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Summary economic geography
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Summary of all the lectures of the economic geography course
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Economic Geography lecture notes:Lecture 15 nov 2022: what is economic geography and winning and losing in the global
economy:
Transaction-costs consist of the transportation of those goods and services but also the organization
and coordination of this trade.
Transaction costs = all costs incurred in trading a product or service.
GDP = market value of final goods and services produced in a country during a given period of time.
Lecture 16 nov 2022: drivers of change: technology and innovation:
Innovation = the creation and diffusion(verspreiding) of new ways of doing things. It must be brought
on the market otherwise it is invention but not innovation.
We have product innovation (new products like phones) and process innovation (new processes,
about making the product).
1st degree of innovation: increasing innovation, small improvements of existing products, small steps
forward like new phones.
2nd degree of innovation: radical innovation, a new solution to an isolation problem, like the
dishwasher, but it didn’t have much of an impact on other things, an individual event.
3rd degree of innovation: change of technology system, sets of innovation that changed the
technological system, idea of going to the moon that created a whole set of innovations where we
can benefit from.
4th degree of innovation: changes in the techno-economic paradigm, innovation that has impact
which reached beyond the sector level, they change the way of how the economy works, like the
computer connection to the internet.
This 4th degree of innovation can be found back in the waves of innovation of kondratiev, which
describes the 6 waves of innovation throughout the last ages (like steam engines, railway steel,
electro-technology, automobile, information-technology and health in the coming years with climate
change and energy transition?).
Innovation / technological progress is the key to economic growth, diffusion is important.
Schumpeter:
- He came up with the idea of creative destruction (vernietiging).
- The introduction of new ideas, that come at the expense of the older ones, they get
replaced.
- This process has 2 main functions: it makes sure that whatever we have fit the problem that
we have now, survival of the fittest, so we have solutions to the problems we face currently.
But also, if the older firms that are now discontinued stop, it frees up new resources,
resources can be used in new combinations.
,The idea of the product life cycle:
All products go through the life cycle of product:
Also, first product innovation is more important, later we want to make the process more efficient and
focus on process innovation.
Technological changes influences transaction costs and transportation costs (they go down). It creates a
smaller relative size of the world (globalization).
Triple convergence (naar elkaar toe groeien), theory of Friedman:
- Three things to keep in mind when we talk about the impact of technological progress, you need
all three of them to make an impact:
1. Techniques themselves, which should lead to lower transportation costs.
2. Tradability of goods, whether the good itself is easy to transport.
3. Organization of the system, whether the system is ready for this.
Tradability:
- Tradable goods: rocks, bananas, computer etc.; everything you can ship from one place to
another.
- Non-tradable goods: x-rays (röngtenfotos) were in the past non-tradable, but right now it is via
internet.
Because of technological change products change from non-tradable goods to tradable ones.
Improved organization of a system through standardization, systems are connected to one-another. The
box/container was the biggest change, the world became smaller and the world-economy bigger.
, Trade theory of Ricardo: transaction costs go down:
- Comparative advantage, its build on the idea of absolute advantage of Adam Smith.
- Absolute advantage: we have 2 countries, look at the country that is cheapest (in either time or
costs) in the specific product, that country has an absolute advantage of producing that specific
product. The country must specialize in the product in which it has an absolute advantage.
- Comparative advantage: if a country has an absolute advantage on both products. Compare the
costs within a country for each of the 2 products. Divide the product which is cheaper to the
more expensive one within the country, for 1 {product} you can make …/… {other product}. Then
divide the number of hours of work committed by the number of hours to make that specific
product. The country that has the lowest relative costs on one of the products has a comparative
advantage in that product. The goal for countries is to specialize in the product in which they
have a comparative advantage.
- The key take-aways are that it leads to regional specialization, but the economy as a whole also
grows because of that specialization.
Technological change transaction costs decrease specialization (by absolute or comparative
advantage).
Lecture 17 nov 2022: Drivers of change 3 : the state:
The state is kind of the regulator of trade and the transactions around the trade.
The state influences the globalization by: innovations made by the state, but the state also regulates
the transaction costs (in trade).
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