Europe s economic geography

Transcription

1 Class verview 1. EU gegraphy 2. Cmp. advantage 3. NEG thery Eurpe s ecnmic gegraphy Slides are largely based n Baldwin-Wyplsz s nes (textbk)

2 Eurpean regins Cncern fr Eurpe s disadvantaged regins has always been part f EU pririties. In Treaty f Rme preamble. Pre-1986, mst spending n regins was natinal Rural electrificatin, phnes, rads, etc. Entry f Spain & Prtugal created vting-blc in Cuncil (with Ireland and Greece) that induced a majr shift in EU spending pririties, away frm CAP twards pr-regins. Structural spending nw abut 1/3 EU budget.

3 Eurpe s Ecnmic Gegraphy: Facts Centrality f EU25 Regins Periphery Intermediate Cre

4 Eurpe s Ecnmic Gegraphy: Facts Centrality f EU25 Regins Periphery Intermediate Cre Eurpe highly centralised in terms f ecnmic activity. Western Germany, Benelux natins, N.E. France and S.E. England have 1/7 th land, but 1/3 rd f pp. & ½ GDP. Periphery has lwer standard f living. Mre unemplyment. Especially amng yuth. Mre pverty.

5 Gegraphic incme inequality Lux. DK Ireland NL Austria Belgium German Sweden UK Finland Italy France Spain Cyprus Prtugal Slvenia Greece Czechia Hungry Slvakia Pland Estnia Latvia Lithuania Rmania Bulgaria Very uneven incme distributin, gegraphically incme/pp by natin. Luxemburg is 110% richer than average. Bulgaria nly 26% f average EU26=100

6 Gegraphic incme inequality Index, EU-25 = 100 < >= 125 Canarias (E) Guadelupe Martinique (F) (F) Guyane (F) RÈunin (F) AÁres (P) Madeira (P) Kyprs SIG16 GDP per head by regin (PPS), 1998

7 Gegraphic incme inequality Index, EU-25 = 100 < >= 125 Incme distributin even Canarias (E) mre uneven at reginal level. Guadelupe Martinique RÈunin (F) (F) (F) Guyane (F) Within natin ecnmic activity is very unevenly distributed AÁres (P) Incme distributin has Madeira becme: (P) Mre even in EU15 Less even within EU15 natins (by regin) Kyprs SIG16 GDP per head by regin (PPS), 1998

8 Gegraphic incme inequality (updated) Rich regins are clustered and frm the cre f the EU ecnmy, as shwn by reginal GDP per capita (PPS) in 2010:

9 Gegraphic incme inequality Outre-Mer Mediterranee Centre-Est GDP share Pp share Sud-Ouest Ouest Est Nrd - Pas-de-Calais Bassin Parisien Ile de France French case f study Ile de France (Paris) has almst 1/3 f all ecnmic activity. Per capita incmes (nt shwn) are 158% f EU15 average. Mediterranee has 10% f GDP, 12% f ppulatin. GDP/pp nly 86% f EU15 average. Outre-Mer are frmer French clnies.

10 The UK case Incme inequality within each EU natin has been rising:

11 Gegraphic specializatin Average France UK Germany Austria Italy Belgium Sweden Spain NL Greece Prtugal Denmark Finland Ireland Specialisatin f Eurpean Industrial Structure, & change Change, t Krugman index f specialisatin shws mst EU natins becming mre specialised. EU ecnmies seem t be specialising mre in their cmparative advantages.

12 Gegraphic specializatin Krugman specializatin index: fractin f manufacturing that has t change sectr t make a natin s sectr-shares line up with the sectr-shares f average EU natins: Mst EU natins are becming mre specialized..

