Page 158 - Global Political Economy_Understanding The International Economic Order

SIG NIFIC ANCE O F NEW T HEORI ES
In the game of international economics, one vital national objective
is to ensure possession of important core regions and leading indus-
tries. Because a head start is so very important, lagging nations are
motivated to pursue such trade and industrial policies as subsidies to
local businesses and erection of protectionist barriers in order to catch
upwith or leapfrog over the leading economy. Nations desire core
regions because they are associated with high wages, economic
power, and national autonomy. Almost every government engages in
deliberate efforts to erect barriers to protect established industries or
provide inducements to attract new industries. Policies of economic
nationalism attempt to increase the probability that both the centripe-
tal and centrifugal forces will work toward the nation’s own advan-
tage. A notable example of such an effort to redistribute industry and
other economic activities to a nation’s own advantage occurred when,
in the last part of the nineteenth century, Canada put into place high
trade barriers, subsidized a transcontinental railway, and took other
actions to encourage foreign direct investment and to create an indus-
trialized, united, and independent economy. This strategy of encour-
aging diffusion of industry to and within Canada met with consider-
able success.
Another significant implication of economic geography is that low-
ering trade and other economic barriers will lead to economic integra-
tion across national boundaries and to significant restructuring of na-
tional economies. As integration takes place, industry and other
economic activities tend to migrate within the enlarged market. As
displacements occur, existing core/periphery structures will be recon-
figured and new structures will be formed. Increasing economic inter-
dependence in the world economy or within a regionalized economy,
such as the European Union or the North American Free Trade
Agreement (NAFTA), will result in many economic activities shifting
their geographic location. Yet it remains impossible to predict the
overall result of this restructuring and whether industry will move to
the periphery to take advantage of lower cost labor or will concen-
trate in the existing regional cores. 30
The neoclassical characterization of a smooth evolution of the
world economy is patently unrealistic. Indeed, as convergence among
developed and developing economies takes place, conflict between
30
Paul R. Krugman and Anthony J. Venables, “Integration and the Competitiveness
of Peripheral Industries,” in Christopher Bliss and Jorge Braga De Macedo, eds., Unity
with Diversity in the European Economy: The Community’s Southern Frontier (New
York: Cambridge University Press, 1996), Chapter 3.
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