Paul Krugman _ Development, belt and CU lay” Sixth printing, 2002 First MIT Press paperback edition, 1997 © 1995 Massachusetts Institute of Technology be reproduced in any form All rights reserved. No part of this book may record- by any electronic or mechanical means (including photocopying, recor ing, or information storage and retrieval) without permission in writing from the publisher. This book was set in Palatino by Compset and was printed and bound in the United States of America. Library of Congress Cataloging-in-Publication Data Krugman, Paul R. Development, geography, and economic theory / Paul Krugman. Pp. cm.— (The Ohllin lectures ; 6) Includes bibliographical references (p.) and index. ISBN 0-262-11203-5 (HB), 0-262-61135-X (PB) 1. Development economics—History. 2, Economi —History. I. Title. IL. Series, Cue Sey HD75.K79. 1995 338,9—de20 ee IPContents Preface — vii 1 The Fall and Rise of Development Economics 1 2 Geography Lost and Found 31 3 Models and Metaphors 67 Appendix 89 Notes 109 References 111 Index 113Geograph; L 2 and Founa ost Anyone who owns an atlas has noticed i the Brazilian bulge of South America eta vs aha exactly into the facing indentation on the coast of Africa. re least a few people have long been aware that if you make cutouts of the outlines of the continents and treat the as- semblage as a kind of jigsaw puzzle, the pieces fit together passably well into a single giant land mass—and the fit is considerably improved if you include the continental shelves as well as the dry land. But until the middle of the 1960s this observation was pretty much ignored by geolo- gists. A heretic like Alfred Wegener might claim that the fit was too good to be coincidence, that it demonstrated that continents were somehow drifting pieces of a primordial supercontinent. But mainstream geology could conceive of no mechanism for such drift, and thus ignored his ideas. So how did mainstream geology account for the shapes of the continents? Indeed, how did it account for the exis- tence of the continents, or for that matter of all of the as- pects of the earth’s surface that we now believe to be the result of plate tectonics—such as fault lines, rings of volca- noes, and for that matter mountain ranges? The answer, byf Chapter 5 Pler2 instream geology SIMPIY PU those guested ‘by something that something was labeled “earth, ser bly drvensomehow bythe plane ine ane, se, ats focused on what they did ndentand which meant that ear mountains down—crsion, par te tpn te ht ul in onl tatchanged withthe discovery of fog, spoig nthe 196 Soden there was 2 mechani spreading ait-and a soon stat mechanism mad {oncom nllectually respectable, a whole new st of the cone a relevant. Does Brazil seem 10 fit neatly ino sac pn of Bein? Do the Alps look like land buckle by aa ety peninsula that has smashed into the European a andor the Himalayas ike the result of India doing Tait to Asi? All ofthese previously useless observa tess auddenly made sense and became obvious confirma- tions af the new view. “Thre are clearly parallels betwen the story of how go- logis ignored the shapes of continents and the locations St mountain anges andthe story of how European map- shakers threw out the informal knowledge ther predeces- fore had about Africa's interior. In some ways, however, the story is even sarker. For one thing, the importance of the ability to model stands out even more clearly in this case continental drift was an unacceptable, indeed almost incomprehensible, hypothesis because geologists could not think of how to model such a process. And the re sponse ofthe geological profesion was a remarkable, a though typical one virtually to ignore, even to deny the cestence of, questions that it was not prepared to answer. —_ + Geogeaphy Lost and Found . In the previous lecture I described the history of thought in development economics as being like the history of Eu- ropean mapping of Africa the rich f unreliable insights of the early explorers, the development theorists of the 19405, ‘and 1950s, were eventually ruled inadmissible as evidence pecause those insights could not be clearly modeled. Stl, sobody forgot thatthe continent had an interior; develop- ment economics as a subject remained an acknowledged frea of importance, even if much of its distinetive content got lost. “The history of economic geography—of the study ofthe tocation of economic activity—is more lke the story of geo- logical thought about the shapes and location of continents, and mountain ranges. The location of production is an ‘obvious feature of the economic world. Indeed, 1 began to get interested in economics as a schoolchild by looking at those old-fashioned maps of countries that used pic- turesque symbols to represent economic activity: sheaves of wheat to represent agriculture, litle miners’ carts to represent resource extraction, litle factories to represent industry, and so on. And yet there is almost no spatial analysis in mainstream economics. It is almost forty years since Walter Isard attacked economic analysis for taking. place in a “wonderland of no spatial dimensions,” yet his plea for spatial economics has gone virtually unanswered, Consider, for example, the latest entrant in the field of ‘economic principles