On Spatial Economy

1. On Spatial Economy “The Spatial Economy: Cities, Regions, and International Trade” Book Review UMN-CS8715-Paul Lesov

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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