The New Oxford Handbook of Economic Geography Online Versionnbsped 0191821756 9780191821752 Compress

The New Oxford Handbook of Economic Geography

Edited by Gordon L. Clark, Maryann P. Feldman, Meric S. Gertler, and Dariusz Wójcik
Print Publication Date: Jan 2018 Subject: Economics and Finance

Online Publication Date: Feb 2018
(p. iv)
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Page 2 of 2
Dedication
Dedication

Dedication
(p. v) For Peter and Shirley, Gordon, Joanna, Isabel and Miles, and Ana (p. vi)
Page 1 of 1
Preface
Preface

(p. vii) Preface

THE New Oxford Handbook of Economic Geography (NOHEG) brings to the fore a vibrant
field of research and teaching at the interface between a host of disciplines, including ge
ography, economics, the management sciences, and urban and regional planning. In com
missioning essays we sought to engage leading scholars who have made profound and
long-lasting contributions to economic geography along with new voices, new approach
es, and new topics of significance to the first half of the twenty-first century. This sounds
ambitious. And it is. But we have framed NOHEG as a compendium of essays which reach
back to key concepts and ideas and forward to emerging issues and theoretical perspec
tives that together underwrite the field of economic geography.
Quite obviously, NOHEG builds upon the success of the original Oxford Handbook of Eco
nomic Geography (OHEG; 2002). In many respects, that was a very different project than
NOHEG. When we were developing the logic and building blocks of OHEG, the field of
economic geography was less a shared project across social science disciplines and more
a separate thread in the various disciplines that played host to ‘economic geographers’.
In this respect, OHEG sought to bring together scholars who were engaged with related
issues, even if their theories and analytical approaches were quite different. As such, the
compilation was deliberately framed as a dialogue between economists, geographers, and
urban and regional planners comparing and contrasting their approaches to common is
sues. By contrast, NOHEG takes this dialogue as given and seeks to represent the re
markable development of the field within and across disciplines.
Once again, our intention has been to give life to this dialogue without advocating one
specific way of being an economic geographer or, for that matter, restricting the focus of
the Handbook to a set of issues that are the core of economic geography. Throughout this
volume, pluralism reigns supreme. We leave it to the readers to make their own judge
ments about the salience of issues, the virtues of competing theoretical approaches, and
the claims and counterclaims made by contributors about how to conceptualize twenty-
first-century globalization. In part, our pluralism reflects the editorial team, of whom
Page 1 of 2
Preface
three were editors of the original volume. The newly added fourth editor brings his own
programme of financial geography and valuable experience to the project. All benefit the
NOHEG through their expertise in a variety of ways: our first editor has had a longstand
ing career in the economics discipline, the second has successfully transitioned between
economics and geography and public policy and business schools, and our third editor
(before becoming university president) is engaged in issues of innovation at the interface
between economics, geography, and political science. Inevitably, our separate and com
mon experience frames the project.
The OHEG began with a manifesto. Simply and directly, the volume opened with a state
ment regarding the core principles or foundations upon which the volume was based. We
term these principles ‘significant points of departure’, emphasizing difference, (p. viii) dif
ferentiation, and the heterogeneity of the economic landscape. These principles have
stood the test of time. And, as you would expect, they underwrite NOHEG. These princi
ples challenge commonplace expectations of convergence in economic prospects and de
velopment across regions, nations, and the globe. At the same time in this volume these
principles deserve and receive deeper analysis than in the first volume. So much has
changed in the twenty years between conceiving OHEG and realizing NOHEG. And yet, as
many readers of the first volume have observed, these principles remain contested and
contestable. We are pleased that this is the case and hope that NOHEG carries through on
the challenge represented by difference, differentiation, and heterogeneity.
Our Handbook is dedicated to the memory of Susan Christopherson, who died on 14 De
cember 2016. She was a valued colleague and dear friend whose work was motivated by
a desire to understand people, places, politics, institutions, and economic processes. Her
contribution to this book has all this and much more. On behalf of the community whose
work is embodied by this Handbook, we salute her contribution to academic life and her
commitment to friendship.
The Editors, December 2016
Page 2 of 2
Acknowledgements
Acknowledgements

(p. ix) Acknowledgements

THIS book was made possible by the support of numerous organizations. In particular, we
would like to acknowledge the support of our home institutions, notably (for Gordon Clark
and Dariusz Wójick) the Smith School of Enterprise and the Environment, the School of
Geography and the Environment, and the Saïd Business School at Oxford University, and,
further afield, the Department of Banking and Finance in the Monash Business School at
Monash University, the University of Toronto (Meric Gertler), and the University of North
Carolina (Maryann Feldman). Without the administrative and organizational support of
our home institutions, and without the support and encouragement of our colleagues in
those institutions, this book would not have been possible.
At Oxford, we were fortunate to have a team that has carried the Handbook through its
various stages. We would especially like to thank Alice Chautard, Seth Collins, Angelika
Kaiser, Irem Kok, and Sarah McGill for their reading of submissions, their attention to the
form and structure of the book and its various sections, and their help in meeting the var
ious deadlines that a book of this size must meet. Also important in this regard has been
the enthusiasm and encouragement found in our OUP editors, notably Dominic Byatt and
David Musson, Olivia Wells, and the New York-based Handbook staff led by Sarah Kain.
We are very grateful for their engagement with this project, and its previous incarnation.
Along the way, we had an opportunity to present both the book and the role of our con
tributors to the wider academic community through the Fourth Global Conference on
Economic Geography (2015) in Oxford. This event was led by Dariusz Wójcik, along with
the staff of the Smith School of Enterprise and the Environment and the School of Geog
raphy and the Environment. Most importantly, Patrizia Ferrari’s conference management
made this possible. At the conference we held a number of meetings with contributors, al
lowing for a dialogue about their contributions and the significance of the book. We are
very grateful to those contributors who participated for their enthusiasm and engage
ment in this initiative.
Page 1 of 2
Acknowledgements
Finally, any long-running project such as this incurs many debts—specifically, the pa
tience of our families and friends. Peter and Shirley, Gordon M. Allen, Joanna, Isabel and
Miles, and Ana have, in their different ways, sustained our academic careers and demon
strated their continued support throughout this particular project. (p. x)
Page 2 of 2
List of Figures
List of Figures

(p. xvii) List of Figures

0.1Frequency of Geographical Bigrams Occurring in Books Included in the English-
language Corpus of Google Books 10
4.1De Facto Urban Population and Urban Hukou Population, 1955–2013 85
5.1India’s Long-term Growth, 1950–2009 100
5.2Headcount Index of Poverty Using the National Poverty Line (Percentage) 103
5.3India: Real Patterns of Consumption Growth 105
6.1Employment (15–64 years) Rates (%) EU27, 2008, 2010, and 2012 117
6.2Unemployment (15–64 years) Rates (%) EU27, 2008, 2010, and 2013 118
6.3Long-term Unemployment Rates, 2008 and 2014 118
6.4Youth Unemployment (15–24 years) Rates (Percentage Labour Force) EU27,
2008, 2012, and 2013 119
6.5At Risk of Poverty or Social Exclusion (Percentage of Total Population) 121
6.6Gross Domestic Product and Employment Rates in Greece, 1996–2011 122
6.7Greek and European Union Small- and Medium-sized Enterprise performance,
2008–14 (estimates for 2011 onwards) 128
10.1Interaction Between the Environment (Resources) and the Nature of the Deci
sion Problem 206
13.1Sewall Wright’s Fitness Landscapes 249
13.2Ecosystem Boundaries—US/Mexico Border 254
13.3Succession and Reorganization of Ecosystems 257
13.4Phase Characteristics of the Entrepreneurial Ecosystem 258
17.1Portfolio of Fifty-one Traded Clusters and their Connections 327
17.2Strong IT and Analytical Instruments Clusters in the U.S., 2011 329
18.1Agglomeration and City Formation 350
18.2Internal Structure of Clusters 355
18.3Tech Sourcing in Silicon Valley Core 357
18.4Tech Sourcing Around Silicon Valley 358
20.1Strategic Coupling and Global–Local Economic Integration Through Production
Networks 388
Page 1 of 2
List of Figures
21.1Ambivalent Effect of Service Commoditization on Geographical Cluster Growth

414
(p. xviii) 21.2Global Delivery Model 416
22.1Levels of Cross-border Online Purchases 442

26.1The Growth of the Creative Economy Share 502
26.2Creative Class Shares in US Metropolitan Regions 504
26.3Social, Analytical; and Physical Skills in US Metropolitan Regions 507
29.1The Structure of Finance 559
29.2The Map of Finance 560
29.3Finance in the Global Economy 562
29.4Fordism and Flexible Accumulation 568
29.5The Share of Financial and Business Services in Total Employment 569
30.1Bitcoin to US Dollar Exchange Rates, 2013–15 583
31.1Existing Opaque, Overly Packaged Form of Investment Management 600
31.2Organic Finance: Greater Investor Responsibility on Fees and Efficiency of In
vestment Access Points 600
34.1Notional Amount of Outstanding Over-the-Counter Commodity Derivatives, De
cember 1998–June 2010 (US$ trillion) 651
34.2Financial Investment in Commodities, Assets Under Management, by Product,
2005–11 (US$ billion) 652
36.1Marshall’s Supply-and-Demand Curve 688
36.2Typology of the Spatial and Temporal Dynamics of Value 691
36.3Economies of Production and Internalization Through the Circulation of Value
693
37.1US Field Production of Crude Oil (1000 Barrels per Day), 1920–2014 706
40.1Commodity Prices Over the Last 100 Years 752
40.2Forecast Exhaustion Dates of Minerals Extend into the Future 753
40.3Selected Planetary Boundaries Already Breached 755
40.4Progress in Solar versus Coal and Nuclear 763
41.1Gini Coefficients Among Selected Developing Countries 773
41.2Differences in Interpersonal and Territorial Income Inequalities Among Selected
Countries (Second Theil Index) 774
45.1Differing City Responses to the Great Recession in the USA, 2007–09: New York,
Chicago, Atlanta, and Phoenix Compared 842
45.2Stylized Reactions of a Regional Economy to a Shock 847
45.3Regional Economic Resilience as Process 849
45.4Some Potential Policy Foci for ‘Building’ Regional Adaptive Resilience 856
Page 2 of 2
List of Tables
List of Tables

(p. xix) List of Tables

1.1Comparative Growth Rates in Real Gross Domestic Product, Selected Countries
21
1.2Comparative Change in Per Capita Gross Domestic Product at Purchasing Power
Parity (Current International Dollars), Selected Countries: 2000–12 22
1.3Value Added by Sector 23
2.1Summary of Income Inequalities in the Five Most Populous European Union
Countries (2012) 44
2.2Summary of UK Household Income Distribution 2012 45
2.3Summary of Income Inequalities in Germany, France, Italy, Spain, and the UK in
2012 48
2.4Share of Income Received by Best-off 1 Per Cent Taxpayers in Rich Countries 49
2.5The Radio of Incomes of the Best-off 10 Per Cent of Households Versus the Worst-
off 10 Per Cent Among the World’s Richest Countries 50
2.6Share in Top Incomes of the 1 Per Cent and Gini Measure of Inequality, Fifteen
Affluent Countries Ranked by the Take of the 1 Per Cent 51
2.7Projections for Rich Countries’ Income Inequality, Percentage Take of Top 1 Per
Cent 52
2.8The Numbers of Bankers Paid Over €1,000,000 in 2012 (Highest Numbers in the
European Union) 53
2.9Income Inequality in the USA, 2008 and 1970–2008 (at Real 2008 Rates) 54
2.10Income Received from the State by Households in 2012 56
4.1Urban Hukou Population, Urban Population, and Gross Domestic Product Shares,
1949−2014 (Percentage of National Total) 84
4.2Distribution of Cities, 1982–2010 87
4.3Spatial Gini, 1957–2010 88
4.4Number of Megacities and Urban Population of Large Countries, 2014 89
5.1Ranking of India’s Poorest States by Gross State Domestic Product Per Capita
and Human Development Indicators 106
6.1Top Employment Sectors in Greece, Percentage 2000 and 2008 123
Page 1 of 2
List of Tables
6.2Top Employment Sectors in the Regions of Greece, 2008 124

6.3Top Employment Sectors in Greece, 2009 and 2013 125
6.4Top-six Employment-loss Sectors (NACE rev2.0) Greece and EU27, 2008Q1–
2011Q1 125
(p. xx) 6.5Top-six Employment-gain Sectors (NACE rev2.0) Greece and EU27,
2008Q1–2011Q1 126
6.6Occupational Structure of Employment (000s) in Trade, Greece, 2008–13 130
6.7Greece’s Path-dependent Growth Patterns from the 1980s to 2008–09 Crisis 132
15.1Situating Co-creation 289
15.2A Typology of Co-creation Formats and Practices 290
20.1Strategic Coupling, Global Production Networks, and Local Development Trajec
tories 390
22.1Leading Transnational Retailers, Ranked by International Revenue in 2013 430
22.2Differences in Level of Globalization by Retail Sector, 2010–13 432
22.3Level of Globalization of Top 250 Global Retailers by Region/Country, 2013 433
22.4Top Fifteen e-Retailers, Ranked by Online Sales, 2013 441
25.1Full-time, part-time, and temporary employment in the European Union (per
centages), 2003, 2007, and 2014 489
25.2Survey Results (Selected), UK Employees, 2013 494
Page 2 of 2
List of Editors
List of Editors

(p. xxi) List of Editors

Gordon L. Clark ([email protected]) is the Director of the Smith School
of Enterprise and the Environment with cross-appointments in the Saïd Business School
and the School of Geography and the Environment at Oxford University. He holds a Pro
fessorial Fellowship at St Edmund Hall, Oxford. He is also Sir Louis Matheson Distin
guished Visiting Professor at Monash University’s Faculty of Business and Economics
(Melbourne) and a Visiting Professor at Stanford University. Previous academic appoint
ments have been at Harvard’s Kennedy School of Government, Harvard Law School (Se
nior Research Associate), the University of Chicago, Carnegie Mellon’s Heinz School, and
Monash University. Other honours include being Andrew Mellon Fellow at the US Nation
al Academy of Sciences and Visiting Scholar Deutscher Akademischer Austausch Dienst
at the University of Marburg.
Maryann P. Feldman ([email protected]) is the S.K. Heninger Distinguished

Professor of Public Policy and Finance at the University of North Carolina, Chapel Hill
and the Kenan Flagler Business School. In 2013, she was awarded with the prestigious
Global Entrepreneurship Research Award from the Swedish Entrepreneurship Forum and
Research Institute of Industrial Economics. She is a member of the Innovation Forum at
the National Academies of Science. Her research interests focus on the areas of innova
tion, the commercialization of academic research, and the factors that promote techno
logical change and economic growth.
Meric S. Gertler ([email protected]) is President of the University of Toronto,

Professor of Geography and Planning and the Goldring Chair in Canadian Studies. He was
the founding co-director of the Program on Globalization and Regional Innovation Sys
tems (PROGRIS) at the Munk School of Global Affairs. His research focuses on the geog
raphy of innovative activity, the economies of city regions, and economic restructuring in
North America and Europe. He is the author, co-author, and co-editor of more than ninety
scholarly articles and chapters, and nine books, including Manufacturing Culture: The In
stitutional Geography of Industrial Practice. He has served as an advisor to local, region
Page 1 of 2
List of Editors
al, and national governments in Canada, the USA, and Europe, and international agencies
such as the Organisation for Economic Co-operation and Development. He is the founding
associate editor of the Journal of Economic Geography.
Dariusz Wójcik ([email protected]) is a Professor of Economic Geography in

the School of Geography and the Environment at Oxford University, a Fellow of St Peter’s
College, and a Visiting Professor at Beijing Normal University. His research focuses on fi
nance, corporate governance, and economic globalization. His current project, funded by
the European Research Council, investigates how financial and business services have
been (p. xxii) affected by the global financial crisis, and how they change in response to
new financial regulation, the rise of the Global South, and the digital revolution. The
project also focuses on the impacts of finance on regional development. Dariusz is a mem
ber of the editorial board of Economic Geography, the Journal of Economic Geography,
Environment and Planning A: Economy and Space and GeoJournal and leads the Global
Network on Financial Geography (FinGeo).
Page 2 of 2
List of Abbreviations

(p. xxiii) List of Abbreviations

Prelims
NOHEG New Oxford Handbook of Economic Geography
OHEG Oxford Handbook of Economic Geography
Introduction
GDP gross domestic product
IMF International Monetary Fund
Chapter 1
FDI foreign direct investment
GFC global financial crisis
SOEs state-owned enterprises
Page 1 of 10
Chapter 2
EU European Union
EU-SILC European Union Statistics on Income and Living Conditions
(p. xxiv) Chapter 3
CMSA Consolidated Metropolitan Statistical Area
OECD Organisation for Economic Co-operation and Development
SBTC skill-biased technological change
UNDP United Nations Development Programme
Chapter 4
Chapter 5
AJR Acemoglu, Johnson, and Robinson
BJP Bharatiya Janata Party
PPP purchasing power parity
TFP total factor productivity
Page 2 of 10
Chapter 6
EC European Commission
ECB European Central Bank
EEC European Economic Community
EMU European Monetary Union
EU European Union
GVA gross value added
HRADF Hellenic Republic Asset Development Fund
SME small- and medium-sized enterprise
(p. xxv) Chapter 7
EU European Union
Chapter 11
EEG evolutionary economic geography
RIS regional innovation system
Chapter 12
CME coordinated market economy
Page 3 of 10
EEG evolutionary economic geography
LEP local enterprise partnership
LME liberal market economy
Chapter 13
MSA metropolitan statistical area
Chapter 14
ISP Internet service provider
IT information technology
Chapter 15
DCA dichloroacetic acid
GPS Global Positioning System
(p. xxvi) Chapter 16
IP intellectual property
MNE multinational enterprise
Chapter 17
B2C business-to-consumer
BCD Benchmark Cluster Definitions
DSC Dual Specialization Correlation
Page 4 of 10
STEM Science, Technology, Engineering, and Mathematics
USCMP U.S. Cluster Mapping Project
Chapter 19
GCN global city network
HFDI horizontal FDI
IDP investment development pathway
KCM Knowledge Capital Model
MNE multinational enterprise
NEG new economic geography
OLI Ownership–Location–Internalization
PLC product life cycle
VFDI vertical FDI
Chapter 20
GPN global production network
GVC global value chain
UNCTAD United Nations Conference on Trade and Development
WTO World Trade Organization
Page 5 of 10
(p. xxvii) Chapter 21
BPO business process outsourcing
CMMI Capability Maturity Model Integration
GDM global delivery model
GE General Electric
ICT information and communication technology
IS impact sourcing
KSC knowledge services cluster
Chapter 22
TNC transnational corporation
Chapter 23
CSR corporate social responsibility
GPN global production network
GVC global value chain
ILO International Labour Organization
NGO non-governmental organization
UN United Nations
Page 6 of 10
Chapter 24
EU European Union
INE involuntary non-standard employment
SER standard employment relationship
Chapter 28
DSGE dynamic stochastic general equilibrium
(p. xxviii) Chapter 29
CEO chief executive officer
EU European Union
FABS financial and business services
GFN global financial networks
GPN global production networks
TNC transnational corporation
Chapter 30
AP Associated Press
Page 7 of 10
EU European Union
HFT high-frequency trading
Chapter 31
LTI long-term investor
Chapter 33
EU European Union
SUNFED Special United Nations Fund for Economic Development
UN United Nations
Chapter 34
CFTC Commodity Futures Trading Commission
ETP exchange-traded product
GSCI Goldman Sachs Commodity Index
OTC over the counter
(p. xxix) Chapter 35
ILS insurance-linked securitization
Chapter 36
CO2 carbon dioxide
EU ETS European Union Emissions Trading System
Page 8 of 10
Chapter 37
Chapter 38
MNC multinational corporation
NGO non-governmental organization
Chapter 39
SEC Securities and Exchange Commission
Chapter 40
tCO2 total carbon dioxide
USGS United States Geological Survey
(p. xxx) Chapter 41
LED local economic development
Chapter 42
CBA community benefits agreement
Page 9 of 10
Chapter 44
GOI geography of innovation
IIG innovation for inclusive growth
NIS national innovation system
NSI national systems of innovation
WTO World Trade Organization
Chapter 45
NEG new economic geography
Page 10 of 10
List of Contributors

(p. xxxi) List of Contributors
Philip E. Auerswald ([email protected]) is an associate professor at the

Schar School of Policy and Government, George Mason University. He leads the Glob
al Entrepreneurship Research Network, an initiative of the Kauffman Foundation, and
is the co-founder and co-editor of Innovations, a quarterly journal published by MIT
Press about entrepreneurial solutions to global challenges. He is most recently the
author of The Code Economy: A Forty-Thousand Year History, published by Oxford
University Press in 2017. He has served as a consultant to foundations, corporations,
and national governments, including the World Bank, Gates Foundation, the National
Academy of Sciences, and the National Institute of Standards and Technology. From
2010 to 2013 he was an advisor to the Clinton Global Initiative, focusing on job cre
ation and market-based solutions.
Harald Bathelt ([email protected]) is the Canada Research Chair in ‘Inno

vation and Governance’ at the Department of Political Science, University of Toronto,
Canada. He also holds an appointment as Professor in the University of Toronto’s De
partment of Geography and Planning. His research and teaching interests are in the
areas of industrial and economic geography, political economy, and methodology,
specifically in the analysis of knowledge generation and innovation processes over
distance, industrial clustering, and the socio-economic impacts of regional and indus
trial change. For the past six years, Professor Bathelt was a Visiting Professor at the
East China Normal University in Shanghai, China, and was previously a Visiting Pro
fessor at the University of Heidelberg, Germany and HEC Montréal, Canada. Since
2012, he has been editor of the Journal of Economic Geography.
Page 1 of 22
Michael Berry ([email protected]) is Emeritus Professor at Urban Studies and

Public Policy, Centre for Urban Research, RMIT University, Melbourne, Australia. His
research has focused on urban development processes, urban social theory, econom
ics and public policy, and housing markets and policy. His focus has been on alterna
tive financing approaches for affordable housing, and the impact of housing markets
on the macro-economy for which he has been awarded numerous significant grants,
most notably from the Australian Housing and Urban Research Institute, which he
helped found. He has been on the editorial board of a number of journals, including
Housing,Theory and Society and Urban Policy and Research. He has visited a number
of universities in Europe, Asia, and North America, most recently as Helen Kam visit
ing fellow at Girton College, Cambridge.
Ron Boschma ([email protected]) is Professor in Regional Economics at the Urban

and Regional Research Centre Utrecht (URU) at Utrecht University, the Netherlands.
He is also Professor II in Innovation Studies at UiS Business School and Stavanger
Centre for (p. xxxii) Innovation Research, University of Stavanger, Norway. In 2013,
Professor Boschma received an Honorary Doctorate in the Natural Sciences (‘Doktor
der Naturwissenschaften ehrenhalber’) from Marburg University (Fachbereich Geo
graphie) in Germany. His research interests include evolutionary economic geogra
phy; spatial evolution of industries; geography of innovation; geography of knowledge
networks; agglomeration externalities and regional growth; and regional diversifica
tion. He is editor of the Cambridge Journal of Region, Economy and Society, and asso
ciate editor of Industrial and Corporate Change, Papers in Regional Science, and Re
gional Studies.
Kam Wing Chan ([email protected]) is Professor of Geography at the University of

Washington. His main research focuses on China’s cities, migrant labour, and the
household registration system. He is the author of Cities with Invisible Walls: Reinter
preting Urbanization in Post-1949 China (Oxford University Press, 1994). He is Asso
ciate Editor of Eurasian Geography and Economics. In the last two decades he has
worked as a consultant for the World Bank, Asian Development Bank, United Nations,
and McKinsey & Co. on several major policy projects on China. His recent commen
taries and interviews have appeared in The Wall Street Journal, The New York Times,
The Economist, South China Morning Post, BBC, CBC Radio, Caixin, Ming Pao, and
China Daily.
Page 2 of 22
Karen Chapple ([email protected]) is a Professor of City and Regional Planning

at the University of California, Berkeley. Chapple specializes in housing, community,
and economic development, as well as regional planning. She has most recently pub
lished on job creation on industrial land (in Economic Development Quarterly), re
gional governance in rural Peru (in the Journal of Rural Studies), and accessory
dwelling units as a smart-growth strategy (in the Journal of Urbanism). Her recent
book (Routledge, 2014) is entitled Planning Sustainable Cities and Regions: Towards
More Equitable Development. In 2015 she launched the Urban Displacement Project,
a research portal examining patterns of residential, commercial, and industrial dis
placement, as well as policy and planning solutions.
Susan Christopherson She published a series of key articles and a prize-winning

book examining how market governance regimes influence regional economic devel
opment and firm strategies. She was a recognized expert in the field of media studies
with a record of research and publication on the media entertainment industries. Pro
fessor Christopherson published more than 100 articles and book chapters on topics
illuminating the spatial dimensions of economy and society, and served on numerous
editorial boards. Most recently, she was editor-in-chief of the Regional Studies Associ
ation/Taylor Francis Book Series on Cities and Regions.
Gordon L. Clark ([email protected]) DSc (Oxon) FBA is the Direc

tor of the Smith School of Enterprise and the Environment with cross-appointments at
the Saïd Business School and the School of Geography and the Environment at Oxford
University. He holds a Professorial Fellowship at St Edmund Hall, Oxford. He is also
Sir Louis Matheson Distinguished Visiting Professor at Monash University’s Faculty of
Business and Economics (Melbourne) and a Visiting Professor at Stanford University.
Previous academic appointments have been at Harvard’s Kennedy School of Govern
ment, Harvard Law School (Senior Research Associate), the University of Chicago,
Carnegie Mellon’s Heinz School, and (p. xxxiii) Monash University. Other honours in
clude being Andrew Mellon Fellow at the US National Academy of Sciences and Visit
ing Scholar Deutscher Akademischer Austausch Dienst at the University of Marburg.
Jennifer Clark ([email protected]) is Director of Georgia Tech’s Center for

Urban Innovation and an Associate Professor in the School of Public Policy. Dr Clark
publishes work on the development and discussion of urban and regional policies and
their effect on cities and their economic resilience. Her book, Remaking Regional
Economies (with Susan Christopherson), won the Best Book Award from the Regional
Page 3 of 22
Studies Association in 2009. She published Working Regions in 2013 and the Hand
book of Manufacturing Industries in the World Economy in 2015. She has worked on
innovation policy projects with a broad range of organizations, including the OECD
and the Canadian, UK, and US governments. She earned her PhD from Cornell Uni
versity, an MPlan from the University of Minnesota, and a BA from Wesleyan Universi
ty in Connecticut. She is the current chair of the Economic Geography Specialty
Group (EGSG) of the Association of American Geographers and an editor of Regional
Studies.
Neil M. Coe ([email protected]) is Professor of Economic Geography at the Na

tional University of Singapore, where he is also co-director of the Global Production
Networks Research Centre. His research interests are in the areas of global produc
tion networks and local economic development; the geographies of local and transna
tional labour markets; the geographies of innovation; and institutional and network
approaches to economic development. He has published over seventy-five articles and
book chapters on these topics, and is a co-author or co-editor of six books. He is cur
rently an editor of the Journal of Economic Geography, and on the editorial board of
European Urban and Regional Studies.
Stuart Corbridge ([email protected]) is the Vice Chancellor and War

den of Durham University. Among his previous appointments were a Lectureship in
South Asian Geography at Cambridge University, a Professorship of International
Studies at the University of Miami, and a Chair in Geography at the London School of
Economics. In 2013, he was appointed as the first Deputy Director and Provost of
LSE. He has consulted with the UK’s Department for International Development on is
sues of public service delivery, joint forest management, and participation and em
powerment in Jharkhand, India. His major publication (with Glyn Williams, Manoj Sri
vastava, and Rene Veron) remains Seeing the State: Governance and Governmentality
in India. He was also a Managing Editor for the Journal of Development Studies
(2005–10) and Economy and Society (2008–12).
Lokesh Dani ([email protected]) is a doctoral candidate in public policy at

the Schar School of Policy and Government, George Mason University. He is a re
search assistant for the Center for Regional Analysis where his interests focus on
measuring entrepreneurial ecosystems, as well as evaluating the skill composition of
regional labour forces. He has an MS degree from New York University with a con
centration in International Business, Economics and Development, and a BA from
Page 4 of 22
Bucknell University in English. Prior to his studies in economics he worked in biomed

ical research at the Cardiovascular Research Foundation in New York City.
Mercedes Delgado ([email protected]) is a Senior Lecturer at the MIT Sloan

School of Management, and the Research Director and Research Scientist of the MIT
Innovation (p. xxxiv) Initiative Lab for Innovation Science and Policy. She also serves as
Senior Associate at the Institute for Strategy and Competitiveness at Harvard Busi
ness School. Delgado’s research focuses on the relationship between the regional
business environment and the performance of firms, regions, and countries. She ex
amines the role of regional clusters in job creation, innovation, entrepreneurship, and
resilience. In recent work she explores the interaction between the spatial organiza
tion of firms, their location choices through the value chain, and firm performance.
Delgado has published articles in top economic, policy, and strategy journals. She re
cently served as a lead researcher on the U.S. Cluster Mapping Project.
Danny Dorling ([email protected]) is the Halford Mackinder Professor of

Geography, School of Geography and the Environment, University of Oxford. He was
previously Professor for the Public Understanding of Social Science, University of Sh
effield. Additionally he has been appointed Adjunct Professor, Department of Geogra
phy, University of Canterbury, New Zealand. He has served on leading boards and
committees, including the Public Health England Mortality Surveillance Steering
Group, the Economics and Health Special Interest Group, Faculty of Public Health,
and Advisor UK Government Office for Science, Foresight Team. His work concerning
issues of housing, health, employment, education, and poverty has resulted in more
than a dozen books and several hundred journal papers.
Gilles Duranton ([email protected]) is the Dean’s Chair in Real Estate

Professor and the Chair of the Real Estate Department at Wharton, University of
Pennsylvania. He has published several key articles on urban and transportation is
sues, and his recent work examines urban growth and the effects of transportation in
frastructure on urban development and the evaluation of local policies. His theoreti
cal research concerns the distribution of city sizes, the skill composition, and sectori
al patterns of activities in the cities. He is also co-editor of the Journal of Urban Eco
nomics and the Handbook for Regional and Urban Economics, as well as an editorial
board member of several other journals.
Page 5 of 22
Gary A. Dymski ([email protected]) is Professor of Applied Economics at the

Leeds University Business School, University of Leeds. Professor Dymski has pub
lished numerous books, articles, chapters, and studies on banking, financial fragility,
urban development, credit-market discrimination, the Latin American and Asian fi
nancial crises, exploitation, housing finance, the subprime lending crisis, financial
regulation, the Eurozone crisis, and economic policy. Between 2003 and 2009, Gary
served as founding executive director of the University of California Center Sacra
mento, the University of California’s academic public-policy programme in
California’s state capitol. He is currently co-leader of the Leeds University interdisci
plinary CITIES research initiative.
Benno Engels ([email protected]) is a Senior Lecturer at the School of

Global, Urban and Social Studies at RMIT University, Melbourne, Australia. He teach
es in the Urban Planning programme in the fields of urban economics, social plan
ning, and urban planning history. He does research in Marxist political economy, Aus
tralian social public policy, and urban planning history.
Maryann P. Feldman ([email protected]) is the S.K. Heninger Distin

guished Professor of Public Policy and Finance at the University of North Carolina,
Chapel Hill and (p. xxxv) the Kenan Flagler Business School. In 2013, she was awarded
with the prestigious Global Entrepreneurship Research Award from the Swedish En
trepreneurship Forum and Research Institute of Industrial Economics. She is a mem
ber of the Innovation Forum at the National Academies of Science. Her research in
terests focus on the areas of innovation, the commercialization of academic research,
and the factors that promote technological change and economic growth.
Richard Florida ([email protected]) is University Professor and Director of

Cities at the Martin Prosperity Institute at the Rotman School of Management, Uni
versity of Toronto, and Distinguished Fellow at New York University Schack Institute
of Real Estate. He is also the co-founder and editor-at-large of CityLab, and a senior
editor at The Atlantic. His research focuses on the role of creativity, innovation, and
talent in urban economic development and economic geography. His books include
The Rise of the Creative Class, The Flight of the Creative Class, Who’s Your City?, The
Great Reset, and The New Urban Crisis, and numerous journal articles on creativity,
innovation, and urban and economic geography.
Page 6 of 22
Chris Forman ([email protected]) is the Peter and Stephanie Nolan Profes

sor of Applied Economics and Management at the Charles H. Dyson School of Applied
Economics and Management at Cornell University. His research interests include the
geography of IT use, electronic commerce, diffusion of IT innovations, and IT strategy.
He has published widely on issues related to innovation in enterprise IT, including the
business process innovation that accompanies enterprise IT investment within firms,
as well as the strategies of enterprise IT suppliers. He currently serves as a Depart
ment Editor at Management Science, and previously served as Senior Editor at Infor
mation Systems Research.
Koen Frenken ([email protected]) is a Full Professor of Innovation Studies at Coperni

cus Institute of Sustainable Development, Utrecht University. His research interests
include sharing economy, innovation studies, economic geography, and the evolution
of science and technology. His theoretical interests are evolutionary economics, com
plexity theory, and network science. He has published numerous articles in the Jour
nal of Economic Geography and Regional Studies, and is an author of several books
on innovation, complexity theory, and evolutionary economic geography. He is also an
associate editor at Industrial and Corporate Change and a member of the editorial
boards of Research Policy, Environmental Innovation and Societal Transitions, and Re
vue d’Economie Industrielle.
Meric S. Gertler ([email protected]) is President of the University of Toron

to, Professor of Geography and Planning and the Goldring Chair in Canadian Studies.
He was the founding co- director of the Program on Globalization and Regional Inno
vation Systems (PROGRIS) at the Munk School of Global Affairs. His research focuses
on the geography of innovative activity, the economies of city regions, and economic
restructuring in North America and Europe. He is the author, co- author, and co- edi
tor of more than ninety scholarly articles and chapters, and nine books, including
Manufacturing Culture: The Institutional Geography of Industrial Practice. He has
served as an advisor to local, regional, and national governments in Canada, the USA,
and Europe, and international agencies such as the Organisation for Economic Co-op
eration and Development. He is the founding associate editor of the Journal of Eco
nomic Geography.
Page 7 of 22
Amy K. Glasmeier ([email protected]) is Professor of Economic Geography

(p. xxxvi)
and Regional Planning and runs the laboratory on Regional Innovation and Spatial
Analysis, the Department of Urban Studies and Planning, MIT. Her research focuses
on the spatial interactions among economic actors and organizational structures in
the provision of economic opportunity for communities and individuals. From 2012 to
2016 she was a faculty co-investigator on the Post Traumatic Stress Innovations
project, where she studied access to mental health care and other support pro
grammes for members of the Marines and Navy and their families. She is the author
of many articles and books on topics including regional and industrial development,
technology and innovation, poverty and inequality, and global economic challenges.
With Dr Michael Goodchild and Dr Glen McDonald, the National Academy of Sciences
recently published her co-authored report ‘Fostering Transformative Research in the
Geographical Sciences’. She is a founding editor of the Cambridge Journal of Regions,
Economy and Society.
Johannes Glückler ([email protected]) is Professor of Economic and So

cial Geography and Fellow of the Marsilius Center of Advanced Studies at Heidelberg
University. His research and teaching focuses on economic geography, organization
studies, network theory, and the service industries. He is co-founder of the MSc pro
gramme ‘Governance of Risks and Resources’ at the Heidelberg Center for Latin
America in Santiago de Chile, where he regularly teaches methods of social research.
He has also been Visiting Professor at the University of Salamanca, Spain, since 2009.
Apart from basic research and teaching, he has provided consulting services to feder
al ministries, chambers of commerce, industry associations, corporations, and civil so
ciety organizations on questions of regional development, innovation, and organiza
tional networks.
Avi Goldfarb ([email protected]) is Ellison Professor of Marketing at

