Spatial Economics—Introduction

曽 道 智Zeng, Dao-Zhi

Tohoku University

October 1, 2019

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Basic Information

Time: 1st class on TuesdayThe lecturer

Name: 曽道智 (ゼン・ダオズ) Zeng, Dao-ZhiMail: zeng@se.is.tohoku.ac.jp (Anytime is OK forquestions!)Url: http://www.se.is.tohoku.ac.jp/ zeng/index.htmlTel&Fax: (022)795-4380Lab： Room 403, this buildingOffice Hour：Tuesday 4:30-6:00 or reserved by mailsMajor: Regional Science, Urban Economics, SpatialEconomics, Conflict ResolutionAspiration: Teaching knowledge worldwide applicableand fostering regional specialists with internationalviewpoints

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Lecture planDate Content

1st 10/1 Introduction2nd 10/8 The birth of New Trade Theory3rd 10/15 The Dixit-Stiglitz monopolistic competition model4th 10/29 1-factor models: The Home market effects5th 11/5 1-factor models: welfare analysis6th 11/12 2-factor models7th 11/19 New Economic Geography and equilibrium stability8th 11/26 Core-Periphery model9th 12/3 Quasi-linear model10th 12/10 Re-dispersion by labor costs11th 12/17 Re-dispersion by urban costs12th 12/24 Multi-industry economy13th 1/7 Vertical linkages and firm location14th 1/14 Applications of spatial economics15th 1/21 Research frontiers16th 1/28 Research frontiers

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Textbook

Japanese version

曽道智・高塚創 (2016). 空間経済学,東洋経済新報社。3240円。Available in COOP.

Chinese Version曽道智・高塚創(2018). 空間経済学. 北京大学出版社.

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Other references

Books and journalsFujita, M., Krugman P and Venables A., The SpatialEconomy, MIT Press, 1999.Fujita, M. and Thisse, J.-F., Economics of Agglomeration(2nd Edition), Cambridge University Press, 2013.佐藤泰裕,田渕隆俊,山本和博, 2011. 空間経済学. 有斐閣。

Journal of Economic Geography, Journal of UrbanEconomics, Journal of International Economics,Regional Science and Urban Economics, Journal ofRegional Science, etc.

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How firms choose locations?

Questionnaire for firms (Ministry of Economy, Trade, andIndustry,経済産業省, 2006)

labor costscheap wages in developing countries

market sizea big market in Japana big country has a large market

technology and informationMarket needs, Customer response supportstay in Japan

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How households choose locations?

30% Japanese pop. in Tokyo

high wagesNominal wages increase 10% when city pop. is doubled

congestion, commuting costs, high housing priceIn total, a decrease of 7-12%

a lot of varieties

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Agglomeration forces

The first naturegood resource, somephysical advantages likebeing close to airports,rivers

Copper mine of Bessi, Nihama, Ehime(愛媛県新居浜市別子銅山)Found in 1690. 0.7 million tons of copper until 1973largest population, 12,000Not sustainable. Now population 0

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Another agglomeration force

The second naturefirms in the same location enjoy the externalities, which resultin an agglomeration force through markets. When somefirms happened to come to a place, the market and laborpool become more attractive and finally, more firms come

Tokyo, New YorkEconomic activities, a high level of social infrastructureYiwu in China (義烏)

Orange: peel + flesh

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Yiwu (義烏) I

Southwest of Shanghai, 300 kilo; 120 kilo away fromHangzhou, center of Zhejiang

Areas ≈ 1/5 of Shanghai, population≈1.14 million

Origin of the commodities in 100 yen shops

wholesale stores and dealers all over the city

more than 0.2 million buyers from all over the world,more than 10,000 tons of commodities are traded

Although it is in the rich Zhejiang, Yiwu suffers fromdrought. The agricultural production was difficult

no sufficient food. Bartering was popular

Started with bartering, a small market was developed

It becomes an intermediate level city

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Yiwu (義烏) II

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What is spatial economics?

JR ticketKyoto Osaka Kobe- -Y390 Y540

Kyoto−→Kobe Y1050 > Y390 + Y540Why this economic phenomenon occurs here?space+economics

Regional Science, Regional Economics: Firm locationInternational trade

Fujita, Krugman, the 1st Alonso Prize (2002)Krugman, Nobel prize in 2008

analysis of trade patterns and location of economicactivity

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Location theory

von Thunen, Theisolated State(孤立国)

Spatial ImpossibilityTheoremNo competitiveequilibrium with positivetrade costs exists if thespace is homogeneous

land rent

vegetablewoods

grainranch

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Starrett: the Spatial Impossiblility Theorem

Can competitive price mechanism explain the endogenousformation of agglomeration?

Isard and Hicks: someparticular effects of τArrow and Debreu:differentiated goods bylocations, convexityperfect competitiondivisibility: divide into thesmallest village

-x2

6x1

O

C

*(p1, p2)1/τ...........

......

......................... .........τ

A′1/τ

A1

1/τB B′

Starrett Impossible Theorem If space is homogeneous andtrasnport costly, then any competitive equilibrium is such thatno transportation occurs—no trade.

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Reality

Space is not homogeneousvon Thunen

Technological externality in economic activitiesOgawa and Fujita (1980)trade costs between firms, commuting costs forhouseholdswhen trade costs are low, uniform distributionwhen trade costs are high, firms agglomerate.Households live aroundHenderson (1974)Firms’ productivity depends on city size

the market is not perfectly competitiveNew economic geography

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Trade Theory I

Comparative advantagesRicardoH-O

Intra-industry trade

Ohlin (1933) demonstrated the connection betweeninternational trade and the location of industries. Themotives for shipment of goods within countries are similar tothose for shipment of goods between countries. Hedeveloped a “general localization theory” by integrating tradetheory and location theory.

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Representative books I

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Representative books II

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Research framework

Silly assumptionsPeeling oranges

New Trade TheoryStarted in the end of 70sHome-market effect, HME

New Economic GeographyStarted in 90sCore-PeripheryHow two symmetric regions are developed to a core anda periphery

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von Thunen’s prediction

English version (in 1966) of the 1826 book (P.295) ...Thus we may say with certainty that railways will makean important contribution to the development of the largetowns, and that, but for the fact that railways will promotealso the prosperity of the rural districts surrounding theprovincial towns, the latter would decay in consequence

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Fujita: similar to the history of aviation

Leonardo da Vinciinvention, painting, sculpting,architecture, science, music,mathematics, engineering,literature, anatomy, geology,astronomy, botany, writing,history, and cartographyANA badge (1952-2012)

Wright brothers

Krugman: WAS IT ALL IN OHLIN?http://web.mit.edu/krugman/www/ohlin.html

The only good news was that nobody else picked upthat $100 bill lying on the sidewalk in the interim.Krugman did not know von Thunen’s work by thenIt took 11 years from NTT to NEG

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Transportation costs

Traditional trade theory: either 0 or∞Iceberg transportation

Before Christ, the Roman Empire liked cold wine. Movedice from the AlpsIn the 16th century, the Mughal Empire in India movedice from the HimalayasSamuelsonvon Thunen

Trade freenessLinear transportation cost

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The structure of this lecture

New trade theoryChaps. 2-5Chap. 12

New economic geographyChaps. 6-11

Applications

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Homework

What do you expect from this course?Write down your comments on the Nobel prize speechof Krugman:

Krugman, P., 2008. The increasing returns revolution in tradeand geography. Nobel prize lecture.

http://nobelprize.org/nobel_prizes/economics/

laureates/2008/krugman_lecture.pdf

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