The Economics of Disappearing Distance

Börje Johansson, Åke E. Andersson

• Publisher: Routledge
• Year: 2019
• Print ISBN:
  9781138718586
• eBook ISBN:
  9781351761154
• Topic: Business
• Subtopic: Business General
• Index: Business

This title was first published in 2003. This book focuses on the role of tangible and intangible networks that affect spatial interdependencies in economic and social life. It addresses the question - is the effect of distance disappearing? In examining this question the book considers the types of interaction that bring about globalisation of markets as well as social life in general and the distortion of distance patterns and changes in spatial interdependencies. The contributions elaborate theory and methods by examining hierarchical fields of internal and external influence on regional change; sources of productivity growth in a network of industries, endogenous growth and development policies. The book concludes with an assessment of plan evaluation methodologies for a changing and globalizing world characterized by new economic networks and networking arrangements.

Chapter 1

Introduction: Interdependencies of Spatial Development

Åke E. Andersson, William P. Anderson and Börje Johansson

Introduction

The subsequent chapters of this book are focussed on the role of tangible and intangible networks that affect spatial interdependencies in economic and social life. Interaction across geographical space is made possible and facilitated by different categories of interdependent networks, in urban regions and between regions. Some of these networks are based on or characterized by new technologies for communication, economic decisions and governance. In this evolving regime of information technology with mobile communication the role of distance seems to be changing and even disappearing. For certain types of interaction these changes have a capacity to bring about a globalization of markets as well as social life in general. Hence the question posed in the title of the book, is distance disappearing or should we expect new forms of distance phenomena? Moreover, what is the future role of distance in the creation and exchange of knowledge and ideas?

Distortions of distance patterns can be examined for interaction in a city system, interaction between local communities of an urban region, traffic flows with congestion, migration between functional regions, transportation of goods and distribution of energy. Changes in the pertinent spatial interdependencies will have consequences for spatial equilibrium patterns of urban regions and systems of regions, for the distribution of economic activities and population, for productivity change and growth, the size of urban regions and a series of social conditions. In this context one may ask, does the importance of urban size change when interregional links for interaction are improved? Are the networks inside a region evolving into a bottleneck problem for future development?

Networking and Networks - Interaction and Infrastructure

A social system is characterized by interaction between actors. The set of actors comprises individuals, households, firms, public authorities and other organizations. When pairs and groups of such actors interact with a certain frequency, this phenomenon may be thought of as a ‘networking activity’. This term often refers to contacts, which are not scheduled or pre-organized, but occur in a seemingly random fashion only governed by self-organization mechanisms.

Random or unplanned interplay of this kind can be efficient if there is an arena on which contacts and communication can be carried out. In other words, networking and interaction requires an infrastructure that can facilitate the interplay processes. We may separate this infrastructure into tangible and intangible networks. The former concept comprises physical networks for interaction, whereas the latter refers to established links for communication and transactions between economic agents. Both forms of networks are spatially dependent. In view of the economic geography they represent transaction links between nodes (sinks, sources and saddle points). In micro contexts a node may represent an individual or an organization and links may be thought of as social ties, mutual trust and smooth codes of communication. In more aggregate analyses the nodes can represent regions or countries. Moreover, transaction links are associated with trade relations, transport paths, networks for information transmission and communication channels.

Physical (tangible) networks for interaction change on a slow time scale. Intangible networks are based on investments that people and organizations make in order to facilitate exchange of information, negotiation and joint decision making. These networks also change at a relatively slow pace. In other words, the use of existing networks may vary and adjust with moderate or little delay. But the networks are rigid and adjust with considerable delays, when the demand for new links and new link capacity develops. All this explains our distinction between networks and networking. Links and networks may be thought of as flow channels, which are characterized by inertia. Networking corresponds to flows, which make use of the flow channels.

In conclusion, the described interdependence between fast and slow adjustments concern the development of new networks for capital markets, stock exchange organizations, mobile phone and Internet systems. The relatively slow process of network enhancement comprises not only physical but also organizational investments.