Rotman School of Management, University of Toronto. He serves as Senior Editor at
Marketing Science. His research focuses on understanding the opportunities and
challenges of the digital economy. He has published a number of articles in areas of
economics, marketing, statistics, computing, and law, and is co-editor of two books,
including Economic Analysis of the Digital Economy.
Gernot Grabher ([email protected]) is Professor of Urban and Re

gional Economics at the HafenCity University Hamburg. He is conducting research
that explores how cities can learn from rare events; how new social practices in the
Page 8 of 22
sharing economy transform urban life; and how social network sites reshape socializ
ing, creativity, and knowledge production. In his recent project, funded by the Ger
man Research Foundation, he examines how social network sites transform practices
of interpersonal networking. He has published numerous articles in the leading acad
emic journals and edited eight books, most recently the volume Self-Induced Shocks:
Mega-Projects and Urban Development (2015). He is co-editor of the Regions and
Cities series of the Regional Studies Association, and was co-editor of Economic Geog
raphy. Currently, he serves on the editorial boards of Cambridge Journal of Regions,
Economy and Society, Economic Geography, European Planning Studies, Regional
Studies, Progress in Human Geography, and Environment and Planning A.
Shane Greenstein ([email protected]) is the MBA Class of 1957 Professor of

Business Administration and co-chair of the HBS Digital Initiative at Harvard Busi
ness School. He is also co-director of the Program on the Economics of Digitization at
the National Bureau (p. xxxvii) of Economic Research. His research spans issues of
strategy, regulation, history, marketing, information systems, and organization design.
He has published more than fifty journal articles on economics of enterprise IT, tech
nological competition in computing, and the commercialization of the Internet infra
structure, and has written or edited nine books. His recent book, How the Internet
Became Commercial: Innovation, Privatization, and the Birth of a New Network,
traces the evolution of the Internet from government ownership to privatization to the
commercial Internet, showing how interplay between government and private indus
try transformed the Internet. He has served as the President of the International Or
ganization Society, and has been a member of the editorial board of Telecommunica
tions Policy, Research Policy, and other prominent academic journals.
Dieter Helm ([email protected]) is Professor of Economic Policy at the Uni

versity of Oxford, a Fellow of New College, and a Professorial Research Fellow of the
Smith School of Enterprise and the Environment. His main research interests are util
ities, infrastructure, regulation, and the environment, with a focus on the energy, wa
ter, communications, and transport sectors, primarily in the UK and Europe. His most
recent books include The Carbon Crunch: Revised and Updated, Natural Capital: Valu
ing the Planet, and Burn Out: The Endgame for Fossil Fuels. He is an associate editor
of the Oxford Review of Economic Policy. During 2011, Helm assisted the European
Commission in preparing the Energy Roadmap 2050, serving both as a special advisor
to the European Commissioner for Energy and as Chairman of the Ad Hoc Advisory
Group on the Roadmap. He is Chair of the Natural Capital Committee.
Page 9 of 22
Cameron Hepburn ([email protected]) is Professor of Envi

ronmental Economics at the University of Oxford, based at the Smith School of Enter
prise and the Environment and the Institute for New Economic Thinking at the Oxford
Martin School, and is also Professorial Research Fellow at the Grantham Research In
stitute at the London School of Economics and a Fellow of New College, Oxford. He is
an economist with expertise in energy, resources, economic growth theory, behaviour
al economics, and environmental economics. His work has been referred to in publica
tions such as The Economist and The Financial Times, and he has been interviewed on
television and radio in various countries. He has provided advice on energy, environ
mental, and climate change policy to the UK Government DECC Secretary of State
Economics Advisory Group. He is also managing editor for Oxford Review of Econom
ic Policy.
Alex Hughes ([email protected]) is a Professor of Economic Geography

in the School of Geography, Politics and Sociology at Newcastle University. Since
2014 she has been the Research Director for the School. She was Chair of the Eco
nomic Geography Research Group of the Royal Geographical Society (2012–15). Cur
rently, she is a member of the Editorial Board of the RGS-IBG Book Series published
by Wiley-Blackwell. She is also a member of the ESRC Peer Review College. Her wide-
ranging research interests in economic geography include cultural political economy;
postcolonial economies; global value chains and production networks; knowledge and
economy; rethinking economy; transnational retailers and corporate responsibility;
retailer–supplier relationships in the UK and USA; ethical trade and labour in Kenya,
South Africa, and Pakistan; regulation and governance; corporate social responsibility
and sustainability; the audit economy; learning networks; ethical public procurement;
and ethical consumption in the Global South.
Simona Iammarino ([email protected]) is Professor of Economic Ge

(p. xxxviii)
ography and Head (2014–17) of the Department of Geography and Environment at the
London School of Economics and Political Science. She is also an affiliate of the Spa
tial Economics Research Centre. Previous tenured positions include: Science and
Technology Policy Research, University of Sussex; University of Rome, ‘La Sapienza’;
and Italian National Institute of Statistics. Her main research interests lie in the fol
lowing areas: multinational corporations; location and innovation strategies; local
economic development; geography of innovation and technological change; regional
systems of innovation; and regional and local economic development and policy. She
has published extensively in top-refereed journals in the field, and has extensive expe
rience in both externally funded international research projects and consultancy for
various government agencies and international organizations such as the European
Page 10 of 22
Commission, the Organisation for Economic Co-operation and Development, and the
United Nations Economic Commission for Latin America and the Caribbean.
Oliver Ibert ([email protected]) is Professor of Economic Geography at the

Department of Geographical Sciences at the Freie Universität Berlin, and head of the
research department ‘Dynamics of Economic Spaces’ at the Leibniz Institute for Re
search on Society and Space. His research interests include economic geography of
knowledge practices, temporary organizations in economic settings and planning ad
ministrations, customer-driven innovation processes, economic geography of virtual
online communities, planning theory, and governance. He has published widely on
these topics in journals such as Economic Geography, Journal of Economic Geography,
Environment and Planning A, Research Policy, Geoforum or Regional Studies.
Natasha Iskander ([email protected]) is an Associate Professor of Public

Policy at Wagner Graduate School of Public Service, New York University. She con
ducts research on labour migration and economic development, on labour mobiliza
tion and its relationship to workforce development, and on processes of institutional
innovation and organizational learning. Her most recent book, Creative State: Forty
Years of Migration and Development Policy in Morocco and Mexico (Cornell Universi
ty Press, 2010), examines how the governments of Mexico and Morocco elaborated
policies to build a link between labour emigration and local economic development.
She is currently conducting research on processes of skill development among mi
grants in Qatar’s construction industry. She also worked as consultant on migration
and skills transfer policy for the governments of Mexico and Morocco, and for interna
tional organizations such as the World Bank and the Inter-American Development
Bank.
Chacko G. Kannothra ([email protected]) is a doctoral candidate at the

Organizations and Social Change Program at the College of Management, University
of Massachusetts Boston. His research interests include social entrepreneurship and
hybrid business models, global outsourcing, and inclusive employment and develop
ment. His dissertation focuses on entrepreneurial foundations, growth strategies, and
managerial challenges of hybrid organizations in global outsourcing, so-called impact-
sourcing service providers. Before entering academia, he worked with Accenture as a
Business Analyst for their Global Compensation and Benefits Administration pro
gramme, as well as a Consultant for the Ministry of Science and Technology, Govern
ment of India.
Page 11 of 22
William R. Kerr ([email protected]) is Professor of Entrepreneurial Manage

(p. xxxix)
ment at Harvard Business School. His research focuses on how companies and
economies explore new opportunities and generate growth. He has published articles,
book chapters, and case studies on the subjects of entrepreneurship, innovation and
growth, agglomeration forces and cluster structures, and global online labour mar
kets. His recent project, Entrepreneurship Reading: Launching Global Ventures, of
fers insights into how young global ventures design their business models and some
of the resource constraints and opportunity costs that they face. He is the editor of
the Journal of Economic Geography and a member of the editorial board for the Jour
nal of Urban Economics.
Janelle Knox-Hayes ([email protected]) is the Lister Brothers Associate Professor of

Economic Geography and Planning in the Department of Urban Studies and Planning,
MIT. Her research focuses on the ways in which social and environmental systems are
governed under changing temporal and spatial scales as a consequence of globaliza
tion. Her latest project examines how social values shape sustainable development in
the Arctic. She is an author, co-author, and co-editor of fifteen journal articles, and
two books, including Saving for Retirement and The Culture of Markets: The Political
Economy of Climate Governance. She is also book-review editor of the Journal of Eco
nomic Geography, and editor for the Cambridge Journal of Regions, Economy and So
ciety, as well as the Journal of Urban Planning.
Karen P.Y. Lai ([email protected]) is an Assistant Professor of Geography at the

National University of Singapore. Her research interests include geographies of mon
ey and finance, markets, varieties of capitalism, service sectors, global city networks,
and international financial centres. Her recent project examines everyday financial
ization through the knowledge networks of financial advisors and consumers. She is
currently researching the global financial networks of investment banks in mergers
and acquisitions, and initial public offerings. She has authored or co-authored a book,
several journal articles, and book chapters on financialization, knowledge networks,
and economic development in East and South East Asia. She is also on the Standing
Committee of the Global Production Networks Centre at the National University of
Singapore, and editorial board member of Geography Compass.
Page 12 of 22
Marcus M. Larsen ([email protected]) is Associate Professor at the Department of

Strategic Management and Globalization, Copenhagen Business School, and Adjunct
Associate Professor at BI Norwegian Business School. He received a PhD degree from
Copenhagen Business School on the topic of Offshoring and Globalization. His disser
tation won the Peter J. Buckley and Mark Casson Dissertation Award and the Barry M.
Richman Best Dissertation Award in 2014. His research focuses on the organizational
design of offshoring and outsourcing and emerging economy multinationals. He has
published widely on hidden costs of offshoring, strategies, and innovation in the wind-
turbine industry. He is also a co-editor of two books on strategic design and innova
tion in offshoring, and on strategies in emerging markets.
Robin Leichenko ([email protected]) is Professor and Department Chair at

the Department of Geography at Rutgers University. She is also the co-director of the
Rutgers Climate Institute. Her research interests span the fields of economic geogra
phy and human dimensions of global environmental change. She studies how and why
processes of global economic and environmental change differentially affect cities, re
gions, and sectors, and the implications of these processes for questions of vulnerabil
ity, equity, and sustainability. (p. xl) She has published more than forty-five journal ar
ticles, and is the co-author of two books, namely Environmental Change and Global
ization: Double Exposures and Housing and Economic Development in Indian Coun
try: Challenge and Opportunity. She is past chair of the Economy Geography Speciali
ty Group at the Association of American Geographers. Between 2012 and 2013, she
also served as a committee member at the Panel to Review the US National Climate
Assessment at the National Academy of Sciences/National Research Council.
Mark Lorenzen ([email protected]) is Professor of Innovation, Entrepreneurship and In

dustrial Dynamics at the Department of Innovation and Organizational Economics at
the Copenhagen Business School and director of the Danish Research Unit for Indus
trial Dynamics. His research is in the field of industrial dynamics, with a special focus
on the relationships between innovation and the economic organization of the market
in networks, projects, and clusters, currently within the creative industries. He has
published in journals such as Journal of Economic Geography, Organization Studies,
and Economic Geography, and he is editor-in-chief emeritus of Industry and Innova
tion, series editor of the Routledge Studies in Industrial Dynamics, and co-editor of
The Oxford Handbook of Creative Industries.
Page 13 of 22
Nichola Lowe ([email protected]) is an Associate Professor at the Department of

City and Regional Planning, University of North Carolina at Chapel Hill. Her research
focuses on the institutional arrangements that lead to more inclusive forms of eco
nomic development and, specifically, the role that practitioners can play in aligning
growth and equity goals. She is undertaking research on local economic development
and skills transference among immigrant construction workers and job strategies for
displaced workers and less educated individuals in the North American context. She
has worked as a consultant for the International Labour Organization, Inter-American
Development Bank, Bank of the Northeast Brazil, and Ontario Ministry of Economic
Development and Trade.
Stephan Manning ([email protected]) is Associate Professor of Manage

ment and co-founder of the Organizations and Social Change Research Group at the
College of Management, University of Massachusetts Boston. His research mainly
covers three areas: sustainability standards, global services sourcing, and project-
based organizing. He has done field research in various countries, including China,
Germany, Guatemala, Kenya, Romania, South Africa, and the USA. His research has
been published in numerous academic journals, such as Strategic Management Jour
nal, Journal of International Business Studies, Journal of Management Studies, Orga
nization Studies, and Research Policy. He serves as Senior Editor of Management and
Organization Review. He is also founding co-editor and author of the Organizations
and Social Change Blog, and has written for The Conversation, The Broker, and other
blog platforms.
Ron Martin ([email protected]) is Professor of Economic Geography, University of

Cambridge, UK, and holds a Professorial Fellowship at St Catharine’s College. He is
also a Research Associate of the Centre for Business Research, Judge Business
School, and leads the Centre for Geographical Economic Research, at Cambridge. He
has been awarded the British Academy’s ‘Thank-Offering to Britain’ Senior Research
Fellowship, 1997–8; a Leverhulme Major Research Fellowship, 2007–10; and a Lever
hulme Emeritus Fellowship for 2015–17. He is an Academician of the Academy of So
cial Sciences (2001), a Fellow of the British Academy (2005), and President of the Re
gional Studies Association. In 2016 he was (p. xli) awarded the Royal Geographical
Society’s Victoria Medal for outstanding contributions to the study of regional eco
nomic development. His research interests span: work, financial systems, regional
economic development, evolutionary economic geography, and public policy. He cur
rently leads a major Economic and Social Research Council project on city economic
evolutions.
Page 14 of 22
Philip McCann ([email protected]) holds the Endowed Chair in Economic Geography

at the University of Groningen in the Netherlands. He studied at and gained his PhD
(1993) from the University of Cambridge; prior to moving to Groningen he worked at
the University of Pennsylvania in the USA (1993–5), the University of Reading (UK)
(1995–2005), and the University of Waikato in New Zealand (2005–9). He has also
been a Visiting Professor in the USA, Japan, Thailand, Spain, and Italy. Professor
McCann’s research covers a wide range of economic geography topics and his re
search has received awards in various countries. He has also acted as an advisor and
consultant to the European Commission, the Organisation for Economic Co-operation
and Development, the European Investment Bank, and government departments and
research institutions in several different countries.
Caitlin A. McElroy ([email protected]) is a Departmental Re

search Lecturer at the School of Geography and the Environment and the Smith
School of Enterprise and the Environment, University of Oxford. The focus of her re
search has revolved around the institutional dynamics of private-sector investment in
development. This has included researching the interactions between the mining in
dustry, environment, and development. This has led to a range of projects and part
nerships that address critical issues, such as improving the sustainability and devel
opment of resource-driven economies and the creation of tools to assist corporations
in the management of their environmental and social risks and opportunities. Further,
it has led to her current work to build a research programme titled ‘Sharing Resource
Prosperity’, which continues to research environmental and social sustainability relat
ed to the extractive sector. Also, she is involved in researching environmental impact
investing in the USA and UK. She has published several papers on the governance of
extractive industries’ investments for development, and is co-editing a book titled
Food, Energy, and Water Sustainability: Emergent Governance Strategies.
Anita M. McGahan ([email protected]) is a Professor of Strategic

Management at the Rotman School of Management at the University of Toronto. She
has also served as the Associate Dean of Research at the Rotman School. Her re
search is focused on industry change, sustainable competitive advantage, and the es
tablishment of new fields. An area of particular interest to her is global health and the
diffusion of knowledge across international boundaries. She has authored and co-au
thored more than fifty-five articles in refereed journals and three books, including
How Industries Evolve: Principles for Achieving and Sustaining Superior Perfor
Page 15 of 22
mance. She is a member of the editorial boards of several journals, such as Academy
of Management Discoveries, European Management Review, and Strategic Organiza
tion.
Sarah McGill ([email protected]) is a Research Associate at the

Smith School of Enterprise and the Environment, School of Geography and the Envi
ronment, University of Oxford. Her current research uses behavioural and institution
al approaches to examine cross-country differences in social security provision and
the (p. xlii) barriers that prevent households from adequate long-term financial plan
ning. She obtained her DPhil at the University of Oxford in 2015. Her previous re
search focused on commodity markets, mineral resource governance, and the rela
tionship between the financial sector and the ‘real economy’; she has also published
several papers and reports on sustainable investing. She is a member of the editorial
board of the Journal of Sustainable Finance and Investment.
Charlotta Mellander ([email protected]) is Professor of Economics at the

Jönköping International Business School. She is also affiliated with the Martin Pros
perity Institute at the Rotman School of Management, University of Toronto. She stud
ies location patterns of creative individuals and firms to determine how they shape re
gional development and has published numerous journal articles on this topic. She
has delivered more than 200 invited, external speeches, both nationally and interna
tionally, including the European Union and the United Nations, and companies like
IBM.
Ashby Monk ([email protected]) is the Executive and Research Director of the

Stanford Global Projects Center. He is also a Senior Research Associate at the Univer
sity of Oxford and a Senior Advisor to the Chief Investment Officer of the University
of California. His current research focus is on the design and governance of institu
tional investors, with particular specialization on pension and sovereign wealth funds.
He has published several articles and op-eds on institutional co-investing, pension
funds, and ethical investment. His research and writing has been featured in The
Economist, The New York Times, The Wall Street Journal, The Financial Times, Insti
tutional Investor, Reuters, Forbes, and on National Public Radio, among a variety of
other media.
Page 16 of 22
Phillip O’Neill ([email protected]) is Professor of Economic Geography

and Director, Centre for Western Sydney, at Western Sydney University. Before joining
the University of Western Sydney as Foundation Director of the Urban Research Cen
tre in 2006, he was Director of the Centre for Urban and Regional Studies at the Uni
versity of Newcastle, NSW. He was recognized as a Fellow of the Institute of Aus
tralian Geographers in 2008. From 2008 to 2013 Phillip was editor-in-chief of Geo
graphical Research and he currently sits on the editorial boards of Environment and
Planning A and the Journal of Economic Geography. His research interests include ur
ban infrastructure, suburban labour markets, and state theory and practice. Phillip is
widely published in economic geography, as well as in the mainstream media where
he is a prominent columnist and commentator.
Jamie Peck ([email protected]) is Canada Research Chair in Urban and Regional

Political Economy, Distinguished University Scholar, and Professor of Geography at
the University of British Columbia. With long-term research interests in urban re
structuring, geographical political economy, labour studies, the politics of policy for
mation and mobility, and economic geography, his recent books include Offshore: Ex
ploring the Worlds of Global Outsourcing, Fast Policy: Experimental Statecraft at the
Thresholds of Neoliberalism (with Nik Theodore), Constructions of Neoliberal Reason,
and The Wiley-Blackwell Companion to Economic Geography (with Trevor Barnes and
Eric Sheppard). A Fellow of the Royal Society of Canada, and previously the holder of
Guggenheim and Harkness fellowships, Peck is the Editor-in-Chief of the Environment
and Planning series of journals.
Alexander Pfeiffer ([email protected]) is studying for a DPhil in Ge

(p. xliii)
ography and the Environment at the University of Oxford with a focus on stranded
carbon assets and their effects on financial markets. He is also a research assistant
for the Institute for New Economic Thinking (INET) at the Oxford Martin School. His
main research interests are stranded carbon assets and the carbon bubble, energy
policy, effects of climate policies on financial markets, carbon taxes, and committed
emissions.
Andrés Rodríguez-Pose ([email protected]) is Professor of Economic Ge

ography at the London School of Economics, where he was previously Head of the De
partment of Geography and Environment. His research interests include regional
growth and inequality, fiscal and political decentralization, regional innovation, and
development policies and strategies. In his areas of expertise, he has regularly acted
Page 17 of 22
as a consultant to several Directorates of the European Commission, the European In

vestment Bank, the World Bank, the Cities Alliance, the Organisation for Economic
Co-operation and Development, the International Labour Organization, and the Food
and Agriculture Organization. He has also published more than 150 papers in peer-re
viewed journals, is an editor of Economic Geography, and sits on the editorial board
of twenty-nine other scholarly journals. He is also the author of several books such as
Local and Regional Development (with Andy Pike and John Tomaney), Innovation and
Regional Growth in the European Union (with Riccardo Crescenzi), and Technology
and Industrial Parks in Emerging Countries (with Daniel Hardy).
Rajiv Sharma ([email protected]) is a Research Director at Stanford

University’s Global Projects Center and an honorary research associate at the Oxford
University Smith School of Enterprise and the Environment. He received his Doctor
ate from Oxford University in the field of Pensions, Sovereign Wealth Funds and In
frastructure Investment. Prior to his position at Stanford, Rajiv worked as an econo
mist for the Organisation for Economic Cooperation and Development (OECD) in
Paris. Promoting long-term investment by institutional investors is a focus of his cur
rent work at Stanford and through this, he has worked with a number of global insti
tutional investors and governments. His latest book is entitled Reframing Finance,
which looks at how more institutional investor capital can be channelled into long-
term projects like infrastructure, real estate, private equity and agriculture through
collaboration and co-investment. He has also worked for venture capital private equi
ty firm Oxford Capital Partners and London-based Infrastructure/Private Equity Advi
sory firm, Campbell Lutyens.
Eric Sheppard ([email protected]) is Alexander von Humboldt Chair and

Professor of Geography at the University of California, Los Angeles. His research in
terests lie in geographical political economy, uneven geographies of globalization,
neo-liberalism, urbanization in the Global South, urban sustainability and environ
mental justice, and critical geographical information systems. He has published more
than 100 journal articles and twelve books. He serves on the editorial boards of Eco
nomic Geography, The Journal of Economic Geography, and Human Geography. Be
tween 2013 and 2014 he was President of the Association for American Geographers.
Janice Gross Stein ([email protected]) is the Belzberg Professor of Conflict Man

agement in the Department of Political Science and the founding Director of the
Munk School of Global Affairs at the University of Toronto. She is a Fellow of the Roy
Page 18 of 22
al Society of Canada (p. xliv) and a member of the Order of Canada and the Order of
Ontario. Her main research interests include intelligence, international security, nego
tiation processes, and behavioural explanations of decision-making. She has pub
lished more than 100 articles and several books, including Digital Diplomacy and a
forthcoming article on loss aversion and the end stage of negotiation.
Michael Storper ([email protected]) is Professor of Economic Geography at the

Department of Geography and the Environment, London School of Economics. He is
also affiliated with the Centre de Sociologie des Organisations at Sciences-Po in Paris,
and the Department of Urban Planning in the School of Public Affairs at the Universi
ty of California Los Angeles. His research interests include globalization and regional
economic development processes, and the effects of new communication technologies
on face-to-face contact and delocalization. His latest books are The Rise and Fall of
Urban Economies (2015) and Keys to the City: How Economics, Institutions, Social In
teraction, and Politics Shape Development (2013). He is a Corresponding Fellow of
the British Academy, and has received the Regional Studies Association’s Sir Peter
Hall Prize for overall contribution to the field.
Kendra Strauss ([email protected]) is an Associate Professor of Labour Studies in the

Department of Sociology and Anthropology, Simon Fraser University. A geographer by
training, her work focuses on occupational pensions; precarious work, migration and
unfree labour; and on theorizing the relationships between production and social re
production in contemporary capitalist economies. She is also interested in how cate
gories of social difference like gender, race, and class shape the wage relation and un
paid work. Her recent research has looked at non-standard work in the UK, employ
ment agencies, and unfree labour, and the evolution of legal approaches to forced
labour and trafficking. Her latest book, co-edited with Dr Katie Meehan, is entitled
Precarious Worlds: Contested Geographies of Social Reproduction (UGA Press, 2015).
Alexander Teytelboym ([email protected]) is the Otto Poon Research Fel

low at the Institute for New Economic Thinking at the University of Oxford. Following
completion of his DPhil in Economics from the University of Oxford, he worked for
one year as a post-doc at the Lab for Information and Decisions Systems at MIT. His
research interests focus on networks, matching markets, market design, and the envi
ronmental economics. He has published several policy papers on climate change,
transport, refugee resettlement, and transition economies.
Page 19 of 22
Maria Tsampra ([email protected]) is an Assistant Professor at the School of

Business Administration, University of Patras, Greece. Her expertise broadly lies in
economic geography, regional, local, and urban development, and, more specifically,
in issues of regional diversity and spatial inequalities, regional entrepreneurship and
competitiveness, local labour markets, economic restructuring, and integration in
south-eastern European countries. She has authored and co-authored several book
chapters and journal articles on regional employment and production patterns, spatial
division of labour, small- and medium-sized enterprise innovativeness, and so on.
Callum Wilkie ([email protected]) is a researcher at the Local Economic Develop

ment Programme at London School of Economics. His areas of research and expertise
include regional growth and development; equitable and inclusive economic growth;
regional innovation and innovation policy; and territorial development policies and
strategies. (p. xlv)
Dariusz Wójcik ([email protected]) is a Professor of Economic Geography

in the School of Geography and the Environment at Oxford University, a Fellow of St
Peter’s College, and a Visiting Professor at Beijing Normal University. His research fo
cuses on finance, corporate governance, and economic globalization. His current
project, funded by the European Research Council, investigates how financial and
business services have been affected by the global financial crisis, and how they
change in response to new financial regulation, the rise of the Global South, and the
digital revolution. The project also focuses on the impacts of finance on regional de
velopment. Dariusz is a member of the editorial board of Economic Geography, the
Journal of Economic Geography, Environment and Planning A: Economy and Space
and GeoJournal and leads the Global Network on Financial Geography (FinGeo).
Neil Wrigley ([email protected]) is Professor of Human Geography, University

of Southampton, and was previously Head, School of City and Regional Planning, Uni
versity of Wales, Cardiff. Founding Editor of the Journal of Economic Geography
(2001–14), he has held ESRC, Leverhulme, and Erskine Research Fellowships, and
was Senior Research Fellow, St Peter’s College, Oxford. His contributions to economic
geography research have a distinctive focus on retail and consumption and are re
flected in his 160 journal papers and agenda-setting books. They have provided pio
Page 20 of 22
neering interpretations of the role retailers play as key organisers of the global econo
my, of the regulatory challenges posed by emerging competitive landscapes of retail
power, and insight into the disruptive consequences of online retail and the digital
economy. Recognition of his work includes the Royal Geographical Society’s Murchi
son Award (2008), ESRC’s Outstanding Impact in Business Prize (2014), election as
Academician of the Academy of Social Sciences (2003), and the distinguished Fellow
ship of the British Academy (2012).
Henry Wai-chung Yeung ([email protected]) is Professor of Economic Geog

raphy at the National University of Singapore. Previously, he has held visiting profes
sor positions at the University of Sydney, University of Manchester, University of
Hong Kong, and University of Washington at Seattle. His research interests broadly
cover theories and the geography of transnational corporations, global production
networks and global value chains, East Asian firms, and developmental states in the
global economy. Author of five monographs, his latest books are Strategic Coupling:
East Asian Industrial Transformation in the New Global Economy (Cornell Studies in
Political Economy Series, Cornell University Press, Ithaca, May 2016) and Global Pro
duction Networks: Theorizing Economic Development in an Interconnected World
(with Neil Coe, Oxford University Press, April 2015). He has also published over 90
journal papers and 45 book chapters, and edited and co-edited 7 books on Asian busi
ness, globalization, and emerging economies. Since 2001, he has served as an editor
at Environment and Planning A, Economic Geography, and Review of International Po
litical Economy (2004–13).
Matthew Zook ([email protected]) is Professor of Economic Geography and the director

of The DOLLY Project (Data on Local Life and You) at the University of Kentucky. His
research interests are at the intersection of economic, digital, and urban geographies.
In recent years, he has studied the micro-geographies of high-frequency trading, the
production of geosocial media, and how code, space, and place interact to create the
augmented realities of daily-lived geographies. He is also interested in the multiple
ways in which flows of (p. xlvi) material goods in the global economy are shaped by im
material flows of information, and the ways in which the intertwining of material and
virtual flows is providing news ways to study economic geography. He has written
dozens of journal articles and book chapters on digital geographies, economic geogra
phy, and globalization. He is a member of the editorial board at Big Data & Society:
Critical Interdisciplinary Inquiries and the AAG’s new journal, GeoHumanities.
Page 21 of 22
Introduction Economic Geography in the Twenty-first Century
Introduction Economic Geography in the Twenty-first

Century
Gordon L. Clark, Maryann P. Feldman, Meric S. Gertler, and Dariusz Wójcik
Print Publication Date: Jan 2018 Subject: Economics and Finance, Business Economics
Online Publication Date: Feb 2018 DOI: 10.1093/oxfordhb/9780198755609.013.100
Abstract and Keywords
The introduction approaches economic geography with reference to where, why, and so
what questions focused on understanding economy. The latter is defined broadly as a to
tality of processes through which individuals, households, and societies make a living and
sustain themselves. This economic–geographical approach is then elaborated with the
concepts of location, place, territory, distance, proximity, diversity, scale, heterogeneity,
and differentiation. The evolution of the discipline, the main challenges facing the world
economy in the twenty-first century, and ways in which the discipline has responded to
understanding these challenges are outlined briefly. The chapter demonstrates that the
discipline has remained open and dynamic in a pursuit of explaining the spatiality of eco
nomic processes and their impacts on growth, uneven development, stability, and sustain
ability. Finally, the structure and arguments of the Handbook are previewed, highlighting
how the discipline has changed since the first Handbook was published in 2000.
Keywords: location, place, territory, distance, proximity, diversity, scale, heterogeneity, differentiation, evolution
The Remit of Economic Geography

GEOGRAPHY can be defined as the why and so what of where. In economic geography
the where, why, and so what questions are focused on understanding economy. The latter
needs to be defined broadly as the totality of processes through which individuals, house
holds, and societies make a living and sustain themselves. As such, it involves the
processes of production, consumption, distribution, and exchange, but not only those in
the formal economy. Informal economy, both ‘grey’, such as household production, and
‘black’, such as illegal drug trade, are as much of interest to economic geographers as
constituents of national income (Gibson-Graham, 2006). The value of unpaid childcare
alone, one of the informal economy’s many components, was estimated at £343 billion in
the UK in 2010, an equivalent of 23 per cent of gross domestic product (GDP), in which it
is not included. The broad definition of economy in economic geography also recognizes
Page 1 of 20
that economy is embedded in society and nature, relying on social and natural resources
and processes. As such, human–environment relations are central to economic geography,
just as they are to geography in general.
Where is about the spatiality of economic processes and involves the key concepts of loca
tion, place, and territory (Coe et al., 2013). Location can be understood simply as the geo
graphical coordinates of a person or object. Places are parts of space with a specific
meaning. They are socially constructed and can refer to body parts, buildings, streets,
workplaces, shops, parks, neighbourhoods, cities, and an infinite number of other phe
nomena, which can be defined differently by different people. Territory is also a part of
space, but this time defined by a specific system of power that exercises (even if only par
tial) control over that part of space. This can be a nation state, with control exercised by
national government, but it can also be a subnational state, province, or city under the
control of a regional or municipal government. Thus, as we move from location through
place to territory, we shift focus from physical, through social, to political space. Loca
tions, places, and territories are crucial to understanding economy. If you are born in the
USA, you can expect to earn 100 times more and live thirty years longer than if you are
born in Zambia. A Bolivian man with nine years of (p. 2) schooling earns, on average,
three times less than his counterpart in the USA. The best predictor of income is not what
and whom you know but where you work (World Bank, 2009).
What helps economic geographers relate locations, places, and territories to each other
are the concepts of distance, proximity, diversity, and scale. Distance is defined in terms
of physical space, as physical distance between locations. Proximity is a much broader
concept, helping us relate people, objects, places, and territories in social and political
space, in addition to physical space. As such, we can distinguish many types of proximity,
including social, organizational, institutional, and cognitive (Boschma, 2005). For exam
ple, people may be distant physically, but very close in terms of their language and cul
ture, organizations they belong to, rules they follow, or ways in which they think, and vice
versa, very close physically but far apart with regard to other types of proximity. Both dis
tance and proximity are ultimately about understanding the difference between people
and objects in their locations, places, and territories. This emphasis speaks to the preoc
cupation of economic geography with diversity of economic life, and caution regarding
the search for universal laws that shape this life. Equally important to economic geogra
phy is commitment to a multiscalar inquiry, starting with the human body and an individ
ual as an economic agent, through the scale of workplace and home, local (e.g. neigh
bourhood), urban, regional, national, to the supranational and global scale (Castree et al.,
2004).
Why is about explaining the spatiality of economic processes and the diversity of econom
ic life they create. Here, geographers study a mesmerizing variety of forces ranging from
economic universals like demand and supply, through behaviour of economic actors and
organizations, formal and informal institutions setting the rules of economic activities, to
ethnicity, sex, and other cultural factors. The centre stage is no longer occupied by a utili
ty maximizer—homo economicus—but rather a satisficer, searching for satisfactory rather
Page 2 of 20
than optimal solutions, whose decisions are affected by her or his cognition on one side
and environment on the other (Simon, 1956). What is more, in their decisions people are
subject to all kinds of systematic anomalies and biases, including myopia and loss aver
sion, and are affected by the way problems facing them are framed (Kahneman, 2011).
Complacency is mixed with overreaction to environmental stimuli, and herd behaviour
with individualism in complex ways, making the economic landscape even more difficult
to explain and predict.
Economic geography considers economic landscape as heterogenous, the product of his

tory and processes that can be distinctive to a place or territory. This does not mean that
economies are incomparable across space. It does, however, mean that they cannot be re
duced to a set of universal variables like GDP growth rate or Gini coefficient. This also
highlights the need for using a diverse set of quantitative and qualitative research meth
ods, as well as knowledge gained through experience, rather than applying a distant, and
purportedly objective, view on economic life. In the spirit of steering clear of determin
ism, some economic geographers talk about factors facilitating rather than determinants
of spatial economic structures (Massey, 1995).
The so what question concerns the consequences of the spatial variation and organization
of economic processes for economy, society, and nature at large. One way to think about
these consequences is to focus on four key dimensions of economic development: growth,
equity, stability, and sustainability. With its focus on uneven development across space,
economic geography has contributed significantly to debates on growth and equity. Of
particular relevance here is the geographers’ interest in the processes of differentiation,
whereby difference, including inequality, is produced by economic processes that sustain
long-term (p. 3) spatial variation (Clark et al., 2000). This contribution was crucial in
counteracting hyper-globalist views, prominent in the 1990s, emphasizing homogenizing
forces of globalization, envisaging a global society, and predicting the end of geography
in economy, politics, and culture.
While the battle fought by economic geography against a simplistic view of globalization
continues, as we argue in the following section, the twenty-first century poses new chal
lenges to the discipline, particularly in the areas of equity, stability, and sustainability. To
be sure, beyond informing scholars inside and outside of geography, the crucial aspect of
the so what question involves the impact of economic geography on public debate and
policy. Even at the very basic level, the quintessentially geographical curiosity about
where a product or a meal comes from can contribute to a better informed, more reflex
ive, and responsible consumption. In this sense, economic geography is arguably more
than a discipline. It is a perspective, a mindset that can help responsible behaviour and
citizenship.
The where, why, and so what questions have permeated the history of economic geogra
phy, although with changing emphasis. The roots of economic geography can be found in
commercial geography of the nineteenth century, which was preoccupied with the origin
of different products and documenting trade patterns around the world. Environmental
Page 3 of 20
geography in the first three decades of the twentieth century shifted focus from where to
why, explaining economic, as well as social, patterns across space with features of natur
al environment, predominantly climate, often in an excessively deterministic manner. Dis
satisfied with environmental determinism, for the next quarter century or so, starting
from the late 1920s, in a wave of research referred to as aerial differentiation, economic
geography returned to focus on the question where, emphasizing the mutual interdepen
dence of place and economy, but without privileging the natural environment as a causal
factor. In the 1950s, the discipline evolved again to the question why, employing quantita
tive locational analysis, allied with economic and regional science, modelling the location
of economic activity as a function of demand, supply, and distance as key factors (Berry et
al., 1987).
The last three decades of the twentieth century have witnessed further developments in
economic geography that modified the way economic geographers ask the questions
where and why. One was the rise of behavioural approaches in the 1970s, investigating
locational decisions of economic actors who satisfice and cope with uncertainty. A more
radical turn was a political economy approach, from the 1970s shifting emphasis from lo
cation to territory, and from ‘purely’ economic to social and political processes, in which
economies are embedded. Finally, a cultural economy approach, flourishing since the
1990s, has complemented the political economy approach by focusing on place and cul
tural embeddedness of economic life and lived economic experiences.
All waves and approaches in economic geography have engaged with the so what
question, but in different ways and with different emphasis. In commercial geography it
was about predicting the patterns of commerce and identifying commercial opportunities.
Environmental geography ventured into predicting the capacity of different environments
to carry human activity, including a famous forecast made in 1940 by Griffith Taylor, when
the population of Australia was seven million, that the natural environment would limit its
population to a range of 20–30 million (exactly where it is now) (Taylor, 1940). Locational
analysis contributed to corporate decision-making, regional and urban economic plan
ning, and forecasting economic growth at the subnational level. Political and cultural
economy approaches have (p. 4) brought new perspectives to the table, including big nor
mative questions about inequality, the future of capitalism, and its alternatives.
A shift in emphasis in terms of questions has been accompanied with movement on the
continuum between nomothetic (theory-driven) and idiographic (descriptive) approaches.
Commercial geography and the study of aerial differentiation were on the idiographic end
of the scale, with locational analysis marking the height of the nomothetic tradition. So
cial and natural sciences influencing economic geography have been changing as well.
While environmental determinism pursued grounding in natural sciences, locational
analysis did so in economics, political economy approaches in heterodox political econo
my, while cultural economy approaches find inspiration primarily in social theory and eco
nomic sociology.
Page 4 of 20
Ultimately, all of the waves and shifts in the history of economic geography contribute to
the palimpsest of the discipline, in which the new does not necessarily supersede and re
place the old, but adds a new layer and angle to the collective intellectual project. They
reflect the dynamism of an open and interdisciplinary field, well suited to explaining the
trends and addressing the challenges facing the world in the twenty-first century. It is
these trends and challenges, and how economic geography has responded to them, to
which we now turn.
The World Economy Since 2000

