Page 134 - Global Political Economy_Understanding The International Economic Order

NEW ECONO MIC TH EORIE S
Stated simply, a core/periphery structure is determined primarily by
the interaction ofscale economies and the costs oftransportation. 38
Ifeconomies of scale were the only factors involved in the location of
industry, one would expect that the world economy as a whole would
be characterized by a single or just a few core/periphery structures.
Instead, as we know, the world economy and even some large na-
tional economies have a number ofcore regions. This multiple core
structure ofthe international economy is explained primarily by the
cost oftransportation; reductions in transportation costs tend to in-
crease economic concentration, and increases in transportation costs
have the opposite effect. However, additional forces are at work in
determining the core/periphery structure. For example, such centrifu-
gal (diffusion or decentralizing) forces as rising wages and land rents
in the core encourage industries to move into the lower-cost periphery
and thereby counter the centripetal (polarizing, agglomeration, or
concentration) forces that pull economic activities inward toward the
core. Also, every government engages in deliberate efforts to erect
barriers or provide inducements that will make either the centripetal
or the centrifugal forces work toward their own advantage. A notable
example was Canada’s National Policy, which utilized trade barriers
to encourage American and other firms to invest in the Canadian
economy and to thereby industrialize that country.
A nation that possesses one or more regional cores with strong
industries can achieve an overwhelming and continuing competitive
superiority over others. A region with a head start in the accumula-
tion of knowledge often widens its productivity lead. The great effects
ofa head start motivate lagging nations to pursue particular indus-
trial policies, including subsidies, erection ofprotectionist barriers,
and other actions that may help them to catch up and to possess
important core regions oftheir own. Possession ofa core region is
considered to be ofimmense political importance because it is associ-
ated with high wages, industrial power, and national autonomy.
The above model of regional concentration and diffusion is impor-
tant to the nature and dynamics ofthe world economy. It implies that
lowering trade or other economic barriers and the ensuing process of
economic integration will create a core/periphery structure in which
industry and other economic activities will migrate to the core region
as barriers are decreased. In effect, increasing economic interdepen-
38
As Krugman demonstrated in his Geography and Trade, the core/periphery struc-
ture is explained by the interplay ofeconomic forces and historical developments. Also,
see Paul Krugman and Maurice Obstfeld, International Economics: Theory and Policy
3d ed. (New York: HarperCollins, 1994), 184–85.
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