textbooks: joseph Stiglta’s Economics It’s a widely acclaimed book, faulted if at all for its exces- sive comprehensiveness, which accounts for its 1,100-plus, page length. Yet the index contains no reference to the ‘words “location” or “spatial economics,” and has precisely ‘one reference to “cities”—which occurs in the course of &a Chapter2 : ralurban migration in les acai of a-urban Migr les8 developeg hy this mele? Mark Blau, in his magisterial surg ohne omic thought, describes the neglect of spatial ap eee major puzzle,” which inthe end he explains by hie, ‘etal happenstance: because von Thiinen was German tna arr nat ald to get coubenee pe aecntually dominant Anglo-Saxon school. But this is Urs easy am answer On one Sei fil to appreciate tne ‘Peitony of late twenteth-century economic research; jn teow T inhabit, populated by hundreds if not thou. Bras of technically able researchers desperate for interest ip qestions fo study any obviously available intellectual ‘eestoy will avays be exploited. Even though there is rely an excesive bias toward cultivating the internal trargin finding new theoretical wrinkles on familiar topics Grusing heavy econometzic arly to tease a bit more out Stwellstdied data its highly implausible that a huge Extensive margin ike the economics of location would be eplected simply because i failed to get into the currica- Tuma century 2g0. Moreover, although Ricardo and Mill may have ne- the economics of space, there has been no lack of {hfluenal later efforts to persuade the profession to put lo- cation on the intellectual map. In particulas, Walter Isard made a powerful effort to get his fellow economists to take {space seriously, an effort that among other things involved digesting the German tradition in location and making it accessibe bot in language and in style to the world of English-speaking economists, And in the late 1960s and early 1970s there was a significant boomle inthe “new ut ban economics,” a subject whose models derived directly from von Thinen’s lated State Geography Lost and Found s soviy dpe ee tonina Hd sti ease eis ed rte twas something abou spatial economics that mae tine ce ky exe rte tata Se aietowiacs rr icing wen you att go oekcratintane street Betas oan ooo Be aces mia hae Crile eaauareenruneted Soe eetiaepntens radon bt oy culo mdcsandng devo a ado manngha ening soe er an abet ine ged eon ioe Se carne oman df anak tea Ses aie. gan comnts re oe eto ota ie tenga) Sa end clgelnictime ted by many fae ee mls oar nell shana ne pan Tepe a tne opal oe) Se choral i a he spa a ee a et sod foal Po ad ou won conan etunofconamo hy are eect al cul ss in hh oF ata aa selves are highly specialized? (This paragraph was wisn ete a disheartening look at real stele pices in Tap citar dt in Ve) THe at ct Tet that there are no ze to theChaper2 rutcome, since this would be ay market 0 (and al te att word) would bef have po arto fay spread evenly acrOss the praise Pa Sn 99, Stration cosh ie pain 0 tat no eee nomies we would Not even see of any fe would see one of sef-suffcien, tee a emg ony ost woud eget Seplain more than 2 fraction ofthe ob. i yee vexac sage resource that explains why TE milion sete ro ges 7 allo Se Peay nd indeed even the distribution of agricultural production is dictated a8 much by access to urban markets Prd naering quality ofthe sola omy made by ser rine atthe very beginning of locate theory. mir ede to tak even halfvay sensibly about exo “ia to ne terme ee a ate get tried on the subject one must get into the issues thal, Fe mp ae “aad so how did the mainstream cope with spatial is- Ta hon ee peep of location confronts us continually in daily life, or for that i ne A pee bere i cause they new they had no model of mountain forma: Tee nz Gzogeaphy Lesa Found a economies because they knew they had no way to model that spect. a ermay seem like a strong statement to make in isl sion go Tet me nov turn oa brief survey of what seem to ‘benefit of hindsight, to have been the most siprtant tations in spatial economics before sy, 1980 zpe that by the end ofthis discussion Twill have pet eded you that my diagnosis ibasically right sme, with the ive Traditions in Economic Geography ‘these lectures are a meditation on economic theory, nota FFholarly history of thought, Asa consequence 1 ake the erty of being both casual and dictatorial about my attr ations. Iwill not worry too much about who exactly had Footy in some idea; thas while Mark Bug in is Ec Pre Theory in Retrospect, els us that Launhardt not oly moss the real author of much that we atribute to von The war put also anticipated much of Weber, I will refer to the "brand names” {Weber and von Thiinen, since those are Under which certain ideas have come to be known. I will Meo give short shrift toa vost erature, partly Because 7 fim not anywhere near as well read in it s I would like to be, partly because I want to make a point rather than sur- veya field. In other wor ‘same thing I did for develo} cls, I want to do for spatial economics the spment economicsin the Last le ture: use a biased set of references to argue that there was a set of core ideas that make considerable sense in light of re ‘onomie analysis, but that were unacceptable to cent ect ecause they could not at that