More than fifteen years have passed since the publication of the first Oxford Handbook of
Economic Geography. This is a long time for an academic discipline with not much over
100 years of history, particularly during a period of momentous change and challenge in
the world economy.
We have seen an unprecedented growth of many economies, particularly in Asia. The

share of India in global nominal GDP increased from 1 per cent in 2000 to 3 per cent in
2015; China’s from 3 per cent to 15 per cent. The term emerging markets has been plant
ed in the popular imagination, as have more recent terms like BRICs (Brazil, Russia, In
dia, and China), and the Global South (Africa, Central and Latin America, and Asia), all
recognizing the contribution of hitherto underdeveloped countries to the world economy.
A related phenomenon is the growing significance of south-to-south economic relations,
including Chinese trade and investment in Africa and Latin America. Combined with the
effects of the recent financial crises on the US and European economies, these trends
mark the emergence of new geo-economics, which collides with old US-dominated
geopolitics, with the Global South severely under-represented in global economic gover
nance structures such as the World Bank and the International Monetary Fund (IMF).
There are potential signs of hope, as in December 2015 the US Congress finally approved
the reform of the IMF, which now offers more voting rights to Brazil, Russia, India, and
China (IMF, 2016).
To be sure, growth in the Global South has been very uneven, both between countries, ex
cluding large parts of Africa in particular, and within countries. It has been accompanied
by a huge wave of urbanization, with the percentage of world population living in cities
rising from 48 per cent in 2000 to 55 per cent in 2015. This represents 1.1 billion more
urban dwellers, with 90 per cent of this growth in emerging and developing economies of
the Global South. Megacities have grown particularly fast. At the end of 2015 there were
twenty-nine cities with populations over ten million, up from seventeen in 2000 (United
Nations, (p. 5) 2016). The Pearl River Delta which hosts two of them, Shenzhen and
Guangzhou, in addition to the eight-million-strong Hong Kong, was developing into the
world’s largest megacity region (overtaking Tokyo), with a high-speed railway to link
Guangzhou with Hong Kong, a 40-km-long bridge to link Hong Kong with Macau and
Zhuhai, and a subway linking Guangzhou with Shenzhen (The Economist, 2016).
Page 5 of 20
Fast growth in many emerging and developing countries has left many behind, making so
cieties more unequal, with the biggest contrasts following the urban–rural divide. While
Shanghai may enjoy the average GDP per capita level (in purchasing power parity terms)
comparable with Israel, in Gansu province it is comparable with Angola. Inequalities of
income and wealth have also continued to increase in advanced economies. This ascent,
as documented by Thomas Piketty (2013), is now over forty years old. In the 2010s it has
made many economies (with the USA and UK in the lead) as unequal as they were in the
1930s. What is worse, only high growth of income combined with much higher redistribu
tion of income and wealth can reverse this trend in a peaceful manner, and neither looks
likely as of 2016. While driven by a complex combination of globalization, technology, and
ideology, growing inequality undeniably erodes cohesion and health of societies and
presents a fundamental challenge to sustainability.
Technology, including the rise of the digital economy, has contributed to growth, urban
ization, and inequality. It has facilitated the development of long chains and complex net
works of investment, production, and trade, which have enveloped emerging and develop
ing economies. At the same time, through economies of scale and agglomeration, it has
privileged cities, particularly large ones, as nodes in these networks, which concentrate
innovation, financial, and coordinating activities. To add to spatial inequalities, the gap
has grown between those who have the skills to keep up with new technology, and those
who do not. Educational systems fight an uphill struggle to address this growing skills
gap, as the latter is inextricably linked with growing income and wealth inequality.
In 1998–99 when the first Oxford Handbook of Economic Geography was edited, Dropbox
and Skype did not exist, editors would more often use a university library than a web
browser, and probably few geographers dreamt of big data. Since then the amount of in
formation stored digitally around the world has increased thousands of times. Having re
shaped media and services (the world of information bytes), digital technologies, armed
with open-source design and three-dimensional printing, are now affecting manufacturing
(the world of atoms). For some, we are on the brink of a technological transformation,
whereby production is brought much closer, also in terms of physical distance, to con
sumption, thus reducing the need for very long production chains (Anderson, 2012). Oth
ers, however, are sceptical, arguing that technology has ‘run out of steam’, and the new
technologies are unable to generate sustained economic growth at high rates experi
enced since the 1950s (Gordon, 2016). Instead, an annual growth rate of 1 per cent or
lower may be a new normal.
Crucially, we have not managed to lessen the pressure of the world economy on the envi
ronment. Global carbon dioxide emissions have risen by nearly 40 per cent since 2000,
with China replacing the USA as the largest polluter (PBL Netherlands Environmental As
sessment Agency, 2015). There is headway, however, in both technology and policy. The
capacity of solar and wind power has multiplied. Hybrid and electric cars are increasingly
common on the streets, not only in advanced economies. The profile of the Intergovern
mental Panel on Climate Change has grown with every new assessment report, (p. 6)
boosted by the Nobel Prize awarded to the organization in 2007. The Stern Review, pub
Page 6 of 20
lished in 2006, highlighted the devastating effects of climate change on the world econo
my, calling for major investment of 1 to 2 per cent of global GDP per year to address the
worst effects (Stern, 2007). The Paris agreement of 2015 within the framework of the
United Nations Framework Convention on Climate Change also marked major progress in
this area, with commitment to ambitious goals in terms of greenhouse gas emissions, cli
mate change adaption efforts, and financial contributions to achieve both aims.
In addition to these shifts, the world economy has experienced a major shock. This began
with the subprime crisis in the US in 2007–08 and spilled over to Europe in 2009, expos
ing the structural weaknesses of the Eurozone. As the most severe and far-reaching eco
nomic crisis since the 1930s, it has been referred to as the global financial crisis or the
Great Recession. While the financial sector in the most affected countries has been saved
from the consequences of its own reckless behaviour, and a full-blown depression has
been prevented, the resulting explosion of public debt is unprecedented, putting a huge
burden on the public sector and threatening long-term growth prospects. To add irony to
the situation, wealthy individuals of advanced economies own an absolute majority of
public debt of their countries. Europe as a whole has not been in so much debt, in rela
tion to the size of its economy, since the aftermath of World War II. In terms of the wealth
accumulated (extremely unevenly so) by its citizens, however, it is richer than ever (Piket
ty, 2013).
In sum, we live not only in very interesting, but also in highly uncertain times. Globaliza
tion and integration, arguably the liveliest topics in economic geography in the 1990s,
which started with the collapse of communism and ended with the introduction of the Eu
ro, have continued hand in hand with financialization until 2007, but have slowed down
since, and can no longer be taken for granted. New financial regulations may be benefi
cial in curtailing the excesses of international and national financial markets, but the im
plicit assumption that the purpose of a financial system is to serve the needs of the na
tional ‘real’ economy, rather than a global ‘real’ economy, as made by many proponents of
new regulation, might be problematic. Elsewhere, in the ‘real’ economy, economic nation
alism and protectionism are also in ascendency, including the growing popularity of na
tional champion policies. Of particular importance to the future of globalization are obvi
ously the relationships between the USA and China. Whether a balance of power con
ducive to international economic integration can be established remains one of the big
question marks.
A pessimist may interpret these challenges and uncertainties by turning to Karl Polanyi’s
idea of double movement (Polanyi, 1957). As the excesses of marketization, including the
forces of neoliberalization, financialization, and globalization, have led to a crisis of capi
talism, the fundamental problems they have created, with inequality in the lead, have not
been resolved. In fact, inequality has, in many advanced economies, been aggravated by
austerity policies. However, a countermovement is mounting. Put very simply, people in
mature economies appear tired of elites hoarding the benefits of globalization rather than
sharing them more evenly. While the Great Recession has discredited the old economic
Page 7 of 20
model, the economic and political establishment has done little to change it and revert
the trend of rising inequality.
As a result of rising inequality many people turn to populist politicians proposing to erect
walls, literal and not, in a promise to protect their countries from foreign influence, and
fuelling xenophobia. The slogan ‘take back control’ used successfully by the Leave cam
paign in (p. 7) the UK’s European Union referendum (2016) is a reflection of this trend, as
is the election of Donald Trump as the US President. Analogies with the early twentieth
century are ominous, when a wave of marketization of the late nineteenth and early twen
tieth century was followed by international conflict and economic crisis. Polanyi reminds
us that tensions between marketization and the countermovement do not need to resolve
themselves peacefully. For that reason one could also argue that stemming the tide of ris
ing inequality is a precondition for addressing the collective problem of climate change.
While we may disagree with a Polanyian warning for our times, there is no doubt econom
ic geography remains crucial, maybe more important than ever, to understanding the
global economic change. Urbanization led by megacities reminds us about the signifi
cance of location, place, and proximity in today’s economy. Digital and other technologies
may overcome the friction of distance for some economic relations and activities, such as
communication, while at the same time enhancing the role of proximity for others, such
as corporate control. Despite globalization and integration, territoriality remains key to
understanding the geoeconomics and geopolitics of the twenty-first century. The spectac
ular growth of economies ranging from Singapore to China, India, and Angola testify to
the principles of diversity and heterogeneity, where there is not one economic model to
follow. Growing inequality speaks to the underlying processes of differentiation. Scale
plays a fundamental role, too. We cannot interpret the secessionist movement in Catalo
nia without considering Catalonia as a city region that does not only see itself as different
from the rest of Spain, but also seeks independence to function more flexibly in a world
where growth is to a large and increasing degree driven by successful city regions.
The where, why, and so what questions of economic geography are relevant to under
standing economy wherever you are. The last editorial meeting for this handbook took
place in San Francisco in March 2016, where these questions resonated particularly loud
ly. In 2000, when the first handbook went to print, the dot.com boom, of which the San
Francisco Bay Area was the centre, came to an end. The Nasdaq Index reached its peak
of 5048 in March only to lose half of it by the end of the year, wiping out trillions of US
dollars in market capitalization. The area was a symbol of irrational exuberance, conges
tion of economic activity, and unaffordability, with an average rent exceeding $3000, and
thousands of homeless people. Geography students around the world were writing essays
about San Francisco as a prime example of diseconomies of agglomeration. Surely, many
in 2000 must have thought that this agglomeration cannot increase any more, and would
not have banked on the future of this city region.
Fast forward sixteen years. The San Francisco Bay Area economy is larger and more dom
inant in the world of innovation and technology than ever before. It hosts the command
Page 8 of 20
centres of the two largest corporations in the world by market value (Apple and Google),
and two more in the global top ten: Facebook and Wells Fargo—the world’s largest bank
by market capitalization. In 2000, it had two companies in the global top ten: Cisco and
Intel. It is by far the leading global centre of financial technology (fintech), which rein
forces its position as a financial centre. An average rent is now over $4000—possibly the
highest of all cities in the world. The issue of homelessness has been aggravated by the
subprime mortgage crisis and the following wave of repossessions (Schafran, 2013). At
the same time, it is a place of mesmerizing diversity and creativity. Its corporations are at
the centre of debates on global cyber security as well as clean technology innovation. As
such, the San Francisco Bay Area and its history is a monument to the extremely uneven
and spiky economic landscape—a powerful (p. 8) demonstration of how the issues of
growth, inequality, stability, and sustainability all meet in one place with implications for
the whole interdependent world.
Economic Geography Since 2000

San Francisco is also a good place for reflection on how economic geography as a disci
pline has responded to the changes and challenges of the twenty-first century. As the cra
dle of the Flower Power movement against the Vietnam War, and the sexual revolution of
the 1960s and the 1970s, the city provided considerable inspiration for debates on gen
der, capitalism, and the rise of political and cultural economy approaches. It was also
here, in Berkeley, where Allan Pred led the behavioural turn.
To start with, it is worth highlighting that all schools of economic geography that have de
veloped since the nineteenth century continue to be relevant. Documenting and predict
ing patterns of production and trade is as important to businesses and governments today
as it was in the heyday of commercial geography. It may even be more relevant given the
intensity of cross-border investment flows spanning the globe. One of the recent develop
ments in consulting is referred to as financial cartography, mapping financial flows and
networks to analyse investment opportunities and risks. As John Authers wrote in the Fi
nancial Times, ‘Investors have much to learn from academics—and certainly not just from
economists—(…) now it is the turn of geographers’ (2015, p. 28).
Many would consign environmental determinism to history, but considering that our civi
lization has in some respects already breached environmental limits to sustainable devel
opment, more engagement of economic geography with environmental issues, including
resource management and climate change, is warranted. Regional economic geography, a
la mode of aerial differentiation research, also has a place in the world where many hith
erto understudied economies become the stage of key economic processes. Take Myan
mar, for example, where a large population and resources have attracted a wave of Chi
nese investment, shaping Myanmar’s geoeconomic and geopolitical position.
Locational analysis continues to offer key analytical tools for studying economic develop
ment at a regional and urban level, growing only more important the further we move
away from the world economy organized by industrial nation states to a complex interna
Page 9 of 20
tional network economy. By cultivating quantitative skills, and spatial econometrics, loca
tional analysis together with geographical information systems also plays a major part in
responding to the challenge and opportunity of big data. Political economy approaches re
main vital for studying inequality, uneven development, capitalism, and for cultivating re
lationships between economic geography and heterodox economics. Cultural economy of
fers invaluable insights into the rise of cultural and creative industries, not to mention so
cial media and networks.
In addition to the application of existing approaches, new perspectives have been devel
oped or gained prominence since 2000. The global financial crisis has renewed interest in
the economic geography of finance (Clark and Wójcik, 2007). The US subprime crisis had
a fundamental spatiality, arising at the intersection between predatory financial practices
and speculative investment in urban land and housing. Competitive deregulation driven
by competition among nation states and financial centres contributed to the credit boom
in the (p. 9) US and elsewhere. The consequences of the crisis have been extremely un
even both across and within countries. In Europe, the gap between the wealthier north
and the poorer south has grown. In the UK, London has boomed, while smaller cities and
towns, particularly in the north, have suffered the most. Geographers have been busy
documenting and interpreting these developments (Aalbers, 2012; Christopherson et al.,
2015). One could even notice a shift from the economic geography of finance, focused on
the spatiality of finance, to a much broader financial geography, a geography infused with
attention to and understanding of finance, drawing on influences from political economy
and cultural economy, as well as financial sociology, history, anthropology, and economics.
Financial geography is an example of the way in which economic geography is respond

ing to the crisis of confidence in mainstream economics. Arguably, financial economics,
with its blind faith in market efficiency and expansion of financial markets, has been com
promised most of all, and so it is not surprising to see other social sciences stepping in to
respond to demands for new perspectives. To be sure, in the wake of the crisis, econo
mists themselves search for new ideas. For example, the Institute for New Economic
Thinking, founded in 2009, aims among other goals at revising the university curriculum
for economics to make it more empirically grounded and methodologically diverse, more
reflexive and critical, and less canonical, with less emphasis on calibrating established
one-size-fits-all models, and more attuned to the diversity of economic life in the real
world (INET, 2016). One cannot help thinking that this looks like a manifesto to convert
economics into economic geography.
While the willingness of the economics profession as a whole to reform itself is a contro
versial topic (Mirowski, 2013), geographers should see it as an opportunity for greater
collaboration and competition with economists. Take, as an example, Thomas Piketty’s
magisterial work on inequality (Piketty, 2013). On the one hand, the book represents a
model of historically informed, and empirically rich research on a topic hitherto notably
neglected by economists. On the other hand, the work remains rooted in methodological
nationalism, with no attention to the urban and regional dynamics of inequality, and rela
Page 10 of 20
tively little attention to its international dimensions, beyond a comparison between nation
states.
As in economics, in economic geography we have seen an increasing engagement with

ideas from biology and engineering. One group of studies is focused on the notion of re
silience—the ability of a regional economy to withstand, absorb, or overcome an external
economic shock (Martin and Sunley, 2015). Another area of research builds on evolution
ary economics to develop evolutionary economic geography, interested in the processes
involved in the evolution of the economic landscape, and the role of regions and cities as
arenas of economic evolution. Theses writings are rife with such concepts as learning,
path dependence, selection, and novelty (Boschma and Frenken, 2006). A related but
younger strand of research in evolutionary economic geography draws inspiration from
complexity economics, treating the economic landscape as a non-deterministic, non-linear
system, where spatial and other macrostructures emerge spontaneously out of the mi
croscale behaviours and interactions of system components, such as firms or individuals
(Martin and Sunley, 2007).
A focus on agency in shaping economic landscape, prominent in evolutionary economic

geography, is the centre of relational economic geography, which focuses on relations
among economic actors as key processes shaping economic landscape (Bathelt and
Glückler, 2003). A related practice approach builds more directly on cultural economic
geography to study practices understood as stabilized, routinized, or improvized social
actions that constitute (p. 10) and reproduce economic space, and through and within
which socioeconomic actors and communities embed knowledge, organize production ac
tivities, and interpret and derive meaning from the world (Jones and Murphy, 2010). At
the heart of this approach is an interest in the everyday economic life.
Figure 0.1 Frequency of Geographical Bigrams Oc

curring in Books Included in the English-language
Corpus of Google Books.
Source: Authors, based on Google Books Ngram

Viewer.
Both the relational and practice approach pay a lot of attention to social and economic
networks, but not quite as much as groups of studies that make networks their explicit fo
cus, with the Global Production Networks approach in the lead. The latter is concerned
with processes of strategic coupling between actors representing particular regions, such
as government agencies, local businesses or business associations, and transnational cor
Page 11 of 20
porations (Coe et al., 2004). In sum, whether focused on the micro, meso, or macro, the
new turns and approaches in economic geography demonstrate that the discipline has re
mained open and dynamic in a pursuit of explaining the spatiality of economic processes
and their impacts on growth, uneven development, stability, and sustainability.
While the progress made by economic geography since 2000 escapes easy quantification,
to illustrate it in a historical context, in Figure 0.1 we use the Google Books Ngram View
er, which captures the frequency of a bigram occurring in books included in the English-
language corpus of Google Books. Results since 1900, smoothed over ten years, indicate
that the popularity of the term ‘economic geography’ had grown steadily since the turn of
the century and peaked in the 1960s, possibly owing to the influence of locational analy
sis and regional science. It had declined in the 1970s and the 1980s, which saw the rise
of social and then cultural geography. Since the trough of 1988, the popularity of the term
has grown, probably revitalized by the wave of interest in globalization in the 1990s. This
upward trajectory continued into the 2000s, and by 2008, on which the data end, econom
ic geography was more popular than political, cultural, or social geography, and even sur
passed human geography.
We should view this diagram with a spoonful rather than a pinch of salt, but broad trends
indicated therein do make some sense, and they definitely paint economic geography as
(p. 11) a discipline on the rise. There is little doubt that this upward trend has continued
beyond 2008. To start with, in 2008 Paul Krugman was awarded the Nobel Memorial
Prize in Economic Sciences for his contribution to economic geography and international
trade theory. Later in the same year, the World Bank published its 2009 World Develop
ment Report entitled ‘Reshaping Economic Geography’, reflecting not only the influence
of Krugman, but also related work in urban economics led by Gilles Duranton, Ed Glaeser,
and J. Vernon Henderson, among others (World Bank, 2009). In addition, the crisis of con
fidence in mainstream economics in the wake of the Great Recession has also promoted
interest in economic geography as an alternative way of viewing the economy.
What has contributed to the rise of economic geography since 2000, in addition to indi
vidual effort, ingenuity, and timely responses to opportunities created by political, eco
nomic, and other changes in the discipline’s external environment, were major organiza
tional developments within it. In terms of academic journals, the discipline now has two
pillars or flagships publishing cutting-edge research in the field. In 2001 the Journal of
Economic Geography joined the Economic Geography journal, published since 1925. The
specific contribution of the new journal, developed under the leadership of Neil Wrigley,
is reinvigorating the intersection between economic geography and economics, helping
the journal to become one of the top outlets in both geography and economics.
On a different front, Jamie Peck led the organization of the Summer Institute in Economic
Geography, a biannual gathering of graduate students and early-career academics togeth
er with leading scholars who present and discuss theoretical and methodological innova
tions in the discipline. By 2016, over 300 young scholars from nearly 50 countries attend
ed these meetings. Finally, in 2000 the Global Conference on Economic Geography was
Page 12 of 20
born in Singapore, through the initiative of Henry Yeung with the aim of facilitating a
global dialogue among economic geographers, with a specific focus on the Global South.
The following Global Conferences took place in Beijing, Seoul, and the most recent one in
2015 in Oxford, hosting over 700 delegates from over 50 countries. This successful partic
ipation has changed the timing from every four years to a triennial cycle, with the next
conference to be held in Cologne in 2018.
Geographers have also been at the forefront of many new interdisciplinary initiatives,
such as the Centre for Innovation, Research and Competence in the Learning Economy,
established in Lund in 2004. The Regional Studies Association launched a Chinese divi
sion in 2014, and established new journals led by economic geographers, including Spa
tial Economic Analysis in 2006, and Area Development and Policy in 2015. There are
many other developments that reflect a discipline that has become larger, more global
ized and diverse, and more influential that could also be mentioned.
Our Handbook
Given the success economic geography has enjoyed in the last fifteen years, it is not sur
prising that it has generated many state-of-the-art textbooks and handbooks. The most re
cent range from introductory texts for undergraduate students (Wood and Roberts, 2011;
Coe et al., 2013), through more advanced texts focused on the political economy ap
proach (Leyshon et al., 2011; Barnes et al., 2012) and key concepts (Aoyama et al., 2010)
to more specialized (p. 12) texts, such as The Handbook of Evolutionary Economic Geogra
phy (Boschma and Martin, 2012), not to forget the seventh edition of Peter Dicken’s Glob
al Shift (2015).
Building on the success of the first edition, this volume offers a radically revised, updat
ed, and broader approach to economic geography. The structure of the first handbook
was based primarily on pairing perspectives on different topics from geographers and
economists, in order to highlight the distinctive theoretical contribution of the former, as
well as encourage dialogue between geographers and economists. Now that economic ge
ography has matured, and dialogue with economists has been reinvigorated, we can take
a bolder approach to tackling the questions of why and so what of where. As argued earli
er, the first fifteen years of the twenty-first century have thrown into sharp relief the chal
lenges of growth, equity, stability, and sustainability facing the world economy. In addi
tion, they have exposed the inadequacies of mainstream economics in providing answers
to these challenges. In this context the objective of the handbook is to provide a forward-
looking perspective to understanding the various building blocks, relationships, and tra
jectories in the world economy. Reviewing the state-of-the-art of economic geography, set
ting agendas, and with illustrations and empirical evidence from around the world, the
book aims to serve as an important reference for advanced-level undergraduate students,
graduate students, researchers, strategists, and policy-makers.
Page 13 of 20
The volume opens with Part I, ‘Grounded in Place’, which explores some of the key devel
opments in the world economy of the twenty-first century. It starts by investigating the
phenomenal growth of Asian economies (Chapter 1), with particular focus on China
(Chapter 4) and India (Chapter 5). Key challenges to future development in both coun
tries, including political structures and social exclusion, are discussed. Part I also high
lights the unprecedented rise of inequality within affluent countries with high levels of in
come inequality (Chapter 2), including regional disparities (Chapter 3), aggravated by the
financial meltdown of the US subprime and Eurozone crises. While in many countries
provincial areas suffered most from the crisis and the subsequent austerity policies, as
Chapter 6 shows, in Greece losses have been concentrated in metropolitan Athens. As a
whole, Part I introduces economic geography as a discipline sensitive to the experiences
of particular economies in specific places.
The issue-driven and empirically focused Part I sets the stage for the presentation of
‘Conceptual Foundations’ of economic geography in Part II. Building on Part I, Chapter 7
reflects on the distinction between economic growth and development, offers a definition
of the latter focused on shared prosperity and human fulfilment, and calls for policies fo
cused on building capacities aimed at reducing the highly unequal social and geographi
cal distributions that result from current frameworks obsessed with growth. Chapter 8
goes further, demonstrating how thinking geographically disrupts core propositions about
capitalism in mainstream economic theory, and proposes geographical political economy
as a way forward. This perspective is complemented by relational, behavioural, and evolu
tionary perspectives, explained and argued for passionately in Chapters 9, 10, and 11, re
spectively. For instance, Chapter 10 states the case that the behavioural revolution is a
tool to understand common problems in economic geography, such as co-location, clus
ters of innovation, diffusion of innovation, and home bias. This is extended in Chapter 12,
which concludes Part II by focusing on the virtues and intricacies of comparative ap
proaches in economic geography.
In Part III, ‘Innovation’, we zoom in on innovation as a driver of growth and development.

As Chapter 13 demonstrates, our understanding of innovation is broad, encompassing
(p. 13) different types of actors in entrepreneurial ecosystems. In this vein, Chapter 15
highlights the role of consumers in co-creating innovations. Chapter 14 explains the role
of the Internet as the key innovation of late twentieth and early twenty-first century, its
diffusion, and its impacts on local economies. Chapter 16 takes stock of the evolving theo
retical and empirical research on the creative industries, while Chapter 17 distinguishes
between factors shaping innovation that are internal and external to firms, including the
crucial question about the impact of co-location on innovation.
The ‘Firm’—as a key unit of analysis in economic geographical research—takes centre

stage in Part IV. Chapter 18 picks up where Chapter 17 left off, examining the logics of ag
glomeration, including city and cluster formation, and highlighting opportunities for eco
nomic geography created by new types of data. The following chapters delve into the geo
graphical nature of multinational enterprise (Chapter 19), global value chains and pro
duction networks (Chapter 20), global services sourcing (Chapter 21), and retail global
Page 14 of 20
ization (Chapter 22). All of these chapters describe opportunities, threats, and limits to
corporate globalization, as well as their implications, and are complemented by Chapter
23, which charts the development of corporate social responsibility.
As chapters on firms demonstrate, the new spatial architecture of firms enabled by glob
alization is key to the new spatial division of labour. This theme is developed further in
Part V, devoted to ‘Work’. Chapter 24 opens this part with an overview of labour geogra
phy as shaped by restructuring, regulation, reorganization, and reproduction, followed by
Chapter 25, which delves into precariousness in work in relation to income and labour
market polarization. Chapter 26 explores the recent shift in urban and regional research
towards talent, human capital, and skills. Part V concludes with Chapter 27, which ex
tends the theme of skill, by exploring the politics of skill and the contribution of immi
grant workers to collective learning in host countries and regions.
The all-permeating significance of ‘Finance’ to understanding economic geographies of

the twenty-first century is the focus of Part VI. On the empirical front, readers will en
gage in a discussion of the diffusion of subprime lending (Chapter 28); the expansion of
offshore finance and investment banking (Chapter 29); the rise of digital finance, includ
ing high-frequency trading and bitcoin (Chapter 30); growing interconnectedness and
complexity in investment networks, which paradoxically make finance more disconnected
in terms of purpose and control (Chapter 31); financialization of everyday life (Chapter
32); and growing presence of private capital and diverse non-state organizational struc
tures in the provision of infrastructure (Chapter 33). To make sense of the changing world
of finance, contributors to this part propose new conceptual frameworks for financial ge
ography, including a spatial analysis of financial instability built on Hyman Minsky’s ap
proach (Chapter 28); the concept of Global Financial Networks, focusing on financial and
business services as agents of financialization (Chapter 29); ‘organic finance’ to move
away from the overly processed and engineered products (Chapter 31); and a functional
model of infrastructure analysis focused on capital, organizational, and regulatory struc
tures (Chapter 33).
Chapter 34 on the financialization of commodity markets takes us into Part VII on ‘Re
sources and the Environment’. Following this important segue, Chapter 35 outlines an
agenda for economic geographers to take a more central role in the study of climate
change and in broader, interdisciplinary conversations about the meaning and implica
tions of the Anthropocene. Chapter 36 zooms in on the development and shortcomings of
carbon markets, proposing a novel framework for analysing the spatial and temporal dy
namics of value. (p. 14) Resource governance is the focus of Chapters 37 and 38, which
consider long-term resource scarcity and resource periphery, respectively, with Chapter
37 discussing the idea of aggregate natural capital, operationalized through a balance
sheet and risk register. Chapter 38, in turn, draws attention to resource-driven economies
in the developing world, changing trends, and the way resource peripheries are en
meshed in the global economy. Part VII ends with emphasis on energy transitions, includ
ing the recent boom in shale oil and gas extraction, and how these can be conceptualized
Page 15 of 20
through the lens of evolutionary economic geography and other complementary perspec
tives (Chapter 39).
Addressing the dangers of inequality, instability, and environmental crisis head on, the
volume concludes with ‘Strategies for Development’. Following on from Part VII, Part VIII
starts with green growth (Chapter 40), defined as a long-run increase in GDP alongside
the enhancement, or at least protection, of natural capital. The following two chapters
shift emphasis to equity. Chapter 41 develops a conceptualization of ‘equitable economic
growth’, and provides insights into the operationalization of this concept in the Global
South, focusing specifically on the suitability of localized equitable economic growth
strategies. Chapter 42 explores the idea of ‘just growth’, whereby a floor for equity is cre
ated by providing a safety net and/or building new capabilities, accompanied by strong lo
cal participation and a national welfare state. The theme of community development is ex
tended in Chapter 43, which focuses on ‘third-sector intermediaries’ and how they con
tribute to the evolving practices of self-organizing within local communities. Chapter 44
demonstrates how collaboration among communities can contribute to more inclusive de
velopment through the operation of ‘innovation highways’. The volume ends with Chapter
45, which examines the relationship between economic shocks and resilience and the
process of uneven regional development.
The ‘new’ in the title of the Handbook was central to its constitution. Out of sixty-five con
tributors only nine (including three editors) are the same as in the first handbook. A third
of all contributors are women, and a third of all contributors started their academic ca
reers after 2000. Authors of this volume work in ten different countries, based in a wide
range of departments, including sociology, politics, management, economics, urban plan
ning, business, and public policy schools, in addition to geography. The diversity of topics
and styles reflects the diversity of its contributors. Within a broad remit of reviewing
state-of-the-art literature, mapping new economic developments, and setting agendas, we
gave the authors freedom to choose their style and emphasis.
This perspective presented in the handbook is at the same time grounded in theory and in
the experiences of particular places. We thought it important to keep a balance between
nomothetic and idiographic approaches, between theory and empirics. Some may say that
mapping takes too long, and before you finish it, it is out of date, so it is better to focus on
new conceptual developments and apply them to selected empirical illustrations, rather
than trying to map the world economy in any systematic way. In response, we would like
to quote an anecdote used by President John F. Kennedy:
The great French Marshal Lyautey once asked his gardener to plant a tree. The
gardener objected that the tree was slow-growing and would not reach maturity
for 100 years. The marshal replied: In that case, there is no time to lose, plant it
this afternoon. (Forbes, 2016)
Answering the question where may feel tedious, time-consuming, and perhaps at
(p. 15)
times unsatisfactory. But if we do not map the world economy, in a broad sense of the
Page 16 of 20
term ‘mapping’, in order to explain the map and its implications, who else will, and what
will be our distinctive contribution? Where is the centre of economic geography.
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Gordon L. Clark
Gordon L. Clark ([email protected]) DSc (Oxon) FBA is the Director

of the Smith School of Enterprise and the Environment with cross-appointments at
the Saïd Business School and the School of Geography and the Environment at Ox
ford University. He holds a Professorial Fellowship at St Edmund Hall, Oxford. He is
also Sir Louis Matheson Distinguished Visiting Professor at Monash University’s Fac
ulty of Business and Economics (Melbourne) and a Visiting Professor at Stanford Uni
versity. Previous academic appointments have been at Harvard’s Kennedy School of
Government, Harvard Law School (Senior Research Associate), the University of
Chicago, Carnegie Mellon’s Heinz School, and ↵Monash University. Other honours
include being Andrew Mellon Fellow at the US National Academy of Sciences and
Page 19 of 20
Visiting Scholar Deutscher Akademischer Austausch Dienst at the University of Mar

burg.
Maryann P. Feldman

Chapel Hill and ↵the Kenan Flagler Business School. In 2013, she was awarded with
the prestigious Global Entrepreneurship Research Award from the Swedish Entrepre
neurship Forum and Research Institute of Industrial Economics. She is a member of
the Innovation Forum at the National Academies of Science. Her research interests
focus on the areas of innovation, the commercialization of academic research, and
the factors that promote technological change and economic growth.
Meric S. Gertler

vation Systems (PROGRIS) at the Munk School of Global Affairs. His research focus
es on the geography of innovative activity, the economies of city regions, and eco
nomic restructuring in North America and Europe. He is the author, co- author, and
co- editor of more than ninety scholarly articles and chapters, and nine books, includ
ing Manufacturing Culture: The Institutional Geography of Industrial Practice. He
has served as an advisor to local, regional, and national governments in Canada, the
USA, and Europe, and international agencies such as the Organisation for Economic
Co-operation and Development. He is the founding associate editor of the Journal of
Economic Geography.
Dariusz Wójcik

Peter’s College, and a Visiting Professor at Beijing Normal University. His research
focuses on finance, corporate governance, and economic globalization. His current
Page 20 of 20
Global Prospects: The Asian Century?

