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abstract
How should we think of the role of regions in relation to the global economy? Theory has surprising gaps when it comes to building a unified vision of these two scales of development. Two contributions to such a vision are proposed in this article. First, the relationship between geographic concentration and the regional economic specialization it underpins and globalization should be theorized as a dynamic process. Standard location and trade theory is not adequate for this task; instead, the dynamic relationship can be captured through growth theory. But capturing this dynamic relationship requires correcting growth theory to separate its local and its global components, which are, respectively, Marshall-Arrow and Romer externalities. Second, the missing element in all theories of geographic concentration and locally specialized development is an element labeled “context” here. A theory of context, in turn, raises important new questions about the dynamic welfare and developmental effects of contemporary processes of fragmenting and relocating production at a global scale.
Acknowledgments
An earlier version of this article was delivered as the Roepke Lecture in Economic Geography at the annual meeting of the Association of American Geographers in Boston (April 2008), as well as at the DRUID Summer Conference in Copenhagen (June 2008). This version benefited from the comments made at both meetings. I particularly thank Gilles Duranton, Anders Malmberg, Jim Love, and Stefano Breschi, for acting as discussants on the paper, and Peter Maskell for including it in the DRUID program. Yuko Aoyama encouraged me to prepare the paper for publication, and the editors of Economic Geography provided many useful points for clarifying the argument. Markus Perkmann and Ewald Engelen provided detailed criticisms that helped me revise the paper, and participants at the Society for Advancement of Socio-Economics in San José, Costa Rica (July 2008) offered a number of stimulating new points that also helped me restructure the initial argument. Any errors are my sole responsibility.
Notes
1 This is the “whip of competition” point made earlier (CitationWolf 2004). However, some of the research on East Asia’s successful economies suggests that this is not always the case, since it depends on the political governance of firms and markets (CitationWade 1990; CitationAmsden 2001; CitationRodrik 2007).
2 That is, if the region were a sovereign currency area, its real equilibrium exchange rate would appreciate over the long run.
3 Since these founding ideas, the literature on the socioinstitutional sources of regional positive externalities has expanded to include the advantages of “thick labor markets,” local labor pooling, local rules and conventions, trust and social capital in economic transactions and technological spillovers, and regional systems of innovation.
4 The term MAR externalities had 221,000 listings on Google on 25 January 2008.
5 One major debate between more neoclassical models of economic development and more heterodox ones is how long the rents can be enjoyed by the region or country before they are bid away because of rising costs (and the appreciation of the exchange rate) or by technological change or some other force. Strict neoclassical work emphasizes the return to equilibrium, whereas work based on an evolutionary or “history matters” frame of reference emphasizes the long-term perpetuation of advantage to leading areas (countries or regions). The two principal sources of circulation and cumulative advantage are agglomeration economies and the successful ongoing learning or regeneration of leading position effects. These are the barriers to convergence that worry so many students of economic development.
6 In the literature on local sources of technological change, reference is also made to “Jacobs externalities” (CitationJacobs 1969). The common interpretation of Marshall is that he called attention to intrasectoral technological spillovers, thus to the benefits of specialization, whereas Jacobs emphasized diversity and the learning that comes from encountering the unknown, hence the benefits of a nonspecialized local economy. However, one finds no reference to Jacobs-Romer externalities. In any event, my point would hold for such a construction: if there are Jacobs-type sources of technological change, to contribute to economy-wide increasing returns, they would have to undergo economic and geographic diffusion or delocalization; otherwise they, too, would be captured as localized technology rents.
7 Before the 2007–2008 decline in the dollar-euro exchange rate at least.
8 Thus, the Paris daily free newspaper, Métro, noted, on 4 December 2007, that the prize for “Fooding” in 2007 went to Pierre Jancou, with his restaurant Racines, which has only 36 seats, 10 of them outside. Jancou’s secret: “I search for artisans for vegetables, meat and cheeses, and here we just showcase the products, without chi-chi.”
9 In the highly prestigious restaurants in France, of course, there is a highly formal division of labor in the kitchen, rigidly codified by education and practice.
10 Thanks to Monica Viarengo of Farina in San Francisco for explaining the Italian “method” to me.
11 Known in economics, of course, as the “first welfare theorem.”
12 See “Rules of Thumb” (Citation2008).
13 This is not the same idea as imperfect substitution in quality ladders, but competition within the rungs of long quality ladders.
14 The Roepke Lecture in Economic Geography was established to honor the late Professor Howard G. Roepke, who served on the faculty of the University of Illinois at Urbana-Champaign from 1952–1985. The original lecture series ran at the annual meetings of the Association of American Geographers (AAG) from 1986–1994. Economic Geography, the University of Illinois, and the AAG Economic Geography Specialty Group decided to resurrect and cosponsor the lecture series in 2007.