13 The EU vs. US Industry less gegraphically cncentrated in the EU than in US EU: 4 members have 50% man emplyment, 21% surface and 45% ppulatin US: 15 states have 50% man emplyment, 11% surface and 21% ppulatin Incme disparities acrss EU15 member states are much wider than acrss US states EU15: 25% pp in bjective ne regins (GRP per capita < 75% EU average) US: 2% pp in states with (GSP per capita < 75% US average) Hw t understand these facts? Allcatin and lcatin effects

14 Thery Tw majr appraches linking ecnmic integratin t change in the gegraphic lcatin f ecnmic activity. 1. Cmparative advantage (CA) suggests natins specialise in sectrs in which they have a cmparative advantage. 2. New Ecnmic Gegraphy (NEG) suggests that integratin tends t cncentrate ecnmic activity spatially. General idea: Use CA apprach t explain crss-natin facts. Use NEG t explain within natin facts.

15 Cmparative advantage Back t 800 Century (Ricard, Trrens, Smith) Internatinal labr divisin: Each cuntry can gain by specializing in the gd where it has cmparative (relative nt abslute) advantage, and trading that gd fr the ther. Trade is a substitute fr factr mbility. But nce allw factr mbility, ne can get clustering f particular sectrs r verall activities Specializatin patterns can be explained by cuntries having Different: technlgies; endwments; gegraphies and thinking thrugh the allcatin effects These characteristics were implicit reasn why csts and price differ acrss cuntries fr allcatin effects

16 Cmparative advantage suggests that natins specialize in sectrs in which they have a cmparative advantage. Example: Cmparative advantage Germany abundant in high skilled labr; Prtugal abundant in lw skilled labr; with trade: Germany specializes in pharmaceuticals and trades them fr clth frm Prtugal and the industrial structures f bth Prtugal and Germany wuld becme mre specialized.

17 Cmparative advantage and specializatin Relative labr endwments in Eurpe:

18 New Ecnmic Gegraphy (NEG) When prductive factrs can crss brders (internatinal r inter-reginal) integratin may have very different effects. Scale ecnmies & trade csts generate frces that encurage gegraphic clustering f ecnmic activity. Overall clustering = sme areas with lts f ecnmic activity, thers empty creperiphery. Industry clustering = each sectr clusters in ne regin, but mst regins get a cluster.

19 Agglmeratin and dispersin frces Why d we bserve agglmeratins? Intuitively, it shuld be clear that the spatial cnfiguratin f ecnmic activities is the utcme f a prcess invlving tw ppsing types f frces, that is, agglmeratin (r centripetal) frces and dispersin (r centrifugal) frces. The bserved spatial cnfiguratin f ecnmic activities is then the result f a cmplicated balance f frces that push and pull cnsumers and firms. This view agrees with very early wrk in ecnmic gegraphy.

20 Agglmeratin and dispersin frces Basic idea is that lwering trade csts affect bth. Agglmeratin frces. Tend t lead industry t cluster gegraphically. Dispersin frces. Tent t encurage industry t disperse gegraphically.

21 Agglmeratin frces Many agglmeratin frces: Technlgical spillvers (e.g. silicn valley), Labur market pling (e.g. City f Lndn), Demand linkages (a.k.a backward linkages), Supply linkages (a.k.a freward linkages). New Ecnmic Gegraphy (NEG) frces n demand & supply links since they are clearly affected by ecnmic integratin (lwer trade csts).

22 Circular Causality & Demand Linkages (Krugman) 1. If sme industry mves t big regin 4. Prductin Shifting, Due t trade csts, firms prefer t lcate in big market. Mre industry mves t big regin 2. Expenditure Shifting, wrkers spend incmes in big regin instead f in small regin 3. Market Size Effects: big market gets bigger, small market gets smaller

23 Circular Causality & Supply Linkages (Venables) 1. If sme industry mves t big regin 4. Prductin Shifting Sme mre firms mve frm small market t big market, attracted by lwer csts 2. Prductin Shifting, Migrated firms utput nw cheaper in big regin & dearer in small regin (trade csts) 3. Cst Shifting, Availability f wider range f lcally available intermediate gds makes big regin cheaper place t prduce

24 Dispersin frces Many frces lead t a tendency f firms t avid agglmeratins f ecnmic activity: Rents and land prices, High cst f ther nn-traded services, Cmpetitin with ther firms. The NEG fcuses n the last ne lcal cmpetitin since it is clearly related t trade csts. As trade csts fall, distance prvides less prtectin frm distant cmpetitrs.

