects, adjustments are made to the national estimates only when it is clear that the definitions of urban settlements used by a given country have changed over time in ways that lead to inconsistencies in the data. No attempts have been made to impose consistency in definitions across countries. However, several efforts are underway at different institutions to produce globally consistent estimates of the proportion urban with uniform criteria to define urban areas by relying, for example, on satellite imagery of land cover or night-time lights. Nonetheless, to date, these approaches have not generated the long historical time series of urbanization estimates required for this report.”


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Cities, Urban Agglomerations and Metropolitan Regions Source: United Nations (2014b:4)

“In the case of cities, population statistics are often reported in terms of the territory delimited by administrative boundaries that do not necessarily coincide with the extent of the urbanized territory as delimited by other standards. Thus, the “city proper” as defined by administrative boundaries may not include suburban areas where an important proportion of the population working or studying in the city resides. Furthermore, in some cases, two or more adjacent cities may be separately administered, although they might form jointly a single urbanized region. Alternatively, administrative boundaries of some cities may cover large tracts of land primarily devoted to agriculture. Because of these problems it is advisable to base the measurement of a city’s population on territorial boundaries that may differ from those established by the accidents of administrative history. Since they are less affected by changes in administrative boundaries, two auxiliary concepts have also been used to improve the comparability of measurements of city populations across countries and over time. The first is the concept of an urban agglomeration, which refers to the population contained within the contours of contiguous territory inhabited at urban levels of residential density. The second is the concept of the metropolitan region, which includes both the contiguous territory inhabited at urban levels of residential density and additional surrounding areas of lower settlement density that are under the direct influence of the city (for example, through established transport networks, road linkages or commuting patterns).”


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Industrial Clustering – Silicon Valley

Silicon Valley - software producers in the

vicinity of San Francisco

- Silicon Valley in and

North of San Jose - existing produrs (black

dots = 5 firms) and new ones (red dots = 1 firm)

[Rosenthal and Strange 2004 Handbook of Reg Urb Ec]


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Regional Concentrations – Country Level

Germany Right: Average tax payer income in Germany Left: Women aged 18-29 per 100 men. Source: World Bank (WDR 2009: 235)


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World Economy - Triad The triad - map of economic power - North-America, EU, Japan:

2/3 of World Production

- population below 1 billion (Milliarde) Source: World Bank (WDR 2009)


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Europe: The Banana Source: Süddeutsche Zeitung 8.9.2009, "Wohlstand leuchtet"


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development of the research program of the 'new economic geography'

new theoretical explanation for agglomerations: general equilibrium model based on the interaction of trade

costs, increasing returns at the level of the firm and the mobility of factors of production

- 'core-periphery-model' developed by Paul Krugman (Increasing returns and economic geography, 1991,

Journal of Political Economy)

- M. Fujita, P. Krugman and A. Venables, 1999, The Spatial Economy, MIT-Press – monograph which

synthesizes the theoretical research of the first decade of the NEG

- M. Fujita and J.F. Thisse, 2002, Economics of Agglomeration. Cities, Industrial Location, and Regional

Growth, Cambridge University Press – monograph with a broader perspective, which covers both the

traditional agglomeration forces as well as the new ones stressed in the NEG


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two further lines of research since the mid/end of the 1990's: empirics and policy analysis

- empirical exploration of the theory and the implications of the NEG

- by now there is a great number of journal articles, e.g. border region USA – Mexico, developments

in Europe etc.

- survey article in the Handbook of Regional and Urban Economics by Head and Ries (2004)

- exploration of the policy implications of the NEG

- explosion of work

- important monograph by Richard Baldwin, Rikard Forslid, Philippe Martin, Gianmarco Ottaviano,

Fréderic Robert-Nicoud, 2003, Economic Geography and Public Policy, Princeton University Press

good introductory textbook by Steven Brakman, Harry Garretsen and Charles van Marrewijk, 2009, The New

Introduction to Geographical Economics, Cambridge University Press; they maintain a useful website where

interesting additional material is provided: http://people.few.eur.nl/vanmarrewijk/geography/index.htm


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2 Overview

I Introduction: Motivation and some facts

II Forces shaping the location of economic activity in space: increasing returns & trade costs

III Urban economics: Basic Concepts

IV Regional science, Location theory, Trade theory and NEG

V From the new trade theory to the new economic geography: the Dixit-Stiglitz-Krugman model as a workhorse

for new trade theory and the new economic geography


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VI The standard core-periphery model (CP-model) with mobile skilled labor; generalizations and an alternative

framework

VII The footloose-capital model (FC-model) with mobile physical capital; applications to trade policy, infrastructure

policy; the idea of hubs; the concept of peripherality

VIII The footloose-entrepreneur-model (FE-model) with mobile skilled labor; market equilibrium vs. social

optimum; regional policy

IX Empirics: evidence on trade costs, the concentration of industry and the specialization of regions; evidence on

the implications of the NEG

X Economic Policy – Summing Up: Basic policy insights; trade policy, tax policy, regional policy

Documents

Economic Geography - uni-wuerzburg.de · Economic Geography - Summer Term 2016 1 Internationale Ökonomik Universität Würzburg Economic Geography Time and location Course start: