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World Development Report 2009: Reshaping Economic Geography
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Log in to Wiley Online Library. Purchase Instant Access. View Preview. Learn more Check out. Citing Literature. Related Information. Close Figure Viewer. Nations do well when they promote transformations along the dimensions of economic geography: higher densities as cities grow, shorter travel distances as workers and businesses migrate closer to denser areas, and fewer divisions as countries lower economic borders and enter world markets to take advantage of scale and trade in specialized products.
The WDR concludes that transformations along these three dimensions—density, distance, and division—are essential and should be encouraged. But with these transformations will come unbalanced growth. One billion people now live in slums, but the rush to cities continues. A billion people live in lagging areas of developing nations, far from globalization's many benefits. And poverty and high mortality persist among the world's "bottom billion," trapped without access to global markets, as others grow more prosperous and live ever longer lives.
Concern for these three intersecting billions underlines the demand for spatially balanced growth. But we find that although economic growth will be unbalanced, development can still be inclusive. Even people who start their lives far from dense economic activity can benefit from the growing concentration of wealth. For growth to be rapid and shared, governments must promote economic integration at all geographic levels using an appropriate mix of instruments—spatially blind institutions, spatially connective infrastructure, and spatially targeted incentives.ecolearning.org.uk/36.php
Economic geography bites back
A look at the unexpected consequences of falling transportation costs during the 20th century illustrates the role of economic geography in international development. In , British exports were spread almost evenly among Europe, Asia, and other regions. But by the s, 60 percent of British exports went to Europe and only 11 percent to Asia. Standard economic theory would predict that with better and cheaper transportation, trade with faraway places would increase.
Instead, trade increased between neighbors. Insights from the new economic geography and international trade theory, for which Paul Krugman received the Nobel Prize in economics, shed light on this puzzle. The first wave of globalization in the 19th century increased trade based on comparative advantage.
Countries exchanged what they could not produce themselves. But in the 20th century, transportation costs fell so much that even trade in similar goods or in parts and components made economic sense. So countries exchanged different types of beer or traded parts of cars and computers. This favored trade between countries with similar endowments, which tend to be nearby. This interplay between falling transportation costs and the changing nature of trade has led to the concentration of economic mass in leading world markets.
The experience of successful developers has lessons for today's developing regions.
Beyond the stagecoach Since the end of World War II, transportation costs have indeed fallen considerably. By some estimates they are half of what they were in And transportation friction—the share of transportation costs in the total value of goods shipped—has dropped even more as the value-to-weight ratio in trade has increased. For transportation modes with less of a drop in costs and friction, quality and speed have improved greatly.
Reshaping Economic Geography - the latest World Development Report - From Poverty to Power
The use of shipping containers, for instance, eliminates costly and time-consuming reloading, and more and more goods are now shipped by air. But these costs have not fallen equally everywhere. Economies of scale in transportation, such as giant container ships plying the seas on lucrative routes between Northeast Asia and North America, imply that lower costs will increase trade, which will further lower costs.
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Much of the developing world is left out of this cumulative and beneficial process because it lacks the production scale and infrastructure to attract cheaper transportation services. Where transportation costs have fallen, firms have increased scale and specialization. The key driver, and a major determinant of growth, in developing regions is intra-industry trade, mostly of parts and components.
This type of trade is more sensitive to transportation costs than trade in primary goods and final products. In the world's largest markets—North America, Western Europe, and East Asia—intra-industry trade represents a high and increasing share of total trade see chart. Increasingly sophisticated buyer-supplier networks in leading world regions have been a major feature of globalization.
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Geographic transformations required for prosperity: Higher densities of economic activity — e. Email Address. February 18, at pm. Tweets by fp2p. Geographic Changes. Drivers of transformation. Policy debates. Territorial development. Regional integration. Particular relevance to. All countries. Large and middle-income countries. Small and low-income countries. Local L.