Charles van Marrewijk

The New Introduction to Geographical Economics: List of symbols and parameters

Geographical economics starts from the observation that economic activity is clearly not randomly distributed across space. This revised and updated introduction to geographical economics uses the modern tools of economic theory to explain the who, why and where of the location of economic activity. The text provides an integrated, first-principles introduction to geographical economics for advanced undergraduate students and first-year graduate students, and has been thoroughly revised and updated to reflect important developments in the field, including new chapters on alternative core models and policy implications. It presents a truly global analysis of issues in geographical economics using case studies from all over the world, including North America, Europe, Africa and Australasia, and contains many computer simulations and end-of chapter exercises to encourage learning and understanding through application.

Chapter 3 Agglomeration and Aid

We combine a key issue in development economics (explaining core-periphery patterns) for the first time with an analysis of unilateral transfers (foreign aid) using a New Economic Geography model. We show that (i) direct transfer paradoxes are not possible in a symmetric setting even if a bystander is present, (ii) the effects of foreign aid depend on the level of economic integration, (iii) aid only has a temporary effect (even if there is a bystander present) if the initial equilibrium is stable, and (iv) the recipient as well as the bystander benefits from foreign aid if the donor is large.

International Economics and Business: The global economy

Keywords Population • Distribution of population • Globalization • History of globalization • GDP in history • GDP and GNP • Global market integration • Migration • Barriers to trade • GDP per capita • Capital flows Introduction Numerous factors active in the global economic environment affect the decisions that managers of firms have to make regarding the price to charge for their products, how much to produce, how much to invest in R&D, how much to spend on advertising and so on. Some of these factors are the number of firms competing in a market, the relative size of firms, technological and cost considerations, demand conditions, and the ease with which competing foreign firms can enter or exit the market. The economic globalization process – that is, the increased interdependence of national economies, and the trend towards greater integration of goods, labour, and capital markets (see Section 1.4) – influences all these factors, and thus indirectly affects managerial decisions and market organization. International economics analyses the interactions in the global economic environment . International business analyses the managerial decisions taken on the basis of a cost–benefit analysis in this global economic environment. In view of the above, we argue that central topics in international finance, business, and public policy cannot be understood without knowledge of international economics. Similarly, we conclude that the central topics in international economics cannot be fully understood without insights from international business.

The New Introduction to Geographical Economics: A first look at geography, trade, and development

Introduction It happened on October 12, 1999 – at least, according to the United Nations (UN). That was the day the human population of planet Earth officially reached 6 billion. Of course, given the inaccuracy of the data, the UN could have been off by 100 million people or so. Every day some 100 million billion sperm are released and 400,000 babies are born, whereas “only” 140,000 persons die. Consequently, the world population is growing rapidly, especially since the second half of the twentieth century. Given the average population density in the world, of about fifty people per square kilometer (Km 2 ), if you are part of a family with two children, your family could have about eight hectares (or twenty acres) at its disposal. The great majority of our readers will probably look around in amazement as they realize that they do not own an area close to this size. The reason is simple: the world population is unevenly distributed. But why? There may be many reasons why people cluster together. Sociological: you like to interact with other human beings. Psychological: you are afraid of being alone. Historical: your grandfather used to live where you live now. Cultural: the atmosphere here is unlike anywhere else in the world. Geographical: the scenery is breathtaking and the beach is wonderful. We will at best cursorily discuss the above reasons for clustering. Instead, we focus attention in this book on the economic rationale behind clustering, known technically as agglomeration.

The New Introduction to Geographical Economics: Agglomeration and international business

Introduction Globalization has many faces. Perhaps the most salient feature of globalization is that it appears that the world becomes smaller as transport costs are reduced, trade barriers disappear, the exchange of information becomes less expensive, and information itself becomes an internationally traded good. According to some commentators, such as Thomas Friedman (2005), the world has even become flat. Although a more even spreading of economic activity is certainly possible, the geographical economics approach also indicates that globalization or economic integration in general may imply a spiky or lumpy world with a growing income gap between rich and poor nations, and in which, due to decreases in trade costs, center–periphery structures become the rule instead of the exception. Among the major actors in the present era of globalization are no doubt the multinational enterprises, or multinationals for short. These firms are probably the most mobile among all firms, with sufficient “international” knowledge to seize a profitable opportunity when it presents itself. Without specific cultural ties to individual nations, they can seemingly move in and out of countries rapidly, with only economic incentives to act upon. The footloose nature of multinationals is strengthened by the fact that such firms increasingly no longer produce “under a single roof.” Baldwin (2006) calls this process “the second unbundling.” The first unbundling was initiated by the transportation revolution of the first Industrial Revolution (1750–1900), which made it possible to spatially separate production from consumption, thereby facilitating international specialization on an unprecedented scale.

The Economics of International Transfers: The Keynes–Ohlin controversy

Introduction The undisputed highlight among controversies involving international transfers is the discussion in 1929 between the Englishman John Maynard Keynes and the Swedish economist Bertil Ohlin. In March of that year Keynes published an article in the Economic Journal , of which he was editor. Keynes argued that the reparations payments imposed on Germany after World War I were too high a burden on the German economy. According to Keynes the required price and cost cuts for the German export sector were virtually impossible to achieve. Bertil Ohlin responded in the same journal later the same year by claiming that only limited export price changes, or none at all, were necessary for the expansion of the German export sector. For a long time, starting with David Hume and John Stuart Mill and continuing up to the beginning of this century, changes in price levels played the predominant role in economic analyses in bringing about the necessary adjustment of trade balances following a transfer from one country to another. This partial equilibrium analysis ignored an important equilibrating factor: the influence of income changes in the paying and receiving countries on the demand for goods. As we shall see later, the changed demand for goods due to income changes as a result of a transfer might make relative price changes entirely unnecessary under certain circumstances. Bertil Ohlin was the main catalyst for this realization, notably in his heated debate with John Maynard Keynes.