time ‘mainstream economics ‘be modeled,P = Chapters ‘The tasks, however, a bit harder this time, because the tradition in spatial economics is both longer and more dit fuse than that in development. Infact, my personal classi, cation system identifies not one but five traditions in the field, Of these five, I willargue that four are really differen, sways of looking at the same thing—although their propo. rents did not se it that way, and indeed tended t0 view them as rival altematives. The fifth, the tradition of land rent/land use analysis going back to von Thiinen hime, isthe orphan, largely divorced conceptually from the other approaches. Not coincidental it is also the tradition that hasbeen most readily embraced by mainstream economy So let me begin my survey, with the first and, to my rind, least appealing ofthese traditions, Germanic Geometry When one mentions “locaton theory” to most economists, they think if they think of anything) of the tradition that flourish in Germany in the fist half ofthis century at dition concerned with a distinctive problem: the geometey oflocation ona twordimensional landscape. Tei usual to divide this tradition into two subsets First ‘came Alired Weber and his followers, who analyzed the lo- «ation devision ofa firm serving ane or more markets and ‘eying on one oF mone sources of supply, with the total ‘numberof such relevant points nat ess than three. (Other- ‘ise the firm would always choose to locate on top of site the put source or themarkt) Ten came the ta ton of eentraplace theory, which analyzed the locaton. seca oy mas ee OE ing a hypothetical evenly sproad agricultural Ithistradition, Lich had the big geometric i —SE——E——- Geography Lost and Found s market areas should be hexagonal—while Christallerpro- ‘duced the empirically fruitful idea that there should be a Inierarchy of central places, with nested market areas. ‘Both Weberlan location theory and central-place theory have been subjected to many critiques over the yeats, any of them focusing on the unrealism of the assump- tions about the distribution of demand, the lationship be- tween transport costs and distance, and so on. Idon't think that charges of unrealism are tothe point: when you are working in a very new area, itis entirely forgivable to make outrageous simplifications in pursuit of insights, with the faith thatthe model can be brought closer t the facts on Tater passes. (Ths is a self-serving remark, and also a preview of the third lecture) And in any case this kind of erticism was surely not the reason ywhy the Germanic tradition failed to make it into mainstream ‘economics—ater all, one could hardly accuse J. R. Hicks, ‘ Avhose Value and Capital was oughly contemporary with the development of eenteal-place theory, of bust realism. ‘Rather, the problem with the German tration must surely have boon that it seemed to be about geometry, not bout economies as the inewasingly dominant Anglo ‘Saxon mainstream vinderstood it That i it was neither a story about how sensible actors shoul! make decisions nor ‘story about how the decisions of these actors might inter fact to produce a particular outcome, The tation was, in Fat, exasperatingly blurry about who was making what decisions, and almost completely sient on the question of how decisions of individuals might atfect one another. Consider, for example, the famous problem of locating {factory 50as to minimize transportation costs from several suppliers and to several markets Who is doing the min - nizing? Is this factory owned by a private frm? Iso, how. Crepes st pie? Does it face competitors, and itso wy co iat tet the acon? ge SamPlony must tere be only One Production giyg°*¥ Fee Conomies of scale so large that this is optimay test does that in turn say about market structure? oy" {Rhy psume that the problem of anspor cost mune tion i embedded in some larger context—that there implicit story about pricing (which among other tine will determine demand), competition, and market sunt Ture, one piece of which is the problem of mininjst transport costs given the decision to ship particular quan tiesto particular markets. This problem is interesting, bey itstops sofa short of what we usually want to do in ecat rome models, being neither a full analysis of maxima fon nor even partial equilibrium analysis, that it i deeply unsatistyng Cntzaplace theory is in many ways more satistying piece of intellectual apparatus. It does tell a story abet how individual agents interact—namely, that the trace of between economies of sale and transportation costs lends producers to cluster together nto a hierarchy of cies sens ng nese, hexagonal market areas. But on closer inspec. fon it becomes unclear exactly what is supposed te be £05 on. Who is making the location decisions? Lisch Sams hve propos heagors as an opin ome. Chistaller was clearly tall. Ingsbout mate outcomes, but without any clear deseip- market Iplace theory. thus raphy Lest and Found ee ny a so ee ce ee sponte Rest tgh tim pe man lenan-speaking theorists. After the proselytizing sem deed fe ae ees Te ee aes odio ere ee eae Cn eee mee oe mie een hte i sa epaiaa mae pe eee ere ee epee eT et ee erane aa ean Gasieapeeoen eer aeons eee ce ire eae be erence oe ee ee re Se cae rae