Michael Berry and Benno Engels
This chapter explores the development and differentiation of the Asian region in the
twenty-first century. The discussion commences with a broad overview of those national
economies in Asia that have been described as ‘the breakout nations’, drawing on the
available comparative economic, environmental, and social data. It then moves on to a
consideration of the nature of the complex and changing interrelations between
economies in the broad region, stressing the nature of uneven development emerging. A
discussion of the key development issues identified and the drivers at work follow this. Is
the ‘convergence thesis’ a useful framework for understanding what is happening? In
looking to the future, what might happen in the leading Asian economies, both estab
lished and emerging over the next decade and beyond? Finally, the challenges that the
study of a dynamic region like Asia raises for the development of economic geography as
a discipline are noted.
Keywords: Asian region, uneven development, convergence, economic geography, breakout nations, twenty-first
century
Introduction
THE Asian region now accounts for more than half the world’s population and more than
a third of total output. The various economies that make up this culturally and politically
diverse region are coming to express a ‘new economic geography’ of the twenty-first cen
tury in which a ‘catch up’ with the advanced Western nations appears to be a predomi
nant feature (Nayyar, 2013). However, like earlier globalization regimes, the current era
is conditioned by complex patterns of uneven development and interdependencies that
lock particular countries and regions into the variegated whole. Geography and geogra
phers can make a substantial contribution to understanding these developments. This
chapter provides an initial step in this direction.
Page 1 of 26
Asia is host to the second and third largest economies in the world, China and Japan, re
spectively. In 2010, Asia had 3.3 million millionaires; only slightly behind North America’s
3.4 million. Fifty per cent of the world’s container traffic originates from here, and this
proportion is growing as the Chinese economy progressively becomes the industrial facto
ry and engine room of the world. We are possibly standing on the cusp of an ‘Asian Centu
ry’, which will determine humanity’s future and the economic viability of global capital
ism. However, whatever ‘the Asian Century’ means, it cannot be allowed to refer to a ho
mogenous super-region. Instead, the geographer’s traditional perspective in looking for
the drivers and outcomes of uneven spatial development is as relevant and important as
ever if we are to get a grip on development trends and future projections for this region
in the world’s economic geography in the twenty-first century.
The chapter therefore seeks to untangle and extract what is, in fact, happening through
select parts of Asia into the twenty-first century. The discussion commences with a broad
overview of those national economies in Asia that have been among what Sharma (2012)
has called ‘the breakout nations’, drawing on the available comparative economic, envi
ronmental, and social data. We then move to a consideration of the nature of the complex
and changing interrelations between economies in the broad region. This is followed by a
discussion (p. 20) of the key development issues identified and the drivers at work. Is the
‘convergence thesis’ a useful framework for understanding what is happening? In looking
to the future, what might happen in the leading Asian economies, both established and
emerging, over the next decade and beyond? Finally, what challenges do the study of a
dynamic region like Asia raise for the development of economic geography as a disci
pline?
It is argued, in brief, that the very different patterns of economic development experi
enced through the Asian region are driven by a combination of forces—economic, cultur
al, and political—unleashed leading up to and following the 2008 global financial crisis
(GFC) and the efforts of national governments to deal with the emerging outcomes.
Growth and Transformation in the Asian Re

gion
Much has happened over the past decade, notably the impacts and repercussions of the
GFC triggered in 2008. In order to trace the uneven geographical patterns and drivers of
change leading to and since the GFC, we have chosen to focus on eleven Asian countries:
India, China, Indonesia, Bangladesh, Vietnam, the Philippines, Pakistan, South Korea,
Japan, Malaysia, and Thailand. This group we call the N–(8 + 3) to distinguish it from an
other group of eleven emerging countries identified by Goldman Sachs (see Wilson and
Stupnytska, 2007). Our grouping includes the fast-growing BRIC (Brazil, Russia, India,
and China) economies in Asia, six identified as newly emerging, one established devel
oped economy (Japan), and two South East Asian countries (Thailand and Malaysia) ig
nored by Goldman Sachs.
Page 2 of 26
By covering this group of eleven, we can explore the diversity of development trajectories
and interrelations unfolding across a region as large and complex as Asia, while still test
ing the implied thesis that it is from within this region that the dynamic economies of the
twenty-first century will come. We also test the corollary that the world is witnessing a
convergence by which the economic lead of the West is rapidly being lost, inevitably to re
sult in a ‘return to the future’ in which Asia leads the world, as it did in the centuries pri
or to the Industrial Revolution. China and India are the largest Asian economies and
among those that have recently grown most quickly. Their economic and geopolitical
shadows loom large over the entire region and they are increasing their economic and po
litical engagement with the rest of the world. Japan was the first Asian country to ‘break
out’ into sustained economic development and to interact intensively with its regional
neighbours; it has experienced significant stagnation, economically and demographically,
since the early 1990s, in contrast to its large western neighbour. The remaining eight
countries in the selected group were differentially affected by the GFC and its aftermath,
and have formed somewhat different interactions with each other and with the hegemon
ic ‘big three’, particularly China. Taken together, these country cases allow us to explore
the complex patterns of development occurring within the dynamic Asian region. The fol
lowing sketch outlines the main contours emerging.
By 2012, the broad Asian region accounted for 36 per cent of global real gross domestic
product (GDP), an increase of eight percentage points between 2000 and 2012 (Asian
(p. 21) Development Bank, 2013). China, Japan, and India accounted for 70 per cent of the
region’s GDP. However, 2012 also saw economic growth moderate across the larger
economies in the region; for example, China’s growth fell, but to a still high 7.8 per cent.
Table 1.1 compares the average growth of the eleven economies over the past five years
and their 2012 results. There is variability in recent economic performance, at the aggre
gate level, within the Asian region. The stellar growth of India and China during the first
decade of the twenty-first century has clearly slowed, while growth of smaller economies
like Thailand and Malaysia has picked up. Japan has begun to grow again after two
decades of economic decline and stagnation. Korea, one of the ‘Asian tigers’ of the late
twentieth century, has also slowed. Bangladesh, Indonesia, and the Philippines are grow
ing strongly, as is Pakistan, in spite of a deteriorating internal security environment. Viet
nam continues to grow strongly, although at a slower pace than earlier in the decade (see
Table 1.1).
Table 1.1 Comparative Growth Rates in Real Gross Domestic Product (GDP), Selected
Countries
Country Real GDP growth: 2012 Average real GDP growth: 2008–12
(%) (%)
China 7.8 9.3
India 5.0 7.2
Page 3 of 26
Japan 2.2 –0.1
Bangladesh 6.1 6.2
Pakistan 4.5 3.2
South Ko 2.0 2.9

rea
Indonesia 6.1 5.9
The Philip 7.1 4.7

pines
Vietnam 5.1 5.8
Malaysia 5.3 4.2
Thailand 6.5 3.0
Source: Asian Development Bank (2013).
At the regional level, the Asian economies overtook Europe and North America in its
share of global GDP (at purchasing power parity) in the first decade of the 2000s (Maddi
son, 2008). The associated increase in average living standards, measured by real GDP
per capita, has been impressive over the past two decades, especially during the new cen
tury, as Table 1.2 suggests.
These data suggest large differences between countries with respect to current and re
cent living standards (see Table 1.2). Even though China had overtaken Japan with re
spect to the size of its economy by 2005, its per capita income is currently barely one-
quarter of Japan’s. As Japan has marked time over the past five years, the other ten coun
tries have moved closer, especially China and India but so too the lesser-developed na
tions like Bangladesh and Vietnam. Living standards in South Korea continue to converge
on Japan. (p. 22) Nayyar (2013, p. 136) has traced the different rates of convergence of
per capita incomes in selected Asian countries on the developed world.1 While South Ko
rea (and Taiwan) understandably are standout performers, with per capita incomes reach
ing around 80 per cent of levels in the industrialized West, Malaysia (40%), Thailand
(33%), and China (26%) were also significant movers. Indonesia almost doubled its per
capita income in relation to the developed economies from a low 10 per cent. India, how
ever, barely made ground on this measure.
Table 1.2 Comparative Change in Per Capita Gross Domestic Product at Purchasing
Power Parity (Current International Dollars), Selected Countries: 2000–12
Page 4 of 26
Country 2000 ($) 2012 ($)
China 2357 9210
India 1536 3950
Japan 25,914 35,204
Bangladesh 862 1917
Pakistan 1690 2788
South Korea 17,197 30,722
Indonesia 2407 4949
The Philippines 2410 4454
Vietnam 1426 3998
Malaysia 9393 17,084
Thailand 5086 10,757
Source: Asian Development Bank (2013).
The Asian Development Bank (2013) identifies a number of key factors in the process of
structural transformation underlying rapid economic growth or development in countries
that do not rely mainly on exploiting natural resources like oil. Typically, development
proceeds by switching resources over time away from agriculture towards the manufac
turing and service sectors. This is achieved through productivity improvements in agricul
ture and increasing imports that release labour from the sector.2 Capital invested in man
ufacturing and related industries attracts labour where productivity levels are (initially)
higher and export opportunities greater, especially where the government imposes pro
tective policy measures. Eventually, industrialization moderates as resources are increas
ingly drawn into the diverse service sector, both producer- and consumer oriented. Table
1.3 outlines this pattern of development for the selected countries.
The two largest economies diverge somewhat. China’s transformation is more dramatic in
relation to both the proportion of employment and shifts in the shares of value added by
sector (see Table 1.3). The service sector in India has grown more rapidly and agriculture
has retained a more significant and traditional role than in China. The latter’s growth
continues to be driven by manufacturing and related industries, based on contin
(p. 23)
ued growth in merchandise exports. China’s exports recovered quickly in the aftermath of
Page 5 of 26
the GFC of 2008–09, helping to cushion the impact of the GFC on countries—for example
Australia and Canada—from which they import raw materials. On a smaller scale, Indone
sia and Vietnam have followed China’s path, while Bangladesh, the Philippines, Malaysia,
and Thailand have, like India, witnessed rapid growth in services. The established devel
oped economies in South Korea and Japan are heavily service sector focused; Japan now
generates almost three-quarters of its value added from service-sector industries, which
employ four out of five workers in the economy. Of the group, only Pakistan has shown
modest structural change during the past two decades.
Page 6 of 26
Table 1.3 Value Added by Sector
Country Agriculture as % of GDP Industry as % of GDP Services as % of GDP
1990 2012 1990 2012 1990 2012
China 27.1 10.1 41.3 45.3 31.5 44.6
India 29.3 17.4 26.9 25.8 43.8 56.9
Japan 2.4 1.2a 37.9 26.1a 59.8 72.7a
Bangladesh 30.2 17.7 21.5 28.5 48.3 53.8
Pakistan 26.0 24.4 25.2 22.0 48.8 53.6
South Korea 8.7 2.6 39.9 39.1 51.5 58.2
Indonesia 19.4 14.4 39.1 46.9 41.5 38.6
The Philippines 21.9 11.8 34.5 31.1 43.6 57.1
Vietnam 38.7 19.7 22.7 38.6 38.6 41.7
Malaysia 15.0 10.2 41.5 41.2 43.5 48.6
Thailand 10.0 11.4a 37.2 38.2a 52.8 50.3a
Page 7 of 26
GDP, gross domestic product. a2011, latest year available.
Source: Asian Development Bank (2013)
Page 8 of 26
The apparent decline in the significance of agriculture masks the fact that the shift to
manufacturing and services has depended, in part, on the increase in agricultural produc
tivity due to major technological changes over the past forty years and the shift from tra
ditional to high-yield and higher-value agricultural products. Across all sectors, rapid de
velopment has entailed diversification of products and the creation of new linkages and
complementarities in production, financing, and distribution.
Development has occurred most in economies that have diversified and built strong ex
port platforms, utilizing new production methods and processes that underpin a switch to
higher value, more complex products supported by local supply chains, associated ser
vices, and complementary infrastructures (Nayyar, 2013). Later stages of development re
sult in the spatial division of supply chains across regions and national borders (see sec
tion ‘Trajectories of Development’).
In most cases, these structural changes have been deliberately encouraged by the
(p. 24)
policies of the national governments concerned, often against the technical advice and
political pressures of Western governments and international agencies like the Interna
tional Monetary Fund (IMF) that the former control. This resistance was most obvious in
the cases of South Korea and Taiwan, when their governments adopted import replace
ment policies designed to boost domestic industrialization and exports prior to gradually
and selectively liberalizing their commercial and financial sectors (Berry, 1989). China,
India, and, to some extent, Indonesia have followed this trajectory, incurring the opposi
tion of G7 governments and international agencies. Changes in social structure that chal
lenged conservative attitudes and economic practices also figured in the creation of en
trepreneurial activity; expansion of the opportunities for and economic role of women is
one factor in the success of the more dynamic Asian economies. ‘(i)t is impossible to be
come a modern economy with social structures that do not favour change’ (Asian Devel
opment Bank, 2013, p. 5).
Most significantly, development has meant urbanization. Economic growth within most of
the N–(8 + 3) has been associated with rapid urbanization. This pattern—familiar in the
light of nineteenth-century growth trajectories in the West—has been driven by large-
scale internal migration flows from rural to urban areas, especially in China. Twelve of
the world’s largest metropolitan regions are located in Asia, including eight of the ten
most densely populated cities; Tokyo, Delhi, Shanghai, Mumbai, and Beijing figure in the
eight largest. Rapid urban growth is also associated with a range of new and intractable
problems for governments in the region, particularly with respect to the provision of ade
quate housing, health, transport, and environmental standards, and the increase in urban
poverty.
Aspirational values that emulate Western consumerism have stimulated local entrepre
neurial activity, no longer suppressed by traditional mores and government policy; the
rapid growth of a materialistic middle class in the three large countries is a stark mani
festation of this sociocultural process. Deng Xiaoping’s radical turn towards ‘Socialism
Page 9 of 26
with Chinese characteristics’ was legitimated by his purported claim that ‘to be rich is
glorious’.
Very high levels of domestic savings and investment have underpinned China’s growth.
Since 2005, gross domestic capital formation has exceeded 40 per cent of GDP, reaching
almost 50 per cent by 2012; domestic savings tracked at similarly high rates. India and
Indonesia also exhibited rates in excess of a third of GDP (Asian Development Bank,
2013). Increasingly, future growth in these countries will depend on the expansion of do
mestic consumption by their growing middle classes.
Although China has dominated Asian development over the past twenty years this
overview also suggests that the whole region has been transformed over this period. Nay
yar (2013) has coined the term ‘catch up’ to capture this phenomenon, and he identifies
the turning point as 1950. In the period 1820–1950, he argues, the industrializing West
ern nations diverged from the rest of the world, including Asia. Since 1950, the gap has
been rapidly closing. Thus, Asia’s share of GDP rose from around 15 per cent of world
GDP in 1950 to 38 per cent by 2008, roughly the situation holding in 1900 (Nayyar, 2013,
pp. 15, 50). At the beginning of the nineteenth century Asia accounted for more than half
of global GDP; the recent trend suggests that history may be well on the way to repeating
itself. It is this projection that lies at the heart of claims that the world is on the eve of
‘the Asian Century’.
(p. 25) Trajectories of Development

This overall picture of a region undergoing dynamic change masks complex spatial and
temporal development paths. As Yusuf and Nabeshima (2010) argue, Asian industrializa
tion came in waves, starting with that of Japan from the mid-1950s, driven in successive
decades by rapid technological progress and expanding exports to the region and beyond,
to meet expanding consumer demand in the West. From the late 1960s, export-driven in
dustrialization took off in Hong Kong, South Korea, Taiwan, and Singapore, the four Asian
tigers (Amsden, 1989; Berry, 1989). A decade later, Malaysia, Thailand, the Philippines,
and Indonesia began their transformations, creating what has been termed the second
wave of ‘fast followers’. These late starters benefitted from both the import demands of
US and Japanese firms and consumers and increasing flows of foreign direct investment
(FDI) as large multinational firms domiciled in the advanced economies ‘disarticulated’
production processes and reintegrated production and supply chains on a global basis.
This new international division of labour depended on tapping into low-cost labour mar
kets, low-tax regimes, and compliant domestic government regimes, largely within the
‘Pax Americana’ created after World War II by US foreign policy interests during the hey
day of the Cold War. Inevitably, emerging domestic capitalists drew on technology trans
fer through FDI and human capital development through investment in education and
training, financed by foreign aid and international agencies, in order to support the
strengthening forces of industrial transformation.
Page 10 of 26
It was not until the 1980s, following the decisions taken at the Communist Party’s central
committee in 1978, that China arrived on the scene (Nayyar, 2013). The ‘end of the iron
rice bowl’—a policy that guaranteed a minimum subsistence regardless of productive con
tribution—saw staged moves to introduce market incentives to stimulate domestic eco
nomic growth. Starting first with micromarkets, as peasants and small entrepreneurs
were allowed to trade modest surpluses and reinvest the proceeds, the government
moved to reform large state-owned enterprises (SOEs), and reoriented their focus to
world markets by creating dual-pricing regimes. These reforms were financed by plentiful
credit provided by the state-owned banks, boosted by large-scale investment in produc
tion facilities and supported by massive infrastructure investments in ports, roads, and
power (Ding and Knight, 2008). More controversially, the Chinese currency was manipu
lated to entrench China’s export supremacy. The proportion of exports to GDP in China
rose from 6 to 40 per cent from 1985 to the eve of the GFC in 2007, accounting for al
most 8 per cent of global exports (Maddison, 2009; Yusuf and Nabeshima, 2010). Spatial
ly targeted policies creating special economic zones attracted FDI on the Eastern
seaboard and to the South, which increasingly drove growth, attracting large-scale immi
gration of workers from rural areas and smaller towns. By the mid-1990s, China was clos
ing fast on the Asian tigers.
India began its growth surge even later than China, associated with lower but still signifi
cant and rising investment and savings rates. Exports in relation to GDP converged on
Germany’s performance (around 20 per cent) in the first decade of the new century. Indi
an growth was strongly concentrated in information and communications technologies,
particularly with respect to software development and complementary services, both low
and high value. However, the contribution of manufacturing to Indian development has
(p. 26) been modest, compared with China; the share of value added in this sector actual
ly fell in the two decades after 1990 (see Table 1.3). Conversely, value added in services
increased significantly over that period, underscoring the comparative and competitive
advantages generated in the information and communications technology sector support
ed by the location of back office functions from the advanced economies, the high levels
of technical education acquired by Indian nationals, at home and abroad, and the invest
ment priorities of domestic entrepreneurs. India, like China, has gradually emerged from
an initial import replacement phase of development to one increasingly reliant on (selec
tively) opening its economy to FDI, large-scale investment in energy production and a
more outward-looking foreign policy. Both governments seek to mobilize the nationalistic
sentiments of their peoples to exert a larger footprint on world affairs, economically,
diplomatically, and politically. On a much smaller scale, Vietnam and Bangladesh are fol
lowing India in this fourth wave of development.
The rapid growth of the two large Asian economies created increasing opportunities for
smaller economies in the region. The momentum developed in the two leading economies,
their large domestic markets, and stimulus policies imposed by their central governments
allowed them to survive the fallout from the GFC in 2008–09 and continued to boost de
mand throughout the region and beyond. As growth flagged in the advanced economies of
Europe and North America in the period since 2008, Asia continued to prosper. Both In
Page 11 of 26
dia and China have bucked the trend of fast-growing economies regressing to mean
growth over time (Yusuf and Nabeshima, 2010). Most of the other N–(8 + 3) economies
have likewise confounded the conventional model, pulled along by the dominant duo. The
future will tell whether all continue to do so. The policies of their governments and busi
ness elites will be of critical importance to their development prospects. Uneven develop
ment through the region will unfold in part as a result of how the brake of corruption and
cronyism is relaxed and key institutional supports that developed through the centuries in
Western countries, such as the rule of law, the regulation of market failures, robust public
finance, and banking institutions, supplant older deeply entrenched cultural and political
traditions still in force. As noted in the section ‘Corruption’, many of the N–(8 + 3) coun
tries are among the most corrupt in the world. They may—failing institutional change—
yet embrace the stagnating fate of a number of South American and African nations dur
ing the post-World War II period, whose development was blighted by the structural so
cial and political forces that locked compliant local comprador elites into relations of de
pendency with the neocolonial policies of developed countries.
The scale of China’s growth in output and exports over the past thirty years has been un
precedented. Even more impressive has been the extent to which its export mix has trans
formed from being dependent on agriculture and resources to high value-added finished
products and services (Yusuf and Nabeshima, 2010). During the first half of the 1980s, 60
per cent of Chinese exports comprised primary products. By 1990, this proportion had
fallen by half, with the share of textiles, clothing, and footwear rivalling it. In the follow
ing fifteen years, China maintained its dominance of global exports in this latter category,
while also emerging as the leading exporter of electronics and many high-tech products,
including transport equipment.
By the beginning of the current decade, China’s technology intensive export sector had
overtaken the lead of Japan and South Korea. The high proportion of high-tech exports
from the Philippines, however, reflects the small size of its manufactured export sector
and its (p. 27) strong concentration on the assembly and re-export of high-tech products
for Japanese and Korean companies.
The nature, scale, and pace of China’s development have indelibly imposed economic
change throughout Asia. The impacts have been transferred through emerging patterns
of international trade and FDI, creating new and more complex production networks
across borders. In this latter sense, China followed Japan’s trajectory in relocating lower-
skilled manufacturing processes within the region. For example, the recent decade has
seen Chinese companies shifting light manufacturing production to Vietnam to benefit
from lower local wage rates, mirroring the same process that earlier marked capital flows
from the West to China. The scale of intraregional trade in finished products also expand
ed as China focused on the production and export of electrical, transport, telecommunica
tions, and office equipment, with countries like Malaysia, Indonesia, and Vietnam supply
ing in return key primary and intermediate products. Australia also prospered during this
period as a major supplier of coal and iron ore. Japan and the Asian tigers exported high-
Page 12 of 26
value components and completed products to China in an increasingly symbiotic trade re
lationship.
Intraregional trade patterns have thus intensified over the past three decades, driven by
the increasing dominance of China and, to a lesser extent, India. Yusuf and Nabeshima
(2010) provide a detailed breakdown of the patterns emerging in the broader region. In
traregional trade (exports plus imports) has become more concentrated in the East Asian
region (including China and Japan); that is, by 2006, 60 per cent of international trade by
the countries of East Asia was between themselves. However, while China’s share of re
gional trade has increased to 20 per cent, Japan’s share has declined to 11 per cent, re
flecting the surge in Chinese growth since 1980. Nevertheless, Japan, like other countries
in the region, increasingly focused on regional trading, while China diversified its trade
somewhat outside the region, most notably via booming exports to the USA and Europe,
and global sourcing to meet their escalating energy requirements. This suggests that Chi
na is increasingly taking over not only as the dominant industrial pole for the region, but
also as the locus of assembly for re-export of products to the world, in particular to the
USA. The resulting trade imbalance between China and the USA has formed an increas
ing focus of tension between their governments, while the consequential escalating Chi
nese investment in US Treasury bonds has rendered both economies increasingly depen
dent on the other. Until the GFC, the consumption boom in the USA underpinned the Chi
nese miracle along with robust growth in other export-oriented Asian economies.
A critical feature of the emergence of Asian development has been the increasing eco
nomic integration of nations within the region. The role of intraregional trade has been
noted earlier in this section. Cavoli (2012) has looked at further indicators of both real
and financial integration within East Asia.3 He finds that, on a number of measures, the
original ASEAN countries—Malaysia, Singapore, Indonesia, Thailand, and the Philippines
—are relatively well integrated with each other and with China, Japan, and South Korea.
Real integration is observed with respect to factors like business-cycle synchronization
and relative purchasing power parity. Financial integration can be measured by interest
rate parity and asset price correlations. Integration of the smaller, much less developed
ASEAN nations, including Vietnam, is much lower on most or all of these measures. How
ever, the smaller ASEAN countries are somewhat more integrated with each other than
with their larger neighbours. Interestingly, integration of the five larger ASEAN countries
is more developed with respect to financial factors, while the three large economies—Chi
na, (p. 28) Japan, and South Korea—are more closely integrated with each other in real
terms (Cavoli, 2012, p. 652). On this analysis, there seems to be three broad blocs or sub
regional clusters emerging within Asia: the three large northern economies; the middle-
sized ASEAN founders; and the smaller South East Asian member nations of Vietnam,
Myanmar, Laos, Cambodia, and Brunei. South Asia would form a fourth subregion that is
only partly integrated with the broad Asian region. However, crosscutting non-economic
factors also further differentiate the regions and subregions, creating tensions that must
be managed by their governments. Thus, the nations of Indochina must deal politically
with the burden of historical cultural and territorial conflicts built up over centuries, both
among themselves and through the interventions of Western powers. Similarly, tensions
Page 13 of 26
that go beyond the economic national interest still bedevil relations between Japan and
its one-time conquered colony, South Korea. New tensions arise from the increasing domi
nance geopolitically of China in North Asia (see sections ‘Environmental Degradation’
and ‘Looking Forward’).
Important as the lingering impacts of the GFC have been in the region, a case can be
made that it was the crisis that occurred in Asia a decade earlier—the 1997–98 financial
crisis—that marked a distinct break in the region-wide growth spurt and subsequently
saw the smaller economies of South East Asia, in particular, fall behind China and India.
The sharp halt to growth in Indonesia, Thailand, and the Philippines, reinforced by aus
terity policies imposed by international agencies like the IMF, was overcome in relatively
quick order, but the lost ground was never made up (Woo, 2007).
Intraregional trade has moved up the value chain, from primary to medium- and high-tech
products in most East Asian countries. However, in recent times, China (and to a lesser
extent Vietnam) has become less dependent on sourcing within the region, reflecting the
robust growth of backward linkages and integration within China’s diversifying economy.
Increasingly, Chinese businesses are sourcing sophisticated components and production
equipment in areas like electronics from Japan and South Korea and relying on domestic
sources for other inputs. China’s dominant position in the production and export of cloth
ing and footwear is also becoming less dependent on other Asian suppliers as production
networks focus more tightly on domestic supply chains. This trend has potentially nega
tive implications for some of China’s other trading partners. Chinese direct foreign invest
ment is also diversifying, aimed at securing natural resources and food security in African
countries and Australia; Indian multinational companies are moving in similar directions.
Central to understanding the economic success of China has been the spatial structure of
its domestic economy and, in particular, the emergence of distinctly different regional
economies. It is important to grasp that this has not only emerged ‘naturally’ through
market processes—although the normal force of agglomeration economies of scale and
scope have been apparent—but also as the result of deliberate government policy, with
both unintended and intended effects. The coastal eastern strip, traditionally more open
to the world from the nineteenth century, with the megacities Beijing and Tianjin to the
north and Shanghai and Hong Kong to the south, cluster manufacturing, finance, and
government activities that drive much of the country’s success. These urban corridors,
variously termed ‘megacities’ or ‘extended metropolitan regions’, include Beijing–Tianjin–
Tangshan–Qinhuangdao in the north east; Shanghai–Nanjing–Suzhou–Changzhou–Zhen
jiang–Nantong–Yangzhou–Wuxi in the south; and Guangzhou–Shenzhen–Hong (p. 29)
Kong–Macao–Zhuhai in the Pearl River Delta, the latter with a regional population of 150
million. They have acted as magnets for workers drawn from rural areas and direct in
vestment attracted from abroad. The ports of Tianjin, Shanghai, and Hong Kong join Chi
na to the world. Shenzhen is now one of the world’s leading financial hubs. Shanghai has
become one of the global command-and-control cities, joining New York, London, and
Tokyo as hubs directing financial flows and intelligence throughout an increasingly bor
derless world. Hong Kong maintains its traditional role as a financial and commercial
Page 14 of 26
clearinghouse for the mainland. Beijing retains its role as the seat of national govern
ment, straining to govern a country growing and transforming at breakneck speed and
showing signs of administrative stress, a developing case of ‘under-reach’ in the face of
increasing uneven development. Beyond the megacities, China’s population is rapidly ur
banizing in ‘middle-sized cities’ that are increasingly being drawn into the orbit of the for
mer: ‘(t)hey act as “bridges” between rural areas and large urban centres’ (ESCAP, 2010,
p. 8). The ESCAP report notes that 60 per cent of Asia’s population lives in urban centres
of less than one million people. In addition to the scale of urbanization in Asia, population
densities range from 10,000 to 20,000 per square kilometre, double the rates in Latin
American cities, triple those of Europe, and ten times greater than in the USA.
Debates rage about what forces underlie the large changes transforming Asia’s leading
cities and economies. Orthodox economics points to the influence of liberalizing economic
policies and the role of comparative advantage and ‘free trade’. Heterodox accounts focus
on dynamic efficiency, technological innovation, increasing returns, path dependence, im
port substitution policies, and competitive advantage (Rodrik, 1992; Nayyar, 1997; Ams
den, 2001). Not surprisingly, the ‘late industrializers’ have pursued policies and institu
tional milieux to create conditions conducive to economic ‘take-off’ and ‘catch-up’. As
stressed earlier, the visible hand of government, rather than simply the invisible hand of
the market, has sparked growth in the Asian tigers, China, India, and most of Asia’s
smaller followers (Amsden, 1989; Stiglitz, 1989; Wade, 1990; Chang, 2007). In the case of
Asia, Nayyar (2013, pp. 124–5) comments: ‘(t)he role of the state in evolving trade and in
dustrial policies, developing institutions and making strategic interventions, whether as a
catalyst or as a leader, was central to this process’. Successful interventions ranged from
import substitution policies and ‘guided’ lending by financial institutions to export promo
tion and facilitation. Growth and transformation in the successful economies of the region
was driven not by textbook concerns with allocative efficiency in a static economy, but by
the construction of institutions and practices conducive to both emulation and innovation
within an increasingly integrated global economy. Strong, often authoritarian govern
ments and powerful local elites mobilized nationalistic, ethnic, or religious coalitions to
push through programmes of economic development. In versions of managed capitalism
countries like China, Malaysia, Indonesia, and Thailand mobilized the substantial volumes
of domestic and international capital financing the basic infrastructure necessary to sup
port the rapid development occurring.
Key Challenges to Continuing Development

As the second decade of the twenty-first century continues to unfold, the economies of
the region are experiencing increasing economic, social, and political stresses arising
from their (p. 30) impressive recent growth trajectories. We briefly note the four main ar
eas of concern in the following subsections.
Page 15 of 26
Environmental Degradation
Associated with large-scale urban industrial development have arisen major problems of
pollution, traffic congestion, waste generation, and habitat loss. Environmental degrada
tion costs the Chinese economy between 5.5 and 10.2 per cent of GDP, according to data
supplied by the United Nations (n.d., p. 25). Two-thirds of this cost relate to land degrada
tion—including deforestation, desertification, erosion, and downstream pollution to wa
tercourses—and one-third specifically to urban air pollution. Indonesia, the Philippines,
and Thailand have also paid significantly in environmental terms for their recent growth
spurts. More than three-quarters of South East Asia’s original forests have been lost and
this trend continues (United Nations, n.d., p. 26). Many of these costs cross national bor
ders, creating political problems for the governments concerned. For example, poor land
management practices leading to large-scale burning in order to clear land for commer
cial crops in Indonesia impact negatively on communities in neighbouring Malaysia and
Singapore.
Development is increasingly leading to shortages of clean water for agricultural and ur
ban use. Conflicts between nations over shares of common water sources are likely to in
crease and intensify. For example, the long-running dispute between India and
Bangladesh over water from the Ganges shows no sign of resolution.
Over-fishing is threatening global fish stocks and raising the prospect of accelerating
species extinction. The logic underlying this danger is the familiar ‘tragedy of the com
mons’. India, China, and Indonesia between them face 479 threatened fish species, 355
threatened mammal species, and 1205 threatened plant species (World Bank, n.d.).
Nowhere is this simmering conflict more prevalent and dangerous than in the South and
East China Seas where China is coming into conflict with Japan, Vietnam, and the Philip
pines over control and exploitation of fishing and mineral resources.
All N–(8 + 3) nations except South Korea have substantially increased their reliance on
fossil fuels over the past thirty years. A business-as-usual scenario forecasts that Asia will
account for 45 per cent of global CO2 emissions by 2030 and 60 per cent by 2100. Trans
port-related emissions are expected to increase by 57 per cent by 2030, with China and
India accounting for more than half. Of the ten countries in the world most vulnerable to
climate change, six are in Asia and the Pacific (UNEP, 2012, p. 4). The future promise by
China (in 2015) to introduce a national cap-and-trade carbon emission system may sub
stantially change this trend.
Waste generation has escalated with urbanization, creating major health problems
through communicable diseases and water pollution. Toxic chemicals generated by indus
trialization pose particularly intractable problems, especially in countries like Bangladesh
that have established toxic waste dumps and recycling facilities for the region. Adverse
health effects are, in turn, exacerbated by urban air pollution. Nine of the fifteen cities
with the highest particulate levels and six of the fifteen cities with the highest sulphur
dioxide levels are in East Asia (United Nations, n.d., p. 28).
Page 16 of 26
Hyper-urbanization in Asia is thus a double-edged sword. Mega-urban regions and

(p. 31)
urban corridors provide the dynamism for national development, while also concentrating
and accelerating environmental decline.
Inequality
Along with rapid economic and urban growth, many of the N–(8 + 3) group experienced
increasing economic inequality (Asian Development Bank, 2012). Unsurprisingly, in most
of these countries urban inequality is more pronounced than inequality in rural areas.
Like the advanced Western economies, inequality in Asia is being strongly concentrated
at the top end of the income distribution, although not (yet) to the extreme extent of the
former. By 2010, the share of total income received by the top income percentile (‘the top
1 per cent’) ranged between 11 and 13 per cent for China, India, and Indonesia (Piketty,
2013, p. 327). Rising inequality can have negative effects in any society. In Asia, increas
ing economic inequality threatens to undercut the institutional basis on which recent ris
es in per capita income—and the growth of a substantial middle class—rest. Pronounced
inequality reduces opportunities for low-income people to access education and other ba
sic services that would otherwise increase productivity. Likewise, people without wealth
find it hard to secure credit on favourable terms to finance entrepreneurial activities.
Although debates on the link between inequality and growth persist, recent studies come
down in favour of a moderate negative relationship over the long term (see Quiggin,
2010; Berg and Ostry, 2011a, 2011b; Stiglitz, 2012). Local perceptions of increasing in
equality may also stoke political conflict, especially when intersecting with ethnic divi
sions.
Although some 700 million people globally have been lifted out of extreme poverty over
the past twenty years, mostly in Asia (Nayyar, 2013, pp. 161–9), this significant achieve
ment would have been even more impressive but for the rise in inequality within most
Asian countries. Slowing economic growth since 2008 is likely to have hit the poor and
lowest income households hardest.
The drivers of increasing inequality are several and interrelated.4 Globalization through
trade and financial integration has placed a premium on skilled labour, causing wages be
tween skilled and unskilled workers to diverge across Asia. Technological change has
benefitted capital over labour, resulting in a declining labour share of national income (a
general phenomenon in the advanced economies as well) (Piketty, 2013). Existing politi
cal elites, especially in key urban centres, are well placed to influence directly and indi
rectly economic opportunities and outcomes. The location of industrial activities and their
associated infrastructural supports also helps to account for the widening average in
come gaps between urban and rural incomes, particularly in China (Lin, 2005).
Increasing inequality in China poses particular problems for the Chinese government, one
of the very few regimes overtly committed to creating ‘a harmonious society’. Substantial
inequalities within and between China’s regions threaten harmony and the government’s
legitimacy. Galbraith (2012) presents detailed analysis showing inequality increasing
Page 17 of 26
through the first decade of the new century within Chinese provinces, but from 2001 on
ward it declines between provinces, although from a high base. At the national level most
of the rise in inequality is accounted for by developments in one province (Guangdong)
and two (p. 32) cities, Beijing and Shanghai (Galbraith, 2012, p. 236). Galbraith argues
that high incomes in the banking, finance, and information technology sectors concentrat
ed in those locations (especially the capital, Beijing) were reinforced by the large profits
derived from China’s manufacturing export boom that fed into rising real estate specula
tion and construction that, in turn, intensified wealth inequalities and underpinned the
emergence of the super-elite, the top 1 per cent. Tellingly, the export and property booms
coincide closely from 2003 onward.5
Financial Instability
The financial crisis that hit Asian economies in the late 1990s was a forcible reminder of
the darker side of globalization. Many of the N–(8 + 3) nations suffered sharp recessions,
with China and Malaysia partly protected by government-imposed capital and currency
controls. This and the larger global crisis a decade later underscored the increasing vul
nerability of Asia to membership of an increasingly integrated world economy, rendered
more extreme in countries with non-transparent and poorly developed financial regulato
ry systems. It is not clear that these economies will be able to withstand future financial
shocks, from wherever they emanate.
The Chinese economy is particularly vulnerable to future financial breakdown, given the
opaque, uneven, and highly government-constrained nature of its banking system. Like
Japan in the 1980s and 1990s, the Chinese banks appear to have been used by govern
ment to keep lending to both private and state-owned enterprises, regardless of credit
worthiness and repayment capacity and performance. The central government has been
loath to allow SOEs, in particular, to go bankrupt; as the earlier example of Japan demon
strates, maintaining insolvent banks on government life support simply puts off the day of
reckoning and prolongs the crisis. Alongside the official system, unregulated private
lenders have sprung up to service smaller entrepreneurs unable to access formal sources
of finance. This informal financial sector is ripe for contagion and corruption.
Corruption
Government corruption is widespread throughout the Asian region, although significant

differences as to scale, scope, and impact exist. The annual reports of Transparency In
ternational (2005, 2013) provide perceived corruption rankings for the N–(8 + 3) coun
tries. These countries can be roughly divided into three groups: relatively low corruption,
moderate corruption, and high corruption. In 2005, Japan, Malaysia, and South Korea fell
into the low category; Thailand, China, and India into the moderate category; and the re
maining six countries in the high-corruption group, with Bangladesh sharing the title of
the world’s most corrupt country. These relative positions were relatively stable from
2005 to 2013; however, three of our eleven nations did change categories. The Philip
pines moved from the high to moderate category, while Thailand moved in the reverse di
Page 18 of 26
rection, and India threatened to follow suite. Malaysia went from the low- to moderate-
corruption group.
High and/or uncertain degrees of official corruption increase the costs and risks of
(p. 33)
doing business for overseas investors and trading interests, especially in countries with
authoritarian regimes and where government presence in the economy is high, as in Chi
na, Vietnam, and Malaysia. This interpretation broadly fits with a separate ranking of the
ease of doing business published regularly by the World Bank (2013). In general, per
ceived corruption correlates well with difficulty of doing business. A country perceived to
be rife with corruption is also likely to be difficult to conduct business operations in. The
serious nature of this problem is reflected in the ongoing anti-corruption campaign of
Chinese President Xi Jinping, which has reached from local and regional scales to the
highest organs of government, party, and the military.
Looking Forward
A key question in the context of this chapter is: Will the rise of China continue and, if so,
what are the implications for the wider Asian region? We have already pointed out a num
ber of challenges facing China’s leaders, notably dealing with the micro- and macro-envi
ronmental costs of growth, the inexorable increase in economic inequality, the fragility of
the financial system, and the pervasive drag of political corruption. However, China’s ma
jor concern is likely to be managing its relations with the USA, especially following Don
ald Trump’s election to the US Presidency and his promise to introduce protectionist poli
cies explicity aimed at China. On the economic front, the two countries are locked togeth
er as the world’s leading creditor and debtor nations. There appear to be clear signs of a
reversal favouring US manufacturing, as wage differentials with emerging economies
tighten, new technologies come online, and the low-cost energy revolution reduces US re
liance on foreign oil (Sharma, 2012, pp. 261–70). The USA has become the world’s
biggest producer of natural gas and is moving towards becoming a major energy ex
porter. US recovery since 2008 has seen manufacturing account for three-quarters of its
gain in its growing global export market share, concentrated in energy, automobiles, and
airplanes (Sharma, 2012, p. 267). China’s increasing global share of manufacturing has
arisen as a result of declining shares in Europe and other advanced nations like Australia,
while the USA has maintained and may be on the verge of increasing its share. In short,
caught between a regenerated US industrial sector and competition from low-wage
neighbours, regardless of any hostile trade and investment policies by the Trump admin
istration, China may not be able to rely on manufacturing as the engine of future growth
as it has in the recent past.
Continuing economic growth may have to come, as argued above, from the spur of grow
ing middle-class consumption, and a shift up the manufacturing value chain, and, in par
ticular, to the advanced service sector. Rodrik (2013) has demonstrated empirically that
‘unconditional convergence’ is sector specific. Manufacturing lends itself to catch-up
across countries, while other sectors do not; in agricultural and service-sector industries,
Page 19 of 26
the degree of convergence is ‘conditional’ on institutional factors like demographic, social

and political institutions, and histories.6
The futures of the other N–(8 + 3) members will be influenced by how the symbiotic rela
tionship between China and the USA plays itself out in the context of country-specific
(p. 34) institutional conditions. India’s growth may be constrained by continuing low pro
ductivity in agriculture, bottlenecks in the provision of productive infrastructure, the lim

ited spread of educational opportunities, the drag of corruption and administrative ineffi
ciencies, and the dead weight of traditional values and cultural practices (Asian Develop
ment Bank, 2013; Nayyar, 2013, p. 180). Indonesia is facing increasing internal social
conflict in the aftermath of a divisive 2014 presidential election in which the two candi
dates, Prabowo Subianto and Joko Widodo, were widely perceived to represent links back
to the Suharto and Soekarno regimes, respectively, after a decade of relatively stable and
benign rule by President Yudhuyono. Thailand is split between supporters and opponents
of the Thaksin Shinawatra dynasty, returning regularly to periods of military rule and hav
ing to deal with urban congestion and a growing refugee crisis on its border. Japan shows
little evidence that it is close to breaking out of its decade-long economic malaise. The
Philippines is well placed to benefit from the geographical disarticulation of value chains
in the region but is too dependent on China with whom they, like Japan, are in constant
territorial tension over islands and resources in the China Sea. Such disputes also in
creasingly conflict with US strategic aims in the Western Pacific. Vietnam also has an un
easy relationship with China and is struggling to move up the value chain in a highly com
petitive world. Malaysia’s stellar economic performance late in the last century has
slowed, and the ambitious plan to develop the ‘information super highway’ as an engine
of growth is stuttering. Only South Korea appears to be well positioned in East Asia to
take on the competitive might of China, as it trades on world-class scientific and technical
infrastructures, stable political conditions (North Korea apart), and close links with both
Chinese and American investors and trading partners.
However, hovering over the fate of the global capitalist economy, including Asia, is the lin
gering aftermath of the GFC. ‘The end of normal’ (Galbraith, 2015) may see growth col
lapse to well below past trend rates, a step change down from postwar norms. Yanis Varo
ufakis (2013) has coined the metaphor of ‘the Global Minotaur’ to refer to the process by
which global macroeconomic stability was precariously maintained in the period of ne
oliberalism following the collapse of the Bretton Woods Agreement during which US con
sumers drove demand for the world’s—especially China’s—exports and Wall Street banks
financed this process by the recycling of trade surpluses. This system collapsed in the
GFC and nothing has arisen to recycle the surpluses in a situation characterized by a
deep global liquidity trap.7
The twenty-first century may not belong to (all) Asia. Catch-up may turn into fight-back
and breakout into break-back, as the West makes a political–economic comeback on the
coat tails of a resurgent USA and a recovering Europe, unless the pessimists are right
and the new normal undercuts growth and living standards worldwide, including through
out Asia. The decision of the UK to leave the European Union and the centrifugal forces
Page 20 of 26
threatening the future of that major regional bloc add a further dimension of uncertainty.
More likely, some Asian countries will continue to chase down the smaller G7 nations, al
though differences in growth rates will need to remain significant for decades in order for
average living standards to also sharply converge. What is certain is that these forces will
play themselves out unevenly in both space and time in complex ways that are simply im
possible to grasp in full at present.
(p. 35) Challenges for a New Economic Geography

