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Summary GEOG 2143A: Foundations of the Geography of World Business
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Geography 2143 notes9.10 Lecture
Of the core and periphery
● Core: large accessible centres of innovation, production and consumption; being home to
rich institutions with global reach, and large concentration of people with varied skills,
they have the ability to diversify the geography of their economic base
● Periphery: areas of specialized resource and commodity production for export markets,
and have limited decision making; lacking the developmental capacities often leads them
to vulnerable market forces and distant decision making
Spatial interaction
● systems of spatial interaction have two components:
○ places/points that serve as origins and destination
○ flows between them
● analysis of current locational patterns and their determinants is an important step toward
understanding spatial interaction in economy
● looking at the interconnection of various flows and points helps understand a collection
of interactions; a vast complex spatial interaction can be considered a system
The importance of understanding the gap
● increased interaction between rich and poor countries is required not only in the interest
of improving standards of living in the world’s poorer countries, but also in the interest of
maintaining of prosperity of the worlds richer countries
● globalization of the economy is a commonly used phrase, arguments have been made that
economic regionalization is strengthening and true internationalization of economic
activity is a selective prospect at best
Having good nodes
● technological developments in communications and transportation systems that have
helped make the world effectively smaller will continue to take place, and the spread of
multinational corporations that serve to link places in the international economy will
continue as well
● areas that have a strong infrastructure that supports the technologies are more likely to be
chosen for a branch or headquarters
The ever shrinking world
● “enabling technologies”, continually improve the prospects for interaction in the
international economy. they provide an infrastructure that supports international trade and
investment as they lower transaction costs and improve the stock of knowledge of foreign
markets
● the pivotal question remains, however, whether interaction within the Core will continue
to increase at a faster rate than interaction between Core and Periphery—Core countries
can survive without the periphery
,A note on scaling
● study of economic geography can take place at a number of scales, ranging from local to
global
● national scale is focused upon for two reasons:
○ 1. countries are the immediate building blocks of the international economy.
○ 2. most national economic policies that affect and are affected by international
flows can be viewed realistically as having a uniform distribution across the space
of the national states
Those things that are not countries…
● two features of the international economy often blur the discrete characteristics of
individual countries:
○ 1. growth of multinational economic blocs e.g. European Union
○ 2. the widening spread of transnational corporations (TNCs) e.g. Google
Win Win…?
● at the same time, many TNCs serve as types of conduits that facilitate and even direct
other flows in the international economy
● many TNCs effectively operate internal systems of spatial interaction over international
markets for products, labor, capital, and knowledge. Flows internal to the multinational
corporation account for a large share of international trade in goods, capital, and
technology
The basics
● basis regional classification used is that of rich North and poor South, or Core and
Periphery, respectively
● national income accounting figures, gross domestic product (GDP) and gross national
income (GNI), are considered as the primary measures of national wealth
GDP
● gross domestic product: the total market value of all final goods and services produced
in a country in a given year, equal to total consumer, investment and government
spending, plus the value of exports, minus the value of imports
● Canada GDP 1.709 trillion (est 2018), about 2.94% of the world
● income = household consumption
The clashing of views
● neoclassical models predict eventual balanced growth among the world’s countries and
the convergence of their national incomes
● pure spatial theory, which incorporates transfer and related costs of distance and
tendencies toward economic agglomerations predicts unbalanced growth as a result of
market processes, with the rich getting richer and the poor getting poorer
● reality is somewhere in between
, ● neoclassical, a model in which firms maximize profits and markets are perfectly
competitive
Where does the money flow?
● capital mobility is generally confined within the small set of the world’s rich countries at
comprise the Core
● the core provides the most opportunities for equality investment and is the greatest source
of financial capital as well. Equity markets tend to be thin in the poorer countries on the
periphery, and their regulation by governments tends to be less strict
● foreign direct investment, like other forms of financial capital has its dominants source in
the core
The international scale
● the flow of foreign investment of all types has been generally increasing, but the flow of
goods and services in international trade is still the most important link among countries
in the international economy
● the dominant theory of international trade is based on international variations in
comparative advantage of production resulting from international variations in factor
endowments要素禀赋
The absence of trickle down
● the benefits of free trade that come about so quickly in theory are slow to be realized in
practice; due to different sized economies, much of the competitive reaction of price
equalization among countries is not the result of trade in goods
● in addition, large differences in average incomes, factor endowments, scale economies, or
technology among countries means that large quantities of non-competitive goods enter
into international trade
Most international trade like most capital flows, takes place within the set of rich countries that
comprise the Core of the international economy
This pattern of trade is not surprising on the theoretical grounds of international trade in
differentiated products, nor is it surprising in light of current practices of trade management
9.17 Lecture
Theories and concepts
Why we trade?
● basic reason: we need and want stuff
● while nations have their own resources which are naturally available and can be utilized,
there is still scarcity of certain resources in given nations (e.g. oil, food) e.g. Japan has no
oil reserves but is one of the top consumers of oil
● there is also the varying level of quality of products and more appealing from exotic
locations
Macro level roots
, 1500-1800, Mercantilists商业主义
● their focus as around nation building: making them better, faster, stronger, the usual
things
● primarily the central question: how a nation could regulate its domestic and international
affairs so as to promote its own interests?
● the solution was having a strong foreign-trade sector
● a nation should strive to achieve a favourable trade balance (surplus of exports over
imports)
● with this came increased spending, rise in domestic output and employment
● a big factor is the promotion government regulations of trade, specifically to reduce
imports in order to protect a nation’s trade position
● over time there were two large issues with the mercantilism ideology
● first, David Hume and his price-specie-flow doctrine: this favourable trade balance was
only viable in the short run and will be automatically eliminated
○ as a country achieves a surplus, the inflow would increase (inflation) in prices
therefore making them comparable to other nations, therefore encouraging locals
to purchase foreign produced goods, resulting in a decrease in exports
● second, is the static view: to them the world’s economic pie was a constant size, meaning
that one nation’s gains in trade would be at the expense of others; thus not all nations
would bask in the benefits of trade
Smith and Trade: Adam Smith and The Wealth of Nations 1776 were large influences in trade
theory and a leading advocate of free trade
● instead views international trade as a way of nations to take advantage of specializations
and division of labour, which in turn increases productivity and output, suggesting that
both trading partners could benefit
● cost differences is the reason for the movement of goods among nations: the main
determinant is the productivity of factor inputs, these being natural (e.g. climate) and
acquired (e.g. skills) advantages; these are used to lower the production cost, allowing
nations to become more competitive; viewing this competitive edge from a supply side
● this notion of nations vying for an edge is examined in Smith’s principle of absolute
advantage: in a two nation, two product world, international trade and specialization will
be beneficial when both nations have absolute cost advantage with their respective
products; this advantage being the utilization of less labour to produce a unit of output
● countries will import goods in which it has a disadvantage, and export goods to which
they have the advantage
● this means that countries should strive to gain absolute advantage to become the
least-cost producer
Ricardo and comparisons: David Ricardo—what if a nation was more efficient than its trading
partner in the production of all goods?
● Ricardo developed a concept to which outlines how mutually beneficial trade can occur
even when one nation is more efficient in all regards
● the principle of comparative advantage: the less efficient nation should specialize in and
export the good in which it is relatively less inefficient (meaning focusing on whatever it
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