ECONOMY

740 economic geography
Physical geography has been crucial in shaping human history; modern man crossed
out of Africa when a cold climatic episode 85,000 years ago lowered water levels in
the southern Red Sea, and made it to Europe when a south–north fertile corridor
opened during a warm episode some 50,000 years ago (Oppenheimer 2003). The
spread of domesticated crops and animals depended on geography (Diamond 1998)
and propensity to disease is a function of climate (Sachs 2001). Patterns of settlement
by European emigrants, and the institutions that went with them, were determined
largely by the geographical characteristics of the host regions (Acemoglu, Johnson,
and Robinson 2001).
While these episodes illustrate the fundamental importance of geography, our
narrower definition leads us to focus on two sorts of questions. The first is: given
the location of the main centers of economic activity, how do economic activity
and levels of income depend on proximity—in an appropriate economic sense—to
these centers? The second is: what drives the existence and determines the location
of centers of activity? Standard economic reasoning, with diminishing returns to
activities, suggests that economic activity will tend to spread out uniformly across
space. This is patently not so: the world is characterized by spatial clustering of
population, of prosperity, and of poverty.
Both these types of question can be addressed at very different spatial scales. The
first one can be directed at the determinants of land rents in cities—why do they
fall from the center to the edge? It can also be directed at the world economy; how
great is the cost penalty suffered by a land-locked African economy relative to an
economy in central Europe? So too the second question. The spatial interaction
between economic actors can be used to explain residential ghettos or industrial
districts within cities; to explain the development of systems of cities within countries;
or to explain the emergence and persistence of international income inequalities in
the world economy. Clearly, modeling approaches need to be tailored to each of these
specific contexts, but they all require two building blocks. One is an understanding
of the costs of distance, and the other is a description of the mechanisms that cause
activity to cluster.
The next two sections of the chapter lay out these building blocks. The remainder
of the chapter then draws out their implications; Section 4 looks at patterns of
development in the world economy, and Section 5 turns to urban systems. Section
6 concludes—and endeavours to answer the question: why is all this important for
students of political economy?
2 Costs of Distance
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The fundamental premiss is that geographical distance is a barrier to economic
interaction. Most of our interactions are local, this applying to our workplace, our
consumption of goods and services, and our sources of information and ideas. Costs