The discussion in this chapter suggests that whatever the precise trajectory of change in
the global economy, and the position of Asia, a key feature will continue to be geographi
cal unevenness, conditioned by the different systems of ‘variegated capitalism’ (Lane and
Wood, 2012; Dixon, 2014). In this approach, institutions and political agency matter. In
particular, the state (in its various forms) has and will continue to have a major impact on
the nature and pace of economic development across and within dynamic regions like
Asia. ‘Old’ theories of uneven development, including modern development theory, the
new international division of labour, dependency theory, and the various theories of impe
rialism advanced to explain the rise of the Asian tigers and the fate of lagging countries,
will no longer do. Standard economic trade and development analyses also fail. None of
these established approaches foresaw the seismic changes discussed in this chapter. Back
in the 1980s and 1990s, Western governments and elites were busy congratulating them
selves on ‘the end of history’ and the triumph of Anglo-American capitalism. Europeans
were fixated on the prospect of a 300-million-strong integrated domestic market, ignoring
the potential of a market three times that size in China and double again throughout Asia.
The West and many of its scholars were blindsided by the resulting developments, as they
were by the scale, reach, and aftermath of the global financial crisis of capitalism. Al
though a few prophets suggested that China’s immense potential could eventually change
the face of global capitalism, this was assumed to be a distant prospect. It has been the
pace, as well as nature, of the changes discussed that have left attempts to explain them
behind. A plausible analysis of how the Asian region has developed in the recent past and
might develop in future offers geographers a rich field for understanding the new con
texts in which the discipline’s traditional focus on uneven development is relevant to the
twenty-first century.
An adequate theory of uneven development will need to explain how the current crisis
and stagnation-prone phase of globalization and the financialization of capitalism—and
the associated failed political project of neoliberalism—has altered the spatial flows of
commodities, capital, and labour across and within nation states, both within the dynamic
Asian region and beyond it, how the increasing economic linkages within Asia confront
geopolitical tensions created by the growing power of China and its relations to its peo
ple, its neighbours, and the faltering reach of the USA. The various contributions to this
volume offer aspects of this account, as do those contained in Peck and Yeung (2010); the
recent work of Dixon (2014) has also been noted. However, no one has yet produced a sat
isfactory analysis of the totality of political economic and cultural forces that are driving
Page 21 of 26
developments across the space-time of real-existing capitalism in the uncertain times we

now face.
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Notes:
(1.) Nayyar identifies the ‘Next-14’ breakout nations, eight of which are in the Asian re
gion, most overlapping our group.
(2.) This follows the well-known theory proposed by Simon Kuznets (1966).
(3.) Rani (2007) also points to the growing trade and financial integration of East Asia fol
lowing the regional financial crisis of 1997. Increasing financial integration globally since
then, tying Asia into world financial flows, has substantially increased the systemic future
Page 24 of 26
risks of financial contagion and crisis overall (Dixon, 2014), including within seemingly
‘variegated’ regimes and regions of capitalism.
(4.) The Asian Development Bank (2012, pp. 62–73) provides a summary of the main argu
ments and evidence around what is driving increasing inequality in contemporary Asia.
See also Kanbur et al. (2014).
(5.) Galbraith stresses that correlation is not causation and independent evidence of the
latter is not available.
(6.) See Dixon (2014) for an analysis of the patterned integration of financial systems in
the current phase of globalization.
(7.) However, attempts are being made by the two competing hegemonic powers to recon
figure global economic arrangements to support their respective national interests. China
has launched the Asian Infrastructure Investment Bank as a foil to the US-dominated
World Bank and Japanese-led Asian Development Bank. The USA attempted to push
through the Trans Pacific Partnership (TPP) by more closely integrating the economies of
twelve Asian and Pacific nations on terms favourable to its leading industries and major
corporations. It remains to be seen, firstly, if these new institutional architectures can be
withstand the opposition of centrifugal domestic political forces within the various na
tions, including the USA under a Trump presidency, and, secondly, if together or sepa
rately, they can resolve the entrenched problems arising from the structural asymmetries
of world trade and investment, and the increasing vulnerability of global capitalism to fi
nancial crises and contagion.
Michael Berry
Michael Berry ([email protected]) is Emeritus Professor at Urban Studies and

Public Policy, Centre for Urban Research, RMIT University, Melbourne, Australia. His
research has focused on urban development processes, urban social theory, econom
ics and public policy, and housing markets and policy. His focus has been on alterna
tive financing approaches for affordable housing, and the impact of housing markets
on the macro-economy for which he has been awarded numerous significant grants,
most notably from the Australian Housing and Urban Research Institute, which he
helped found. He has been on the editorial board of a number of journals, including
Housing,Theory and Society and Urban Policy and Research. He has visited a num
ber of universities in Europe, Asia, and North America, most recently as Helen Kam
visiting fellow at Girton College, Cambridge.
Benno Engels
Benno Engels ([email protected]) is a Senior Lecturer at the School of Glob

al, Urban and Social Studies at RMIT University, Melbourne, Australia. He teaches in
the Urban Planning programme in the fields of urban economics, social planning, and
Page 25 of 26
urban planning history. He does research in Marxist political economy, Australian so
cial public policy, and urban planning history.
Page 26 of 26
Inequality in Advanced Economies

Danny Dorling
Levels of economic inequality differ extensively when comparisons are made between na
tion states, although, worldwide, inequalities remain highest in the poorest countries. Yet
now even some of the wealthiest nations have markedly high levels of income inequality.
This chapter concentrates on illustrating this unprecedented, contemporary transforma
tion in income inequalities towards greater geographical variation between affluent coun
tries. In particular, new data analysis included here uncovers significant idiosyncrasies in
the income distributions of the UK and USA, as compared with other wealthy countries.
Increasingly robust evidence suggests that high and rising inequalities in a few affluent
nations have far-reaching implications, and income inequality should be recognized as a
source of extensive negative externalities. These recent developments underscore the
need for the subdiscipline of economic geography to focus far more on understanding
patterns and changes in income inequality within prosperous nations. Thus far, geogra
phers have largely neglected the subject and its consequences.
Keywords: externality, income, inequality, affluent countries, UK, USA
‘The 1 Per Cent and the Rest’: Not Just a Slo

gan
A growing body of evidence points to high and rising income inequality as one of the most
important global issues in the decade spanning 2010–19. One recently published index al
ludes to the far-reaching implications of growing economic inequality, describing it as by
far the greatest threat to social cohesion in many nations (Stiles et al., 2015). Paradoxi
cally, academic geographers tend to have become less concerned with such concrete
measures of ‘everyday life’ in recent years, while economists have measured these trends
but have tended to neglect their wider social implications. This chapter makes the claim
that the discipline of economic geography must engage more in this area, not only to re
main relevant, but also because studies of geographical variations in inequality offer
Page 1 of 38
tremendous insight into the wide range and significant negative externalities generated
by tolerating high-income inequality.
Firstly, it is argued that income inequality is best assessed with respect to a particular de
mographic. Specifically, the best-off 1 per cent of households provides a crucial lens
through which to evaluate inequality. At root, this is because the extent to which the top 1
per cent of earners disproportionally accumulate income appears to drive overall levels of
inequality within nations. It is also important to recognize that one of the favoured mea
sures of inequality, the Gini coefficient, is very insensitive to large increases in the take of
the top 1 per cent and so is a poor measure of inequality when the size of that take has
far wider implications.
There are now substantial differences in income inequality between affluent nations. This
was not the case in the 1970s, when most affluent nations were more equitable than they
are today, or in the 1920s, when all were substantially more inequitable with very similar
inequality profiles to each other. This chapter contributes a clear methodology for esti
mating the incomes of earners at the very top of income distributions. These include the
‘super rich’ who are not captured by many surveys and hence often render calculations of
income (p. 40) inequality as underestimates if they are left unaccounted for. Moreover, a
clear distinction between mean and median ratio measures of equivalized household in
come is shown to be crucial for assessing the true extent of income inequality. Such tech
nical points highlight how academic study can benefit policy debates over inequality.
Measuring inequality is far from simple. Accounting for its effect is even more difficult.
An illustration of current patterns is paired with a discussion of the potential implications

of high and rising inequality. A growing literature points to a significant, negative rela
tionship between income inequality and a host of social indicators. Indeed, there is now
an accumulation of evidence for economic inequality’s widespread occupational, demo
graphic, and spatial impacts. In this sense, the discipline of geography as a whole must
recognize the nature of high rates of economic inequality as a negative externality: the
proportion of total income accruing to the richest few affects the utility of all citizens di
rectly, in a way left unpriced by the market mechanism. In other words, there are non-
negligible social costs to tolerating high levels of inequality. This finding lends currency
to the argument that economic geographers must take account of divergent trends in in
come inequality in affluent nations if they are to do work that has far-reaching implica
tions and relevance.
Crucially, the American and British income distributions are found to be distinctive. In
particular, in recent years income inequality has risen significantly in both the UK, and a
little earlier (and higher) in the USA. Given the seemingly wide-ranging impacts of in
equality, from the environment to the property market, these trends have important rami
fications. In short, these two nations should not be treated by economic geographers as
models from which to base general analysis of affluent countries. The UK and USA are
economic outliers and not representative of rich nations in general. Very recent trends
suggest that inequalities in the UK are now rising even faster than they have been in the
Page 2 of 38
USA and if this were to continue then the UK will soon become the affluent nation with
the 1 per cent who take the most of all.
The Inequality Paradox

Growing income inequality is one of the major macroeconomic events of our time (Cowen,
2012). In 2014, the bank Credit Suisse reported that the richest 1 per cent of people in
the world had increased their share of global wealth from 41 per cent to 48 per cent in a
mere twelve months. Among that 1 per cent, the wealth of a minute number of multibil
lionaires is rising so rapidly that new inequality statistics swiftly become out-dated
(Moreno, 2014). The Nobel Prize-winning economist Robert Shiller has suggested that
the renewed greed of the top 1 per cent within the USA has wrecked more destruction on
livelihoods of normal households than the 2008 global financial crisis achieved. He stat
ed, ‘the most important problem we are facing now … is rising inequality’ (Wilkins, 2013).
Given the intensity of current concerns over the global situation, this chapter seeks to re
vitalize thinking on income inequality among economic geographers. World-leading econ
omists now accept that levels of inequality in the most unequal of affluent countries are
unsustainable (Atkinson, 2015) and a large number of these economists can now be listed
who are beginning to suggest many remedies (listed in the introduction to Dorling, 2016).
Geographers have occasionally turned their attention towards inequality and

(p. 41)
poverty, especially since the 1970s (Harvey, 1973; Philo, 1995; Ross et al., 2005; DeVer
teuil, 2009; Wyly, 2009; Li and Wei, 2010; Hay, 2013; Hennig and Dorling, 2014); however,
this remains a neglected subject in the field of economic geography. As economic inequal
ities have widened in recent years, many geographers have specialized in alternative ar
eas: notably, more theoretical considerations of more ephemeral aspects of life. This
might have partly come about because David Harvey’s Marxist theories were most promi
nent within the discipline in the 1970s, a time when inequalities were at a historic mini
mum within both the UK and USA. Harvey and other radical geographers then did not
mention the growing equality at that time as being unusual or an achievement. Hence,
when inequalities subsequently rose, such geographers made little mention of the rises
because they had not celebrated the falls.
The academic study of inequality remains demarcated by the significant work of sociolo
gists, historians, anthropologists, economists, and epidemiologists (Nowatzki, 2012;
Sassen, 2014; Sayer, 2014). Thomas Piketty’s best-selling Capital in the Twenty-First Cen
tury transported the subject of economic inequality to the top of social science agendas in
2014 (Piketty, 2014). Concurrently, a number of the world’s most acclaimed science jour
nals have covered the issue (for a recent review, see Pickett and Wilkinson, 2015). In
2014, world leaders, including the presidents of the USA, China, and the World Bank,
ranked economic inequality among the top three most important global issues (Dorling,
2014). In 2015 the Pope made inequality the central issue of his teaching, ‘Laudato Si’:
On care for our common home’, and in January 2016 Oxfam explained that the accumula
Page 3 of 38
tion of wealth by the very richest in the world was not just rising, but accelerating (Dor
ling and Lee, 2016).
Current cross-national trends in income distributions necessitate a focus on the conse

quences of inequality. The discipline of geography has a significant contribution to make
as a framework through which to understand and analyse these heterogeneous trends. It
is imperative to recognize the spatial—the geographic—dimension of inequality. In other
words, just as ‘poverty is inherently geographic’, geographical factors are crucially inter
woven within economic inequalities (Glasmeier, 2002, p. 156). This chapter explores both
the drivers and consequences of rising income inequality, embracing the importance of
exposing economies and economics to geographical scrutiny (Smith et al., 2010).
Why the 1 Per Cent Matter

The economic concept of inequality is operationalized through a host of indicators, from
the (insensitive) Gini index to the (more useful) Palma ratio (see Atkinson, 1970). The slo
gan ‘We are the 99%’, appropriated by the academic and anarchist David Graeber, shifted
public attention towards measuring incomes and wealth at the very top of the income dis
tribution (Runciman, 2013). In this chapter, we define the 1 per cent from the cut-off in
annual income level that divides the best-off one in one hundred people among a particu
lar group from the rest of the population. This is done for groups of people when those
people are clustered into households and when only the overall household income of each
household is known. This group was holding 50 per cent of all global wealth at the point
the academic paper in which some of these estimates were first made was published
(Dorling, 2015a). By the time you read this, the share of the best-off 1 per cent by wealth
will be more (p. 42) than half of all the wealth in the world. But the best-off 1 per cent by
income are usually not quite so rich.
The top 1 per cent is one of the best-defined categories in social science. For any popula
tion, given a definition of income—this chapter utilizes surveys that include all income re
ceived by households before tax and additional deductions and additions –the make-up
and size of the 1 per cent group can be calculated exactly.1 To be among the best-off 1 per
cent of all households in the USA in 2013 required a gross household income, before tax,
of at least $394,000 a year (Currid-Halkett, 2013). In the same year, in the UK, living in a
household with one adult earning an annual income of at least £160,000 qualified that
household entry into the best-off 1 per cent club (Cribb et al., 2013).2 The top 1 per cent
take about 20 per cent of all income in the USA, 15 per cent in the UK, 10 per cent in
Germany, and nearer 5 per cent in Japan (and not much more than that in the Nether
lands and across all of Scandinavia). Once the ‘take’ of the next best-off 1 per cent and
the 1 per cent below that are considered it becomes clear just how little is left when just
a few take so much.
Measuring inequality via the incomes of the top 1 per cent is also preferable to other pos
sible measures given the paucity of the data available on wealth, and also partly because
this income inequality measure touches on the realm of the very wealthy. Although the
Page 4 of 38
wealth of super-rich individuals is published by several sources, the wealth of the 1 per
cent most affluent as a complete category across a range of countries is not well record
ed, we rely on crude estimates to make the statements given above concerning half the
world’s wealth. Thus, by default, income remains social scientists’ best-enumerated and
preferred measure for cross-national analysis. To evaluate the most affluent 1 per cent we
must define them through measures of their annual income; we simply cannot achieve a
reliable comparable cross-country study with current measures of wealth. Although we
can talk about the global wealth holdings of the very richest with some confidence, this is
because we do not have to assign any particular wealthy individual to one particular
country to do that.
To make cross-national comparisons this chapter uses several measure of income inequal
ity. The twenty/twenty ratio compares the top 20 per cent with the bottom 20 per cent
and is used in one of the most successful social science publications of the last decade
(Wilkinson and Pickett, 2010). However, I prefer to use the share of the top 1 per cent.
The best-off 1 per cent in any one society are—by definition—the very highest paid twenti
eth of the best-off 20 per cent. They constitute 5 per cent of that group by population and
can receive each year as much as 50 per cent of the income of that group. Thus, the twen
ty/twenty ratio largely reflects the share of income held by the 1 per cent. The ninety/ten
ratio focuses in on the tails of income distributions, and can also be used to further un
derscore the importance of the 1 per cent for assessing inequality.
There is a key theoretical defence for a focus on the top 1 per cent measure. How much
the best-off 1 per cent take is the factor that emerges as the crucial driver behind nations’
overall levels of income inequality. In other words, when assessing the impacts of inequal
ity, the share taken by the top 1 per cent seems to be the key independent variable, deci
sively affecting the skewness of countries’ income distributions. It is possible that in fu
ture this measure will not be so sensitive and income will be better shared out in soci
eties. At the moment, the top 1 per cent tend to take so much more than the next 1 per
cent that the take of the top 1 per cent remains the single simplest measure of income in
equality that tells us the most about how different affluent countries differ from each oth
er.
The reasoning underpinning the argument that what the 1 per cent take is of such
(p. 43)
great importance is simple. A proportional relationship is apparent between the top 1 per
cent’s share of national income and that of the other households near the top of the in
come distribution. In general, the greater the percentage of total income obtained by the
top 1 per cent, the greater the percentage acquired by the 1 per cent of households just
below them. The take of the 1 per cent ‘trickles down’ through imitation and expectation,
bolstering incomes within the most very affluent households very near the top as well as
the top 1 per cent themselves. Crucially, however, this ‘trickle-down’ effect is necessarily
strictly limited: the trickle does not trickle far, probably to only a few among the most af
fluent 20 per cent of households and not at all outside of that group, from whom potential
income not received trickles up. The more the 1 per cent takes as a share of all income,
the less there is for the remaining 80 per cent of the population. This is largely because
Page 5 of 38
when the 1 per cent take more, the other 19 per cent also take more. This is why low-in-
work-incomes and low benefit levels tend to be common in those countries where the 1
per cent takes the most.
There will always be a 1 per cent best-off group in any country or area under considera
tion. It is the extent to which this category is set apart from average households that mat
ters. It is also often found that the 1 per cent take tends to be high when social mobility is
low. This measure establishes the depth of the divide between the have-mosts and have-
nots. Parents in very unequal affluent countries try very hard to ensure their children do
not fall far. The data analysis set out in the next section finds support for the case for this
theory of inequality: that when there are greater economic inequalities between the ‘1
per cent’ and ‘the rest’, overall inequality is more acute in many other aspects of life, in
cluding having low social mobility. When the best-off 1 per cent take less, overall inequali
ty almost always falls and all other indices of inequality tend to be lower.
Uncovering Recent Trends in Income Inequali

ty in Affluent Nations
Contemporary advances in data collection provide rich insights into current trends in eco
nomic inequality. Cross-country levels of economic inequality report rates of inequality
peaking in some of the large poor countries of the world (including Brazil and South
Africa). Yet recently, the more affluent nations of the world have become increasingly set
apart from others by stark contrasts between them in their levels of economic inequality.
This chapter focuses, in particular, on this contemporary transformation in income in
equality across the richest nations. Analysis of new data contributes empirical support to
wards the two key themes outlined above: the impact of the share of the top 1 per cent
and the importance of geography’s engagement with inequality.
To produce a fair set of statistics on economic inequalities, a particular form of triangula

tion is needed and many data sources have to be combined. Here, estimates of the in
comes of the 0.01 per cent, 0.001 per cent, and so on, are compared, up to the very small
est groups of extremely rich households with details published on the numbers of highly
paid financiers (the majority of the most highly rewarded in both the UK and USA) in
each affluent country. (p. 44) These data are compared with a variety of other sources for
robustness, including the numerous newspaper ‘rich-lists’, and with official survey data
on median household incomes. This is especially important for studies of the USA and UK,
given that within these two nations so few households now fare well. Once this triangula
tion is carried out, sample surveys of national populations can be used to estimate the in
come distribution of the top 1 per cent.
Page 6 of 38
Table 2.1 Summary of Income Inequalities in the Five Most Populous European Union Countries (2012)
Country Sample (n) As share of all 1% cut-off (€) Median(€) Ratio of 1% to

households (%) median
Germany 13,512 0.03 154,000 36,400 4.2
France 11,360 0.04 189,000 39,000 4.8
Italy 19,399 0.08 164,000 33,400 4.9
Spain 13,109 0.08 105,000 22,700 4.6
UK 8058 0.03 227,000 36,300 6.3
Page 7 of 38
Using data from the European Union Statistics on Income and Living Conditions (EU-
SILC) survey, new estimates have recently been made for the household income distribu
tions of all large European countries for the year 2012. The EU-SILC replaced its prede
cessor in 2004, significantly expanding the number of countries sampled. By assigning
each household a cross-sectional weight, these samples have been adjusted by the author
to produce national estimates that are representative of each country’s population. This
method counters sample selection bias.
Table 2.1 provides a summary of income inequality in the five countries in the European
Union (EU) that have the largest populations: Germany, Italy, Spain, France, and the UK.
Only these countries are sufficiently populous that discussion of the best off one in ten
million households is relevant. Focusing on the 1 per cent, the table suggests that the UK
is an outlier. The threshold to be a member of the best-off 1 per cent is 6.3 times the me
dian UK household income, in contrast to a comparative value of between 4.2 and 4.9 in
the other four countries.
Table 2.2 reaffirms the conclusion that the UK is a case apart through a detailed analysis
of the UK income distribution in 2012. The data cover these households’ gross annual in
come, including investment income. This table elucidates a number of significant points,
crucial for students of economic inequality to understand. While Table 2.1 shows money
recorded in euros, for Table 2.2 the sums have been converted back into pound sterling.
The distinction between mean and median has fundamental implications in inequality
analyses. The median annual income in 2012 for UK households was £30,267. After tax
(including tax credits) and once benefits and pensions are excluded, the figure is reduced
to £13,481 for the actual median incomes of all UK households from post-tax earnings
alone. In contrast, the arithmetic mean annual household income was significantly higher,
standing at £43,909. This mean is weighted with respect to individual households, such
that the sample population distribution is representative of the UK population. The stark
divergence arises because the UK’s income distribution was—and continues to be—so
skewed in favour of the most affluent households. (p. 45)
Page 8 of 38
Table 2.2 Summary of UK Household Income Distribution 2012
na Income (£s) Gross income Post-tax Post-benefit Post-pension
Variable HY010 HY020 HY022 HY023
Median 30,267 25,458 22,469 13,481
8058 Weighted mean 43,909 33,121 29,809 23,808
1/10millionb 104,386,279 56,138,025 56,138,025 56,138,025
1/million— … 32,988,872 17,741,126 17,741,126 17,741,126
1/100,000— … 10,425,371 5,606,673 5,606,673 5,606,673
1/10,000— … 3,294,698 1,771,859 1,771,859 1,771,859
8 1/1000— … 1,041,213 559,955 557,909 554,839
63 1/100—0.1% 305,395 180,487 179,204 168,586
678 The top 9% 116,942 80,326 78,828 74,533
7309 Bottom 90% 32,863 26,332 22,817 16,688
782 Bottom 10% 7671 6835 4358 194
Page 9 of 38
8058 R Geo-meanc 3.2 2.8 2.9 3.2
EOnePercentd 420,648 240,639 239,290 229,553
E1%:median 14 9 11 17
0.1%:10% 136 82 128 2857
a‘n’refers to number of households in the sample. b1/10 million is the best off one in 10 million households of which there are just
three in the country. c‘R Geo-mean’ refers to the geometric mean of the inequality ratios calculated between different categories in
the income distribution (i.e. 3.2 is the mean of 3.4, 2.6, and 3.6: respectively the ratios of the 0.1%’s mean income to the 1%’s, the
9%’s to the 1%, and the 90%’s to the 10%’s). d‘EOnePercent’ refers to the mean annual income of the top 1%, including estimates for
the super rich.
Source: Calculations by author using European Union Statistics on Income and Living Conditions (EU-SILC)-weighted household
sample.
Page 10 of 38
The distinction between the mean and median may appear painstakingly obvious, yet sur
prisingly often policymakers conflate mean and median income statistics, producing in
valid conclusions on inequality. For instance, a recent report by the UK Department for
Work and Pensions claimed that inequality among UK households had fallen (Shale et al.,
2015). Yet, the report measured the ratio of the median income of the top quintile to the
bottom quintile. This is therefore the ninety–ten percentile ratio. Crucially, given the defi
nition of median, any statistic that compares medians excludes the top 1 per cent, in con
trast to the ninety/ten ratio of decile means. Given the aforementioned importance of the
top 1 per cent (and those percentiles just beneath them, which are also excluded when
these medians are compared), it is of necessity to use the latter measure in inequality
analysis, which includes the extremes of the income distribution. So skewed is the UK in
come distribution that even if the top 10 per cent are excluded, the weighted mean in the
UK is still higher than the sample median.
It is valuable to recognize that, in general, some of the greatest economic inequali

(p. 46)
ties reside within the top 1 per cent rather than within the remaining 99 per cent of the
population. The higher the share of national income share that the best-off 1 per cent
take, the greater income inequalities within the 1 per cent tend to be. In the UK, those
households in the 0.001–0.1 per cent bracket earn or otherwise receieve, on average, £1
million a year—£1,041,000 in mean annual income. The remainder of the 1 per cent have
a weighted mean annual income of £305,000. This is 3.4 times less than the 0.1 per cent
receives on average. The rest of the top 10 per cent have a weighted mean annual income
of £117,000. This is 2.6 times less than that of the top 1 per cent. The remaining 90 per
cent have a weighted average income of £32,863 (3.6 times less than the top 10%).
In the UK the mean annual income of the 1 per cent is £370,000 a year, or over 2.3 times
as much money as the threshold required to belong to that group. This mean for the in
come of the top 1 per cent in the USA will be of an even greater magnitude. In more equi
table countries, such as the Netherlands and Sweden, the 1 per cent both take far less
and have less inequality within their group (Dorling, 2014). In any society in which the
best-off 1 per cent take a low proportion of national income, overall income inequality
within that society always turns out to be less. This is not only because the 99 per cent
will have more, but also because there will almost certainly be less inequality within that
99 per cent, and within the 1 per cent when the two are not so far apart.
We still need to pose the question of how to estimate the most extreme incomes, the in
comes of the ‘super rich’. Because extremely well-off individuals are unlikely to be includ
ed in the EU-SILC sample owing to their rarity, the extent of inequality will be underrep
resented without estimations such as that just presented. In short, the degree of inequali
ty in the sample itself must be extrapolated in order to estimate the top incomes of those
in the 0.01 per cent and above. The assumption made here is that the ratios of inequality
remain approximately constant as one proceeds up the income scale.
Once we are talking about incomes at the very top we are dealing with very small num
bers of families and so need to triangulate between sources. The geometric mean of the
Page 11 of 38
three ratios calculated earlier (3.4, 2.6, and 3.6) is 3.2. Applying this ratio upwards, the
average income of the best-off 0.01 per cent (less the 0.001%) is £3.29 million a year. Em
ploying the same method, the average income of the best-off 0.001 per cent (less the
0.0001%) is estimated to be £10.43 million a year. The most affluent 0.0001 per cent (less
the 0.00001%) secures £32.99 million a year. Finally, the best of 0.00001 per cent of
households, equating to three families, accumulates an average annual income of £104.39
million a year. These calculations are far from fanciful in light of the fact that approxi
mately three of the UK’s richest families saw The Sunday Times’ estimate of their wealth
rise by at least a tenth of a billion pounds (i.e. by at least £100,000,000) between publica
tions of two recent versions of the super-rich list, implying income gains of at least those
amounts within a year (The Sunday Times, 2014). For example, between 2013 and 2014
in the UK the wealth of the Mittal family rose by £250 million. When The Sunday Times’
rich list of 2015 was published in spring of that year it confirmed that such increases in
wealth at the top were continuing, although often for a different set of very wealthy fami
lies. There is great precarity at the top of the income scale just as there is at the bottom
in the most unequal of affluent countries.
All the figures required to estimate income inequality in the UK and used in the para
graph above are also in Table 2.2. To draw up this table it is assumed that the very rich
pay income tax at the same rate as the best-off 0.1 per cent (who pay 46% of their income
in income tax). (p. 47) It is also presumed that the very rich receive negligible benefits
and pensions. However, it is worth noting that even the richest 0.1 per cent in the UK in
2012 received just over £2000 a year in benefits and about £3000 a year, on average, in
pension payments. Although roughly half of these benefits came from child benefit pay
ments, which have been phased out for high earners from 2012 and are no longer paid to
them by government.
The data on the UK household income distribution in Table 2.2 can be used to calculate
the mean annual income of the top 1 per cent in the UK (labelled ‘EOnePercent’), which
includes the super rich, using the methodology just described. The result in 2012 was
that when the very richest were also included, the best-off 1 per cent by income received
£420,648 (or €504,778) a year, which is fourteen times the median UK income. Put anoth
er way, in simple terms, the top 1 per cent in the UK enjoy fifty-five times more income
than the average income of households within the bottom 10 per cent. The top 1 per cent
thus receive 550 times as much money a year as the bottom 10 per cent. This is extreme
among affluent countries. It is not normal.
Table 2.2 illustrates that although these inequalities are muted after taxes are paid, they
are aggravated once benefits and pensions are subtracted (benefits reduce income in
equality, but only slightly). Without benefits or pensions, and after having paid tax, the
bottom 10 per cent of the population would have, on average, 2857 times less a year to
live off than the best off 0.1 per cent. This equates to living off £194 per annum, or £0.53
per day. Without benefits, people in the UK would starve.
Page 12 of 38
Exactly the same methods were employed by the author to generate the corresponding
estimates and calculations for Germany, France, Italy, and Spain. Table 2.3 below displays
the results.
In terms of household income distribution, the four other countries in Table 2.3 exhibit far
more similarities with one another than they do with the UK. On average, the best-off 1
per cent in the UK receive a gross annual income almost twice that of Germany and al
most exactly four times as great as that enjoyed by their Spanish counterparts. In con
trast, the median income of UK households is lower than that in both Germany and
France. This, again, underscores the important distinction between mean and median in
come. France is the second most inequitable country studied here, yet it can still boast
far great equality than the UK. The top 1 per cent in France receives ten times the
French medium income, or thirty-five times the average incomes of the worse-off 10 per
cent. As aforementioned, the corresponding UK figures are fourteen and fifty-five. In
short, the UK is the outlier within Europe. It is resoundingly the most economically un
equal country within Europe (see independent research from Fernández-Macías and Va
cas-Soriano, 2015; Sellers, 2015).
Additional data sources allow for a wider perspective on global inequalities. For this
chapter a comparison of the top 1 per cent’s income share in twenty-five countries across
the world has also been constructed. The twenty-five countries compared in Table 2.4
below were selected on the basis that they had the highest gross domestic product per
capita in the world in 2009 out of all nation states with a total population exceeding two
million. Hence, the table ranks the twenty-five richest countries in the world in 2009 ex
cluding Luxembourg, Iceland, and San Marino (populations of less than two million). Ac
cording to the International Monetary Fund (IMF), as of April 2015, this selection of
twenty-five countries would now include Kuwait, the United Arab Emirates, Hong Kong,
and Qatar. These four countries would replace Slovenia, Greece, Portugal, and Spain in
the club of rich (p. 48) countries. However, owing to data availability this chapter contin
ues to compare the group of twenty-five countries selected using 2009 data.
Page 13 of 38
Table 2.3 Summary of Income Inequalities in Germany, France, Italy, Spain, and the UK in 2012a
Germany France Italy Spain UK
1% 257,067 375,063 270,099 126,285 504,778
9% 103,060 110,521 101,336 73,826 140,331
90% 33,466 35,776 31,362 23,558 39,436
Bottom 10% 7656 10,695 6280 3916 9206
Median 36,425 38,999 33,389 22,700 36,321
Mean 41,785 45,514 39,862 29,089 52,691
1%/median 7 10 8 6 14
1%/bottom 10% 34 35 43 32 55
aFigures in Euros (€); the final two rows show ratios. This income estimate includes the super rich living in each country.
sample.
Page 14 of 38
To support the argument that the top 1 per cent drives additional measures of inequality,
comparison is made with the ninety–ten inequality measure: the ratio of the mean income
share of the richest 10 per cent in a country to that of the poorest 10 per cent. For exam
ple, as Table 2.5 highlights, in 2010 the top 10 per cent in the USA received 20.32 times
more than the bottom 10 per cent. In Denmark the poorest tenth are almost four times
better off in comparison (ratio 5.16).
One important finding is that there is a very close correlation between the income take of
the best-off 1 per cent and the overall measures of income dispersion in each country,
such as the Gini coefficient of income inequality, as measured by the Luxembourg Income
Study. This is apparent even although the Gini coefficient is a less sensitive measure of in
come inequality. These relationships are summarized in Table 2.6, which can be compared
with Tables 2.4 and 2.5.
So, there is wide variation between affluent countries, but how are the ratios changing
over time? In addition to these estimates, The New York Times’ Income Distribution Data
base provides time series data, allowing projections to be generated for income inequality
in Canada, Finland, Germany, Greece, Ireland, Israel, Italy, the Netherlands, Spain, the
UK, and the USA. Owing to data limitations it was not possible to use the database to cal
culate predictions for the remaining fourteen countries used in this chapter. Projections
(presented in Table 2.7) were estimated by taking simple linear averages between data
points from 2004–05 and 2010. If the same annual trends in income inequality, as mea
sured by the ninety/ten ratio, continued then the UK would become the most unequal rich
country in the world in the year 2026. In other words, should the average trend between
2004 and 2010 be replicated across the eleven countries, the UK would overtake both the
USA and Israel to a point where the richest 10 per cent receive, on average, 22.4 times
more than the poorest 10 per cent per year by that date. As of the UK budget of July 2015
that continuation of current (p. 49) trends appeared possible; but few commentators at
the time reported this. By February 2016 it was looking even more likely that the UK
could become the most inequitable of all affluent nations as the presidential debate in the
USA began to focus on income inequalities with in the USA and as the Singaporean gov
ernment continued to implement policies to prevent wealthy individuals from overseas in
vesting in the Singapore’s property market through the implementation of capital con
trols. Trends in Israel remain very uncertain. Unless inequities in Israel grow much high
er in the coming years, for instance owing to wealthy investors moving to live in Israel,
then it is increasingly likely that the UK will become a more (p. 50) (p. 51) unequal coun
try than Israel by 2024, and the USA by 2026. However, political events are very unpre
dictable.
Table 2.4 Share of Income Received by Best-off 1 Per Cent of Taxpayers in Rich Coun
triesa
Country Year Top 1% income share (% of all national income)
Page 15 of 38
USA 2013 17.54
Germany 2008 13.89
Singapore 2012 13.57
UK 2012 12.70
South Korea 2012 12.23
Canada 2010 12.22
Switzerland 2010 10.63
Ireland 2009 10.50
Portugal 2005 9.77
Japan 2010 9.51
Italy 2009 9.38
Australia 2010 9.17
France 2012 8.94
Spain 2012 8.20
New Zealand 2011 8.13
Norway 2011 7.80
Finland 2009 7.46
Sweden 2013 7.24
Denmark 2010 6.41
Netherlands 2012 6.33
a
All country data from Alvaredo et al. (2015). Data unavailable for Israel, Greece, Aus
tria, Belgium, and Slovenia. Other sources give much lower figures for both Germany
and Japan.
Page 16 of 38
Source: Data from the New York Times’ (NYT) Income Distribution Database, assem
bled by Janet Gornick (LIS),Thierry Kruten (LIS), Branko Milanovic (LIS), David Leon
hardt (NYT), and Kevin Quealy (NYT), www.lisdatacenter.org/resources/other-databas
es/—linear projection of most recent trends forward in time to 2026 (see New York
Times, 2014).
Table 2.5 The Ratio of Incomes of the Best-off 10 Per Cent of Households Versus the
Worst-off 10 Per Cent Among the World’s Richest Countries
Country Year 90:10
USA 2010 20.32
Singapore 2012 18.48
Israel 2010 17.42
UK 2010 17.35
Canada 2010 14.54
Spain 2010 13.62
Greece 2010 12.71
Italy 2010 11.26
Ireland 2010 11.08
Germany 2010 10.35
Portugal 2012 10.10
South Korea 2013 10.08
Finland 2010 9.20
Australia 2012 8.80
Netherlands 2010 8.60
New Zealand 2012 8.21
Page 17 of 38
France 2012 7.40
Japan 2009 7.28
Austria 2012 7.00
Switzerland 2012 6.70
Sweden 2012 6.30
Norway 2012 6.20
Belgium 2012 5.85
Slovenia 2012 5.45
Denmark 2012 5.16
Sources: 2010 data from the New York Times’ (NYT) Income Distribution Database, as
sembled by Janet Gornick (LIS),Thierry Kruten (LIS), Branko Milanovic (LIS), David
Leonhardt (NYT), and Kevin Quealy (NYT), www.lisdatacenter.org/resources/other-
databases/ (see New York Times, 2014). (The 90:10 ratio calculated is the fraction of
mean equalized household income (2005 purchasing power parity $) of the top to the
bottom decile, where the equivalence scale is income divided by the square root of the
number of household members). 2012 and Korean data from the OECD Income Distrib
ution Database (see OECD, 2013). Singapore data from UNU-WIDER (2014). Japanese
data on equivalized household disposable income shares from
Ballas, D. et al. (2013). Note: the OECD database obtained a value of 10.7 for Japan
and the UN-WIDER database obtained a value of 7.9. Here the Ballas et al. (2013)
estimate is used.
Table 2.6 Share in Top Incomes of the 1 Per Cent and Gini Measure of Inequality, Fif
teen Affluent Countries Ranked by the Take of the 1 Per Centa
Country Top 1% income share (in earlier dates) Gini inequality measure
USA 17.7 0.37
UK 15.5 0.34
Canada 13.8 0.32
Page 18 of 38
Germany 10.9 0.29
Ireland 10.3 0.31
Italy 9.4 0.34
France 8.9 0.28
Spain 8.6 0.32
Australia 8.6 0.31
Norway 7.9 0.26
Finland 7.9 0.26
Switzer 7.8 0.27

