Abstract
This chapter overhauls some fundamental theoretical principles commonly consulted when tackling a territorial analysis, and the implications that arise when the economic activity alters the genuine territorial status quo. The discussion will focus on the economic vein of this subject, although this perspective can also incorporate geographical, environmental, and urban approaches, inter alia. The emphasis will be put on the stubborn and ever-present phenomenon of agglomeration of economic activities, in some cases triggered by the exploitation of resources geographically pinpointed, or motivated by the exploitation of economies of scale, pecuniary externalities, or technological spillovers.
TopIntroduction
The geographical space measured in distances and transport costs is a recognizable category in the trade, in spite of the abstraction made by the mainstream theories. The inclusion of transport costs in the New Economic Geography (NEG) models incorporated a notion about geographical proximity between trade partners, and weakened the traditional seamless either in the trade theory and location theory. In other domains, there is a clear disruption in the NEG regarding the consolidated field of Urban Economics. Brakmannn et al. (2009b) settle a fundamental difference between the two approaches to the extent that later assumes the cities as isolated entities with no mutual interaction, whereas the former emphasizes the spatial influences that reverberate each other, when analyzing the regions.
Hereon the spatial dimension will be clearly asserted as one crucial determinant in the production specialization, in the economic geography and in the trade theory. However, recent efforts strive to understand the principle of trade and comparative advantages, based on the definition of a space product dimension (Hausmann & Klinger, 2007), with a subsequent empirical applications (Cicerone et al., 2020). However, this product space approach to specialization, relies on the relatedness of products when the countries redefine their specialization pattern establishing a production and sectoral dimension, but not a geographical one.
Crevoisier (1996) points out that in economic models the concept of space belongs strictly to an abstract and unreal idea, which is unable to match the “metric” space as a concrete reference with specific dimensions. However, he proposes a dimension of space dealing with proximity and mainly with interactions and economic transactions. Some models fruitlessly, intended to explain the spatial behavior but have been relegated to simple descriptive efforts. In the German tradition, the proposed geometry as appears in Christaller and Losch, is rooted in a description which lacks any explicit market framework required for building an economic structure of localization (Krugman, 1991; and Krugman, 1993). Without any microeconomic root, the observation of graphical set of triangles of Weber or hexagons of Losch gives the impression that spatial economics is merely a deployment of geometry (Scotchmer & Thisee, 1992). The analysis of space in economics requires the forceful inclusion of one specific market structure, with a forceful microeconomic bedrock.
The trade theory and the location theory had divergent predecessors in the field of economics. The first one descends from the Ricardian tradition, and the second one is related to the von Thunen’s work on land rents. The first one assumes discrete and internally seamless nations (Krugman, 1993) and in spite of his lack of realism, this has been the dominant paradigm for 200 years.
The easier way to connect space and economic activity is pointing where production thrives. In doing so, the spatial outcome is the relevant role of specific areas where the output, the employment or the producers set on. One stubborn trait of production is the spatial concentration in particular spots, due to various reasons. In some cases, the production shows stunning concentration because of geographical and climate endowments (agriculture, tourism), but also because of economies of scale, and because firms try to harness the spillovers and pecuniary externalities (manufacturing and urban economics).
Key Terms in this Chapter
New Economic Geography (NEG) and New Trade Theory (NTT): the fields of research opened by the Nobel Prize for Economics 2008 Paul Krugman based fully on the exploitation of economies of scale. The bedrock for the original models is rooted in the microeconomic assumption of monopolistic competition, with firms exerting market power, and taking advantage of unexhausted economies of scale. The Krugman contribution provides a framework for interpreting the trade pattern, the international specialization and the spatial concentration of production.
Pecuniary Externalities: In the Krugman theory, it means the effects that fims can receive by the strategic interaction with other firms through the market. Empirically, the pecuniary externalities are more tractable and easier to track than the Pure Externalities.
Pure Externalities: Theoretically it corresponds to the benefits for the firms derived from setting up close to each other. It deals with the technological knowhow which can be transmitted by the spatial proximity.
Increasing Returns: It happens when the quantitative increase in the output is proportionally higher than the quantitative increase in the variable input and it is consistent with the enlargement of the scale of production. When the firm operates in the increasing return segment, the average cost tends to drop by the increase of the output.
Marshallian Industrial Districts: in the ISTAT (the Italian statistical office) methodology corresponds to the spatial deployment of small and median size firms agglomerated around local manufacturing profiles. With the information about labor commutation, a particular local core can be singled out as focal point of relevant economic activity, irradiating employment opportunities to conterminous municipalities.
Commuters: The population used to realize daily or periodical movements between towns for labor purposes. In some countries, this information can be drawn from Population Census information.