I am reading The Spatial Economy by Fujita, Krugman, and Venables, and they point out that a country's population growth can result in a city becoming depopulated. That seems counterintuitive, but it actually makes sense if you understand what is going on.
In a low population country, it makes sense for manufacturing to be in a single city. Make everything there and ship it out to the rest of the country. But as the population increases and becomes denser, it makes sense to distribute your companies around the country, since shipping costs are thus made cheaper.
Consider Detroit. It made sense to make all the cars in Detroit because of increasing returns and because it was close to the rust belt, where iron and steel was being made. However, as the population increased, it made more and more sense to build factories elsewhere. This, in combination with competition from foreign car makers (who eventually began making their cars in the U.S. as well), redistributed auto manufacturing from Detroit through the rest of the country (and world). Thus, Detroit became depopulated as the main jobs disappeared.
In other words, simple population increase can explain the depopulation of Detroit. You cannot hold the economy still. And many things contribute to patterns of manufacturing.
4 comments:
The argument makes sense but I wonder if they control for the possibility that the unions raised costs to a greater extent in Detroit.
Also I wonder about the influence of new technology ie automation. If you have to build a new plant that might provide a good opportunity to consider relocating.
These were my reflections, not their conclusions. Of course, one must also take into consideration things like unions and automation, etc. But nobody thinks of population increase as a factor.
I argue that population growth spurs the division of labor and economies of scale; so, I am opposed to the claims of the Krug. Manufacturing industries chase cheap labor markets, and accidentally raise regional wages in the process by industrializing the poor exploited subsistence farmers: we chased industrial jobs to Japan, Japan chased them to Korea, Korea chased them to China and India, China is chasing them to Vietnam, and Vietnam is going to chase them to the Pacific Islands.
One has to distinguish between the nonsense Krugman has been saying of late in he NYT and what he says in his actual scholarly works. His point is that economic growth can result in the emergence of new patterns of economic distribution that can redirect growth to other locations. There is no argument about division of labor and economies of scale -- those are part of his argument, in fact. The economies of scale can arise in other locations as they grow in size, making those places more attractive to businesses that once had to stay in the few cities then available. More large cities means more options of where to build, thus taking advantage of economies of scale without having to so much in transportation costs.
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