The Economics of Trade, Location and Context: Another ‘Great Transformation?
Abstract
How should we think of the role of regions in relationship to the global economy? Theory has surprising gaps when it comes to building a unified vision of these two scales of development. Two contributions to such a vision are proposed in this paper. First, the relationship between geographical concentration and the regional economic specialization it underpins, and globalization, should be theorized as a dynamic process. Standard location and trade theory is not adequate for this task; instead, the dynamical relationship can be captured through growth theory. But this in turn requires correcting growth theory to separate its local and its global components, respectively Marshall-Arrow from Romer externalities. Second, we consider the missing element in all theories of geographical concentration and locally-specialized development, an element labeled “context” here. A theory of context in turn raises important new questions about the dynamic welfare and developmental effects of contemporary processes of fragmenting and re-locating production at a global scale.