Cs enrermernprened Se Ee eee reeset samen ee aeons macs re ray eran earsSocial Physics imagery of Germanic geometry is that of eight aupaners the problem of location westenth sented diy, as a mater of balancing several qa Fores of tration. Weber’s location problem can achat be solved by building a system of weights and pulleys the nineteenth century, however, it became inceasat coma for physicist represent thee problems nor recy asthe interacting influence of several diferent re chanical elements on each other, but indirectly, ag ye solution to some maximum or minimum problem. "e turned out that many physical systems could be thoughe ot a minimizing a quantity called “action,” @ formulation that geal simplified analysis. tals tured out that dy namics could often be usefully represented asa movermeny ofapoint representing the system to locations of miniment potential on an imaginary surface. It was inevitable thy the imagery ofthese physical concepts would eventaly be reflected in thinking about economic geography. Ae i tuned out, the school that developed along these line ‘emerged in the United Stats after World War I The ides of doing geography by analogy with physics ‘was nota foolish one. Those of us who are deeply indocti. ‘nated in the tradition of neoclassical economic analysis tay be tempted to soft—why not ryt build up hes ‘fom economic foundations? But neoclassical 2 we've already seen, conspicuously unhelp point inthe development of spatial analysis, so hardly be blamed for trying something different, Also, American geographers who began to data on cities quickly noticed that there were Pirical regularities in that data, ofthe kind t Scientists ar accustomed to seeing but that ae ra ography Vos and Found 7 1c Ate cae “a o£ NoR where N i the population of city j its rank (so that for the United States, New Yorkis 1, Ls Angeles2 Chicago’, land soon), and bi an exponent close tol. In had scence fone is always finding relations like this, which then serve a challenge for theorists. In socal scence they ane rare But just look atte igure 2.1 By the way, f you think that Iam going to wrap up this lecture by showing how modern theory an explain Zips 115 2 25 3 38 ¢ ag ot yank. Che law, you're going to be disappointed. I think 1 the ghostly beginnings of an explanation, but at we have to say that the rank-sze rule isa majorembs ot rent for economic theory: one ofthe strongest sane relationships we know, lacking any clear basis in theo Another physiclike relationship is the “gravity lay, lating interactions between cities—travel, shipments, ro to the populations and the distance between them, Tag “law takes the form NN, T= a ‘where Tis the volume of transactions between th cities, D isthe distance between them, and 65 again an exponent — possibly close to one, although there is more dispute inthis case. The gravity law doesn’t work quite as astonishingly asthe ranksize rule, but i's stil a pretty good fit and like the rank-size rule it has proved extremely useful asa way to look at data, both in spatial economics and in interna- tional trade But how can the observation that spatial economics ex- hibits physics-like relationships, and the desire of geogra- Dhers to be more lke real scientists, give rise to anything that looks like a causal as opposed to descriptive theory? Well inthe 19505 American geographers came up with the ‘dea that firms tend, other things equal, to choose locations of maximum “market potential,” where the market poten- tial ofa site was defined as some index of its access tomar- ets, involving both the purchasing power of all the ‘markets to which it might sell and the distance to those ‘markets. Atypical index of market potential fr location i right be Bay have this ° xy Lostand Found 7 ¥, py if loaner purchuning pow prtce vt he tltnship fo the gray model ovina tt om tet srvaoveal jusieton, 9 et But fp believe that some index along these lines ought to et pp in understanding whe fm ens be at eel in fact the east firms yore a ao marks eine somehow oe Qos BF gui out ‘at mast! pot din ndind HN the coast ines ot ect pte So Prete, ve glia tol power‘ ets Herne seam Fares te United States (Westen Europe) and Se ef parclr ates vin uan neue fr the 1950s Harris [1954] and others drew striking maps of tee potential surfaces forthe United States, wiih pear Pear comelaion between high uth potent sr concentration of Industry inthe manulrerng | pelt. More recently, market potential studies for the Euro- Pa omission have led to snl map hat sow 2 ean cationship between “centrality” and per capita in «eet and unlike the righ structure of Webern lction © theory the market potential approach lends itself readily to p= "application. : Foo here isa puzzle: the “social physics” approach to “ua economics offers plausible stories, some striking em _pirial regularities and a usefl bass for empirical work. It He erRe ce tetas eesme oe iin “odels, as TI describe Inter. So why isnt this approach _part ofthe economists standard tolbox?hapterg You know the answer. But let me point out the 5 probes completly unclear whats being mest when firm chooses point of maximum market poi Indeed, if you think abou it at all you realize that he whole iea of computing market potential inthe way thane have