Week 2
Lecture week 2
If there is one country with a lot of labour, which is a cheap country and one country
with capital, which is an expensive country, when the markets open and trade starts,
then it changes.
The country with a lot of capital can now buy labour for cheap and the labour country
can buy for cheap. Both countries start to specialize.
The price of labour increases in labour countries, the price of labour then decreases in
capital countries. This works the same in the capital country, only then with capital.
This creates a balance.
Paul Krugman: why is economic activity not spread evenly over the globe?
Because entrepreneurs establish their business in place where they find good
conditions (urban center) (positive external effects
Good infrastructure
Market
Supply of well-trained workers
Where other entrepreneurs are also active
Example: France 19th century famine.
France had a basic, but vulnerable economy. They did not have good infrastructure to
transport food. The people would eat the food produced within two miles from where
the food was produced. When all those crops were bad two years in a row, there would
be a famine because they could not get crops from other parts of France.
Business started to split up in center and peripheral areas.
Becoming a center is more or less accidental (for example, the Ruhr area)
Second half of the 19th century:
Coal producers became center
Rest of the world became periphery
Industrial Revolution: before the IR transport costs were high.
Cheap transport is an essential condition for trade.
Malthusian threat
Essential in a transition is a substantial fall in transport costs.
, First wave of globalization: result of a drastic reduction in transport costs
From the 19th century onwards, specialization became increasingly relevant.
o Great divergence.
Refusal to participate in the western global system was not accepted/not an option.
Parts of the world that were not sufficiently adapted to western interests were
colonized.
Paper: consequences of globalization in a specific brand/industry. For example, global
labour in a country. Take one firm/branch of industry. Look for example at the EU or
US.
Example: is this growing unemployment a consequence of globalization or of
automobilization.
H-O-theory: west exploited the south.
o Special place for the settlers economies (USA, Canada, Argentina, New
Zealand, Australia)
export of food by these countries resulted in protectionism in some European
countries.
Paul Krugman
Received Nobel Prize for his ideas on economic geography
o Starting point was quite simple:
o Why is economic activity not evenly distributed?
o Answer: because entrepreneurs establish their business in places where they
find good conditions
A good infrastructure
A good supply of well-trained workers
A market
o Positive external effects
In other words, it is a place where other entrepreneurs are also active
An urban center is an ideal place for a new business
It has everything an entrepreneur needs
Only reason to leave: everyone wants to set up their business there
Housing will be expensive there
Labor will demand high wages
, Nevertheless, the benefits for an entrepreneur of settling in an economic center will
keep the center intact
Economy is divided into centers and peripheral areas
Before the industrial revolution
an essential condition for trade: relatively cheap transport costs
o before the industrial revolution, transportation costs were often prohibitive
o economic activity spread more or less evenly around the world
o some Asian countries – China, India – had the most highly developed textile
and porcelain industries
could be exported because these products were valued as luxury items elsewhere
o high priced
o nevertheless, hardly beneficial
there was always the danger of a Malthusian fall
all parts of the world are more or less equally poor
o all more or less agricultural economies
o produce all supplies locally
transport costs and capacity necessitated local production for almost everything but
luxury
o Malthusian threat:
o 1798: Thomas Malthus wrote an essay on the principle of population
o Exponential population growth in normal periods
o Growth of the available factors of production depending on the country
o Growth thereof in the most positive situation linear
From a certain point, the population would grow faster than other factors of
production
Result: hunger, war for land, epidemics
Essential: substantial fall in transport costs
Until then: Krugmanian centres of limited importance
o Industry equally spread
o Spills over from one company to another – positive externalities – hardly
relevant
Working for local markets: hardly any stimulating competition
British Industrial Revolution was also a transport revolution
Lecture week 2
If there is one country with a lot of labour, which is a cheap country and one country
with capital, which is an expensive country, when the markets open and trade starts,
then it changes.
The country with a lot of capital can now buy labour for cheap and the labour country
can buy for cheap. Both countries start to specialize.
The price of labour increases in labour countries, the price of labour then decreases in
capital countries. This works the same in the capital country, only then with capital.
This creates a balance.
Paul Krugman: why is economic activity not spread evenly over the globe?
Because entrepreneurs establish their business in place where they find good
conditions (urban center) (positive external effects
Good infrastructure
Market
Supply of well-trained workers
Where other entrepreneurs are also active
Example: France 19th century famine.
France had a basic, but vulnerable economy. They did not have good infrastructure to
transport food. The people would eat the food produced within two miles from where
the food was produced. When all those crops were bad two years in a row, there would
be a famine because they could not get crops from other parts of France.
Business started to split up in center and peripheral areas.
Becoming a center is more or less accidental (for example, the Ruhr area)
Second half of the 19th century:
Coal producers became center
Rest of the world became periphery
Industrial Revolution: before the IR transport costs were high.
Cheap transport is an essential condition for trade.
Malthusian threat
Essential in a transition is a substantial fall in transport costs.
, First wave of globalization: result of a drastic reduction in transport costs
From the 19th century onwards, specialization became increasingly relevant.
o Great divergence.
Refusal to participate in the western global system was not accepted/not an option.
Parts of the world that were not sufficiently adapted to western interests were
colonized.
Paper: consequences of globalization in a specific brand/industry. For example, global
labour in a country. Take one firm/branch of industry. Look for example at the EU or
US.
Example: is this growing unemployment a consequence of globalization or of
automobilization.
H-O-theory: west exploited the south.
o Special place for the settlers economies (USA, Canada, Argentina, New
Zealand, Australia)
export of food by these countries resulted in protectionism in some European
countries.
Paul Krugman
Received Nobel Prize for his ideas on economic geography
o Starting point was quite simple:
o Why is economic activity not evenly distributed?
o Answer: because entrepreneurs establish their business in places where they
find good conditions
A good infrastructure
A good supply of well-trained workers
A market
o Positive external effects
In other words, it is a place where other entrepreneurs are also active
An urban center is an ideal place for a new business
It has everything an entrepreneur needs
Only reason to leave: everyone wants to set up their business there
Housing will be expensive there
Labor will demand high wages
, Nevertheless, the benefits for an entrepreneur of settling in an economic center will
keep the center intact
Economy is divided into centers and peripheral areas
Before the industrial revolution
an essential condition for trade: relatively cheap transport costs
o before the industrial revolution, transportation costs were often prohibitive
o economic activity spread more or less evenly around the world
o some Asian countries – China, India – had the most highly developed textile
and porcelain industries
could be exported because these products were valued as luxury items elsewhere
o high priced
o nevertheless, hardly beneficial
there was always the danger of a Malthusian fall
all parts of the world are more or less equally poor
o all more or less agricultural economies
o produce all supplies locally
transport costs and capacity necessitated local production for almost everything but
luxury
o Malthusian threat:
o 1798: Thomas Malthus wrote an essay on the principle of population
o Exponential population growth in normal periods
o Growth of the available factors of production depending on the country
o Growth thereof in the most positive situation linear
From a certain point, the population would grow faster than other factors of
production
Result: hunger, war for land, epidemics
Essential: substantial fall in transport costs
Until then: Krugmanian centres of limited importance
o Industry equally spread
o Spills over from one company to another – positive externalities – hardly
relevant
Working for local markets: hardly any stimulating competition
British Industrial Revolution was also a transport revolution