25 The rle f transactin csts Changing transprt csts can change the balance f agglmeratin and dispersin frces E.g. prduct market cmpetitin frm the ther market increases as trade csts fall With very high trade csts, firms in small markets are prtected frm cmpetitin; firms in large markets face mre cmpetitin As trade csts fall, firms everywhere face mre cmpetitin dispersin frce less strng Need frmal analysis t shw that this can prduce agglmeratin.

26 The lcatinal effects f EU integratin EU integratin affects the balance f dispersin/ agglmeratin frces in cmplex ways. A very simple analytical framewrk: assume away all dispersin frces except lcal cmpetitin ; assume away the demand-linked circular causality; assume away cst-linked circular causality (by assuming firms buy n intermediate inputs); pr-agglmeratin & ne pr-dispersin: firms wuld, all else equal, prefer t lcate in the big market in rder t save n trade csts; firms wuld, all else equal, prefer t be in the market where there are few lcal cmpetitrs.

27 The lcatinal effects f EU integratin With these simplificatins: agglmeratin frce is flat in the share f firms in big regin; dispersin frce line is rising in the share f firms in big regin since the benefit f staying in the small regin rises as mre firms mve t the suthern market. The lcatin equilibrium is given by the intersectin f these lines. Ecnmic integratin reduces trading csts and weakens dispersin frces mre cncentratin f ecnmic activities.

28 The lcatinal effects f EU integratin

29 Summary: High r lw trade cst High trade csts One large cre market and ne peripheral If lcated in the cre Gd access t cnsumers Higher cmpetitin frm ther firms On balance dispersin frces dminate and firms lcate in prprtin t ppulatin Lw trade csts Firms everywhere face mre cmpetitin If lcated in the cre Gd access t cnsumers Higher cmpetitin frm ther firms BUT cmpetitin is higher everywhere On balance agglmeratin frces dminate and firms lcate disprprtinately in cre Fr very lw trade csts, get all ecnmic activity in the cre

30 Cst linkages Additinal frces Transprt csts (increase trade cst) Increases strength f agglmeratin frce (gd access t suppliers in large market) Factr market cmpetitin Increases strength f dispersin frce Cngestin f resurces in fixed supply (rads/land) Higher wages fr certain sectr specific wrkers

31 The rle f labr mbility If wrkers were mbile, they wuld want t mve t the place with mre capital (higher wages and lwer prices) get agglmeratin f wrkers and capital EU wrkers very immbile relative t US 1% f EU citizens wrk in a member state different frm where they were brn Wage elasticity f interreginal migratin 25 times higher in the US than in UK (difference with respect t ther EU cuntries even larger) In the EU, utput is mre spread ut than US But, mre wrkers earn lwer incme

32 Trade csts and labr mbility What if factr market cmpetitin matters? Cngestin Wrkers immbile acrss bth regins and sectrs (like in EU?) As trade csts fall even further Can serve markets frm anywhere Cmpetitin is the same everywhere Wages / land rents are higher in the cre On balance dispersin frces (wages) dminate and get dispersin f sectrs, particularly if they use a lt f land and/r labur But, requires labur market flexibility and that integratin ges far enugh

33 The imprtance f wage flexibility It is a key frce encuraging firms t lcate in the periphery if trade csts lw enugh. If wage didn t adjust, then nly dispersin frce is cngestin Culd actually see mre agglmeratin Wuld tend t get higher unemplyment in periphery rather than lwer wages Unemplyment persists if wrkers dn t mve and wages dn t adjust

34 Integratin and specializatin With many industrial sectrs linked by input/utput structure Each sectr has clser cst/demand linkages with sme particular sectrs than thers Each sectr creates general dis-benefits fr ther sectrs thrugh increased cmpetitin fr lcal resurces Integratin culd cause additinal industry specialisatin Lng run gains Shrt run adjustment csts fr factrs emplyed in lcally declining sectrs

35 Welfare effects f re-lcatin Frm the aggregate pint f view i.e. the whle EU this re-lcatin f ecnmic activity increases efficiency Frm an individual cuntry/regin pint f view this re-lcatin may lwer real wages and make the cuntry wrse ff