described must implicitly involve some strong bln, about markt structure. Firms cannot exhibit conten tums to scale—otherwise one would simply establish lity to serve every marke, and thee would beno reas, ‘o.computea single market potential surface forthe whos of the United States or the European Union. Nor ean tn be producing goods that are perfect substitutes; ‘Would be sharply defined market areas after the mary isch, not smooth potential surfaces with no edges the market potential approach seems to have an implicit ‘monopolistic competition story lurking underneath but that sori ete impli, and had to beso, since mo. ‘nopolistic competition was not somet le kn ow to mode! rng the heyday ote mae non approach. there ner of Thus Cumulative Causation plication of the market po- ty of circularity. Firms want to locate where market potential i large markets. But markets will tend Geography Lostand Found 7 ta such she US. match woud ad er satnoge fe smote wea ee sae Wether the peebiiy ot multe gas 2 preted it los ce ean pin wat he poner modeng ee by ewey O96, Lonty predated sma We vital send of ines cb! name Sand we within cy atouginwlcreay ee Gon deccens wet edlgeony, sl in wh tape fosters imple mali aga at Sofa! ras na asd on titng Shei hove been, ven the sto te nln state einen, he inject sf plow ad hss Iocnion deco by fhe in prea, er bed Sargon tt pea Twas o septa emalableand poner on. od ote a got Lowy inet ily traetund what he woe opti pat here "giveaway remark in which he says that itis crucial to solve the equations in the right order—if they are solved in the wrong order, they give different answers! In other ‘words, he regarded the multiple equilibria in his model ‘sa nuisance, not as an insight into the process of spatial But ifthe geographers who worked with market poten ‘may not have been entirely clear-minded about the ity of irulariy, there were ther eogrpher who very aware of that possibility for avery good reason: ‘were sitting at the fet ofthe ceatrs of high develop theory. der the sory of multp equilibria Ihave jst ld, firms locate where market ar ge, but markets Be where firms locate, Isn't this esenialy he sme48 Chapter 2 ash story ofdevelopment, in which firms ae ales ifthe market is sufficiently large, pe qh market is sufficiently lange ifenough firms adopt mg, em techniques? Of course it is; and so it was natural tp tangy ever concepts from high development theory ing, economic geography. Tndeed, I would argue that the ideas of high develop. sent theory are more plausible in a locational context than they are in their original habitat. The Big Push model in its version relied crucially on the a ity of an elastic supply of labor from a low-wage rural sector yet the wage differentials of the surplus labor story were never really explained, merely asserted. It was possible to surmount this difficulty by invoking very strong link- ages involving intermediate goods, but even sympathetic observers may wonder whether, given the inelasticity of factor supply that is all too likely in many developin, countries, the multiple equlibria of Big Push-type stories are really plausible. In economic geography, however, the supply of factors fo any one region or location will typically be very elastic, be- cause they can come from someplace else. And so while a Big Push forthe economy as a whole may be implausible, ie See particular region may make perfectly caren er trated his concept of “circular an¢ ant eee wh eon ee eur and cumulative causation” taker fis, and Hirschman also liked t0 The expla aoe ional development within a country. pplication of high development concepts to regional growth, h is 7 aes wit ae eran ‘something one usually associ- wee: Geography Lostand Found B pred's story is essentially a variant on the Big Push, gee that a regional economy grows to the critical po Pave it becomes profitable to replace imports of some vmod subject 10 scale economies with local production. gos import substitution will expand regional employ- ne as and in so srs will further expand the local market. This market ex- Sanaion may in tur, provide the market size necessary to pace a second round of import substitution, and so on— intqacade of growth reflecting the circular relationship be- ten market size and the range of industries that a region twee possesses. “The story can, of course, be elaborated. In pa you add forward as well as backward linkages Jeed not be solely due to import substitution, but may in- Volve some export growth as well. But surely the basic idea lar, if growth is very clear. What is not clear, however, is—well, you know. Pred’s discussion is conspicuously silent on the question of mar- ket structure. And as a result what he and his followers call a “model” is hardly something a modern economist would recognize as such: it is merely a set of boxes and arrows, suggesting relationships without being at all clear about how they work. Local External Economies ‘Let me now turn to a tradition that is much closer to main- stream economics, indeed one that is essentially a part of the mainstream if not a very major one: the analysis of local external economies. The idea that clustering of producers in a particular loca tion yields advantages, and that these advantages in turn50 haptees exphin such clisterng an old on. 1 dont fst pointed it ou bt the economist who magento oft was none othe than Alfred Marshall. ndeog, net hoagie ht increasing returns are someting ety donee is strlngossehaw mucho is given in Marshalls Principles to local externa areemphasiaed both forthe ininsicimportanee eh they they expliyhis concept of extemal enn ingoneral. 