Economic Geography

Neoclassical Economics and Economic Geography

Until the 1970s, the dominant approach to economic geography was neoclassical economics, emphasizing supply and demand; marginal analyses of costs, revenues, and utility; and a sharp distinction between economics and politics. This tradition dates back to the early 19th century, when Johann Von Thunen formulated the first model of land use in 1826, demonstrating that land values decline with distance from the market and that competing land uses generate a profit-maximizing surface. By 1909, Alfred Weber had developed a highly influential model of transportation costs, emphasizing that firms locate in places that minimize their total transportation costs. This school was concerned with developing theories of corporate organization and change, including the various “factors of location” that firms juggled in deciding where to invest. Neoclassical economics brought to geography a mathematical rigor that raised its level of analytical sophistication. Geographers came to appreciate the complex workings of investment behavior, uncertainty, utility maximization, and the power of the market in rewarding profit-maximizing decisions and punishing irrational behavior. This paradigm led to the widespread use of models, including the following:

• 1.
  Walter Christaller's enormously influential central place theory, a model of city systems that posits them as retail centers (central places) that distribute goods and services to their surrounding hinterlands, was enormously influential. A hierarchy of goods and services leads to a hierarchy of central places, with lower-order ones nested within the hinterlands of higher-order ones.
• 2.
  Gravity models became a way of modeling spatial interaction and predicting (but not explaining) patterns of interurban migration and traffic flows. They are still widely used in studies of commuting, shopping, and traffic planning. Combined with geographic information systems, this approach is widely used in engineering and site location studies.
• 3.
  Spatial diffusion, launched by Torsten Hagerstrand, was concerned with the ways in which innovations (e.g., technologies, information, diseases) moved through time and space. Use of such models introduced probability theory into models of the innovation adoption process and has been helpful to epidemiologists and in marketing.
[Page 119]
• 4.
  Input–output models, invented by economist Wassily Leontief, used matrix algebra to simulate regional and national economies. In revealing the structure of linkages among firms and industries, it has been widely deployed in a variety of impact analyses and yields the multiplier effects of different activities.

Neoclassical economics also gave rise to product cycle conceptions of industrial change that linked changing markets for goods, as they moved from being innovations to mature goods, with associated changes in the production process. The product cycle explained the locational dynamics of firms as they grew from small, labor-intensive, vertically disintegrated entities into large, capital-intensive, vertically integrated ones, a shift that corresponded with the decentralization of firms away from core regions to the periphery. Although the product cycle originally was developed to explain the movement of corporations from the First World to the Third World, it was adapted to understand the decentralization of firms down the urban hierarchy.

...