Networks, Distance and Economic Links

The period 1200-1800 can be seen as a period of experimentation and improvement of the transaction systems in primarily the European economies. Early in this period regions south and north of the Alps became commercially connected. The associated trade was supported by commercial and legal innovations, giving rise to new techniques and methods for formulating contracts and agreements, regulating payments by means of bills of exchange and instruments of debts, controlling debts and loans by means of guarantees and other instruments of credit. In this context transaction systems comprise transport, payment and bank systems. This long period has been characterized as an epoch of broker capitalism, in which production technologies of supplier and customer regions were taken for granted. In the following period, up to the end of the second millennium, the industrial revolution brought about a manufacturing system with radically new logistical solutions. A lot of attention has been paid to the period 1870-1914, during which international trade grew fast, accompanied by increasing capital and labor migration flows (Kenwood and Lougheed, 1971). A corresponding picture is now being painted for the period 1970-2000 (Welfens, 1999).

Globalization of the world economy is reflected by rising international trade and transnational investments. Falling transport and communication costs support this development. In addition, during the 1990s a number of countries have been transformed from planned to market economies, which means that new markets for global trade have emerged. In this group of transitional countries we find Eastern Europe, the former Soviet Union and PR China. The consequences of this change process are obvious. For the OECD countries the growth in both export and import intensity has been considerable, which is illustrated in Table 1.1. The trade intensity has more than doubled in the US between 1970 and 1990. For the Netherlands we can observe an increase by more than 20 per cent.

Table 1.1 Growth of import and export intensity, 1970-1991

Functional Regions as Network Systems

Functional region is a crucial concept. The theme in this book has two focal points: interaction inside and interaction between functional (urban) regions. Such regions may be characterized by a set of attributes. In this overview it is defined as a geographic area with concentration of economic activities and with an infrastructure which allows for intense factor mobility inside the region. The region has an internal market potential (home market) that provides opportunities for increasing returns and external economies. At the same time, a functional region gets an individual profile from its slowly changing resources in the form of installed production capital, physical infrastructure and its internal supply of labor categories, which embody different types of knowledge and competence. In this way a functional region has a partly independent economy with the capacity to generate its own economic growth.

Internal Market Potential

Do urban regions vary in any essential ways with regard interurban distances and accessibility patterns? Is there any meaningful classification of urban spatial structure? The latter may be divided into urban form and urban spatial interaction, where form is reflected by the distribution of densities and the associated infrastructure. Although there is a lack of any systematic research in this field, many observers would agree that cities in North America and in Europe represent two archetypes of urban form. The qualitative differences can be identified with regard to both spatial structure and spatial interaction. And these differences can be found for the core and CBD of the cities as well as for the nature of urban sprawl (DiPasquale and Wheaton, 1996; Johansson, 1986).

Although the outward expansion of the boundaries of metropolitan and medium-sized regions is a phenomenon on both sides of the Atlantic Ocean, urban sprawl is much more pronounced in America or Australia than in Europe or parts of Asia. This may, of course, reflect that America and Australia have a much shorter urban history than Europe. However, if we change the perspective slightly and discuss polycentric cities, Europe may not be so different from the US. Recently the notion of edge cities has been introduced to describe urban centers in ‘outer rings’ of a metropolitan region (Garreau, 1991). This phenomenon suggests that the distance inside an urban region plays a role that is partly at odds with the monocentric model of new urban economics. Mobility is higher and distributed in more dispersed patterns (Darovny and Anderson, 1998).

The internal market potential may be thought of as a region’s purchasing power. In a very simplified way this refers to the size of the demand in the region. The latter could also be represented by the gross regional product (GRP). However, one may also conceive that the market potential in addition should reflect GRP per inhabitant. In an urban system with roughly the same income level, the population size of each urban region would function as a reasonable proxy for the internal market potential with regard to household commodities. If we instead consider the demand for intermediary deliveries to producing firms, it becomes relevant to consider the demand pattern for each industry and its size in each region.

Why and how is the size of the internal market potential important? For one thing, the firms inside the region has greater accessibility to customers in the region and in a large region this can provide them with a large ‘home market’ that facilitates the exploitation of internal and external scale economies. This is an important feature in particular for sales of distance-sensitive products such as many services to households as well as firms. A large market potential would with the same type of argument stimulate a more diversified supply pattern in a region (Henderson, 1986; Andersson, 1985). At this stage we may remark that the features of a region vary also for regions of similar size as observed in Bolton (1992), where notions of ‘place’ and social capital are employed.