21 ‘What Marshall meant by an external econom, exactly what later authors meant. In the 15 economists came to make a clear distin nological external economies—pure spi siay exemaltes mediated through the masten“e°s os of constant retusa he level ofthe frm an ee fect competion, pecuniary extealities don't have Partclar importance, so only technological spe, attr, Marshall, however, did not make this distinction He humped together the ability ofa large local market Suppor ffiientscale supplies of intermediate inp the advantages ofa thick labor market, and the info WAS not Ms and 19505 tion between tec lovers—and pec. ether—two pecuniary externalities, one technological In the light of current theory, of course, he TES sht to do so. We now understand that the sharp dis fiction between technological and pecuniary external sconomies holds only in a constant-retuns world; eral market size external economies, ; are just as real as tech- nical spillovers. eet Marshall did not resteicthis discussion to “pure” however, it was certainly possible analysis with such pure extemal 0 doing, to make use ofthe apparatus Geography Vostond Found a | of individual maximization and competitive eqitium that economists were coming fo understand ever bene ‘Thus local external economies never disappeared ase cept from economics. Inded, if you were to tsk a man stream economist at any time betwen, say, 1930 and te last few years why cites exit, or why some industries ne so concentrated in space, he or she would surely answer terms of just such local externalities. One can go further, and mainstream economist did Suppose that we think of postive local extemal economies, ‘hich tend to promote concentration of production as be ing opposed by other effects—congestion or land cost that tend to promote dispersal. Then we are on out way toward a story about both the optimal sizeof cities and, i ‘we are prepared to make some assumptions about the process of city formation, a theory of the actual size and umber of cities. An elegant model along thse lines was laid out by Vernon Henderson in 1974, and Henderson's ‘urban system model has become the basis for alate itera tur, including a considerable amount of useful emprial work. ‘And yet while the idea of extemal economies has always been respectable—indeed recognized as essential by any see economist wh hough about thas ens singly neglected in our economic tradition. If you con- ert insotiporaes futon eteal cons a real-world issue, and then Took atthe actual attention get from economists, is obvious that there isa major smatch, Why? wn gusta whe it as en pore mle Bos of esomentn seodnial come y assuming that they are pure — strategic evasion has been costly in termse 38 spe» pyveaoaownd : ity: To say tha Sg : is the result of localized urbay dition in spatial economics. Mark than a hit Fatal eoHoMies carries 3 ighs any otner ta of his review of spatial econom- at of Moligre’s doctor, who ex, ies oatweigh Aes almost half of hi pat induces sleep thanks to its dormitive — hat opie laws der ryanen and Bis suecesorsand oe does sarcastic physicist remarked erties. Op 0 wr influence of von Thiinen-bases agglomerate because of agglomeration ohare hat rodel nT arm to below. Yor Tainan strated fr (or tarrom many modem economist, fom the pureevterality assumption ea : ee thng eae 3 forte ate amon Sam fd The von TH sel ed ese ieensome important worker and taut iis is in Man) nen mode utiful thing. It illustrates in a surprising con erin teensome important work along those ins Kreme slong those lines Baty rude stutureo camino way treatesgenne jon to more micro-level features of the economy sight) is Bea fext many of the ke the idea of equilibrius; key concepts of neocla the idea that “value” does not in- ten ee hidden essence, but is instead an ettergent market process (would that Marx had sorters Thiinen); the simultaneous determination ‘of and factor prices; the ability of markets to achieve are ent outcomes; and the role of prices, even for nonpro- ae, undeserving” factors like land, in providing the Incentives that promote efficiency “The one thing that the von Thiinen model does not tell you much about, unfortunately, isthe central issue of p2~ tial economies. Or let me be more precise: if you regard it “fs essential that you be able to understand why and how the economy avotds “backyard capitalism,” the von Thi- nen model provides absolutely no help. It simply assumes the thing you want to understand the existence of a central turban market, Indeed, the whole thrust ofthe model is to Ainderstand the forces that spread economic activity any sm that center, the “centrifugal” forces if you will, About "centripetal forces that create centers, that pull eco- mic activity together, ican and does say nothing: Why should a model with such a powerful limitation 80 large in location theory? Why, in patiulae should Land Rent and Land Use consequence of 2 We ial come tthe st st of my five tations: ‘cot nd et an ln we den ely es nen ah Pioneering Isolated State. re aint llamo —itwaph ens Besa inthe principe textbooks: He nvnged ora

