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On Spatial Economy. “The Spatial Economy: Cities, Regions, and International Trade” Book Review . Motivation. Underline the importance of location in economy Explain concentrations of Population centers Economic activity Provide a synthesis

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on spatial economy

On Spatial Economy

“The Spatial Economy: Cities, Regions, and International Trade” Book Review

UMN-CS8715-Paul Lesov

motivation
Motivation
  • Underline the importance of location in economy
    • Explain concentrations of
      • Population centers
      • Economic activity
  • Provide a synthesis
    • Develop a common grammar under economic of geographies for
      • Regional economics
      • Urban Centers
      • International Trade
  • Develop a Model for sources of economic geography to answer questions such as
    • When is a spatial concentration of economic activity sustainable?
    • When is a symmetric equilibrium, without spatial concentration unstable?

UMN-CS8715-Paul Lesov

problem statement
Problem Statement
  • To develop a model capable of simulating many spatial economic phenomena in regional, urban and international settings
  • The problem is difficult because
    • it assumes the environment of “increasing returns”
    • seeming technical intractability of economic geography
    • finding a set of manageable geographic issues without doing too much damage to the relevance of the analysis

UMN-CS8715-Paul Lesov

bifurcations
Bifurcations
  • In the pictures solid lines represent stable equilibrium and doted lines an unstable one. In pitchfork the symmetric equilibrium as x increases we first have a stable, unique, symmetric equilibrium. As x increases this splits into two increasingly asymmetric equilibria.
  • The tomahawk bifurcation on the other hand has two critical points in the balance between centripetal and centrifugal forces.

UMN-CS8715-Paul Lesov

core periphery model
Core-periphery model
  • The core-periphery model is a two region space with evenly distributed agriculture. The model introduces the formal equilibrium definitions and determinations. It defines instantaneous equilibrium as a solution to a system of four equations per region:
    • Income
    • Price index of manufactures consumed
    • Wage rate of workers
    • Real wage rate (wage deflated by the cost of living)
  • Effects when the transportation costs are high
  • Effects when the transportation costs are low
    • backward linking
    • forward linking
  • Effects when the transportation costs are medium

UMN-CS8715-Paul Lesov

core periphery bifurcation
Core-periphery bifurcation
  • The core-periphery bifurcation is type of tomahawk bifurcation with sustain and break points. At high transportation costs there is a stable equilibrium at which manufacturing is evenly divided among two regions. When the costs fall below a critical sustain point a new stable equalibria emerges which is concentrated in one region. When the transportation cost falls below the critical break point the symmetric equilibrium becomes unstable.

UMN-CS8715-Paul Lesov

generality of the model
Generality of the model
  • In essence a balance between centripetal forces and centrifugal forces to determine sustain and break points
  • Applicable to
    • Divisions of national economy
    • Industry clustering
    • City formation
    • Urban hierarchies
    • International Trade

UMN-CS8715-Paul Lesov

assumptions
Assumptions
  • Artificial divisions between regional, urban and international models. No mixing allowed.
  • Simplistic environments ( single product, no distinct transportation sector, cumulative process instead of individual intelligent agents)
  • Dixit-Stiglitz model support only

UMN-CS8715-Paul Lesov

critique
Critique
  • Many of these assumptions were made because they were too complicated for pen and pencil analysis used for describing the theory. I believe that usage of computer for problem solving could have been helpful to guide and supplement the analytical results as well as to relax some of the assumptions
  • Question the value of Chapter 12

UMN-CS8715-Paul Lesov

validation
Validation
  • Accurately simulates city formation in USA during nineteen century.
  • Matches the trends of transport hubs becoming major urban centers
  • Explains the aggregations of industries into specific locations
  • Matches the current trends of international trade and wage disparity it creates
  • Matches the trends of industry specialization among nation states

UMN-CS8715-Paul Lesov

conclusion
Conclusion
  • Next steps : Empirical Research and Quantification
  • Transportation costs and Agricultural costs central to the model
  • Spatial Databases is key to relaxing many of the assumption for a more realistic model

UMN-CS8715-Paul Lesov

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