The New Introduction to

GEOGRAPHICAL ECONOMICS

By Steven Brakman, Harry Garretsen & Charles

van Marrewijk

Presentation of chapter 1 & 2

 Structure of presentation
Chapter 1: Introduction and phenomena
• Clustering: visualisation and statistics of uneven socio-
economic distribution
• Clustering: discovering the regularity in unequal
distribution

Chapter 2: role of geography in economic theory

• Urban economics (monocentric city model)
• Regional Economics (central place theory)
• International Trade theory (incl. New Trade Theory)
• From neoclassical to new trade/growth theories
Basics for understanding the book
• World distribution of people is unequal…
• ... But not irregular (pattern recognising)
• Clustering (agglomeration) of people:
– Sociological,
– Psychological,
– Historical,
– Cultural,
– Geographical,
– Economic rational (focus of book).
• Different aggregation levels:
– Global (world globe as a whole),
– Continental (e.g. African, Europe continent),
– Country level (“Randstad” in The Netherlands).
– Regional level
• Let’s visualise this with some interesting figures!
 World’s uneven income distribution

Equator 0°
Income distribution (world level)

Purchasing Power Parity:

-eliminates fluctuating exchange rates
(average of 3 years is taken)
-eliminates price level differences
-benchmark of real levels of GDP among
countries
But don’t let statistics fool you…
 Natural Resources Conservation Service, NRCS

Visualisation of the people density (world

level)

Source: Natural Resources Conservation Service, NRCS

But also on national level people density
varies

Source: Dutch Central Office for Statistics CBS

Some interesting figures
High School material: developed vs
developing countries
 Indication of figures
• Incomes:uneven distributed at all agg.levels
• People:uneven distributed at all agg. levels
• Standard for measuring wealth distribution:
Gini coefficient: [A / (A+B)] where 0 < x <1
• Strong correlation degree of urbanisation and
income per capita (GDP-PPP)
 Core-periphery structures: Gravity model
feeling with production distribution
Keeble (1979) and Andrew K Copus (1999)

n
Mj
Pi  
j 1 Dij
Where: Pi is the index of peripherality for location i
m is an economic "mass" variable in location j
dij is the distance between locations i and j

j2
j1
dij 1 dij 2

dij 3

j3
dij 4

j4
NB: Diameter of circles represents M
Core-periphery structures: Gravity model
feeling with rank size method
Core-periphery structures: Gravity model feeling
with export trade distance
 Core-periphery structures: Gravity model with
export trade distance and country’s GDP (PPP 2000)

Distance(1)
versus
Trade country income-corrected model(2)
 Alternative Gravity model
• Another gravity model, is the equation of
trade, first used by the Dutch economist Jan
Tinbergen in 1962
Where:
F is the trade flow,
M is the economic mass of each country,
D is the distance and
G is a constant.

This relationship is also known as the gravity

equation of trade (Tinbergen 1962):
 Conclusions Chapter 1
• Strong clustering of economic activity (in
important economic centers);
• Export from a specific source country to a
specific trade country does rely on distance
and income (GDP PPP) of trade country;
• Uneven distribution of economic activity
could change rapidly, rate of urbanising could
give an indication of future developments
 Structure of presentation
Chapter 1: Introduction and phenomena
• Clustering: visualisation and statistics of uneven socio-
economic distribution
• Clustering: discovering the regularity in unequal
distribution

Chapter 2: role of geography in economic theory

• Urban economics (monocentric city model)
• Regional Economics (central place theory)
• International Trade theory (incl. New Trade Theory)
• From neoclassical to new trade/growth theories
 Chapter 2:
the role of geography in economics
Distinction:
• Urban economics: studies spatial structure of urban areas (neoclassical
base)
• Regional economics: studies spatial dispersion and coherence of
economic activity
• (new) Economic geography: is the study of the location, distribution and
spatial organization of economic activities across the world.
• Geographical economics: (Brakman, Krugman and Van Marrewijk 2001,
2009) studies core-periphery structures and discovering regularity of the
uneven distribution of socio-economic activities.
• International Trade Models (neoclassical): Krugman (1980), Krugman &
Venables (1990) comparative advantage or factor abundance
Monocentric model (Von Thünen)
“Pros” and findings of W. Alonso (by using the Von
Thünen model):
1. Population density declines with distance from
central business centres.
2. Decentralising of people away from city center
(due to decreasing transport costs, applies for
high income countries)

“Cons” of the model:

3. Does not include interaction with other cities
(urban systems)
4. Does not explain the existence and location of
the city.
5. Only focusses on the farmers/commuters outside
the city.

Glaeser (2007) and Duranton (2008) have found a

solution to deal with these “cons” introduction
of increase returns to scale
 Economies of scale
• Internal average costs per unit decrease when output level of firm itself is: ∆ +1
(efficiency increases)
• External: average costs per unit decrease when output level of industry as a whole is:
∆ +1
– Pure external economies of scale
– Pecuniary external economies of scale
• For external economies of scale:
– Spillovers are crucial
– Two types: sector and city specific spillovers.
• Cons urban systems: space is homogeneous, while space is heterogeneous (yes, the
dry salt lakes are homogeneous).
• When thinking about agglomeration and spreading forces (into space)
transportation costs are crucial to take into account.
– From my point of view: think broader transaction costs: all the costs incurred in making an
economic exchange betweet party A en party B, which includes for e.g. Transport, search,
information, bargaining, policing and enforcement costs (Dahlman, Carl J. (1979). "The Problem of
Externality".)
 Regional systems:
Central Place System
Focus regional systems:
• connection between cities,
• hierarchy of cities,
• interaction between cities and rural area.

Figure 2.3 Central Place system

Village Small city Large city

 Market potential (Harris)
• Chauncy Harris (1954): using gravity model for
estimating market potention of a specific location
“i”:

• Model of Harris, and for the other trade gravity

models as well: theoretical foundation is absent (but
model is not useless!)
• Alternative approach: export base multiplier
I = Ie / (1-a) ; where 0 < a <1 and I = Ie+In
The aorta of Geographical Economics...

• Important elements were already

available(in existing location theories)...
• But a geographical economic framework was
absent.
• Ottaviano and Thisse (2004) set five crucial
points:
 International trade theory
• Why international trade theories? Allocation of econ. activities!
• Neoclassical trade theory
– (David Ricardo) technological
– ( Heckscher, Ohlin, Samuelson) comparative advantage or Factor Abundance Model: base for explaining
globalisation phenomena (think of the European clothing industry)
• New Trade Theory (Krugman1979,1980)
– Focus on demand side love of variety effect.
– Production lock-in effect may arise, suboptimal equilibrium with ext. economies of scale.
– Krugman(1980): Only love of variety effect, no production scaling. Transport costs comes into
play (location matters).
• New Growth Theory:
– Diminishing returns to accumulable factors (K & L)
– Almost same conditions as geographical models, no theory of location
• Head & Mayer (2004)
– Geographical economics assumptions
 From neoclassical towards new
growth/trade theories
• Movement towards new views:
– Head & Mayer (2004):

– Ottaviano and Thisse (2004):

THANK YOU FOR YOUR ATTENTION

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