A . a ideas. Doe: tasy that in a many-sector model there Merge some ean that meet ee ‘ect of clearly valuable ideas. pee deep justification for the rank-size rule, though teas i moe yes can lead t0 0 ‘Role emphasis on models is wrong to hope for. “ not yt the whol sonomics, to Te- be too much to hope for ‘this mean ta ‘major effort to open uP s mn neceptable dwe yhat cons! The Moral of the Story eo ur standards about w} 5 argument? As you can no doubt tell, I am excited by all of this. But while it was important for me to. 5 Nor ecm mists can often be remarkably obtuse, failing to see Economi ‘ things that are right er i it of ight in front of them. But sometimes a bit that are sptuseness is not entirely a bad thing. al explain atleast briefly th Kind of formalization that, to me at least, makes sense of al these spatial economic traditions, tures is not to emph: 's Were essentially exiled frg ‘heory, if they were ever allowed in in theModels and Metaphors 81 susgest things that you would never think of otherwise. onsider, for example, the case of development theory. The Fall and Rise of Development Theory, Again Let me turn, once again, to the story of high development theory I introduced in the first lecture. By the late 1950s, as Thave argued, high development theory was in a difficult position. Mainstream economics was moving in the direc- tion of increasingly formal and careful modeling. While this trend was clearly overdone in many instances, it was an unstoppable and ultimately an appropriate direction of change. But it was difficult to model high development theory more formally, because of the problem of dealing with market structure. The response of some of the most brilliant high develop- _. ent theorists, above all Albert Hirschman, was simply to opt out of the mainstream. They would build a new devel- ~ opment school on suggestive metaphors, institutional real- ism, interdisciplinary reasoning, and a relaxed attitude toward internal consistency. The result was some wonder- ful writing, some inspiring insights, and (in my view) an intellectual dead end. High development theory simply faded out. A constant-returns, perfect-competition view of reality took over the development literature, and eventu- ally via the World Bank and other institutions much of real-world development policy as well. And yet in the end it turned out that mainstream eco- nomics eventually did find a place for high development theory. Like the Norwegians who discovered that the shapes of clouds do mean something, mainstream econom= ics discovered that as its modeling techniques became moresoph eoead a alse feling of security in one's under sation ves oF sardi8S gels tes us something about what attitude is a with complex issues in economics, Lite ro ee rp eal Big Push may seem chld- Je, ut I can report from observation that until Pied their formalization of Rosenstein Rodan, Funons were not obvious tO many people, even is ca ive specialized in development. Economists those {io ez the Big Push soy as essentially nonsen- tem moder technology is beter, then rational ims Sfould simply adopt it! (They missed the interaction be- Tizen economies of acale and market size) Non-econo Mie tended to think that Big Push stores necessarily Irvolved some rich interdsciplinary stow of effects, miss ing. the simple core. In other words, economists were Jacked in their traditional models, nom-economiss were lost in the fog that results when you have no explicit mod- alsatal 7 How did Murphy etl. break through this wall of confie lon? Not by trying to capture the chines of ely either ‘ith a highly complex model or withthe kindof lovely phors that seem to evade the need fora model. They tinstead by daring oe sly: by representing the word .a dishpan, to get at an essential point. “nthe end, the formalization ofthe Big Push wasso easy one finds oneself wondering whether the long skp development theory was realy necessary. The mode is simple: three pages, two equations, and one diagram. it seems, have been writen a easly in 1955 a5 1 1960, What would have happened to development “economics, even to economics in general, if someone had- Chi legitimized the role of i "s ole of increas; " satic i i? ston wth ane mde thinyfive yea a8 iy Butit didn’t happen, and perhaps 980? Su mists who were attract Tele : s ed to the idea of wee cations were stl absorbed in the aa Power he competition and possbits of aa constant Tetums; those who oo! Perce io The ew lke isch, becsine iet® ii ae seeming silliness of the att with 0 senatihe story may have been a from being a sal one, Good id economics attic for more retreated to the intellectual whether econ: icy i Mather nar aly in the real world would he nal Fra cat high development theory had dee bad soc he Yationship between good ees caeteten Pao ful plcy is far weaker than ale, shes things had played out. different, Preordained do, eas were left to pathos oP ens to gather du a generation; great minds is periphery. It is hy analy. imag. ‘The Exile of Economic Geography thatof