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Importance of Geographic Space and Location
geographic space and a matching economic space are usually the main focus of regional
development programs. In general, it has not seemed rational for governments to take interest in
investigating economic spaces of other regional agents, such as firms. The economic spaces
particularly of larger players are usually beyond the local public control or even influence. As a
consequence public agencies have seldom tried to assess potential impacts of firms’ overall
economic relations on their regions. Unfortunately, such prevailing approaches have revealed
serious limitations in regional development initiatives. At the same time, business firms are by
their very nature forced to pay a lot more attention to their economic spaces, as they have to
constantly evaluate their economic relationships, which include main competitors, suppliers and
consumers. In theory firms also are free to expand their economic spaces and move within or
between geographic spaces, which may tend to explain their relatively low priority and often less
attachment given to any particular physical location.
Some ‘global’ experts would like to proclaim that geographic space is slowly becoming
irrelevant, at least for businesses, because of a significant progress in transportation. However,
this could not be further from the truth. As competition between firms, entire countries and
regions intensifies, the inclusion of geographic space into all economic and business equations
and plans becomes vital. Porter admits that: “paradoxically, the enduring competitive advantages
in a global economy lie increasingly in local things – knowledge, relationships, and motivation
that distant rivals cannot match” (Porter, 1998a, p. 77). There is strong evidence showing that the
age of Internet has actually increased, and not decreased, the importance of geographic space
(Currah, 2007; Zook, 2005).
‘NEW ECONOMIC GEOGRAPHY’
The main focus of economic geography has always been the location of economic activities and
regional economic development, while most traditional economists and business experts have
paid almost no attention to the role of location in business growth and even the general study of
where economic activities take place in geographic space and why. The emergence of the ‘new
economic geography’ (NEG) in 1990s, thanks to works of Krugman, Fujita, Porter and many
others, has changed many perceptions and opened the field of spatial economic research to
previous infidels. However, it is a rather challenging task to try to define the ‘new economic
geography’ as very different from the traditional economic geography. For more seasoned
regional experts, NEG is simply an extension and a continuation of many previous years of
research and empirical findings, as it builds on the significant progress made prior to 1990s in
better understanding of the role of space in economic development.
In a Krugman-Fujita framework “the defining issue of the new economic geography is how to
explain the formation of a large variety of economic agglomeration (or concentration) in
geographical space” (Fujita, 2007b, p. 4; Fujita and Krugman, 2004, p.140; Krugman, 2000;
Clark et al, 2000). Both authors claim that the main purpose of the new field is to design a
modeling approach, and more specifically a general equilibrium model of the spatial economy.
Krugman, Fujita and Venables suggest a theme of ‘Dixit-Stiglitz, icebergs, evolution and the
computer’ for the study of main issues within the ‘new economic geography’. The ‘Dixit-
Stiglitz’ part refers to the reliance on the analytical models of monopolistic competition, the
‘icebergs’ are based on Paul Samuelson’s simplified treatment of transportation costs, the
‘evolution’ suggests adding new models with multiple equilibria, and finally ‘the computer’
represents high-technology numerical examples and models. They further present three types of
models: regional, urban and international, but admit that the main focus in each one of those is on
explaining the location of economic activities (Fujita, Krugman & Venables, 1999). According to
Fujita the ‘new economic geography’ is concerned mostly with researching and understanding
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