Knowledge interaction and knowledge creation processes are related to density and size phenomena. In the past thirty years the share of knowledge-handling workers have increased at a fast rate all over the OECD countries. And this has not been an a-spatial process. On the contrary, R&D and cultural activities have continued to be concentrated in a selective way on particular urban regions, even if there is an overall increase in the total economy (Andersson et al., 1993). Knowledge-creation activities are indeed dependent on factors such as density and accessibility. In this context we may observe that accessibility in an urban region requires both density and a matching infrastructure. Without a proper infrastructure, density results in congestion and friction and this reduces accessibility.

A Region’s External Markets

In a superficial discussion one would definitely argue that globalization of markets is an issue that refers to a region’s external markets. When the importance of distance is reduced and transaction costs diminish, then firms and individuals in a region get improved accessibility to the internal markets of other regions. This is a crucial phenomenon to investigate and it is focused on the very core of the concept global - and globalization for that matter.

It is evident that when two different regions have equally large internal markets, then the one with the best accessibility to other markets will have the largest total accessibility to potential customers. Short distance to external markets is of course not completely independent of geographical distance. However, accessibility to customers and suppliers is today strongly associated with networks for air transport and all the new technologies for communication, such as mobile phones and computers, computer networks and other merging forms for mediated contacts.

Given these observations one may contemplate the nature of the heartland of the globalization processes, i.e., the financial markets. It may seem as a paradox that for these markets one can observe both a gradual establishment of extended (transnational) networks, while at the same time stock exchange activities and other financial operations are becoming concentrated to a small set of geographical places. Both these trends seem to develop in an accelerated way.

The contributions in the book have implications for the questions raised above. In particular, there is one important distinction to make. We should observe that different markets and submarkets will have products that differ considerably with respect to their distance sensitivity. In some markets the production, purchasing of inputs or selling of outputs require frequent interface meetings between transactors and such products will generically be distance sensitive. In other markets only a limited amount of contacts is necessary and deliveries may be executed with low movement costs. From this one can conclude that the character of future products will influence the relative importance of internal and external markets. There is also a dual statement. The relative size of distance costs inside a region compared to the distance costs for interregional deliveries will influence which types of products that we should expect in the future.

Networks and Regional Interdependencies

What does it mean to identify a system of urban regions? One may point at two things. First, when focusing on an urban system it becomes relevant to investigate under which conditions such a system can be in equilibrium. Second, dynamic analysis of an urban system is something different from a partial dynamic analysis of individual functional regions.

The contributions in this book imply that one has to distinguish between medium-term and long-term equilibrium of an urban system. With a temporal distinction, a short-term equilibrium is characterized by prices that make demand and supply equal, for a given location of demand potentials and supply sources. In a medium-term perspective, short-term equilibrium is embedded in equilibrium conditions that concerns the location of supply and demand, given the existing properties of the built environment. The latter includes transport and communication networks, production facilities and housing infrastructure. These patterns cha...

Table of contents

• Cover
• Half Title
• Dedication
• Title Page
• Copyright Page
• Table of Contents
• List of Figures
• List of Tables
• Listo of Contributors
• Preface
• 1 Introduction: Interdependencies of Spatial Development
• 2 Disappearing Distance in City Systems
• 3 Spatial Equilibrium with Cities and Rural Areas
• 4 Hierarchical Fields of Influence of Spatial Exchange
• 5 Estimating Sources of Regional Manufacturing Productivity using Shift-Share Extensions
• 6 ‘Place’ as ‘Network’: Applications of Network Theory to Local Communities
• 7 The Spatial Structure of the City: A North American Perspective on Trends, Prospects and Research Directions
• 8 Behavioral Adaptations to Traffic Congestion
• 9 A Simultaneous Model of Long-Term Regional Job and Population Changes
• 10 Economic Development and Health Patterns
• 11 Growth and Development Policy under Economic Globalization
• 12 On the Processes Generating Impacts from Transportation Improvements: The Impacts of Air Transportation on Recreation Tourism
• 13 Transportation and Energy Policy: Retrospect and Prospect
• 14 Plan Evaluation Methodologies: Some Aspects of Decision Requirements and Analytical Response
• Index