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Jacques-François Thisse CORE-UCLouvain (Belgium) Paris School of Economics (France) Does Geography Matter for Economic Development?

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Presentation on theme: "Jacques-François Thisse CORE-UCLouvain (Belgium) Paris School of Economics (France) Does Geography Matter for Economic Development?"— Presentation transcript:

1 Jacques-François Thisse CORE-UCLouvain (Belgium) Paris School of Economics (France) Does Geography Matter for Economic Development?

2 2 Yes because, regardless of the spatial scale, there is no such a thing as a homogeneous economic space

3 The world is not flat and the report of the death of distance is premature 3

4 What drive spatial inequality?

5 Increasing returns to scale internal to firms internal to firms external to firms and workers external to firms and workers

6 Trade-off between increasing returns and transport costs 2 regions (East and West) 1 or 2 facilities 1 facility: C + T 2 facilities: 2 C

7 2 C < C + T 2 facilities C + T < 2 C 1 facility What is the optimal decision?

8 Lowering transport and trade costs fosters the geographical concentration of economic activities

9 What happened within Europe in the nineteenth century? 9 The Great Divergence

10 Fast and cheap transportation has been one of the main products of the Industrial Revolution. Distances have been shortened at an astonishing pace. Day by day the world seems smaller and smaller and societies that for millennia practically ignored each other are suddenly put in contact - or in conflict C.M. Cipolla, The Economic History of World Population

11 Between 1800 and 1910, the lowering of the real average prices of transportation was on the order of 10 to 1 (Bairoch)

12 12 Per capita GDP of European countries expressed in 1960 U.S. dollars and prices Countries Austria-Hungary Belgium Bulgaria Denmark Finland France Germany Greece Italy Netherlands Norway Portugal Romania Russia Serbia Spain Sweden Switzerland United Kingdom Mean Relative standard deviation12%18%23%31%38%39%42%

13 distance to the UK matters more and more (a correlation) 13 Elasticity of GDP per capita w.r.t. to distance to the UK

14 Even today distance remains a major impediment to interaction so we better trade with our neighbors

15 The Four Ts (i) Transaction costs (ii) Tariff and non-tariff costs (iii) Transport costs (iv) Time costs (i) + (ii) + (iii) + (iv) = Trade Costs

16 The economy, all-invading, mingling together currencies and commodities, tended to promote unity of a kind in a world where everything else seemed to be conspiring to create clearly distinguished blocs Fernand Braudel, The Perspective of the World

17 Empirical evidence shows the existence of strong agglomeration economies egg-and-chicken problem

18 Sharing Sharing Matching Matching Learning Learning

19 employment density population density the impact of employment density on labor productivity ranges from 3% to 11% 19

20 proximity matters a lot in the informal sector

21 (cultural, ethnical, linguistic, religious,…) division matters division matters the EU is a good case in point

22 so density and proximity are not sufficient to boost development the role of non-market institutions in the Industrial Revolution

23 spillovers….(diffusion) the capability of territories to benefit from the diffusion of knowledge varies a lot from one place to another

24 the principles of economic geography must be accounted for but 24

25 this doesnt mean that their concrete application will be the same everywhere at any time

26 lower disparities on the international (interregional) level may be accompanied by larger disparities on the intra-national (intra-regional) level

27 27 Thank you for your attention


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