land
Sweden 6.7 0.24
Nether 5.4 0.27

lands
Denmark 4.3 0.23
a
Note that the data here for the 1% are drawn from a year or so earlier than the data
shown in Table 2.4. The rich can suddenly decide to declare more of their income.
Source: Dorling (2013, Figure 1.1, and online tables).
All these statistics on rising economic inequality can become overwhelming. By 2014, fa
tigue was setting in among reporters: over four years’ worth of news since the Great Re
cession had repeated the same message: while most people in affluent countries (and es
pecially the most unequal of affluent countries) were becoming worse off, a few were
gaining at an accelerating pace. The average wealth of billionaires was spiralling up
wards, as was the prosperity of the large majority of the upper echelons among those
recorded in national income distributions.
Unsurprisingly, in 2015 it emerged that defence of extremes of inequality was one of the
key battlegrounds for political parties in the UK’s general election (Dorling, 2015b). In
deed, (p. 52) (p. 53) the high, rising, and prolonged trends in economic inequality outlined
here are not merely statistics. Inequality changes fundamental relationships in society
and touches on the lives of the entire population (Dorling, 2016). This is precisely why an
Page 19 of 38
interdisciplinary, and specifically an economic and geographic, appreciation of inequality

is so important.
Page 20 of 38
Table 2.7 Projections for Rich Countries’ Income Inequality, Percentage Take of Top 1 Per Cent
Page 21 of 38
Year Cana Fin Ger Greece Ire Israel Italy Nether Spain UK USA
da land many land lands
2008 14.5 9.3 10.3 12.8 11.7 16.84 11.6 8.6 13 13.7 20.2
2009 14.5 9.3 10.3 12.7 11.4 17.12 11.45 8.6 13.3 14.2 20.3
2010 14.5 9.2 10.4 12.7 11.1 17.4 11.3 8.6 13.6 14.7 20.4
2011 14.5 9.1 10.5 12.7 10.8 17.68 11.15 8.6 13.9 15.2 20.5
2012 14.5 9.1 10.5 12.6 10.5 17.96 11 8.6 14.2 15.7 20.6
2013 14.5 9.0 10.6 12.6 10.2 18.24 10.85 8.6 14.5 16.1 20.7
2014 14.5 8.9 10.7 12.6 9.8 18.52 10.7 8.5 14.8 16.6 20.8
2015 14.5 8.9 10.7 12.5 9.5 18.8 10.55 8.5 15.1 17.1 20.9
2016 14.5 8.8 10.8 12.5 9.2 19.08 10.4 8.5 15.4 17.6 21.0
2017 14.5 8.7 10.9 12.5 8.9 19.36 10.25 8.5 15.7 18.1 21.1
2018 14.5 8.7 10.9 12.4 8.6 19.64 10.1 8.5 16 18.6 21.2
2019 14.5 8.6 11.0 12.4 8.3 19.92 9.95 8.5 16.3 19.0 21.3
Page 22 of 38
2020 14.5 8.5 11.1 12.4 7.9 20.2 9.8 8.4 16.6 19.5 21.4
2021 14.5 8.4 11.2 12.4 7.6 20.48 9.65 8.4 16.9 20.0 21.5
2022 14.5 8.4 11.2 12.3 7.3 20.76 9.5 8.4 17.2 20.5 21.6
2023 14.5 8.3 11.3 12.3 7.0 21.04 9.35 8.4 17.5 20.9 21.7
2024 14.5 8.2 11.4 12.3 6.6 21.32 9.2 8.3 17.8 21.4 21.8
2025 14.5 8.2 11.4 12.2 6.3 21.6 9.05 8.3 18.1 21.9 21.9
2026 14.5 8.1 11.5 12.2 6.0 21.88 8.9 8.3 18.4 22.4 22.0
Source: data from the New York Times’ (NYT) Income Distribution Database, assembled by Janet Gornick (LIS),Thierry Kruten (LIS),
Branko Milanovic (LIS), David Leonhardt (NYT), and Kevin Quealy (NYT), www.lisdatacenter.org/resources/other-databases/ (see
New York Times, 2014)—linear projection of most recent trends forward in time to 2026.
Page 23 of 38
Inequality as a Negative Externality

Economic inequality generates significant occupational consequences. In a very unequal
country the 1 per cent are mostly employed within the financial services sector. In other
words, as a country becomes more economically unequal a greater proportion of the 1
per cent is drawn from just this one sector. This trend is even more pronounced within
the top 0.1 per cent of earners. Notably, as Table 2.8 highlights, over ten times more
bankers earn very high salaries in the UK as compared with the country ranked in second
place, Germany. In fact, there are fewer highly paid bankers in every other EU country,
combined, than there are in the UK. Remarkably, there are now more bankers paid over
£1 million in just one bank in London (Barclays) than in all of Japan, in all sectors of the
economy combined (Jones, 2014). Recently these groups have been documented in great
detail (Birtchnell and Caletro, 2013).
Table 2.8 The Numbers of Bankers Paid Over €1,000,000 in 2012 (Highest Numbers in
the European Union)
Country Number of highly paid bankers
UK 2714
Germany 212
France 177
Italy 109
Spain 100
Source: EBA (2013).
The phenomenon whereby having to host an extremely large number of very rich bankers
and living in a extremely unequal society appears to go hand-in-hand is possibly driven by
strong links between the UK and USA. Indeed, in the UK it has become more common in
recent decades to hear and read of US attitudes to very high pay being that ‘high re
wards’ are presented and often seen as being socially acceptable. As introduced in Tables
2.5, 2.6, and 2.7, the USA leads the rich world in terms of income inequality and is likely
to do so until at least 2025. Table 2.9 depicts in detail how the distribution of incomes
within the USA is even more extreme than that detailed for the UK. It shows what the top
0.1 per cent receive each year in the USA and how that compares with what the distribu
tion of incomes in the USA was in 1970. It also shows what average mean salary and oth
er income levels in the USA would be if a twenty-to-one limit was imposed at the very top
Page 24 of 38
of that society (p. 54) and the distribution below that remained the same for all but the
bottom 90 per cent of the American people.
Page 25 of 38
Table 2.9 Income Inequality in the USA, 2008 and 1970–2008 (at Real 2008 Rates)a
Income level Number of peo Average income Overall change Annual salary in Salary with 20:1
ple ($) 1970–2008 (%) 1970 ($) limit ($)
Top 0.1% 152,000 5.6 million 385 1.15 million 631,000
Top 0.1–0.5% 610,000 878,139 141 364,000 199,000
Top 0.5–1% 762,000 443,102 90 233,000 127,000
Top 1–5% 6.0 million 211,476 59 133,000 72,000
Top 5–10% 7.6 million 127,184 38 92,000 50,000
Bottom 90% 137.2 million 31,244 –1 31,560 31,000
aNotethe figure of –1% in the final row means that, on average, someone in the bottom 90% of US society saw their ‘real’ household
income fall between the years 1970 and 2008 in most cases.
Sources: Whoriskey (2011), which, in turn, used ‘The World Top Incomes Database’ and reports by Jon Bakija, Williams College;
Adam Cole, US Department of Treasury; Bradley T. Heim, Indiana University; Carola Frydman, MIT Sloan School of Management
and National Bureau of Economic Research (NBER); Raven E. Molloy, Federal Reserve Board of Governors; Thomas Piketty, Ehess,
Paris; Emmanuel Saez, University of California Berkeley and NBER. Reproduced from original source (Whoriskey, 2011).
Page 26 of 38
The demographic implications of high and rising inequality are significant. Canadian data
reveal that, of those within the top 1 per cent who were receiving the bulk of their in
come from their earnings (rather than as interest on capital or in rent), more than 80 per
cent in very recent years were men. As the income share of this 1 per cent has grown, so
too has the share that is taken by men (Breau, 2014). The 1 per cent is also ageing. The
group’s members now predominantly reside within the fifty to sixty-four-year-old age
bracket (Breau, 2014). There is no reason not to suppose a similar microdemography in
the UK and USA to that found in Canada. In fact, recent research has revealed a very
rapidly widening income gap between men and women in the UK as women and the jobs
done more by women have suffered form the majority of public spending cuts made since
2008 (Dorling, 2016).
The direct spatial outcomes of growing inequalities are startling. In general, during peri
ods of higher income equality, the top 1 per cent is spread relatively evenly across a coun
try. But when inequalities rise, the top 1 per cent tends to congregate in particular areas,
neighbourhoods where they feel more socially acceptable and can be nearer to the few
places of work where the highest wages are paid. A series of very detailed maps are pre
sented in a recent social atlas of the UK to illustrate this growing concentration (Dorling
and Thomas, 2016).
A substantial—and growing—body of research points to a range of negative economic, so

cial, and geographical externalities associated with income inequality. The Noble Prize-
winning economist Paul Krugman cites growing recognition of the ‘Wilkinson-type (p. 55)
views about the corrosive effects of inequality’ (Wilkinson, 1996, 2005; Wilkinson and
Pickett, 2010; Pickett and Wilkinson, 2015). Krugman (2012) suggests that a vast number
of social ills appear to be significantly exacerbated within countries where income in
equality is higher. Another world-leading economist, Stiglitz (2012), also argues that the 1
per cent erodes ‘our sense of identity in which fair play, equality of opportunity and a
sense of community are so important’. Extensive empirical evidence also indicates that in
come (and wealth) inequality can be detrimental for environmental sustainability, includ
ing increased biodiversity loss (Mikkelson et al., 2007; Holland et al., 2009), increased
consumption, and increased waste generation per capita (see Dorling, 2010a, 2010b,
2011; Dorling et al., 2007). Finally, economic prosperity seems to be significantly related
to lower rates of income equality, and the IMF recently found an inverse relationship be
tween the income share accumulating to the top 20 per cent and economic growth
(Dabla-Norris et al., 2015). The potential for such serious relationships only reinforces
the need for more refined analyses in this area, in order to inform policy change before
further, irrevocable harm occurs. It is almost certainly the indirect effects of growing
greed, and the justification of greed as somehow reflecting desert, that does the most de
structive harm to society.
Page 27 of 38
Income Distributions in the UK and US

Studying income inequality data highlights a stark pattern. The USA has long been a glar
ing outlier: grossly unequal in terms of the divergence between the top 1 per cent and the
rest. Yet the trend since the mid-1980s in UK income inequality is bringing the UK’s in
come distribution more in line with the USA’s and in contrast with other affluent nations.
In 2012, in the UK it was revealed that, compared with the very top 1 per cent of house
holds, the rest of the top 20 per cent were taking home less and less. Between 2007 and
2012, the real disposable income of the top fifth of households in the UK dropped by
£4,200 a year, a 6.8 per cent real-terms fall for that category (ONS, 2013). The average
fall for all households was £1,200 a year. This development reduced inequality within the
99 per cent but, crucially, not between the top 1 per cent and the 99 per cent. In the peri
od 2011– 12, the median household income in the UK fell by 2.8 per cent (when taking in
flation into account). However, mean incomes fell by only 1.6 per cent because the top 1
per cent did not see a fall in their incomes. Very similar findings were reported in the
USA. Indeed, in the five years after President Obama had come to office 95 per cent of all
income gains made had gone to the top 1 per cent (Yousuf, 2013).
The narrative of the UK as a nation now set apart from other European countries with re
gard to income inequality has been corroborated by independent research (see Inequality
Briefing, 2015; OECD, 2015). Moreover, it appears as if inequality will be further exacer
bated in the UK in the near future. The Institute of Fiscal Studies recently concluded that
poorer households have done worse than those in the middle and upper-middle parts of
the income distribution during the recent period of austerity in the UK (Johnson, 2015).
The Institute for Fiscal Studies showed that the overall array of measures announced by
the UK Chancellor in his July 2015 budget was regressive: taking more from (p. 56) poor
er households than affluent ones. Indeed, the Resolution Foundation, an independent
think tank, predicts that the cuts to working-age welfare will obstruct the recovery in liv
ing standards for many families on low incomes for very many years to come (Resolution
Foundation, 2015).
Page 28 of 38
Table 2.10 Income Received from the State by Households in 2012
Germany France Italy Spain UK
0.10% 7% 0% 0% 0% 0%
1% 3% 1% 2% 2% 0%
9% 3% 3% 2% 3% 1%
90% 9% 9% 5% 9% 11%
Bottom 10% 56% 31% 10% 34% 32%
Mean 7% 7% 4% 7% 8%
Ratio Bottom 7.6 4.4 2.6 4.8 4.3

10%:mean
sample.
Page 29 of 38
There is a growing body of evidence with respect to the UK lending great and growing
currency to the Wilkinson-style argument that the social, political, and economic (as well
as medical) implications of these blunt and wide income and wealth inequalities are sub
stantial. Even simply looking at economic indicators illustrates the idiosyncratic situation
of the UK. For one, a distinctive tax system emerges. The richest 1 per cent and their be
haviour in the UK have created circumstances in which taxes have to be raised to supple
ment the incomes of the poorest just so they can be housed and fed. This is because the
incomes of the poorest in the UK, including those with jobs, are now so low that very
large sums of housing benefit have to be paid out. Ironically, that benefit mostly goes to
landlords in the UK, and a disproportionate amount to landlords whose annual incomes
from rent put them in the top 1 per cent.
Table 2.10 shows the proportions of household income received in the form of benefits by
each of the five income groups in Germany, France, Italy, Spain, and the UK. The UK must
raise relatively high rates of tax as a result, not only to pay for the benefits required by
the very poorest in a low-income-for-most society, but also to compensate ‘the 90 per
cent’ for their relatively low wages and to ensure households have the ability to afford in
creasingly expensive necessities (e.g. gas and electicity bills). Indeed, the UK has lower
average wages than any other large European country, and also has very high average
housing costs and other essential living prices (including fuel, local transport, and food).
It is important to consider whether the median North American or Briton experiences a

better quality of life, relative to the median citizen of Spain, Italy, France, or Germany.
As reported earlier in the chapter, the median household in Britain received an income
equivalent to €36,300 in 2012 (before housing costs but after tax deductions). The corre
sponding figure in Germany was greater, at €36,400, and even more so in France, where
it (p. 57) was €39,000. Housing costs are lower in both Germany and France. In the USA
the median household earned €36,450. Yet, the cost of healthcare is significantly higher
in the USA (Dorling, 2015b, Chapter 6, footnote 74). Once this is taken into account, as a
necessity vital to assessing quality of life, it is the median family in the USA that will have
the lowest standard of living among these six countries, and then the UK. Such is the con
tribution today of inequality in affluent nations.
Furthermore, beyond income and tax economic measures, social indicators point to signif
icant deprivations in the UK and US relative to their status as two of the world’s major
advanced economies. A relatively recent review of over thirty studies concluded that chil
dren in lower-income families exhibit lower cognitive, social–behavioural, and health out
comes partly because they are poorer (Cooper and Stewart, 2013). In other words, in
come has a direct impact; the association between income and social outcomes does not
just arise because low income is correlated with other household and parental character
istics. These are points that need to be stressed more than they currently are in geo
graphical research, especially given the UK government’s recent decision to abandon the
current income measure of child poverty. Comparatively, a US study concluded that fami
ly income affects the likelihood of graduating from university far more than any measured
Page 30 of 38
mathematical talent a child might demonstrate (Dynarski, 2015). Another study found
that, again relatively recently, an American child from a low-income family that does
graduate still has less chance of being in the top 20 per cent of earners than a child from
a high-income family that failed to graduate (Urahn et al., 2012).
The UK is rapidly moving towards becoming very like the USA and will overtake it in the
inequality stakes by 2026 if current trends continue. UK levels of inequality are now vast
by usual European standards. In light of their status as anomalies, and given the evidence
for the important implications of inequality, geographers must now recognize how unusu
al the UK and the USA are in the global order of income inequality. This makes US and
UK societies extremely unrepresentative of affluent nations in general, which tend to be
much more socially cohesive countries. Because of this, it is hardly valid to use what is
discovered in the UK or USA by researchers as general models by which to study affluent
societies more widely. Arguably a very large number of academic studies by geographers
in these two countries are studies of the extreme, where a host of social and other factors
are distorted by high and rising income inequality.
Mapping Inequality: Where Do We Go From

Here?
Indicators of inequality require further clarification and improvement. Although it is pos
sible to define the 1 per cent with a remarkable degree of precision, there are still several
ambiguities to bear in mind. To produce meaningful figures for any particular type of
household can imply using different thresholds if people are single or are in a family with
children. The figures presented here apply to all households, not to individuals. But for
historical time series that allow us to compare the growth of income inequalities over
decades, often it is only individual taxation records that are included.
Furthermore, the figures presented in this chapter do not take wealth into ac
(p. 58)
count. This is because data on wealth, especially on the wealth of the very richest, is
mostly incomplete and highly unreliable. An improved definition of the 1 per cent would,
perhaps, combine wealth and income statistics such that for any high particular level of
wealth held, the income required to fall within the best-off 1 per cent by income would be
less than for those with low or no wealth. A further improvement on our estimation of the
top 1 per cent measure would be to include wider family wealth. An affluent postgraduate
student, being supported by their wider family, and studying at Oxford University, may ap
pear not to be well off in their current household, but if their wider family wealth were
known they might be included in the 1 per cent best-off households, and another house
hold on the margin of the definition would be relegated to the 99 per cent. Better mea
sures of wider family income may find that wealth and income inequalities are even
greater than we currently suppose.
Page 31 of 38
This chapter has made the case that economic geographers must turn their attention to
income inequality and its implications, particularly in analyses of the UK and USA. Among
the twenty-five richest nations on Earth, the UK and USA have been found to rank within
the top four with respect to income inequality. Intriguingly, both these countries are also
renowned as home to the majority of academic geographers worldwide. Third place (see
Table 2.4) goes to Singapore, another country celebrated for its geographers. Could it be
that geography, the discipline of empire, mainly still survives and prospers where great
economic inequalities remain? To what degree is rigorous thinking within the discipline
skewed by the contexts in which geographers are writing and researching? Could this be
as true for radical and critical geographers as for the more mainstream kind of geograph
ical studies? Maybe radical and critical geographers are not as radical or as critical as
they might have been had they not mostly been brought up in and acclimatized to ex
treme inequality as being normal? If you were choosing to study the world, as an econom
ic geographer, why would you choose a vantage point on the extreme edges? Surely you
would choose to study one of the most important trends of contemporary social science
from the vantage point of a relatively equal, less divided society; or even from one of the
more equitable affluent countries of the world where people’s political views and pre
sumptions are often very different again?
According to the tables in this chapter, more normal countries among the world’s richest,
which by various measures are neither extremely equal nor unequal, include Finland,
France, Germany, Ireland, Italy, the Netherlands, Portugal, South Korea, and Spain; if you
want to see how unequal and odd the UK and USA are, then look at them from there. And
similarly, if you want to look towards some of the most equitable countries of the world
such as Norway and Japan from a normal vantage point, you don’t want to be looking
from the UK or USA—at least not if you think that your viewpoint is in any way normal.
Acknowledgements
Just after completing her PPE degree Natasha Stotesbury helped with research assis
tance for this chapter. Her help and that of the anonymous referees; Gordon Clark and
Seth Collins, in editing; and Angelika Kaiser in administering the submission is gratefully
acknowledged.
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Notes:
(1.) A case can be made for looking at income after housing costs are taken into account.
However, in general, the majority of the housing costs of the best-off 1 per cent are non-
essential and as such should not be equated with the inelastic consumption of household
necessities by lower-income groups. Households are the unit of the analysis used in this
chapter in order to capture the fact that children and partners of rich individuals in gen
eral benefit in terms of high material living standards.
(2.) These figures are income received before tax and after receipt of any benefits. The In
stitute for Fiscal Studies has calculated the UK statistics, but they are also verified here
by cross-checking with other sources and through extending those analyses done by that
Institute to other large countries in Europe (more details are given in Dorling, 2015a).
Danny Dorling
Danny Dorling ([email protected]) is the Halford Mackinder Professor of

Geography, School of Geography and the Environment, University of Oxford. He was
previously Professor for the Public Understanding of Social Science, University of Sh
effield. Additionally he has been appointed Adjunct Professor, Department of Geogra
Page 37 of 38
phy, University of Canterbury, New Zealand. He has served on leading boards and
committees, including the Public Health England Mortality Surveillance Steering
Group, the Economics and Health Special Interest Group, Faculty of Public Health,
and Advisor UK Government Office for Science, Foresight Team. His work concern
ing issues of housing, health, employment, education, and poverty has resulted in
more than a dozen books and several hundred journal papers.
Page 38 of 38
Income Inequality and Growing Disparity: Spatial Patterns of Inequality and
the Case of the USA
Income Inequality and Growing Disparity: Spatial Pat

terns of Inequality and the Case of the USA
Amy Glasmeier
Deemed one of the major concerns of our time, income inequality has been on the rise for
decades. While there is ample discussion and a vast body of knowledge already written on
the subject, the focus of this chapter is on tracing the geography of rising inequality start
ing in the 1970s. An absence of support to maintain a middle class, an erosion of the val
ue of wage labour, and stagnant minimum wages are a few of the many reasons for rising
income inequality. Data show that inequality is highest in areas where there are growing
disparities in the difference of employment opportunities between high- and low-income
families. Evidence also suggests income and wealth gaps go hand in hand. If you do not
own anything now your chances of ever owning anything in the future are bleak despite
the pacification accorded the American dream. While this chapter highlights events and
policies within the USA, rising income inequality is a significant global issue.
Keywords: income inequality, disparity, wealth, wage inequality, the great recession, economic geography
Introduction
RISING income inequality is a global concern. There has been a sizeable increase in in
come inequality since the 1970s in most markets, from advanced economies to develop
ing nations. Economic disparity has garnered considerable attention since the last reces
sion. Described by former US President Barack Obama as the defining challenge of our
time, rising inequality is one of the most hotly debated issues among researchers and pol
icymakers around the globe (Furman et al., 2015; International Monetary Fund, 2015).
While a widespread concern, public discussion of income inequality in the USA and else
where still lacks clarity about its extent, its drivers, the resulting consequences, and what
to do about it. Likewise, there is confusion over what exactly is meant by income inequali
ty, why it matters, and how it compares to wealth inequality, which in many countries is
more extreme than income inequality.
Page 1 of 18
the Case of the USA
Although rising income and wealth inequality are global concerns, still these terms, their
implied composition, and numerical measurement lack a shared connotation. If there are
universal features that help to define the current moment of disparity, they are the appar
ent impact of rising wealth and income inequality on economic growth and the resulting
political apprehension accompanying this moment, evident as it is in developed and de
veloping countries alike.
Distinct characteristics of nations, including their economic and political histories, com
bine forces in generating disparities across groups and locations. Inequalities of income
and wealth are characteristically bonded to and embedded in the economic base of differ
ent countries and the legacy of the institutional linkages related to prior rounds of job
and (p. 64) wealth-generating capital investment. Emblematic here is the important role
of manufacturing in bringing wealth and prosperity to industrial communities of devel
oped economies. Industrial restructuring, automation and importantly, international trade
policy have wreaked havoc on the economic base of working class communities around
the world (Autor et al., 2016).
Traversing the last thirty years, economists, political scientists and historians, and eco
nomic and political geographers have chronicled the geographical expressions of growing
inequality taking root around the globe (Harvey, 2001; Martin and Morrison, 2002; Fire
baugh, 2003; Beramendi, 2012; Florida and Mellander, 2013). In fact, 1959 marks the
year in the USA that poverty thresholds were established. These markers are now institu
tionalized (though flawed they are) and they track the divergence in incomes across loca
tions starting with end of the 1960s (Fisher, 2008, referencing Orshansky, 1958). From in
vestigations of capital mobility at the systemic level, to the recognition of the state as the
mediating influence and fiscal agent receiving and redistributing taxes to surmount the
forces of inequality, to the susceptibility of trade-sensitive sectors that, in turn, expose
metropolitan areas to the effects of large declines in middle-income jobs, the forces of in
equality are inescapable and indelible. Geographical space serves as a pivot around
which both explanations for and drivers of income and wealth inequality find expression.
The effects accompanying geographical difference are integral to and foundational of eco
nomic inequality.
Time’s geographical expression is a fulcrum around which disparity forms. Sources of in
come and capital have short- and long-term durability, each with their own consequence.
The precipitating forces of capital mobility unleash downside risks peculiar to the eco
nomic base of specific countries and communities resulting in shifts in income, employ
ment, and wealth opportunities. The fixity of objects and the differential mobility of peo
ple are lasting reminders of the power underlying the formation of geographical varia
tion. Inter-generational mobility of wealth is exemplary of capital’s durability through
time and, secondarily, its consequential effect on income inequality. Accumulated wealth
serves as a buffer against unforeseen events enabling continued income generation and
wealth accumulation over time. This reciprocal process of disparity formation is funda
mentally spatial and tractable; and yet it is not wholly unidirectional or irreversible—wit
ness the marked decline in the fortunes of the rich and the poor during the Great Reces
Page 2 of 18
the Case of the USA
sion. However, accumulated wealth’s inter-temporal hold on the future enables the possi
bility of recovery after crises and serves as the foundation of continued income genera
tion and growing inequality. In turn, the absence of stored wealth eliminates the prospect
of self-funded security in periods of unstable or declining income.
Changes in public policy—taxation, trade, and labour market regulation—have tractable

consequences on income and wealth inequality. Economic geographers have traced the
diffusion of policy, showing that policies are neither immutable nor geographically fixed.
Research by economic geographers record the speed with which policies replicate where
suitable political conditions arise (Peck and Theodore, 2015).
Historical precedent is a prudent guide to understanding the role of the state at this mo
ment. In the USA, progressive policies hard won during past eras of political liberalism
were susceptible to interest-group influence that shaped and reshaped the direction of
government practices. The 1970s were an economic watershed. The combined forces of
globalization and the consequences of technological change transformed the economies
of countries around the world and the local communities within them.
The 1970s and 1980s (especially Ronald Reagan) saw the rollback of federal policies, in
cluding reduced tax rates on investment income privileging capital gains over earned
(p. 65) income. Changes in antitrust regulations, in part a reaction to global competition,
and in part reflecting changing practices in sectors like retail and the dismantling of for
mer monopolies like AT&T, lead to employment instability. The failure of the executive
branch to raise the minimum wage to keep pace with the rising cost of living compound
ed the effect of stagnant wage rates. Labour market regulations guaranteeing the rights
of workers to organize and bargain for better wages and working conditions faced persis
tent challenges. Starting in the early 1990s, trade policies designed to rein in non-tariff-
based forms of protectionism succeeded in establishing new rules governing market ac
cess. However, these so-called ‘reforms’ failed to deliver the required designs for and suf
ficient funding of compensatory mechanisms able to support the scale of transition assis
tance required to retrain, relocate, and retire affected workers. The lack of a policy
framework capable of addressing the twin effects of increasing trade liberalization and
skilled-biased technological change got lost in a divided government. The scale of labour
market adjustment required in the face of such convergence failed to materialize. Work
ers lacking little more than a high-school diploma had little to fall back on in the face of
an increasingly globalized economic landscape. The lack of necessary government invest
ments to offset the inevitable effects of dislocation resulting from skill-biased technologi
cal change (SBTC) and job relocation contributed to rising income inequality in the USA.
As the effects of economic displacement mounted, the geographical mobility of capital

played one community off against another. Billions of dollars of subsidies changed hands
in offensive and defensive bidding wars between states. On the one hand, states aggres
sively pursued foreign direct investment emanating from international companies seeking
access to the US market. Taking up residence simultaneously provided protection against
unforeseen trade policy actions, while ensuring access to the USA’s rich pool of human
Page 3 of 18
the Case of the USA
capital and technology. While the intensity of these policy influences is subject to debate,
few would argue that the last thirty years have seen an erosion of the Depression era-in
spired social safety net conceived in the 1930s. In the current context, the well-docu
mented influences of these events warrant the selection of the USA as a case study of dis
parity formation. Tracing geographers’ role in identifying antecedents of the ‘great diver
gence’ remains a vital element in understanding the causes and the consequences of ris
ing inequality and growing disparity formation.
Why the Concern About Inequality Now?

