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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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