development theory For coe honey \eory. For one thing, ae the modeling is gga Metpho® ruable contribution, with this partic jy made a Val gsatlY BP ae geographers did not reject model- ef ogeovel°COP Ton development theorists did. When ng eee Wey could not produce models in which sey found Mat be explained from the interaction of oy essentially sted for what they could ions of the data or organizing princi- pies that grade intuitive sense and/or seemed to fit the Be ily ell witout having the kind of deeply satisfy- fc peo ay te von Tanen move Central-place the- ie Tgankesize Tales, BF2VitY equations, market potential oe nese were certainly modeling efforts, even they did not go all the way t0 maximization and equi the) Admitted, during the 1970s there was something of Hu ode, antiquanitative backlash n economic geog: vaphy, drawing slightly on Marx and more than you might fmragine on Derrida. (The giveaway turns out to be the phrase “post-Fordism’: if you see that, it means that you Pre dealing with a member of the Derrida-influenced regu- Tation school—deconstructionist geography!) But the tradi- tions I described in lecture 2 were hardly those of people who were unwilling to think in terms of models. Go in the case of economic geography one wonders whether mainstream economics deserves to be faulted for fn unnecessarily narrow view of what constitutes useful theory. Suppose that there is a subject of great intrinsic in~ portance—as cities and the location of production surely re. And suppose that there is a body of thinking about that subject that seems to make considerable sense, shed a fois ameunt of empirical light, but that doesn’t seem to be something we are currently able to Wrap UP neatly into fully specified micomotives-and-macrobehavior models, motives,Should we ih dR tg taming Poin can't resist Ofessign 8? Ly the study of ba Petal th ay hay Sony My not top Sa ces. Key Aen ogg Plausible moder ®8i0nal scien” tong sible models withaoe ps2 nat a ok at a typical textbook on location ike sa 708 as Laaton in Spc, of sey ke a tas Rein in Reesor nd Reser oie, bythe way which Thave found very athe find each ofthese way of ooking at ag bepful erated under a separate heading, asin effect Fe as Catal pce toy eed a di peoclassical construct, when itis surely ino 9 th the neoclassical assumption of perfect competi- tet wt nad to imagine occurring exept via a dynamic Market potential appears in a section or chapter Proemand; cumulative causation ina section or chapter on yramice often treated as something having todo with leyncsian economics and export malipliers. And external —Seromies are stuck in yet another pace often in the dis- farsion of Weber and the thee-points problem. So the fmpresson ofa unified, sensible tradition in economic ge- | ography that I may have conveyed is pally a construct, petups even to a greater extent than my rosy backward “Took at high development thedry: now that we have a occ; we impooe a coherence on ideas that may have ben far less coherent at the time. 30 the ad exile of economic geography also has no vil ‘One cannot fault the geographers fr thei fate develop full maximization-and-equibrium models— though one can perhaps complsin about their failure to stand how far short ofthat ideal they were fling tne can understand the reluctance ofthe mainsteam ts to muddy the clanityof that mainstream with somewhat murky modeling efforts ofthe geographers— hough the unwillingness to grant even one page in a Wo fairly senble efforts to make sense of an portant subject seems extreme. And as wth developm—_ i” 88 “he ees jeve that there will be a happy ending. . theory, I ei integrate spatial issues into a "the ae ee models (preferably but not necessary mcg a (pre ‘ SH sense of the insights of the 8e0grapherg iy Ting ee ee the standards of the economists, : Way at mi Concluding Thoughts like to draw some morals from these Stor; ome et and found. It is easy to give facile advige’ os those who are impatient with modeling and Prefer io pa out on their own into the richness that an uninhibite ts of metaphor seems to open up, the advice is to Stop ang think. Are you sure that you really have such deep insight, that you are better off turning your back on the Cumulative discourse among generally intelligent people that is mog. ern economics? But of course you are, And for those, like me, who basically try to understang the world through the metaphors provided by models, the advice is not to let important ideas slip by just because they haven't been formulated your way. Look for the folk wisdom on clouds—ideas that come from People who do not write formal models but may have rich insights. There may be some very interesting things out there. Strangely, though, I can’t think of any. The truth is, I fear, that there’s not much that can be done about the kind of apparent intellectual waste that took place during the fall and rise of development economics or during the long intellectual exile of economic geography. A temporary evolution of ignorance, a period when our in- sistence on looking in certain directions leaves us unable to see what is right under our noses, may be the price of Progress, an inevitable part of what happens when we try to make sense of the world’s complexity.