Edited by Giacomo Becattini, Marco Bellandi and Lisa De Propis
Chapter 12: The Economics of Context, Location and Trade: Another Great Transformation?
Michael Storper 1. Context and the gains from trade The combined effects of the division of labor, specialization and gains from trade are widely agreed to be one of the two main forces behind world eco omic growth n since its modern takeoff around 1820, the other being technological innovation (Mokyr 1990; North 2005). Contemporary debates about the geographical reshuffling of output and employment through out ourcing and offshoring ask s whether we have crossed some kind of new threshold in the world division of labor. Is the scale and speed of geographical fragmentation fundamentally altering the process of economic development, replacing local and national levels of interaction with a new type of geographi ally-distributed system? c Even though there is no definitive answer to this question, trade theory is confident about the issue of potential welfare effects of a great transformation: there may be new kinds of adjustment costs from recomposition of local and national economies, but there will be gains to fragmentation and trade for the world economy as a whole, and in the long run for those local economies that successfully complete their ‘churn’ and absorb its costs. This holds even when a particular country or region has benefited from a strong cluster: according to trade theory, by definition the long-distance relations that replace a local cluster will be more efficient and hence generate welfare gains. Development economics has identified some highly-contested exceptions to this assumption that the overall level of geographical concentration and diffusion is optimal:...
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