Over the last five years, numerous reports have dwelled on the consequences of growing
income and wealth inequality. The rise in inequality is worrying many organizations
around the world from the United Nations Development Programme (UNDP) to the Or
ganisation for Economic Co-operation and Development (OECD), from the private World
Economic Forum to the non-profit Oxfam and Pew’s Center for Social and Economic Re
search, and influential organizations such as the research arm of the bank Credit Suisse
and national governments around the world. Whether measured by income based on
wages and earnings from work, or wealth—the value of assets individually owned includ
ing capital and material resources—or corporate executive compensation (a topic I men
tion here but do not discuss further in this chapter), rising inequality is evident every
where (Kiatpongsan and Norton, 2014).
The literature on rising inequality is becoming vast. Research underpinning this

(p. 66)
scholarship focuses on both income and wealth disparity, compares developed and devel
oping countries, and in several cases examines the effects of rising inequality across dif
ferent spatial scales from cities to regions to countries. Many perspectives are proffered
to explain this concern. Given this growing research area, in writing this chapter I have
two inspirations. Firstly, reviewing the vast evidence I believe the economics-inspired the
ories contending that inequality is a prerequisite for and in some cases a necessary pre
requisite of early stages of development rests on simplifying assumptions and reflects his
torical circumstances that ignore contemporary evidence of modern experiences of devel
opment. Past acceptance of the conceptual trade-off between short-term consequence
and the pursuit of long-term transformation no longer stands on firm ground as the sole
pathway leading to development. Recent research indicates that this perspective inaccu
rately reflects the empirical evidence which reveals that countries can and have pursued
development paths leading to greater equality over time (United Nations Development
Programme, 2013).
Secondly, moral and ethical arguments can and are made to justify the pursuit of equality
because it supports human dignity and enables the achievement of individual self-actual
ization. Empirical evidence supports the notion that less equality and rising inequality are
linked to reduced rates of economic growth, lower savings rates, and reductions in hu
man capital investment. Inequality is also linked to lower skill levels, which in turn lead to
reduced literacy levels, the ability to care for one’s self and consequently necessitates a
Page 4 of 18
the Case of the USA
greater reliance of an individual on public support. Health, civic engagement and levels
of social trust are also diminished (OECD, 2013). Their positive form is considered a pre
requisite to the formation of a middle class, which serves as a bedrock of societal devel
opment. History demonstrates that the underlying predicates of the American dream,
‘everybody deserves a change and at the same time you are expected to make it on your
own’, are no longer in reach for millions of Americans. While this chapter focuses on a
single case, that of the USA, it reflects themes evident in the literature on the wider expe
rience of developed and developing countries around the world.
Causal Forces Precipitating Growing Disparity

There are numerous causal forces behind the current rise in inequality, everything from
the resource curse in resource-dependent countries to the shift in national policies away
from production-induced growth in places like China. Disentangling them is beyond the
scope of this chapter. Here, instead, a range of explanations for current economic circum
stances is examined.
At a global scale, many commentators attribute the rise in inequality in advanced

economies to the effects of SBTC and the decline of particular labour market institutions
(International Monetary Fund, 2015). Unconvertible evidence indicates globalization’s in
creasing speed contributes to rising inequality. In less developed countries, rising in
equality occurs when conventions to support the growth of a middle class are absent.
These forces are neither new nor are they intractable. However, their absence represents
missing links required to support economic growth leading to development.
Globalization, Trade, Outsourcing, and For

(p. 67)
eign Direct Investment

At the level of policy, the case of the USA offers convincing evidence that the features of
inequality are both global and local in the making, with resulting consequences. Research
by David Autor and colleagues at MIT highlights the consequence of China’s ascension to
the World Trade Organization, opening up the US labour market to wage competition in
labour-intensive sectors sensitive to the influence of trade. This work comes on the heels
of more than three decades of research by economic geographers identifying the end of
the postwar era of relatively widely distributed economic growth. Deindustrialization was
ushered in by the rise of reconstituted economies of Europe and Japan, the catch-up of
early Asian industrializers rewarded with access to high-income markets in return for a
pledge to pursue liberal ideals and uphold democratic institutions (Glasmeier, 1986). The
first break in Bretton Woods institutions arose as countries like South Korea, Japan, Hong
Kong, and Singapore reshuffled the geography of labour-intensive industries, progressing
quickly from a low-skilled to a higher-skilled, but still a low-wage, labour base. Cracks
emerged in the early 1970s in the relationship between a country’s level of development
and its ability to perform complex skill-intensive tasks. Always fragile, the Bretton Woods
Page 5 of 18
the Case of the USA
post-World War II policy framework consensus gave way to job losses and a long, drawn-
out period of adjustment that left millions out of work. As my analysis indicates, initial ad
justments in wages and labour force participation rates occurred, slowly at first. For
workers and communities that lost jobs, the theoretical predictions that labour market
adjustment would prevail, regrettably failed to materialize. For more than a decade, job
displacement and employment losses went unmet by offsetting employment increases in
other industries (Acemoglu et al., 2016; Autor et al., 2016). Adjustment mechanisms to
dampen the worst effects of change—skill augmenting training, industrial upscaling, and
new industry formation—spawned only weak and spatially uneven responses; many ef
forts were too small in scale to have much effect.
Recognized early by economic geographers, economists eventually modelled the effects

of SBTC, a powerful force underpinning the current era of rising income inequality. Long
after the spatial division of labour was recognized, economists Card and DiNardo (2002)
summarized the problem of SBTC in writing that as developed countries lost less skilled
jobs with declines in low-value production activities, wage rates fell while the ranks of
less skilled workers swelled. This, in turn, increased the global supply of less skilled
workers, making it even more likely that low-skill-related goods would be produced in
places where wage rates for such work were lowest. This caused a simultaneous shift in
demand for skilled labour in high-income countries as industries increased the share of
skilled labour, even given rising or stable wages for skilled workers. Demand for skilled
labour in affected industries increased globally and skill premiums formed even in devel
oping countries (Card and DiNardo, 2002).
First evident in home countries, SBTC quickly enabled employers to refine their location
al strategies to target distant pools of highly skilled workers compensated at exceedingly
low home country wages (Glasmeier, 1986). As companies grew more adept at designing
products based around modularity, the spatial division of labour spread outward in search
(p. 68) of pools of highly skilled yet low-cost labour found around the globe. Home-coun
try labour markets no longer constrained access to skilled labour. Firms refined their lo
cational strategies, shopping for places boasting not only skilled workers, but also ex
ceedingly lucrative business incentives, including low levels of regulation and pools of in
vestment capital able to subsidize capital intensive assembly operations. And in some cas
es, firms returned to their home countries, employing automation to reduce their wage
bill while improving the quality of their final product. Foreign direct investment in cheap
labour locations within the US drew skilled workers from job-scarce regions towards the
non-unionized US south (Bluestone and Harrison, 1984). Ever nimble, companies played
states one off against another, receiving multimillion-dollar capital subsidies at free or ex
ceedingly low interest rates while enjoying multi-year tax-free status on income and prop
erty (Berman et al., 1998; Dicken, 2015).
Page 6 of 18
the Case of the USA
Labour-market Policies
National policies are both impediments to and causal forces encouraging growing income
inequality. Since the early 1970s, economic geographers have recognized and charted the
role of policy simultaneously aiding and abetting the spatial dispersal of labour-intensive
activities, while enabling skill-intensive activities to concentrate amid select urban areas.
Middle-income jobs followed low-skilled ones to lower-cost locations, eventually evaporat
ing in the wake of SBTC. The collapse of middle-income employment restructured wage
rates, contributing to the convergence of income and rates of gross domestic product per
capita across regions. Further eroding the value of labour, labour market regulation, and
stagnant minimum wages ensured that entry-level jobs more often than not served as
dead-end positions for first-time labour-market entrants. While geographers have made
contributions to the examination of the role of minimum wage rates and their effect on
standards of living, scholars studying institutions such as unions demonstrate the effect
of differential rates of regulation among states. Economists recognize the influence of
this change, and their work postdates that of geographers. At the same time, more flexi
ble labour market policies over the last thirty years have in many countries resulted from
dual labour markets of good and bad jobs. Experienced workers occupy ‘good-paying,
benefit-providing jobs’, whereas newer entrants, young people, women, and unskilled
workers occupy part-time and flexible work positions with limited economic mobility or
security. Support for unions is another means whereby national policies affect the labour
market and the prospect of economic mobility. Both developed and developing countries
experienced the steady erosion in institutional provisions ensuring employment mobility
and labour protections (Dreger et al., 2015).
Labour-market effects work through multiple policy vehicles. Educational deferments in

the Vietnam War combined with the subsequent utilization of the GI Bill by thousands of
returning veterans flooded the US labour market with college-educated workers seeking
jobs requiring post-secondary education. On the eve of the microelectronics revolution
and the ensuing era of miniaturization, wages fell in reaction to a substantial influx of
skilled, college-educated employees, diminishing incentives to seek higher education. A
resulting gap opened in the skill profile of the US workforce that took decades to over
come (Autor, 2014).
Perhaps selectively, referential of the macroforces unleashed by the war in Viet

(p. 69)
nam and the oil crises of the 1970s, economic geographers unquestionably led the way in
interpreting globalization’s effect on the manufacturing regions of the USA and other in
dustrial countries and the resulting labour market consequences. Job-destroying industri
al restructuring emptied out manufacturing regions formerly reservoirs of medium-
skilled, well-paying, labour-intensive work employing millions of (predominantly male)
workers. Emphasizing sectoral practices and firm policies, economic geographers traced
both their causes and consequences, including business cycles, labour relations, spatial
divisions of labour, and state policies. Combining these forces, the restructured demand
for male workers led to depressed rates of remuneration for college-educated individuals
through the outright destruction of jobs for unskilled and semi-skilled workers. Stunted
Page 7 of 18
the Case of the USA
returns to education, especially for men further added to rising inequality by diminishing
the links between higher education and income (Goldin and Katz, 2008; Goldin and Katz,
2009; Autor, 2014). Thus, the three forces—‘technological change, deunionization, and
globalization—work in tandem’ (Autor, 2014, p. 840).
The next section focuses on the USA and discusses the consequences of inequality on
communities around the country by region. Tracing causal forces leading to rising in
equality requires consideration of the interaction effects of spatial mobility of capital, in
vestment, and opportunity in the form of technology transfer that has distributed employ
ment globally.
A Focus on the USA

In no other country is evidence of growing income inequality more meaningful than in the
USA. The USA is a model of development coveted by many around the world. The rate of
continued migration is a testimony to the belief that the USA is an exemplary nation
where the pursuit of individual freedom enables anyone, through hard work, to achieve
personal realization, economic security, and intergenerational economic well-being. Ad
mittedly, the long-held belief that the American dream was available to all those who ap
plied themselves has always been true for some and not others. The exclusion of groups
in society represents an important and often neglected part of the American story.
Today’s concern about rising inequality is heightened given the changes in the economy
and the declining role of government protections that have further reduced the percent
age of the population effectively able to share in the American dream (Autor, 2014).
Inequality in the USA: Income and Wealth

Income
In the USA, inequality of income and wealth have been rising since the late 1970s (Rank
et al., 2014). Income reflects annual wages and earnings plus income from investments
otherwise known as labour and taxable income. Wealth measures estimates of capital in
come (the value of all assets of worth owned). Despite a difference of opinion about how
to calculate (p. 70) and measure income or wealth inequality, on both counts the evidence
indicates a few broad patterns. Looking at income (money income resulting from work
and investments), from the 1950s to the 1970s shares to different income groups re
mained stable. This period of distributional stability gave way to a period of wage stagna
tion and eventually inequality began to rise. Inequality rose steadily over the next three
and a half decades (Noah, 2013). From the late 1970s until 2011 wages for the median
US worker increased by just 6 per cent over that period. As Paul Krugman points out, the
late 1980s and through the 1990s until 2005 incomes grew fat, but 80 per cent of the to
tal increase in income went to the top 1 per cent (Krugman, 2007).
Page 8 of 18
the Case of the USA
Growing differences in shares by income bracket saw greater gains in the highest quin
tile from the 1980s onward. This pattern was checked somewhat during the Great Reces
sion, mainly because occupants of high-income brackets experienced larger declines in
the value of assets they held compared with asset poor individuals. Poor people, by and
large, do not own assets, nor do they have much in the way of savings.
Starting in 2009, the shift in shares began to favour high-income groups. Seen today, na
tionwide, 3.1 per cent of income earned annually goes to the poorest 20 per cent of peo
ple, while 51.4 per cent is received by the richest 20 per cent. In a multi-year investiga
tion starting in 2012, the Pew Research Center began to track the consequences of the
economic crisis on the American middle class (Pew Research Center: Social & Demo
graphic Trends, 2012). In 2012 the Center reported that since 2000 the middle class has
shrunk in size, measured as ‘all adults whose annual household income is two-thirds to
double the national median household income’. According to Pew’s research, in 2011 the
middle-income group comprised 51 per cent of all adults, down from 61 per cent as calcu
lated for 1971. The corresponding figures for the upper tier reflected a significant rise in
incomes. The upper tier increased to 20 per cent of all adults in 2011, up from 14 per
cent in 1971. The high-income tier now comprises 46 per cent of household income, up
from 28 per cent back in 1971. The decade 2000–10 saw the median income of the mid
dle-income tier decline by 5 per cent, while wealth of that tier decreased by 28 per cent.
The reverse pattern was true for the upper-income tier, although median wealth gains in
creased by 1 per cent.
Wealth
Another indicator of growing disparity is observed in changes in the distribution of wealth

over the 1970–2010 period. Wealth is of particular interest because of the role it plays in
underpinning the options individuals and families have to make decisions about their fu
ture. Economists remain divided about the scale of the impact of changes in wealth
across income groups—not that change has occurred, but rather the range of gains by in
come group.
Recent research focusing on the distribution of wealth parallels the Pew Research
Center’s findings of shifts in the shares received by families across wealth tiers. Data cov
ering much of the twentieth century suggests wealth, like income, has become increas
ingly unequal over time. According to this new work, ‘by our estimates, the share of
wealth owned by the top 1% families has regularly grown since the late 1970s and
reached 42% in 2012. Most of this increase is driven by the top 0.1%, whose wealth share
grew from 7% in 1978 to 22% in 2012, a level comparable to that of the early 20th centu
ry’ (Saez and Zucman, 2016, p. 520).
The research demonstrates not only the distribution of wealth over time, but also
(p. 71)
how increases in wealth were shared over the last four decades. These findings conclude
that ‘from 1986 to 2012, for example, almost half of U.S. wealth accumulation has been
due to the top 0.1% alone’ (Saez and Zucman, 2016, p. 521).
Page 9 of 18
the Case of the USA
Explanations for this rise in wealth inequality relate to increases in income in the top-in
come brackets and the ability of upper-income groups to save more income than others
over time. Savings, in turn, make possible more capital investment, leading to additional
capital gains. Saez and Zucman’s research shows that persons becoming wealthy today
are younger and their labour incomes are substantially higher than previous generations
of comparably aged workers.
At the same time, Pew research also shows that the wealth share of the bottom 90 per
cent, which rose during the twentieth century (from 20 per cent in 1920 to 34 per cent in
the mid-1980s to 23 per cent in 2012), began to decline in the 1980s. Middle-class sav
ings decline primarily explains this development. In the USA, middle-class fortunes are
increasingly tied to changes in factors emerging over the last thirty years, especially the
decline in defined pension plans supporting retirement, the rising cost of housing, and
the burden of student debt reducing the potential of homeownership for individuals in
their late twenties to mid-thirties (Li and Goodman, 2015).
The disparities in income and wealth go hand in hand. According to the Federal Reserve
Board’s Survey of Consumer Finances, poorer families’ net worth declined between 2010
and 2013 (Buchholz et al., 2016). In stark contrast, the nation’s wealthiest families con
tinued to make modest gains. These trends relate to the types of investments low- and
high-wealth households own. For most Americans, their house is their primary asset. An
increase in housing value represents their greatest means of wealth accumulation over
time. Over the last seven years home prices have been stagnant, except where the limited
supply of housing combined with high-income-earning jobs drove up housing prices. In
contrast, the wealthy have access to much greater earnings, which, in turn, can fund a va
riety of wealth-generating instruments, including stocks and bonds.
Spatial Pattern of Inequality in the USA

Admittedly, the spatial pattern of urban development reflects unique characteristics relat
ed to, if nothing else, the site and situation of a particular city or region. Still, as the
process of urbanization accelerated over the last three decades, models and standards of
development accompanying this period of urban growth exhibit tendencies of enclave for
mation based on income and wealth. In Global South countries, the pattern is often hyper-
accentuated—a primate city forms the core of the urban city system. Wealth and income,
infrastructure, and opportunity accompany the process of urbanization. While urbaniza
tion has unique features, nonetheless its consequences represent points of concentrated
and agglomerated activity. In exploring patterns of economic inequality in urban areas of
the USA, I am careful to draw very broad generalizations about spatial variation, while
recognizing distinctions evident at the scale of particular locations.
Situating the consequence of rising income and wealth inequality geographically requires
reflecting on past patterns of change to make sense of the current context. Over the last
eighty years, regional per capita income as a percentage of the national average
(p. 72)
showed signs of converging until the late 1970s. As much as anything, starting in the late
Page 10 of 18
the Case of the USA
1970s, repeated recessions, major industrial restructuring and both age- and employ
ment-related migration brought an end to the trend of convergence. Incomes and wealth
began to concentrate in selected locations while bleeding out of others, reasserting the
importance of places of economic power. Over the last fifty years, even as the population
fanned out towards the south and west, the US economy slowly but steadily consolidated
around and within a few key locational nodes, forming a pattern reminiscent of the eco
nomic city system of the early-to-mid-twentieth century (Pred, 1964).
During the late 2000s, there was a decided trend towards inter- and intra-state inequality
(McNichol et al., 2012). Incomes across the nation have increased since the recession,
but income inequality has also increased. Incomes among the richest 20 per cent of
households grew faster from 2006 to 2012 than they did among the poorest 20 per cent
of households in all fifty states, without exception (Frohlich, 2015).
A state-by-state analysis of income trends identifies thirty-nine states where the top 1 per
cent of households received 50 per cent or more of total income gains over the 2009–12
period. In seventeen states, predominantly in the South, East, and Far West, the top 1 per
cent received the entire income gains over the same interval. Comparing the poorest fifth
with the top fifth of all households across states indicates incomes are extremely concen
trated in the states with the highest income inequality. In New York and Connecticut—the
first and second worst states for income distribution—more than one-quarter of all in
come was held by the richest 5 per cent of state households (Sommeiller and Price,
2015).
The Metro Consequences of Rising Income and

Wealth Inequality in the USA
The advent of big data, more timely federal and state statistics, and ease of analysis
makes possible the ability to consider these consequences from a range of views. Here I
examine three perspectives: structural features that are built-in and undergird existing
inequality such as minimum-wage laws and city-level fortunes related to place- and peo
ple-based characteristics.
Two lenses—one state- and one metro-scale—offer perspectives on the origin and conse
quence of income and wealth inequality in the USA. The first lens represents the state
variation in the minimum wage. The minimum wage was introduced in the 1930s to serve
as a floor under which employers could not pay substandard wages. At its peak, 1968
minimum wages paid the equivalent in today’s dollars of $10.16 per hour. It was last in
creased in 2009 when the Obama administration raised the wage from $6.55 an hour
(equivalent to $7.02/hour) to $7.25 an hour (a level first achieved in 1950). Today the
minimum wage pays the equivalent of the minimum wage of the 1970s. Between 2009
and 2014 the last increase lost 8 per cent of its purchasing power in adjusted dollars.
Page 11 of 18
the Case of the USA
States have been most active in adjusting local minimums to account for differences in
costs of living. Twenty-nine states and more than two dozen cities and counties legislated
higher minimums. Some states enforce no minimum wage (Alabama, Mississippi, (p. 73)
South Carolina, Tennessee, and Louisiana). As expected, the minimum wage hits younger
workers hardest. Of the three million workers earning at or below the minimum wage, al
most 1.5 million are young workers between the age of sixteen and twenty-four years,
and another 22 per cent are between twenty-five and thirty-four years of age. An addi
tional twenty million workers or almost 30 per cent of all hourly workers are paid at or
near the minimum wage. Certain jobs in fields like food service almost exclusively pay the
minimum. Employment in some of the nation’s biggest annual job generators, including
sectors such as retail sales, construction, and elementary and secondary schools, almost
all start as minimum-wage jobs (Bureau of Labour Statistics, 2012; Department of Labour,
2016; Desilver, 2015).
The second lens focuses on the relationship between rising inequality and location and
the extent that there is bias in high- and low-paying jobs across the country and among
cities. Results of three studies suggest there is a marked pattern of spatial bias with rela
tively few locations in the USA, where income inequality is extreme.
Brookings researchers analyse inequality in American cities by applying a ratio compar

ing the top and bottom ends of the income distribution (the ratio of households earning
more than 95 per cent of all other households—and those earning more than only 20 per
cent of all other households) (Berube and Holmes, 2016). Not surprisingly, using the
twenty/ninety-five ratio the top two cities in the USA with the highest income inequality
are the New York–Newark–Jersey City Consolidated Metropolitan Statistical Area (CMSA)
and Bridgeport–Stamford–Norwalk, Connecticut. These CMSAs are part of a super-metro
politan region that encompasses the midsection of the North Atlantic sea coast. Including
Pennsylvania, the metropolitan region with the highest level of demonstrated income in
equality is a megaregion of 21,000,000 people.
Differences between places of high-income inequality and low-income inequality are ex
plained by unique circumstances. Of locations where inequality is highest and has risen
the most over the 2007–14 period, research attributes this growing inequality to the dif
ference in employment stability between high- and low-income families. In contrast, met
ropolitan areas where income inequality was relatively low reflect circumstances related
to demographic, race, and economic factors, including the homogeneity of occupations
and small variances in wage rates by industry, low poverty rates, and high levels of em
ployment (Davidson, 2011). In rare cases, unionization and a comparable economic base
comprising jobs of a similar type accompany low-income inequality.
A second study highlights differences in metropolitan characteristics based on wages, as

measured by hourly compensation versus income, measured as wages and other sources
of income (dividends, interest, rents). The findings indicate that differences in wage in
equality reflect place-based characteristics such as the size of a metropolitan area, hu
man capital levels, and levels of technology. Differences in income inequality relate to
Page 12 of 18
the Case of the USA
people-based characteristics, including differences in rates of unionization, race, and
poverty. Both dependent variables appear to measure distinct qualities of inequality
(Florida and Mellander, 2013).
A third study examines places where people earning the highest level of income live (‘One
Percenters’) compared with the bottom 99 per cent of local residents. These are locations
where basic resources are at the highest level, but these are also locations where recov
ery from the recession was the greatest. The locations of high income and wealth, while
experiencing a dip in income and wealth during the Great Recession, (p. 74) recovered
their losses and captured 85 per cent of the income and wealth earned post-2009. These
metropolitan areas represent exclusive locations around the USA, from the Mountains of
Wyoming to the shores of Florida. The top twenty-five metropolitan areas with the high
est ratio of individual income earners in the 1 per cent group compared with the remain
ing 99 per cent income group represent a collection of enclave communities that are both
homogeneous and exclusive. These places boast mountain resorts, coastal communities,
and locations of old industrial and inherited wealth outside major metropolitan areas. The
geography of locations with smaller ratios of high to low household incomes is diverse.
Many of these locations are unique, ranging from old manufacturing towns to sites of
higher education to communities attractive to so-called ‘snowbirds’, retirees from cold cli
mates relocating to more temperate places during the winter.
Conclusion
The characteristics of rising inequality, falling numbers of the middle class, lower shares
of income and wealth for all but the wealthiest, and increasing indebtedness by age
group, are evident in many countries around the world. These trends have real conse
quences for places. The income-sorting process is leading to people segregating them
selves by income and earning capacity. As incomes concentrate, reductions in social di
versity isolate low- and high-wealth communities from one another. Absent a range of in
comes, poor communities face declining tax bases and endure Spartan public sector ser
vices, including reduced contributions to schools and other social activities. Even the ba
sics can be missing as residents’ incomes in low-wealth communities prove insufficient to
support basic food stores (Berube and Holmes, 2016). Contrasting circumstances exist in
high-income communities where wealthy individuals buy all manner of special services
and experiences beyond those provided by local public services and school programmes.
Economic geographers were early contributors to research on the antecedents of rising

income and wealth inequality. In many instances, geographers identified the shifts taking
place in communities based on middle-income, labour-intensive economic activities. Econ
omists’ contributions are more recent and reflect the interests of labour economists con
cerned about changes in the availability of jobs, the quality of work, and the long-term
consequences on families. This recent research offers important insights derived from
major data developments and computational tools that enable studies of occupations, skill
levels, the effects of international trade flows, and institutional transformations.
Page 13 of 18
the Case of the USA
As quoted earlier, reports written by the OECD, the International Monetary Fund, the
UNDP, and numerous think tanks and special-interest organizations indicate income and
wealth inequality is highly geographically uneven. In a modest way, this chapter set out to
explore the intersection of macro-patterns and micro-foundations of rising income and
wealth inequality and the role of economic geography in illuminating those trends. Rising
income and wealth inequality results from long-term processes working themselves out
over time and space. Recognizing the limitations of a single-country case study, condi
tions precipitating income and wealth inequality are nonetheless surprisingly consistent
across locations at multiple scales. In the USA, important centres of corporate headquar
ters, finance, (p. 75) government, and education reflect both the highest incomes and also
exhibit the greatest inequality among income groups. Around the world, so-called ‘world
or global cities’ fall within this group.
This chapter suggests rising inequality is found almost everywhere from the staunchest
conservative setting where neoliberal policies operate with few constraints to even those
countries where social policies actively promote fairness and opportunity. Indeed, a re
cent paper on the future of liberal democracy in the development of the Global South em
phasizes the point that emerging democratic powers, like the BRIC countries (Brazil, Rus
sia, India, and China), are facing serious criticisms of the persistent income disparities
present in their nations, while developed northern democracies also face deterioration in
income equality (Öniş, 2015). While it is a comprehensive trend that income inequality is
mounting, support must be given within the USA to diminish the wealth and income gap
between the rich and poor, which will hopefully propagate worldwide once one leading
country is successful in doing so.
The starting point has to be the recognition that the consequences of rising inequality will
be to reduce social advancement, diminish the belief in civil society, and result in un
healthy and unsustainable populations. The lack of opportunities to aspire to a better fu
ture reduces a person’s sense of commitment to group values.
Rising income inequality can be reduced by reversing many of the policies enacted over
the last three decades that reduced protections to workers by diminishing labour market
institutions, allowing minimum wages to stagnate, lessening the progressivity of personal
income taxes rates, and deregulating markets, which enabled new forms of market power
to emerge. Proliferating countervailing investments in effective transition assistance to
offset the inevitable effects of dislocation resulting from SBTC of trade policies will lead
not only to policy innovation, but will also prompt a revaluation of the importance of skill
creation and capital investment in fixed assets. Another approach would be to reduce
benefits that favour the rich, such as capital gains tax rates, stock options, and carried in
terest. Such actions would allow commensurate reductions in rates of taxation on labor
income and allow for an increase in the ability of individuals to retire absent the burden
of financial insecurity. All of these methods for shrinking inequality gaps in wealth and in
come will increase prospects of future membership in the middle class and ultimately
lead to a better future for ourselves and others.
Page 14 of 18
the Case of the USA
Acknowledgements
This chapter benefited from extensive comments and suggestions contributed by Dr
William Bonvillian, Ms Molly Nebiolo, Dr Tracey Farrigan of the Economic Research Ser
vice of the U.S. Department of Agriculture, and Dr Robin Leichenko, Head of the Depart
ment of Geography, Rutgers University.
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Amy Glasmeier
Amy K. Glasmeier ([email protected]) is Professor of Economic Geography and Re

gional Planning and runs the laboratory on Regional Innovation and Spatial Analysis,
the Department of Urban Studies and Planning, MIT. Her research focuses on the
spatial interactions among economic actors and organizational structures in the pro
vision of economic opportunity for communities and individuals. From 2012 to 2016
she was a faculty co-investigator on the Post Traumatic Stress Innovations project,
where she studied access to mental health care and other support programmes for
members of the Marines and Navy and their families. She is the author of many arti
cles and books on topics including regional and industrial development, technology
and innovation, poverty and inequality, and global economic challenges. With Dr
Michael Goodchild and Dr Glen McDonald, the National Academy of Sciences recent
ly published her co-authored report ‘Fostering Transformative Research in the Geo
graphical Sciences’. She is a founding editor of the Cambridge Journal of Regions,
Economy and Society.
Page 18 of 18
The Emerging Transformation of China’s Economic Geography
The Emerging Transformation of China’s Economic Ge

ography
Kam Wing Chan
This chapter examines China’s economic and urban geography by focusing on its urban
ization and city size distribution. The chapter first outlines some essential feature of
China’s spatial economy, with an emphasis on its configurations and institutions, and goes
on to examine China’s dual system and the hukou system. The main analysis concentrates
on China’s various forms of ‘incomplete urbanization’ and its under-agglomerated city
economies. The chapter concludes with a summary, a discussion of the policy signifi
cance, and directions for future research.
Keywords: China, urbanization, dual system, industrialization, migration, hukou
Introduction
CHINA’S super-fast economic growth, averaging about 10 per cent for the last three
decades, has won the admiration of many. Indeed, China’s share of the global gross do
mestic product (GDP) has leapt from about 5 per cent in 2005 to 15 per cent ten years lat
er (Wall Street Journal, 2015). Since 1979, China has gradually risen to be the ‘world’s
factory’, dominating the globe through its mass increase in exports of manufactured prod
ucts. China is the world’s largest low- and medium-end contract manufacturer, producing
for brand-name companies like Apple, Toshiba, and Sony. This was partly made possible
by the massive migration of underemployed agricultural labour to industry and service in
coastal cities, mainly in east and south China. This process has been achieved via a spe
cial type of migration and urbanization, operating within a rigid dual socioeconomic sys
tem under its hukou (household registration) system, a residence-control mechanism.
This chapter focuses on the domestic scene and examines China’s economic and urban
geography by examining its urbanization and city size distribution. The next section pro
vides some essential background about China’s spatial economy, with an emphasis on its
configurations and institutions. The section entitled ‘The Dual Structure and Hukou
System’ examines China’s dual system and the hukou system. The section ‘Incomplete Ur
Page 1 of 30
banization and Under-agglomeration of Cities’ offers a synthesis of China’s economic ge

ography with attention on its ‘incomplete urbanization’ and under-agglomerated city
economies. The ‘Concluding Discussion’ section ends the chapter with a summary, discus
sion of the policy significance, and directions for future research.
Background: Institutional Foundation of

(p. 79)
the Economy and Major Changes

Many outside analysts have long proclaimed that China is fully or largely capitalist (Lin,
1997; Huang, 2008). Many of those who think that China is already capitalist have often
overlooked the tenacious institutional continuities from Mao’s era. Indeed, despite the
significant change in many aspects of Chinese people’s life (e.g. expansion of personal
freedoms) and the economy (e.g. the resumption of many market practices) since 1979,
some substance of the pre-reform political economy has not been fundamentally altered:
China remains a Leninist one-party state, which continues to hold sway in many major as
pects of not just the polity, but also of society and the economy. The Chinese ‘market
economy’ has to be qualified and at best it is very much a state-led market economy. The
Chinese governments of all levels still run a key part of the economy directly and the rest
indirectly. The barrage of measures unleashed by the central government to counter a
sudden stock market downturn in July in 2015 and again in January 2016 is widely seen
as an example of the continuing state omnipotence in the major sectors of the economy,
including the stock exchanges. Indeed, the government continues to manage many
spheres of society directly (e.g. births and residence registration)1 and, inevitably, exer
cises a decisive role in the economy geography and many spatial processes, most obvious
ly in migration and urbanization.
In studying China’s urbanization, it is essential to foreground the ‘administrative region

economy’ (Liu, 1996, 2010). China’s planned economy was set up in the 1950s to function
through a hierarchy of administrative–economic units with powers concentrated at the
central level, controlled by the party. Not surprisingly, with the continuing one-party rule,
this system of unitary hierarchical administrative units has remained intact, although lo
cal governments now have more economic decision-making powers. This multi-tier hierar
chy, made up of the central government, provincial-level units, prefecture-level units,
county-level units, and towns and townships, set up not only to serve the needs of a com
mand economy, but also, politically (and socially), the one-party rule. This structure deter
mines the basic configuration of China’s spatial economy and the number of administra
tive units (cities and towns). Cartier has argued convincingly that ‘any theorization of the
urban process in China cannot claim an empirically grounded spatial analytic without in
corporating the administrative divisions’ (2015, p. 22). Largely corresponding to the local
governmental structure, especially in the present-day, more urbanized China, there are
four major levels of political-cum-economic urban units under the central government: (in
order) provincial-level cities, prefecture-level cities, county-level cities, and towns.2
Page 2 of 30
Despite devolution of many powers to lower-level governments in the last three decades,
the hierarchical nature of the top-down polity remains. Upper-level governments still con
trol the appointments of key personnel in their subordinate units. The power remains ver
tically organized and determined by the top. The higher ranks not only reflect the politi
cal/administrative power, but also affect the distribution of fiscal resources in the formal
state budgetary system and local economic development (Wong, 1997; Ma, 2005). With
industrialization (which is basically in cities) forming the core of China’s development
strategy since the 1950s, urban jurisdictions have enjoyed higher administrative ranks,
enhancing China’s urban bias, which persists to this day.3
The hierarchical system of urban administrative jurisdictions also means that local
(p. 80)
governments are evaluated and controlled by their supervisory units. All the units within
the hierarchy are charged with administrative powers and responsibilities in accordance
with their level, with the central government units at the apex, provincial-level units at
the next level, and so on. Because the governments directly participate in the economy
and because economic growth (fairly narrowly defined) is the priority objective of the
central government, the evaluation criteria of local officials are necessarily heavily tilted
towards this set of rather parochial economic indices, along with adherence to the party
line. In the pre-reform era, the targets were the output quantity of the key products, such
as steel, coal, and grain. With the economy becoming more monetarized in the last thirty
years, the targets set for local governments have been revised to the amount of locally
generated regional GDP, GDP growth rate, foreign direct investment (FDI), per capita
GDP, budgetary revenue, and the like, but they remain narrowly and overwhelmingly ‘eco
nomic’ (Whiting, 2001; Tsui and Wang, 2004). As a result, individual local governments
naturally pursue practices and policies focusing on the fulfilment of those targets on the
list of evaluation, often at the expense of goals beyond those (e.g. the environment and
labour protection) and other, non-measurable, broader regional and even national inter
ests.
The emphasis on each individual unit’s economic performance easily leads local govern
ments to favour local protectionism, often resulting in costly duplications of building in
frastructure and production capacity at a significant loss of economic efficiency (Li, H., et
al., 2005). The media are rife with stories of individual jurisdictions putting up adminis
trative barriers that impede the free flow of goods and factors of production. Critics have
likened the thousands of local governments to ‘feudalist fiefdoms’. Weak enforcement of
environmental and labour protection by local governments in their fervent pursuit of local
industrial growth has also become commonplace.4 By its very nature, the architecture of
the hierarchical administrative system is not congenial to horizontal cooperation and effi
ciency. Answerable to upper-tier governments and not subordinate to neighbouring juris
dictions, local governments often can only resolve interjurisdictional conflicts through the
intervention of upper-level governments. The barriers are reinforced by institutions such
as the hukou system, which have restricted interjurisdictional factor mobility.
Page 3 of 30
The Dual Structure and Hukou System

