ECONOMY

748 economic geography
outcome—there would be oversupply of manufactures. Given the presence of agglomeration
forces, what happens is that if one region gets just slightly ahead (perhaps
by random chance) then cumulative causation forces take over. This region attracts
manufacturing at the expense of the others, and is the only one of the New World
regions to industrialize. The region also becomes more attractive for migrants, so
attains larger population and economic size. The world supply of manufactures is
then met by two clusters (Europe and northeast America) with the rest of the world
specialized in agriculture, as in the example of the preceding sub-section. Comparing
Argentina and the USA, North, Summerhill, and Weingast (2000) comment that “no
deus ex machina translates endowments into ...outcomes;” in this simple story one
does, and it plays dice.
Of course, this picture is oversimplified. Competing regions are not identical
ex ante; market size, location, endowments, and institutions are all important
in determining the success of the modern sector. However, the insight from
the theory is that even if differences in initial conditions are small, they may
translate into large differences in outcomes. A small advantage can give a location
the advantage of being the next to start industrializing. The industrialization
processisthenrapid—a“take-off” as increasing returns and cumulative causation
cut in. Furthermore, the industrialization of one New World region depresses
the prospects for others, due simply to the overall supply of manufactures in the
world economy. These other regions may experience failed industrialization, or industrialization
that serves only the domestic market and remains internationally
uncompetitive.
4.3 The Spread of Industry: Globalization and Integration
We outline one further application of this line of reasoning, extending the arguments
developedabove.Asglobalizationreducestradecostsitbreaksdownsome(although
not all) of the clustering mechanisms outlined in Section 3, thereby facilitating movement
of industry to low wage regions. What form does this “spread of industry” take?
More or less steady convergence, with most countries catching up at a steady rate,
or alternatively rapid growth of some countries, while others stagnate? Comparison
of east Asian performance with much of the rest of the developing world seems to
support the former view, as does the empirical work of Quah (1997) pointingtothe
development of “twinpeaks” in the world income distribution—an emptying of the
low–middle range of the income distribution, as some countries grow fast and others
are left in a low-income group.
The economic geography approach to this should now be apparent, and was
formalized by Puga and Venables (1999).Lettheworldbedividedbetweencountries
that have manufacturing activity and those that do not. Some growth process
is going on in the world economy—e.g. technical progress—which is raising demand
for manufactures. This demand growth raises wages in the economies with
manufacturing until at some point it is profitable for a firm to relocate; the cost