Effects of Globalisation on City Regions

Essay 2005 10 Pages

Economics - International Economic Relations


1. Introduction

The debate about the effects of globalisation on cities is controversial. On the one hand, scientists and journalists predicted “the end of the city” due to technological change, especially in the area of telecommunications – implying that an increased number of home-workers and the possibilities of video-conferences would make calm suburbs or rural areas more attractive in comparison to a grid-locked and expensive downtown area.[1] Yet, whenever the abstract idea of globalisation is illustrated in newspapers or TV, it is not a suburb or the green hills of Fife that are shown. Rather, symbols of globalisation like Manhattan or Tokyo look more like Ridley Scott’s “Nighttown” in Bladerunner. In contrast to the prediction of declining cities, globalisation seems to boost the growth of cities in a way that many scientists – influenced by the ideas of Alfred Marshall and Joseph Schumpeter started to write about “global cities”, “world-cities” or “global city-regions”. Leamer/Storper called global cities the “big winners” of the Internet Age.[2] But what are exactly the effects of globalisation on the functions and economy of cities? In order to examine these effects, it is useful to address two questions: (1) why do firms choose cities as a location in general? (section 2.1); and (2) how does globalisation affect this reasoning? (section 2.2). Section 3 summarises the results.

2 Globalisation And Cities

2.1 Agglomeration and Deagglomeration Economics

Although the literature on world cities is relatively new, the connection between increasing economic activity and the growth of cities hardly is. Neither large-scale trade and growth nor cities are thinkable without the other. From an economic point of view, two opposing forces determine the growth of cities: (1) centripetal incentives for firms to agglomerate, and (2) centrifugal incentives against agglomeration.[3]

(1) Cities exist because of the advantages of locating economic activities close to other people and other economic activities.[4] Classical urban economics detects three main advantages of agglomeration, assuming that cities are an outgrowth of the social division of labour and industrial diversification:[5]

1. Labour market pooling. The concentration of a number of firms in related industries at the same place allows a pooling of workers with specialised skills. Due to the interaction of increasing returns and uncertainty, both workers and firms can profit.[6]
2. Better access to intermediate inputs. Industrial centre allow the provision of nontraded inputs specific to an industry in greater variety and a lower cost. Localized industry can support more specialised local suppliers, which in turn make that industry more efficient and reinforce the localisation.[7]
3. Greater technological spillover effects. Spillover effects arise whenever know-how or research results of one firm are used by other firms without the latter having to bear any expenses.[8] Because information flows locally more easily than over greater distances, an industrial centre is likely to generate greater technological spillover effects.

(2) On the other hand, both market mediated and non-market centrifugal forces work against agglomeration. First, commuting costs, land rents, taxes and labour costs (often due to a better organisation of workers in urban areas) are usually higher in cities than in rural areas. Second, cities feature external diseconomies like congestion and pollution.


[1] Cf. Manuel Castells (2001): The Rise of the Network Society. Oxford/Malden. “The development of electronic communication and information systems allows for an increasing disassociation between spatial proximity and the performance of everyday life´s functions: work, shopping, entertainment, healthcare, education, public services, governance, and the like. Accordingly, futurologists often predict the demise of the city, or at least of cities as we have known them until now, once they are voided of their functional necessity.” P. 424-425. Cf. William Coffey/Antoine Bailly (1996): Economic Restructuring. A Conceptual Framework. IN: William Lever/Antoine Bailly (Ed.): The Spatial Impact of Economic Changes in Europe. Aldershot et al. P. 13-39, here p. 27.

[2] Cf. Allen Scott (2001): Global City-Regions. Trends, Theory, Policy. Oxford/New York; Peter Hall (1977): The World Cities. 2nd Ed. London; Saskia Sassen (1991): The Global City. New York et al.; Edward Leamer/Michael Storper (2001): The Economic Geography of the Internet Age. IN: Journal of International Business Studies 32,4. P. 641-665, here p. 658

[3] Cf. Leamer/Storper (2001): P. 643.

[4] Cf. Wheeler/Muller (1986): P. 130; Allen Scott/John Agnew/Edward Soja/Michael Storper (2001): Global City-Regions. IN: Allen Scott (Ed.): Global City-Regions. Trends, Theory, Policy. Oxford/New York. P. 11-32, here p. 16.

[5] Cf. Alfred Marshall (1961): Principles of Economics. 9th Ed. London et al. P. 270 f; Allen Scott (1986): Industrialization and Urbanization. A Geographical Agenda. IN: Annals of the Association of American Geographers 76,1. P. 25-37, here p. 27.

[6] Cf. Paul Krugman (1991): Geography and Trade. Leuven/Cambridge/London. P. 39 f.

[7] Cf. Krugman (1991): P. 15 and 49 f.

[8] Cf. Anita Wölfl (2000): Spillover Effects and R&D-Cooperations. The Influence of Market Structure. Halle. IWH Discussion Paper 122. http://www.iwh-halle.de/d/publik/disc/122.pdf


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Effects Globalisation City Regions




Title: Effects of Globalisation on City Regions