Page 135 - Global Political Economy_Understanding The International Economic Order

CHA PTER F IVE
dence among national economies means that many economic activi-
ties will concentrate in a small number ofregions populated by oli-
gopolistic firms that enjoy economies ofscale and/or lower transport
and transactions costs. This process explains why uneven develop-
ment ofregions and nations characterizes both national and interna-
tional economies. This tendency toward a core/periphery structure
has profound implications for the future economic structure of West-
ern Europe as internal barriers come down and progress is made to-
ward creation ofa single market.
In an increasingly integrated world economy in which core/periph-
ery structures spread across national boundaries, the presence ofcore
regions exclusively controlled by a single nation, and ofa periphery
composed ofother nations, will necessarily lead to economic tensions
and even political conflict between the dominant core economy and
dependent peripheral economies. Escaping economic dependence and
achieving political independence is an objective ofevery society. Core
economies wish to maintain their dominant position, and peripheral
economies wish to become core economies in their own right. The
efforts of the dependent peripheral economies to escape domination
by well-established regional cores, and the efforts of the cores them-
selves to maintain their dominant position, are crucial factors in the
dynamics ofthe world economy. Thus, growing integration ofthe
world economy has led to increasing efforts by individual nations,
threatened regions within those nations, and such interstate regional
alliances as the European Union to protect themselves against the cen-
tralizing forces of economic globalization. The new economic geogra-
phy implies that the structure ofstrong core economies and depen-
dent peripheries will continue to produce economic tensions and
occasional political conflict.
Strategic Trade Theory
The new (strategic) trade theory is the culmination ofseveral earlier
developments that have modified conventional trade theory, which
was based on factor endowments or comparative advantage and was
developed in the early 1930s by Eli Heckscher and Bertil Ohlin. This
Heckscher-Ohlin (or H-O) model ofcomparative costs or advantage
postulated that a country would specialize in the production and ex-
port ofthose goods or services in which it had a cost advantage over
other countries; the model was based on the familiar neoclassical as-
sumptions.
Strategic trade theory (or STT) developed from economists’ grow-
ing appreciation ofimperfect competition, economies of scale, learn-
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