A Sub-Regional Development Approach-Transport, International Trade, and Investment Modeled in Space

33 Pages Posted: 3 May 2001

See all articles by Hans-Peter Brunner

Hans-Peter Brunner

Action International for Evolutionary Development

Peter M. Allen

Cranfield University

Date Written: December 2000

Abstract

The importance within the literature: Over recent years the theory of complex systems has been developed and applied among other things to economic and regional science (Allen, 1997). It leads to a view of co-evolutionary, spatial dynamics that is far from the traditional, and operational, models used in these areas that have been based on assumptions of market equilibrium. The economic and development literature is at last starting to focus on the spatial aspects of competition and trade. In modernizing economies, positive externalities emerge as a consequence of market interaction involving increasing return, agglomeration and network effects. Recent work by Fujita, Krugman and Venables (1999) has developed spatial versions of the earlier Dixit-Stiglitz (1977) model of monopolistic competition. Regional scientists have developed models that take into account the existence of multiple geographic centers, the irregularity of spatial forms, and their evolution at a low microeconomic level of resolution. However such models so far lack the supply-side and microeconomic foundations displayed in the work of Fujita et al..

The approach: The work presented here is based on an advanced economic version of earlier non-economic dynamic models worked on by regional scientists such as Allen (1997), and well summarized by Anas, Arnott and Small (1998). The work takes into account the recent work by Fujita et al., by using an explicit price system and an explicit description of rational economic decision-making. It relies as much as possible on Allen's earlier spatial computer models and calibrates the model for at least one highly relevant Asian economic trade and growth corridor. Theory is developed here in a way that it very much instructs practice.

The potential development relevance of the work the analysis of increasing return, agglomeration and network effects is important for their impact on trade, investment, growth and development. The application of models that relate such positive externality effects to actual representations of physical and institutional infrastructure results in a powerful tool for the development of economic and trade corridors. It facilitates a definition of the role of government. The model examines how changes in transportation costs and "attractivities" will influence the location and re-location of industries, services and related employment and social or poverty-alleviating effects. Accounting for location at a low level of resolution at a firm or other economic actor level, yields new insights into economic development phenomena that are normally analyzed in aspatial, macro models.

Keywords: Spatial economy, Economics of transformation, International trade and investment, Economic development and growth

JEL Classification: F12, L11, O18, R12

Suggested Citation

Brunner, Hans-Peter W. and Allen, Peter M., A Sub-Regional Development Approach-Transport, International Trade, and Investment Modeled in Space (December 2000). Available at SSRN: https://ssrn.com/abstract=258429 or http://dx.doi.org/10.2139/ssrn.258429

Hans-Peter W. Brunner (Contact Author)

Action International for Evolutionary Development ( email )

17 ADB Avenue, Level 29, Pasig
1600 Metro Manila
Philippines
+63 920 9707531 (Phone)

Peter M. Allen

Cranfield University ( email )

Cranfield
Bedfordshire MK43 OAL, MK43 0AL
United Kingdom

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