Page 133 - Global Political Economy_Understanding The International Economic Order

CHA PTER F IVE
lie in the technology or the intrinsic quality ofthe competing prod-
ucts, but in a number ofserious marketing and other blunders made
by successive Macintosh leaders. The personal computer (PC) gained
a great advantage over the Macintosh due to huge economies ofscale
and decisively lower costs that could be credited in large part to Win-
tel’s overwhelming share ofthe market; this meant that rational busi-
ness persons equipping a company were much more likely to purchase
Wintel computers than the superior and easier to use Mac.
Path dependence implies that a region or nation can have a domi-
nant position in a particular industry simply for historical reasons.
Industry concentration and a nation’s trading patterns are not due
to factor endowments alone, but may be due to the region’s almost
accidentally having achieved a head start in an industry. Such a head
start has frequently enabled industries in a region to achieve econo-
mies ofscale and to increase their efficiency through learning by do-
ing, thus establishing and maintaining a decisive lead over potential
rivals. There are many examples ofindustries or economic activities
that cluster in a particular region due to an arbitrary event and the
effects of path dependence; for example, the production of automo-
biles in Detroit and the computer industry in Silicon Valley.
The new economic geography substitutes imperfect competition for
the neoclassical assumption ofconstant returns and perfect competi-
tion. NEG also assumes factor mobility and falling costs of transpor-
tation between the periphery and the core region. The interactions of
increasing returns, decreasing transportation costs, and factor mobil-
ity can lead to further agglomeration or concentration of economic
activities within the core region. Regions with a head start attract
industries and economic activities from other regions; supply-and-de-
mand factors reinforce one another, as suppliers want to concentrate
near large markets and the concentration ofsuppliers in the region
36
increases local demand. As these various linkages, positive feedback
mechanisms, and cumulative causation interact, over time an eco-
nomic structure is created. This structure is composed ofa dominant
core, in which powerful oligopolistic firms are heavily concentrated,
and a less developed and economically dependent periphery. The rela-
tively self-sustaining core/periphery geographic structure character-
izes all modern economic systems. 37

36
Krugman, Geography and Trade, 71.
37
For a detailed discussion ofthe advantages of the core over the periphery, consult
Alfred Weber, Alfred Weber’s Theory of the Location of Industry (Chicago: University
ofChicago Press, 1929).
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