Summary Dynamics in economic geography
Chapter 4
4.2 Cumulative causation
The principle of cumulative causation was introduced by Gunnar Myrdal: certain
regions become the focus of economic activity, thus increasing spatial contrasts.
Myrdal’s assumption was that companies based in wealthy regions have a head
start to those in developing regions. Wealthy regions have larger markets,
allowing businesses to take advantage of economies of scale. More advantages:
better trained workforce, better innovation opportunities.
What happens when a region drastically expands its output:
There are also losers, since relocating businesses and workers takes something
away from the areas they leave. These regions see valuable businesses and
workers leave and see capital draining from the region to the core region. So the
growth region’s cumulative advantage is accompanied by a cumulative
disadvantage for other regions, sharpening the contrast between periphery and
core regions backwash effect.
Spatial decentralization does not result in levelling-off of regional economic
variation, reasons why:
The clustering of economic activity in core regions means labour and space
are at a higher premium and businesses compete even more fiercely for
them. The weaker companies perish and the remaining ones need to be
extremely efficient and highly competitive.
Growth regions can attract new growth stimuli. Factors available (main
communication and transport hubs, large knowledge, training centres) that
mean changes and innovations are most likely to first manifest themselves
in growth regions.
In growth regions, economies of scale are maintained by the size of the
market. Companies in the periphery benefit less from economies of scale.
So an entrepreneur will think twice about moving to the periphery.
Backwash and spread effects can occur on different spatial scales.
Backwash mainly in periphery regions, spread effects occur when growth
regions expand, neighbouring regions benefit as part of the local labour
market and businesses find a new home there.
Strong regions get stronger, weak ones get weaker.
, 4.3 Perroux’s growth poles
Main message of cumulative growth theory is that development is self-
reinforcing. People follow jobs. Perroux surmised that economic growth would lift
off if a process similar to cumulative causation can somehow be ignited.
According to Perroux, regional economic growth begins with a key firm
constituting a regional growth pole. Relatively large company in a strong growth
industry that maintains strong linkages with other businesses and industries
(university). Via manifold intensive relations with other industries, key firms are
able to occupy a central place like a spider in a web and spread growth though
their network. Economic space: firm’s network and sphere of influence.
The network itself was key, not its geographical dimensions.
A region boasting a growth pole would be able to maintain all its growth effects
as a result of 4 multiplier mechanisms:
Technical polarization: assumption is that some of the other businesses
that are connected to the key firm will settle near a key firm.
Income polarization: increased employment in the key firm and the
businesses drawn in via technical polarization generates extra income that
new and existing firms benefit from.
Psychological polarization: the establishment of a key firm and
subsequent arrival of diverse businesses create a sense of optimism across
the region. Regions image receives a boost, attracting more businesses.
Geographical polarization: the polarizations named above generate a
positive change in the region’s business environment, which is beneficial
for future growth.
Critics on growth pole idea: the key firm’s location is barely addressed, it does
not explain how the key firm is attracted.
4.4 Agglomeration benefits
Notion of agglomeration benefits is based on 2 related economic principles:
Economics of scale: idea that by increasing the scale of production, the
production costs are spread across many products, decreasing the cost per
product.
Diseconomies of scale: economics of scale are not without limit and at
some point the cost per product may actually go up again (hiring new
employee or extra machine)
Returns to scale: same idea but instead refers to
firms’ output. Describes the relationship between
additional inputs to the production and the resulting
extra output. Can be increasing, constant of
decreasing.
Benefits of scale can also be external; multinational firm’s
business can profit from the parent company’s scale benefits (sharing R&D costs,
knowledge of machines).
Agglomeration of activities allows sharing costs, which provides benefits to users.
In addition, agglomeration can be beneficial if firms and workers mutually
influence each other through externalities (= by-products or unintended side-
Chapter 4
4.2 Cumulative causation
The principle of cumulative causation was introduced by Gunnar Myrdal: certain
regions become the focus of economic activity, thus increasing spatial contrasts.
Myrdal’s assumption was that companies based in wealthy regions have a head
start to those in developing regions. Wealthy regions have larger markets,
allowing businesses to take advantage of economies of scale. More advantages:
better trained workforce, better innovation opportunities.
What happens when a region drastically expands its output:
There are also losers, since relocating businesses and workers takes something
away from the areas they leave. These regions see valuable businesses and
workers leave and see capital draining from the region to the core region. So the
growth region’s cumulative advantage is accompanied by a cumulative
disadvantage for other regions, sharpening the contrast between periphery and
core regions backwash effect.
Spatial decentralization does not result in levelling-off of regional economic
variation, reasons why:
The clustering of economic activity in core regions means labour and space
are at a higher premium and businesses compete even more fiercely for
them. The weaker companies perish and the remaining ones need to be
extremely efficient and highly competitive.
Growth regions can attract new growth stimuli. Factors available (main
communication and transport hubs, large knowledge, training centres) that
mean changes and innovations are most likely to first manifest themselves
in growth regions.
In growth regions, economies of scale are maintained by the size of the
market. Companies in the periphery benefit less from economies of scale.
So an entrepreneur will think twice about moving to the periphery.
Backwash and spread effects can occur on different spatial scales.
Backwash mainly in periphery regions, spread effects occur when growth
regions expand, neighbouring regions benefit as part of the local labour
market and businesses find a new home there.
Strong regions get stronger, weak ones get weaker.
, 4.3 Perroux’s growth poles
Main message of cumulative growth theory is that development is self-
reinforcing. People follow jobs. Perroux surmised that economic growth would lift
off if a process similar to cumulative causation can somehow be ignited.
According to Perroux, regional economic growth begins with a key firm
constituting a regional growth pole. Relatively large company in a strong growth
industry that maintains strong linkages with other businesses and industries
(university). Via manifold intensive relations with other industries, key firms are
able to occupy a central place like a spider in a web and spread growth though
their network. Economic space: firm’s network and sphere of influence.
The network itself was key, not its geographical dimensions.
A region boasting a growth pole would be able to maintain all its growth effects
as a result of 4 multiplier mechanisms:
Technical polarization: assumption is that some of the other businesses
that are connected to the key firm will settle near a key firm.
Income polarization: increased employment in the key firm and the
businesses drawn in via technical polarization generates extra income that
new and existing firms benefit from.
Psychological polarization: the establishment of a key firm and
subsequent arrival of diverse businesses create a sense of optimism across
the region. Regions image receives a boost, attracting more businesses.
Geographical polarization: the polarizations named above generate a
positive change in the region’s business environment, which is beneficial
for future growth.
Critics on growth pole idea: the key firm’s location is barely addressed, it does
not explain how the key firm is attracted.
4.4 Agglomeration benefits
Notion of agglomeration benefits is based on 2 related economic principles:
Economics of scale: idea that by increasing the scale of production, the
production costs are spread across many products, decreasing the cost per
product.
Diseconomies of scale: economics of scale are not without limit and at
some point the cost per product may actually go up again (hiring new
employee or extra machine)
Returns to scale: same idea but instead refers to
firms’ output. Describes the relationship between
additional inputs to the production and the resulting
extra output. Can be increasing, constant of
decreasing.
Benefits of scale can also be external; multinational firm’s
business can profit from the parent company’s scale benefits (sharing R&D costs,
knowledge of machines).
Agglomeration of activities allows sharing costs, which provides benefits to users.
In addition, agglomeration can be beneficial if firms and workers mutually
influence each other through externalities (= by-products or unintended side-
