Geog 171b. Web page. No cell phones. Don t be like this. Username: student171 Password: geog

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1 Geog 171b 2006 Web page No cell phones Username: student171 Password: geog17104 Grading Don t be like this 1

2 Don t wait to ask Intent of this course is to examine selected aspects of the international economy from the special perspective of economic geography. As field of intellectual inquiry, economic geography is primarily concerned with those economic relationships between places that can be generalized under the term spatial interaction Does Geography Matter? The cliché is that instantaneous global telecommunications, television and computer networks will soon overthrow time and space. Companies will need no headquarters, workers will toil as effectively from home, car or beach There s something in this. Software for American companies is already written by Indians and transmitted to Silicon Valley by satellite. Foreign-exchange markets have long been running 24 hours a day. But, such developments have made hardly a dent in the way people think and feel about things. For example, at newspapers or news broadcasts anywhere on earth, and you find them overwhelmingly dominated by stories about what is going on in the vicinity of their place of publication What your neighbours (or your kith and kin) do affects you. The rest is voyeurism. American multinationals going global have discovered that for all their world products, world advertising, and world communications and control an office in, say, New York cannot except in the most general sense manage the company's Asian operations 2

3 Global strengths must be matched by a local feel and a jet-lagged visit of a few days every so often does not provide one. Most telling of all, even the newest industries are obeying an old rule of geographical concentration. From the start of the industrial age, the companies in a fast-growing new field have tended to cluster in a small region. This is why the world got Silicon Valley in California in the 1960s. It is also why tradable services stay surprisingly concentrated: futures trading (in Chicago), insurance (Hartford, Connecticut), movies (Los Angeles) and currency trading (London). main reason is that history counts: where you are depends very much on where you started from Spatial inertia New technologies will overturn some of this, but not much. The most advanced use so far of the Internet, the greatest of the world's computer networks, has not been to found a global village but to strengthen the local business and social ties among people and companies in the heart of Silicon Valley. As computer and communications power grows and its cost falls, people will create different sorts of space and communities from those that exist in nature. But these modern creations will supplement, not displace, the original creation; and they may even reinforce it. Companies that have gone furthest towards linking their global operations electronically report an increase, not a decline in the faceto-face contact needed to keep the firms running well: with old methods of command in ruins, the social glue of personal relations matters more than ever. 3

4 The reason lies in the same fact of life that makes it impossible really to understand from statistics alone how exciting, say, China's economic growth is unless you have physically been there to feel it. People are not thinking machines (they absorb at least as much information from sight, smell and emotion as they do from abstract symbols), and the world is not immaterial virtual realty Cyberspace can help overcome space but it cannot replace it Corporate Geography Spatial Interaction Systems of spatial interaction have two components: 1) places that serve as origins and destinations of flows, 2) the flows themselves. analysis of current locational patterns and their determinants is an important step toward understanding spatial interaction in the economy. understanding of a system of spatial interaction requires consideration of the interconnections among places, called the system's spatial structure. increased interaction between rich and poor countries is required not only in the interest of improving standards of living in the world's poorer countries, but also in the interest of maintaining the prosperity of the world's richer countries. 4

5 globalization of the economy is a commonly used phrase, arguments have been made that economic regionalization is strengthening and true internationalization of economic activity is a selective prospect at best. technological developments in communications and transportation systems that have helped make the world effectively smaller will continue to take place, and the spread of multinational corporations that serve to link places in the international economy will continue as well. Space / Time Convergence of the World Transport System Average speed of wagon and sail ships: 16 km/hr Average speed of trains: 100 km/hr. Average speed of steamships: 25 km/hr 1950 Average speed of airplanes: km/hr 1970 Average speed of jet planes: km/hr 1990 Numeric transmission: instantaneous Development of Operational Speed for Major Transport Modes, (km per hour) Road Rail Maritime Air Stage Coach Clipper Ship Propeller Plane Liner Jet Plane TGV Automobile Rail Containership World shrinking is highly uneven These "enabling technologies," continually improve the prospects for interaction in the international economy. They provide an infrastructure that supports international trade and investment as they lower transaction costs and improve the stock of knowledge of foreign markets. 5

6 The pivotal question remains, however, whether interaction within the Core will continue to increase at a faster rate than interaction between Core and Periphery. study of economic geography can take place at a number of scales, ranging from local to global. scale of analysis emphasized national. National scale is focused upon for 2 reasons. 1) countries are the immediate building blocks of the international economy. 2) most national economic policies that affect and are effected by international flows can be viewed realistically as having a uniform distribution across the space of the national states. 2 features of the international economy often blur the discrete characteristics of individual countries. 1) growth of multinational economic blocs 2) the widening spread of transnational corporations (TNCs). At the same time, many TNCs serve as types of conduits that facilitate and even direct other flows in the international economy. Many TNCs effectively operate internal systems of spatial interaction over international markets for products, labor, capital, and knowledge. Flows internal to the multinational corporation account for a large share of international trade in goods, capital, and technology. basic regional classification used is that of rich North and poor South, or Core and Periphery, respectively. National income accounting figures, gross domestic product (GDP) and gross national income (GNI), are considered as the primary measures of national wealth. 6

7 GDP Gross Domestic Product. The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. GNI Gross National Income is equal to GDP less taxes (less subsidies) on production and imports, compensation of employees and property income payable to the rest of the world plus the corresponding items receivable from the rest of the world. GNI is a concept of income (primary income) rather than value added. One complexity of international economy is multilateral nature of its constituent flows. For example, flows between Canada and the United States, have an effect on the flows between Canada and Japan. Additional complexity is found in the international economy's spatial interaction because flows of goods between countries affect flows of capital which, in turn, affect flows of goods, and so on. Neoclassical models predict eventual balanced growth among the world's countries and the convergence of their national incomes. Pure spatial theory, which incorporates transfer and related costs of distance and tendencies toward economic agglomerations, predicts unbalanced growth as a result of market processes, with the rich getting richer and the poor getting poorer. Reality, of course, is somewhere in between. Core and Periphery Capital mobility is generally confined within the small set of the world's rich countries that comprise the Core. The Core provides the most opportunities for equity investment and is the greatest source of financial capital as well. Equity markets tend to be thin in the poorer countries on the Periphery, and their regulation by governments tends to be less strict. Foreign direct investment, like other forms of financial capital, has its dominant source in the Core. 7

8 North-South Division The flow of foreign investment of all types has been generally increasing, but the flow of goods and services in international trade is still the most important link among countries in the international economy. The dominant theory of international trade is based on international variations in comparative advantage of production resulting from international variations in factor endowments. Unfortunately, the benefits of free trade that come about so quickly in theory are slow to be realized in practice. Due to different-sized economies, much of the competitive reaction of price equalization among countries is not the result of trade in goods. In addition, large differences in average incomes, factor endowments, scale economies, or technology among countries means that large quantities of noncompetitive goods enter into international trade. Trade management practices are put into place by governments because existing trade patterns are taken to be unfair or simply not advantageous. The most common methods of trade management are the tariff and the quota, and many governments raise additional barriers to both imports and exports. Most international trade, like most capital flows, takes place within the set of rich countries that comprise the Core of the international economy. This pattern of trade is not surprising on the theoretical grounds of international trade in differentiated products, nor is it surprising in light of current practices of trade management. 8

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