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Walecki
the impact of industry clusters are nowhere to be found in this important book. As a result
concepts such as firm and industry location, agglomeration and localization economies, and even
clusters are little known to many business and economics graduates.
However, in recent years there have been some encouraging signs that may change the way
academia, as well as private and public organizations, look at business and economic growth.
New powerful voices, including prominent economists such as Paul Krugman and Michael
Porter, have been raised since 1990s to highlight the importance of geography in economic
development. Krugman initially started warning us that even international trade theory could not
be complete without including economic geography (Krugman, 1991b). His more recent work
together with Fujita has focused on re-defining the role of geographic space through the ‘new
economic geography’ (Fujita & Krugman, 2004). At the same time, Michael Porter in his quest
for causes of increased competitiveness has also discovered the importance of geography, firm
location, and especially clusters to business and economic development, whether at the regional
or national levels (Porter, 1998a & 2000b). Today, there are many more professionals and
academics supporting an unprecedented increase in the study of the role of geographic space in
business growth and economic expansion.
ECONOMIC VERSUS GEOGRAPHIC SPACE
For the purpose of this paper geographic space is defined as the actual physical space in which all
economic activities take place and the allocation of resources is decided by the main economic
players, i.e. individuals/ households, firms and governments. The full understanding of the role
of a given geographic space, such as a region, cannot be limited to traditional factors based on
transportation costs, or a mere accounting of natural resources, current factor endowments, and
even an existing infrastructure and externalities. It must be supported by a full assessment of the
role of physical environment and should consider potential factor shifts and future trends that will
impact the region, including changes in its comparative and competitive advantages. On the other
hand, economic space is determined by factors related to business environments and economic
relations and exchanges that take place between economic agents. The size of economic space of
a firm is not fixed and continues to change as businesses grow and decline. Following business
expansion within its economic space, its geographic space may also expand, but it could also stay
the same or even contract. One of the currently available technical tools that allows better
bridging of economic and geographic spaces is the Geographic Information Systems (GIS).
Most economists have traditionally devoted their main attention to the study of relationships
within economic spaces, often defined along the sectoral or industrial boundaries, while the
treatment of geographic space has been largely absent from their considerations. In the past only
a very limited number of economic studies took on spatial dimensions more seriously. At present
new theoreticians in addition to Krugman and Porter are slowly changing old perceptions.
McCann insists that economics must consider geographical and sectoral factors if the field is to
explain industrial location (McCann, 2002). Behrens and Thiesse emphasize that any analysis of
regional issues must recognize differences between spatial units and it requires the minimum of
two regions (Behrens and Thiesse, 2007).
Geographic and economic spaces have different meanings to governments and businesses. While
firms have a lot more freedom in terms of their spatial behavior, most governments face serious
spatial limitations as they are restricted by their limited geographic and economic spaces. Those
geographic spaces are usually constant with very few exceptions, mostly available to regional and
local governments, such as expanding into previously unincorporated areas, acquiring additional
land that could be developed, or discovering new natural resources. In most cases, a limited
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