Economic Integration in East Asia
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Economic Integration in East Asia

Perspectives from Spatial and Neoclassical Economics

Edited by Masahisa Fujita, Satoru Kumagai and Koji Nishikimi

Increasing numbers of free trade and economic partnership agreements have been concluded among many countries in East Asia, and economic integration has progressed rapidly on both a de facto and de jure basis. However, as the authors of this book argue, integration may intensify regional inequalities in East Asia and so this process has attracted much attention of late. Will it actually succeed in achieving greater economic growth or will it in fact cause growing regional disparity?
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Chapter 3: Specialization and Agglomeration Forces of Economic Integration

Koji Nishikimi


Koji Nishikimi INTRODUCTION 3.1 This chapter, illustrated with graphs and diagrams, makes clear the theoretical basis of our main view as presented in the preceding chapters. As was argued in Chapter 1, economic integration is expected to exert two opposing influences on industrial location. On the one hand, international difference in comparative advantage leads different industries to locate in different countries. As comparative advantage structure changes over time, industries trickle down from one country to another, in conformity with the flying-geese pattern of industrialization as described in Chapter 2. Here we define this influence as the ‘specialization force of economic integration’. As a result of the operation of this force, industries tend to be dispersed over many countries, rather than being localized in a small number of countries and regions. On the other hand, when scale economies of production are significant, firms tend to locate in regions with large markets in order to exploit scale benefits. This is likely to lead to industrial agglomeration in a limited number of regions, leaving other regions vacant. Hence, with significant scale economies, trade liberalization and factor mobilization tend to intensify geographical concentration of industries and regional inequality. We call this influence the ‘agglomeration force of economic integration’. In the following sections, we look more closely at the above two forces. The analysis of the specialization force is carried out on the basis of the neoclassical theory of comparative advantage, in which production processes are assumed to...

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