lecture 3.pdf - FDI Trade Geography Lecture 3 2nd year IB bachelor program Dr Mariko Klasing | 2(New economic geography With rising globalization

lecture 3.pdf - FDI Trade Geography Lecture 3 2nd year IB...

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Dr. Mariko Klasing FDI, Trade & Geography Lecture 3 2nd year IB bachelor program
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With rising globalization, production processes are increasingly more fragmented across countries ( GVCs). At the same time, we see a concentration of economic activity in certain locations. What can explain the location choice of firms? Why do firms cluster near other firms? What is the role played by transportation and communication costs? (New) economic geography 9/12/2019 | 2
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Agglomeration economies 9/12/2019 | 3
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9/12/2019 | 4 Distribution of Economic Activity: The Earth at Night
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9/12/2019 | 5 Locations of economic activity On a global scale and within countries, economic activity is not evenly distributed, but some places are more dense than others (“bumpy”). Yet, the world economy is not concentrated in a single location. Locations of economic activity are not fixed over time but change as the structure of the economy changes, new technologies/industries develop, new markets develop, etc.
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9/12/2019 | 6 History of Urbanization
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9/12/2019 | 8 Clustering of industries Similar observations can be made for certain industries. E.g. financial services in London. Why is the financial services industry concentrated in London? Why doesn’t all financial business concentrate in London?
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9/12/2019 | 9 Clustering and dispersion forces The spatial distribution of economic activity can be explained by the interaction of clustering and dispersion forces. Clustering forces – forces leading economic activity to concentrate in space. Dispersion forces – forces inducing economic activity to spread out in space.
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Arise as a result of scale economies , i.e. the fact that average cost of production fall as the scale of production increases. Why do scale economies matter for explaining the clustering of business activity? Scale economies are the very reason firms make location choices: Without them they would choose to produce a very small amount in all locations. Clustering forces 9/12/2019 | 10
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Two types of scale economies: Internal : Average costs fall in the firm’s own scale of production ( cost advantage of large firms). External : Average costs of a firm fall as the output produced in the region where the firm resides increases ( cost advantage of large/dense locations). Types of scale economies 9/12/2019 | 11
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Also called agglomeration economies : The benefits of locating close to other firms. Two types: Localization economies : Benefits from a larger number of firms in the same industry and in the same location. Urbanization economies : Benefits from a larger number of different industries in the same location. External scale economies 9/12/2019 | 12
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Arise from within-industry economic interactions. Reasons: Knowledge spillovers between firms.
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  • Fall '19
  • Mariko Klassing

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