The paramount goal of the Chinese state in the last six decades, in the name of achieving
‘national development’, has been to attain rapid industrialization, sometimes at huge hu
man and environment costs. Another important institutional foundation that has enabled
reaching this goal is the division of the society and economy into two rather disparate
systems, commonly referred to in China as the ‘dual system’ (eryanzhi). This separation
allows the rural and urban populations to be treated differently, leading also to a persis
tent dual social and economic structure with a permanent second class of peasants
(Chan, 2009).
The dual system was set up to enable a Stalinist-type, ‘big push’ industrialization strategy
China adopted in the 1950s (Naughton, 2007). The industrial system/sector, almost totally
located in cities, was designated as the priority sector of the economy and was national
ized (i.e. state owned). It was put under strict state management and received strong
state support (p. 81) and protection. The state provided basic welfare only for urban work
ers and their families to maintain social and political stability of this small priority (ur
ban) sector (about 15–16% of the population in 1955). It was largely maintained at that
level until 1978 (refer to urban hukou population in Figure 4.1).
The other subsystem was the non-priority, agricultural/rural sector encompassing the
rest, roughly 85 per cent of the population in the mid-1950s. Remaining outside of the
state’s responsibility, it was largely treated as a ‘residual’, with its main functions being a
provider of cheap raw materials (including food grain), labour, and capital for the urban–
industrial sector. The rural population and production were collectivized to serve the
above functions, with the collectives operating, among other functions, as the state’s
policing agent. The farm population, excluded from state-supplied welfare, had no claim
on national resources and was expected to fend for itself except during time of extreme
duress or emergencies. The rural sector’s main task was to produce food grain and raw
materials at state-dictated (low) prices to support state industry. This allowed the state to
reap the monopoly profits of industry for its coffers for the purpose of implementing the
ambitious industrialization programs.
The hukou, or household registration, system is a necessary instrument in making this

separation possible. Under the hukou system, each individual also is fixated within his/her
own small hukou administrative unit (a neighbourhood in the city, or a village) at a differ
ent position in the hierarchy.5 Permanent migration from one administrative unit to anoth
er is generally not permitted without the approval of the hukou authorities rested in the
police. Furthermore, in addition to the huge rural–urban disparities in state-provided ser
vices, the hukou location also determines the level of benefits that one can get and they
also vary from one administrative unit to another within the urban subsystem.
Under China’s big push industrialization strategy, the state siphoned off resources in the
rural sector for capital accumulation in industry through the well-known process of ‘scis
sors prices’ (Lardy, 1983; Tang, 1984; Chan, 2009). As Yang and Cai (2003) point out, to
Page 4 of 30
enforce such an extraction, the state needed to exercise coercion using a ‘trinity’ of insti
tutions simultaneously: the compulsory procurement and monopoly of sales of farm pro
duce, the rural collective (commune) system, and the hukou system that controlled popu
lation mobility. The first tool was to generate an unequal intersectoral (economic) ex
change, and the second and third served as the administrative, policing, and implementa
tion mechanisms to ensure the success of the first.
As happened in many other communist countries before, such a Stalinist industrialization

strategy was notorious for creating huge disparities between the urban–industrial and the
agricultural sectors, and was bound to generate immense outflows from the countryside
until mobility controls were fully in place. As China pressed forward with industrialization
in the 1950s, large numbers of peasants began to flee the countryside for the cities. Even
although the freedom of migration and residence was freshly enshrined in the first Con
stitution in 1954, the state took measures to stem the flows by setting up checkpoints and
using other administrative measures at various major transportation nodes in 1955
through 1957 (Tien, 1973). It soon became obvious that a more systematic and powerful
coercive mechanism would be needed to prevent or at least regulate such ‘undesirable’
rural-to-urban migratory flows. It was then that hukou came into full play as a central
component of the command system. Hence, the hukou system was finally codified in 1958
(Chan, 2009). The decree required that all internal migration be subject to approvals
from the authorities at the (p. 82) destination, just like the Soviet’s prospika system. Each
person’s hukou was classified as rural and urban, and for newborns, the hukou
classifications would follow that of the mother.
By immobilizing the peasantry, forcing them to tend the land at mostly subsistence levels
of compensation, and excluding them from access to social welfare and ability to move to
cities, this approach created two very different societies. And given the immutable,
hereditary nature of the hukou classifications, the peasantry became an immobile under
class. Without such a system, China would not have been able to achieve the paramount
goal of the command economy—rapid industrialization within a short time, albeit at very
high cost, during the early decades of the communist rule (Tang, 1984; Chan, 1994).6
Despite this ‘achievement’, it is no secret that the Chinese leadership publicly admitted
that the economy as a whole was on the brink of collapse on the eve of the reform in
1978, and that some 250 million peasants were in abject poverty. The economy was in
dire need of a new direction (Lardy, 1983).
Decollectivization of agriculture in the late 1970s and the relaxation of migration controls
since the mid-1980s have resulted in large volumes of ‘temporary’ migrants to cities,
many of whom belonged to what was called ‘rural migrant workers’ (nongmingong). This
is a group of industrial and service workers with rural hukou working in cities. However,
these labourers are not legally considered as urban workers, and are therefore not eligi
ble for the regular urban welfare and rights that are available to any urban resident. Nor
are they supposed to settle in their destination and make it their permanent home. The
amount of rural migrant labour, having grown from about 20−30 million in the early
1980s to about 170 million at the end of 2014, is now prodigious (National Bureau of
Page 5 of 30
Statistics, 2015). For university graduates, there are now rudimentary national labour
markets, although the hukou impediments to settling remains. In many ways, other fac
tors of production are not ‘mobile’ either. This is especially so with regard to land in the
rural areas, where transactions are formally forbidden and conversion of farmland to non-
agricultural uses by the farmers is stringently restricted. This spatial fixity of resources,
‘owned’ and controlled to a great extent by local governments, has many implications for
the organization of the spatial economic, political, and social structures.
Rural de-collectivization also quickly gave rise to a large army of surplus rural labour, the
root cause of China’s poverty in the last two-to-three centuries. More interestingly, the
hukou system, a major instrument of that command system and, more broadly, the dual
system, were refashioned in the post-Mao era to serve China’s strategy of becoming the
‘world’s factory’ (Zhang, 2014; Lim, 2017). When China’s export-processing industry
gradually roared into high gear in the 1990s, the deployment of rural labour to the cities
for the export industry became a major post-Mao strategy; ironically, this time it was
through unshackling labour from the rural collectives. By the mid-1990s, rural hukou
labour had become the backbone of the export industry and, more generally, the manufac
turing sector. In coastal export-oriented cities such as Shenzhen and Dongguan, migrant
labour easily accounted for the great majority (70–80%) of the labour force (Liang, 2001).
Even for a more typical urban site, like the inland city of Wuhan, workers without local
hukou accounted for 43 per cent of the employment in manufacturing in 2000 (Chan,
2009).
Incomes of rural migrant labour have become an important part of peasants’ incomes, ac
counting for about 40 per cent of their average net incomes since the late 2000s (Caijing,
2009). In cities, in addition to the lack of access to many basic social services, these mi
grant workers also face many formal and informal obstacles to securing jobs other than
low-skilled (p. 83) ones (Solinger, 1999; Li, 2003; Cai, 2007). The lack of local hukou for
migrant workers, combined with other unfavourable conditions, such as the plentiful sup
ply of labour and lack of access to legal information and support, created a huge class of
super-exploitable, yet highly mobile and flexible industrial workers for China’s new econ
omy, closely integrated into global trade networks (Lee, 1998; Alexander and Chan,
2004). The ‘China price’, mainly due to its low labour costs, was the lowest among major
developing countries (Chan and Ross, 2003). Many of these workers are vulnerable, and
often subject to exploitation and labour abuses (Chan, 2001). Their ‘temporary’ nature
and lack of local citizenship also made them easily expendable. The 2008–09 global finan
cial crisis seriously hit China’s export sector, leading to unemployment of about 20 million
migrant workers (Chan, 2010a). The new approach of ‘freeing’ peasant labour has served
very well China’s economic growth strategy of being the world’s low-cost industrial pro
ducer. In essence, the persisting dual system has helped defer the arrival of the critical
‘Lewis turning point’,7 so that China can continue to draw labour from rural to urban ar
eas and export-processing zones at rural subsistence wage rates (Chan, 2010b).
Page 6 of 30
Incomplete Urbanization and Under-agglomer

ation of Cities
China’s national urbanization strategy is very much part of its national industrialization
and sectoral strategies. An ‘incomplete urbanization’ model has been adopted. This
means that industrialization is achieved without the proportionate increase of the associ
ated costs of social expenditure or ‘costs of urbanization’ (Ofer, 1977; Chan, 1994;
Sjoberg, 1999). The most stringent measures to limit the growth of population are im
posed on large cities, where the social expenditure per capita is usually the highest. In
the pre-reform era, China’s strategy favoured industry at the expense of agriculture, and
gave priority to investment over consumption (Lin et al., 1996). An important part of that
strategy was the differential treatment of the rural and urban sectors and their popula
tions, as explained earlier. To maintain such an imbalance, migration to urban areas had
to be and was strictly controlled through a web of regulations governing residence, em
ployment, and social services. Urbanization, measured by the de facto population in ur
ban centres, was maintained at a low level in the 1960s and 1970s. As a consequence,
while China had high industrial growth rates from 1950 to 1980, the rate of urban popu
lation growth was comparatively low, leading to ‘incomplete urbanization’, also known as
‘under-urbanization’ (Chan, 1994).
In the reform era, the ‘incomplete urbanization’ approach still persists, but in a different
form. There have been higher growth rates of the (de facto) urban population, especially
through net rural–urban migration, but a significant source of the urban population
growth is in the form of migration of those without the hukou status of the destination
(the so-called ‘temporary’ or ‘non-hukou’ migrants). This population segment, mostly from
the countryside, is not eligible for the benefits that are normally available to urban resi
dents. As pointed out earlier, the ‘temporary’ population or rural migrant labour is mostly
not ‘temporary’, and its size is huge. In essence, China has adopted a strategy of letting
migrants from the countryside into the cities and export-processing zones to sell their
labour at very low wages, but (p. 84) without giving them urban residence status and ac
cess to social services, thereby making their real wages much lower. Evidently, this has
been a critical ingredient of China’s export competitiveness in the world economy.
Page 7 of 30
Table 4.1 Urban Hukou Population, Urban Population and Gross Domestic Product (GDP) Shares, 1949−2014 (Percentage of National
Total)
Page 8 of 30
Year Urban Hukou Urban popula GDP of non-agri D =A–C E =A–B

population (A)a tion (B)b cultural sectors
(C)c
1949 17.4 10.6 6.8
1955 15.2 13.5 53.7 –38.5 1.7
1958 18.5 16.2 65.9 –47.4 2.3
1965 16.7 18.0 62.1 –45.4 –1.3
1970 15.3 17.4 64.8 –49.5 –2.1
1975 15.4 17.3 67.6 –52.2 –1.9
1978 15.8 17.9 71.8 –56.0 –2.1
1980 17.0 19.4 69.8 –52.8 –2.4
1985 20.1 23.7 71.6 –51.5 –3.6
1990 21.1 26.4 72.9 –51.8 –5.3
1995 23.8 31.7 80.0 –56.2 –7.9
2000 26.1 36.2 84.9 –58.8 –10.1
Page 9 of 30
2005 32.0 43.0 87.8 –55.8 –11.0
2010 34.3 49.7 90.4 –56.1 –15.4
2014 36.5d 54.8 91.8 –55.3 –18.3
aRefers to feinongye (‘non-agricultural’) hukou population, eligible for state-provided, urban-equivalent welfare, and social benefits.
bBased on de facto population in urban areas in cities and towns.
cRefers to the combined GDP share of the secondary sector and tertiary sector.
dAuthor’s estimate based on 2012 figure.
Sources: compiled by the author from Chinese Statistical Yearbook and China Population Statistical Yearbook (National Bureau of
Statistics, various years).
Page 10 of 30
Table 4.1 uses three sets of statistics to illustrate the process of incomplete urbanization,
as well as highlighting their different forms in the pre-reform and reform eras. While the
other two statistics are self-explanatory, the urban hukou population refers to those who
are eligible for welfare and social benefits provided by the state (Chan, 2007, 2009). The
Chinese economy, in output (GDP) terms, has been industrialized relatively quickly in the
last sixty years: the share of the non-agricultural sectors rose from about 54 per cent in
1955 to about 90 per cent in 2010, but the population was only half urbanized. Within the
urban population, the proportions of the urban population and urban hukou population
were almost the same or very close in the period 1955–80, indicating the congruence of
these two population (p. 85) groups in the pre-1980 period (Table 4.1, last column). That
is, the urban population and those who received state-provided welfare were basically the
same group; other groups were kept out of the cities. However, beginning in the
mid-1980s, these two numbers started to diverge, reaching a difference of 15.4 per cent
(of China’s total population) in 2010 (see also Figure 4.1). This suggests that while more
people are being allowed into the cities, an increasing proportion of the migrants are not
eligible for state-provided social welfare entitlement. As a result, China has a huge and
expanding supply of ‘cheap’ urban–industrial migrants.
Figure 4.1 De Facto Urban Population and Urban

Hukou Population, 1955–2013.
Sources: compiled by author from China Statistical

Yearbook and China Population Statistical Yearbook
(National Bureau of Statistics, various years).
China’s ‘incomplete urbanization’ is also manifested at the individual city level. Migration
restrictions in China limit the ability of labour to move permanently from low-productivity
locations to settle in high-productivity ones; and, more generally, they limit the ability of
the population to agglomerate at different points in space. Urban production is character
ized by localized external economies of scale (Henderson, 1988), exploitation of which re
quires the population to move and agglomerate in high-density cities. An issue with
China’s cities is whether the restrictions on mobility have prevented population from ag
glomerating in cities in sufficient numbers to exploit fully scale externalities relevant to
the local activity of the area.
Page 11 of 30
Tackling this issue requires estimation of how urban productivity varies with city size and
an examination of what are efficient sizes for Chinese cities. A few earlier attempts have
been made to measure the Chinese city size efficiency or the like.8 The most sophisticated
studies thus far available are recent research by Au and Henderson (2006), and Li, X., et
al. (2005). The former uses employment and other data from the China City Statistical
Yearbooks for 1996 and 1997 for 212 prefecture-level and above cities. They estimate city
production functions and how productivity changes with city employment, controlling for
variables such as industrial composition, investment, FDI, market potential of the city,
and access to coastal markets.9 Based on their models, they reason that 43 per cent of the
cities under study are below the 95 per cent confidence interval on the optimum city em
ployment (p. 86) size. In other words, those cities are significantly undersized, and there
would be gains in productivity from moving from the then city size to the optimum size.
Li, X., et al. (2005) analyse data of a similar set of 202 prefecture-level cities in 1990 and
2000 through an optimization model and argue that while the pure technical efficiency of
most Chinese cities is high, the scale (city size) efficiency is low.
Both of the aforementioned studies were carefully implemented, with consideration given
to various possible tendencies of variables under study. But there are still questions about
their numerical results, because the data they used have significant limitations for assess
ing efficient city sizes.10 Under- or over-counting city population or employment signifi
cantly affects the per capita efficiency indicators used in those studies. Because of the
limitations of the data they use, neither study has truly addressed the city size efficiency
issue in the most desirable way.
However, the data problems do not refute the main thrust of the arguments in both stud
ies: migration restrictions prevent many cities from growing to their optimum sizes and
reaping the benefits of agglomeration economies. There is a rather large body of litera
ture showing that similar industrial structures and duplication of infrastructures are
found in many neighbouring cities in China (e.g. Liu, 1996; Shu and Zhou, 2003; Bai et al.,
2004). Those studies are consistent with the arguments of both Au and Henderson (2005)
and Li et al. (2005). Indeed, the jurisdictional system described earlier also allows individ
ual jurisdictions to erect barriers that distort interregional or intercity flows of labour and
goods in contravention of comparative advantage and economies of agglomeration, re
sulting in low efficiency.
Alternatively, there are now reasonable data to demonstrate that China’s urban system
displays a rather low agglomeration of population. Based on Chan’s work (2015) on
China’s city population and data,11Table 4.2 presents a statistical overview of China’s ur
ban system in 1982–2010. In 2010, about 40 per cent of the 666 million urban population
was in cities over one million in size; another 30 per cent in towns, the smallest urban
centre group; the group in between accounted for the remaining 30 per cent. A similarly
even distribution or lack of concentration of the size distribution was maintained through
out the last three decades. The spatial Gini coefficient, which is a standard measure of
the aggregate degree of geographical concentration, confirms this point (Table 4.3). For
the world’s 1657 metropolitan areas with populations of over 200,000 in 2000, the spatial
Page 12 of 30
Gini was 0.56. For the same set of Chinese cities in the same size category, the Gini was
only 0.33 in 2000 and 0.36 in 2010, way below the world’s, and compares with 0.52−0.65
for these large countries, namely, Brazil, Japan, Indonesia, UK, Mexico, Nigeria, France,
India, Germany, the USA, and Spain. China’s relatively flat city-size distribution is similar
to those in former Soviet bloc countries (e.g. Russia’s Gini was 0.45 and Ukraine’s 0.40),
reflecting a similar (previous) socialist system and development strategy. Based on histor
ical data assembled by Chan (2015), Table 4.3 also shows that China’s low spatial concen
tration began to appear only after 1957, after the implementation of a socialist urbaniza
tion strategy.
Another manifestation of China’s low agglomeration is that China has fewer very large
cities, relative to its huge urban population, the world’s large (Chan et al., 2008; Hender
son, 2009). A comparison of the world’s megacities (those with more than ten million peo
ple) and the size of the urban population in all the large countries (those with more than
100 million population) in Table 4.4 shows that China has the fewest megacities per 100
million urban population. China’s ratio is only about half of the average of all the (p. 87)
other large countries. The population of China’s largest city, Shanghai, also accounts for a
far lower percentage of the nation’s urban population and total population (only 3% and
1.6%, respectively) in 2014 than the averages (13% and 22%, respectively) of all the oth
er large countries.
Page 13 of 30
Table 4.2 Distribution of Cities, 1982–2010
City No. of cities Urban population (millions)a % of urban population of the na
sizea tion
1982 1990 2000 2010 1982 1990 2000 2010 1982 1990 2000 2010
Provincial- and prefecture-level (PPL) citiesb
>5 3 3 7 14 17.1 21.4 58.6 127.3 8.0 7.2 12.8 19.1

million
1–5 33 38 54 67 55.9 71.9 107.4 136.7 26.0 24.2 23.4 20.5

million
0.5– 31 46 75 99 20.9 31.8 52.1 70.5 9.7 10.7 11.3 10.6

0.99
million
0.2– 33 66 108 91 12.5 23.1 38.7 34.0 5.8 7.8 8.4 5.1
0.49
million
< 0.2 6 11 18 16 0.7 1.7 3.1 2.6 0.3 0.6 0.7 0.4
million
Total 106 164 262 287 107.1 149.9 259.9 371.1 49.8 50.5 56.6 55.7
Page 14 of 30
PPL 115 188 263 287 120.0 187.2 259.9 371.1 55.9 63.1 56.6 55.8
cities
Coun 129 279 400 367 29.3 24.1 85.7 102.0 13.6 8.1 18.7 15.3
ty-lev
el
cities
All 244 467 663 654 149.3 211.3 345.6 473.1 69.5 71.2 75.3 71.1
cities
All 2,664 12,084 19,883 19,410 65.5 85.3 113.5 192.5 30.5 28.8 24.7 28.9
towns
Na 214.8 296.6 459.1 665.6 100 100 100 100

tional
urban
Total may not add up due to rounding. aThe city size and urban population refer to the de facto population in the ‘urban areas’ (as de
fined by China’s National Bureau of Statistics, see Chan, 2007, 2015) in the beginning year of the period. bData for the PPL cities are
approximates based on cities in the dataset used in Chan (2015).
Source: Chan (2015).
Page 15 of 30
The low spatial urban agglomeration is strongly indicative of some serious obstacles in
the interjurisdictional mobility of factor of production in the economy. This problem is ob
vious, but it is not simply caused by the low mobility of labour to move permanently from
low productivity locations to settle in higher one because of the hukou restrictions, and so
on (Au and Henderson, 2006). The administrative region economy and the architecture of
local governments within it, combined with the cadre evaluation system, also incentivize
local governments to pursue protectionist measures to guard often parochial and short-
term interests within a small jurisdiction but at the expense of the broader regional or na
tional, or longer-term interests. Local economic protectionism is symptomatic of the Chi
nese administrative system, contributing to significant suboptimization and low levels of
spatial agglomeration. Under that system, there are few incentives for local government
to increase (p. 88) the hukou population but a lot of incentives to expand urban land under
the local government’s jurisdiction (Wang, 2012; Yew, 2012; Tian, 2015). China’s low ur
ban concentration, an outcome of various government policies to control the population
growth of large cities, is far more attributable to the systematic features outlined earlier
than the political stability considerations, as suggested by Wallace (2014).
Page 16 of 30
Table 4.3 Spatial Gini, 1957–2010
1957 1982 1990 2000 2010
Population size
Cities, 200,000+ 0.483 0.423 0.399 0.334 0.364
All cities 0.609 0.478 0.394 0.387 0.403
Number of cities
Cities, 200,000+ 80 172 382 455 523
All cities 173 244 631 666 654
Population of largest city (Shanghai) as a % of
Urban population 6.1 2.9 2.7 2.9 3.0
National popula 0.9 0.6 0.7 1.1 1.5

tion totals
Source: Chan (2015).
Page 17 of 30
In summary, from an economic spatial perspective, the story of Chinese city size distribu
tion is that there are too many cities, and many of them are too small to take advantage of
agglomeration economies and to develop a higher level of functional specialization among
cities. Large cities in China have been rapidly expanding the service sector, especially
producer services, in the last ten years or so. Technological change in urban production,
as is ongoing in China at a high level, increases efficient city sizes, as do improvements in
organization of land markets and improved land use patterns (Black and Henderson,
2003). As bigger cities become more business service-oriented, their efficient sizes should
increase, as business services experience higher degrees of scale externalities than do
manufacturing activities. It appears that there is ample room for big Chinese cities to
benefit from the scale externalities in this respect. Moreover, China’s bigger cities are
still heavily engaged in manufacturing. As they become more specialized in higher-tech
and high value-added sectors, they will also enjoy greater benefits from agglomeration.
For smaller urban centres, including many well-developed towns, there is also insufficient
agglomeration, partly because of the dispersed (rural) industrialization policy and the in
centive system inherent in the jurisdictional system (Li and Li, 2005), and partly because
of the significant policy biases against them in infrastructural investment, fiscal re
sources, and access to capital, as implied in China’s administrative hierarchy. Many of
them cannot develop to their full capacity; nor can most of them agglomerate a large-
enough population to foster healthy growth of the service sector. The smaller urban cen
tres are too many in number and too dispersed. (p. 89)
Page 18 of 30
Table 4.4 Number of Megacities and Urban Population of Large Countries, 2014
Nation Total Urban Urban No. of No. of Largest Popula Popula Popula
popula percent popula megaci megaci city tion of tion of tion of
tion age tion ties ties per the largest largest
(mil (mil 100 mil largest city as % city as %
lions) lions) lion ur city (mil of of urban
ban pop lions) nation’s popula
ulation popula tion
tion
China 1394 54 758 5 0.66 Shanghai 23 1.6 3.0
Indonesia 253 53 134 1 0.75 Jakarta 30 11.9 22.4
USA 323 81 263 2 0.76 New York 19 5.9 7.2
Russia 142 74 105 1 0.95 Moscow 16 11.3 15.2
Mexico 124 79 98 1 1.02 Mexico 21 16.9 21.4

City
Brazil 202 85 172 2 1.16 Sao Paulo 21 10.4 12.2
Pakistan 185 38 71 1 1.41 Karachi 16 8.6 22.5
India 1267 32 410 6 1.46 Delhi 24 1.9 5.9
Page 19 of 30
Japan 127 93 118 2 1.69 Tokyo 38 29.9 32.2
Banglade 159 33 53 1 1.89 Dhaka 17 10.7 32.1

sh
Philip 100 45 45 1 2.25 Manila 22 22.0 49.4

pines
Unweighted mean (excluding China) 1.33 12.9 22.1
Population size of the cities refers to the metropolitan area. Data on the total and urban populations are from United Nations (2014).
The number of China’s megacities is estimated by the author (see Chan, 2015). Others are based on Kotkin (2014), with adjustment
of Karachi’s based on United Nations (2014) and Forstall et al. (2009).
Page 20 of 30
(p. 90) Concluding Discussion

Future urbanization and urban growth will continue to pose serious challenges to the Chi
nese policymakers. Even assuming a modest urban growth rate of 2.5 per cent per year,
the large Chinese urban population base will mean that in the next ten years, more than
200 million people will be added to urban centres of various sizes in the country. This will
generate an enormous demand for urban jobs and urban social infrastructural services.
So far, China has been able to get away with not paying the ‘full bill’ for industrialization
by means of its ‘incomplete urbanization’ approach based on a dual society, that is, insti
tutionally excluding migrants from urban benefits and programmes. Evidently, as experi
ence elsewhere has shown, this cannot be sustainable: unassimilated migrants (often un
dereducated, especially young people) are much more costly in social and political terms
in the longer run. China’s existing model runs a high risk of breeding a huge urban un
derclass (Solinger, 2006). Hundreds, if not thousands, of protests lodged by peasants and
migrants over an array of issues in the last decade also raise the alarm that the rights
awareness of the rural population and migrants is on the rise. Those can no longer be
easily ignored.
Crucial to the assimilation and acceptance of migrants as equals are the hukou reforms
and the capacity to provide reasonable employment for them. On the employment side,
given that a large proportion of urban population growth in the coming one to two
decades will be from the countryside, it is necessary to continue focusing on a job-orient
ed development strategy in order to generate positions suited to the skill levels of mi
grant labourers and provide training for them so that they can match demand as the
economy evolves. This point has been made more obvious by the vulnerability of migrant
labour in the global recession in 2008 and 2009, when some 20 million migrant labourers
lost their jobs without any unemployment compensation protection (some even without
full payment of the wages they had earned) (Chan, 2010c). In normal times, if migrants
can find reasonable jobs and can compete equally in the urban labour market, they will
also have the wherewithal to finance the expansion of some of the urban social services,
hence reducing the political resistance of the existing urban local population to accepting
more migrants in the cities (Cai and Chan, 2000; Cai et al., 2005).
As migrant labour has been the main workhorse of the Chinese export-processing indus
try, and migrants are an indispensable part of China’s industrialization and the economy
of large cities, the importance of maintaining a stable migrant labour force and convert
ing the experienced and skilled ‘temporary’ migrant workers into ‘permanent’ citizens is
clear. Some cities have made small progress in easing restrictions on mobility for some of
the more sought-after types of labour (mainly college-educated and professionals). Simi
lar steps towards gradual reforms could be taken to help keep skilled migrant workers
settled in cities. This would be a largely win–win situation for both parties (Chan, 2014).
At the more fundamental level, China needs to abandon its ‘incomplete urbanization’ or
‘industrialization on the cheap’ approach and consider truly ‘uprooting’ the rural popula
Page 21 of 30
tion who are willing to resettle in urban centres, and giving them equal access to urban
benefits, and so on.
China’s development of a national high-speed rail system in the last few years has helped
to increase agglomeration economies of cities. However, according to the analysis by
Bosker et al. (2015), there remain large potential of productivity gains locked by obsta
cles created (p. 91) by institutions such as the hukou system. China’s urbanization policy
all along has been to control the population size of the large cities; this policy has been
accentuated by the latest hukou reform plans (Chan, 2014). According to the estimate
made by Yukon Huang, a former World Bank chief in China, the economic loss due to the
current urbanization (limiting growth of big cities) policy amounts to about one percent
age point of China’s GDP (Hamlin, 2014). Combes et al. (2015) have also shown the po
tential of significant gains by free migration and greater agglomeration. The policy of
controlling urbanization in large cities and channeling migrants to smaller cities, counter-
intuitively, actually contributes to increasing inequality. The policy is also counter to the
goal of rebalancing the economy to increase the share of consumption in the GDP (Wan
and Cai, 2012; Chen and Lin, 2013; Lu and Wan, 2014).
Reforming the hukou system will foster true geographical mobility of labour and reduce
the lack of spatial agglomeration in its urban system. From an economic efficiency per
spective, there are too many urban centres in China, and most of them are too small in
population size to benefit from agglomeration. Under the current administrative jurisdic
tional system and hukou system, the size of the permanent population of each city is rela
tively rigid, and any possible changes are limited. With freer migration and an economy
where the main duties of governments are limited largely to providing social goods, more
competitive cities will experience accelerated growth, and less competitive ones will face
depopulation. This will help to create a system of fewer cities but ones which have
greater variations in size, which will better fit China’s increasingly diverse regional and
local conditions and residents’ preferences. Seen from this angle, the latest policy of con
trolling the population growth of China’s megacities is counter-productive, a step in the
wrong direction.
Ultimately, the agent for achieving agglomeration effects in the economy should be the
market, not the government—in other words, companies and urban and rural residents
(workers and consumers), rather than government policies, should be the driver of urban
ization. That is because officials do not possess all the relevant information; they do not
know which companies will do better in large or small cities and thus where they should
be located. Neither do officials know if a certain migrant is better suited in a large city or
small city for the simple reason that the specific conditions of each individual are differ
ent. In the end, such decisions should be left to companies and workers themselves based
on market conditions, not determined by a one-size-fits-all policy to control the population
of very large cities and encourage migrant workers to settle in small cities and towns
(Meng, 2015).
Page 22 of 30
Reforms of the local government systems are equally fundamental. This will involve
changing major elements of the legacy of the command economy: the state-run economy,
the top-down systems of hierarchical administrative jurisdictions and evaluations, and the
associated incentive system for local bureaucrats. Local governments and officials should
be incentivized to do a good job of taking care of the provision of public goods (environ
ment, social services for local population, etc.), instead of directly running the economy.
There must also be input from local citizens in assessing local officials. This will help cor
rect several major distortions in the local urban economies identified in this chapter and
help China create a more desirable geographical configuration of the government and the
economy.
The present analysis also clearly demonstrates a greater need for more research, as there
are many gaps and some confusion in the urbanization literature. One important aspect is
that the current Chinese urban definition and application, while they are useful for stud
ies at the national level, are quite problematic at the individual city level, especially as
metropolises (p. 92) develop and sprawl to encompass low-density suburbs. This has pre
vented real progress in studying Chinese urban systems in any meaningful way, as has
been pointed out before (Chan, 2007). More work is urgently needed to design a concep
tually sound and operationally workable system of city population statistics in the special
context of China. There is also a clear need to analyse more closely the interrelationship
among urbanization/urban growth, the changes in the system of local governments, and
local development strategies. I believe that this is where one can write the most interest
ing story of China’s real emerging political, economic, and urban geography.
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Notes:
(1.) The government today still controls many aspects of people’s life, sometimes in a
highly intrusive manner. For example, in implementing the family-planning policy, some
cities in Guangdong, until recently, would grant registration of a newborn’s local hukou
only upon the provision of proof of sterilization of the mother (Southern.com, 2015).
(2.) Since the early 1980s, several other special status cities have also been established.
See Chan (1997).
(3.) Given the top-down configuration of power, local jurisdictions always have incentives
to move up the administrative ladder: to be upgraded to a higher administrative rank.
Rapid economic growth in some locales in the reform era has allowed many units to seek
urban designations and ‘upgrades’, resulting in significant increases in the number of es
pecially prefecture-level and county-level cities in the 1980s and 1990s (Chung and Lam,
2003).
(4.) See an examination of environment and labour aspects in Dongguan, one of the cities
that has recorded the highest GDP growth rates in China in the last twenty years (Yeung,
2001).
(5.) China’s ‘internal borders’ created by the hukou system have been compared with the
national borders within the European Union (Pasquali, 2015).
(6.) In addition to its general deleterious effects on agriculture, the forced collectivization
and industrialization programmes of the late 1950s contributed significantly to a famine
that resulted in at least 20 million deaths in the early 1960s.
(7.) This is named after economist Arthur Lewis, a Nobel laureate. According to Lewis,
developing countries’ industrial wages begin to rise quickly at that point when the supply
of surplus labour from the rural areas tapers off. Wang (2005) has stated that the hukou
system enabled China to bypass the Lewis turning point. The author of this chapter has
argued that the hukou system has allowed China to extend the period before reaching the
turning point (Chan, 2010b).
(8.)
Some earlier studies include Perkins (1990) and Chang and Kim (1994). Many of them suf
fer from serious data problems, as pointed out by Chan (2007).
(9.) In their model, output is value-added per worker in the non-agricultural sector of the
city proper. Determinants include the capital stock to labour ratio, share of accumulated
FDI in capital stock, distance to the coast, education, and scale measures.
(10.) A check of Au and Henderson’s (2006) sources with the available 2000 census data
reveals that the city employment data contained in the China City Statistical Yearbooks
undercount the true city employment, most probably by excluding a significant number of
workers engaged in informal employment, especially the employment of rural migrant
Page 29 of 30
labour (Cai and Chan, 2009). Li and Li (2005) used census population data to produce the
best set of statistics possible then, but the census city district-based population data
greatly over-count the true ‘city’ population in many instances (see Chan, 2007).
(11.) The definitions of ‘urban population’ and ‘city population’ in China are quite compli
cated. Here I refer to the de facto population in the ‘urban areas’ defined by China’s Na
tional Bureau of Statistics. For details, see Chan (2007, 2015).
Kam Wing Chan
Kam Wing Chan ([email protected]) is Professor of Geography at the University of

Washington. His main research focuses on China’s cities, migrant labour, and the
household registration system. He is the author of Cities with Invisible Walls: Rein
terpreting Urbanization in Post-1949 China (Oxford University Press, 1994). He is As
sociate Editor of Eurasian Geography and Economics. In the last two decades he has
worked as a consultant for the World Bank, Asian Development Bank, United Na
tions, and McKinsey & Co. on several major policy projects on China. His recent com
mentaries and interviews have appeared in The Wall Street Journal, The New York
Times, The Economist, South China Morning Post, BBC, CBC Radio, Caixin, Ming
Pao, and China Daily.
Page 30 of 30
Economic Growth and Poverty Reduction in Contemporary India
Economic Growth and Poverty Reduction in Contempo

rary India
Stuart Corbridge
India is an exception to many so-called rules in social science. This chapter considers why
accounts of long-term economic growth, which assume that either institutional quality or
geography is a foundational driver of change, are confounded by India. Attention is di
rected instead to consistency of economic policymaking, competition between provinces,
and the stability of underlying political settlements. The chapter also considers why
India’s growth success has been so much less efficient at reducing extreme income pover
ty than is the case in most East Asian countries. Poverty reduction in the east and centre-
north of India has been undercut by persistent underinvestment in state capacity and
public services. It has also been harmed by systems of political calculation that made in
vestments in security and growth seemingly unnecessary for incumbent re-election. This
is now changing in areas not under Maoist control, but the legacies of persistent social
exclusion cast a long shadow.
Keywords: economic growth, poverty reduction, India, geography, institutions, public policy
Introduction
THERE are very many ‘rules’ in social science to which India stands as an interesting and
salutary exception. Democracies generally do not survive long at low average levels of
per capita income (Przeworski et al., 1996). Except in India, save for the ‘Emergency Peri
od’: 1975–77. Countries with extremely high levels of ethnic fractionalization do not tend
to hold together (Fearon and Laitin, 2003). Except in India since 1947. Rich urban men
are more likely to vote in major elections than poor, rural women. Except recently in India
(Banerjee, 2014). And countries with high levels of corruption and poor governance
regimes do not tend to support long-term economic growth (Spence, 2011). Except in In
dia, which has sustained annual rises now in gross domestic product (GDP) every year
since a steep contraction in 1979–80, and which among large developing countries has
sustained per capita GDP growth rates over the same period second only to China. India
Page 1 of 19
has maintained these high rates of growth but without reducing rates of extreme income
poverty anything like as effectively as China or other fast-developing countries in Asia
and Latin America (Winters and Yusuf, 2007; Chant and McIlwaine, 2009; Sharma, 2009).
This chapter addresses two key puzzles in India’s recent economic development: the
mainsprings of its growth transition(s), and the country’s failure to promote growth that
is sufficiently inclusive in social and spatial terms to secure reductions in extreme income
poverty on a par with its peers.
The next section reviews the long-term drivers of economic growth. It considers the com
peting roles of Geography (as understood by Jeffrey Sachs and colleagues) and institu
tions (the formal and informal rules of the game). An account is developed to explain sus
tained economic growth in India post-1980 in the absence of significant improvements in
the country’s Geography or institutions. This account is rooted in a relational account of
Geography and spatial competition. This is very different to the fixed-effect model of ge
ography (p. 98) developed by Sachs. The model developed here also pays attention to his
torical path dependencies to explain why stable economic policies over a period of
decades can have larger-than-expected effects on economic growth. The focus is on latent
or underlying institutional quality. The section ‘Poverty Reduction, Inequality, and Politi
cal–Economic Geography’ considers why the transmission mechanism linking economic
growth to poverty reduction in India has been weak. Geography is, again, central to the
argument. Economic growth in the east and centre-north of India has been undercut over
the last thirty years by successive rounds of underinvestment in state capacity. It has also
been harmed by systems of political calculation that made investments in security and
growth seemingly unnecessary for incumbent re-election. Happily, there have been signs
recently that growth is being re-ignited in some parts of eastern India by dynamic politi
cal entrepreneurs. In other areas there is a continuing low-level civil war between state
forces and the Maoists. Growth and poverty reduction remain unlikely in this conflict
zone. The reasons for and significance of these developments are considered in a brief
conclusion.
Geography, Institutions, and the Drivers of

Economic Growth
Economists generally assume that the proximate drivers of growth are physical capital
deepening, human capital formation, and improvements in productivity. They also recog
nize that these drivers are both causes and consequences of economic growth, which is to
say they are largely endogenous in standard growth models. Countries with high levels of
GDP per capita have resources to invest in schools and education and high-tech city
parks. Their middle classes also demand these investments. Accordingly, the deeper dri
vers of economic growth are generally thought to reside in some combination of greater
international integration, improved institutional quality, or improvements to a country’s
Bad Geography (Rodrik, 2003).
Page 2 of 19
The Geography thesis has been advanced with particular vigour by Jeffrey Sachs (Sachs
et al., 2001; Sachs, 2005). In its simplest version the thesis holds that rich and poor coun
tries divide geographically between temperate and tropical areas. Whether we look at
GDP per capita (adjusted for purchasing power parities (PPPs)), or patents issued, Sachs
insists that key regional patterns of income and innovation map out as distance decay
functions from zero latitude. Fundamentally, countries close to the equator pay a price for
their Bad Geographies. Tropical climate systems are extreme and give rise both to poor
soil systems (notably the red soils or laterites) and damaging human and animal disease
ecologies (whether malaria, schistosiamsis, or trypanosomiasis). In some parts of the
tropics, too, and most notably in Africa, countries can be landlocked. In these cases, the
penalty of Bad Geography is compounded.
Of course, Sachs is far more a Promethean than an environmental determinist. Sachs has
consistently maintained that rich countries have a moral duty and an economic interest in
transferring over $150 billion annually to poor tropical countries in the form of official de
velopment assistance. Foreign aid can be used to overcome local poverty traps by funding
road and infrastructure projects, malaria eradication schemes, and so on. However,
Sachs’s (p. 99) critics—and there are many—insist that financial transfers on this scale
are likely to be misused by local political and economic elites (Easterly, 2006). They also
maintain that the bad geography thesis makes a number of category errors (Acemoglu
and Robinson, 2012). Singapore is tropical but thriving. Switzerland is landlocked but has
good neighbours. And so on. While it is attractive in a modelling sense to have a wholly
exogenous variable (geography) driving economic growth, most mainstream social scien
tists insist that the problems of poor tropical countries have to do mainly with history, or
the political settlements that were produced as a result of colonialism. Particularly in
tropical Africa, where white colonialists did not settle in large numbers and where the
preference was for extractive regimes serviced by local compradors, the legacies of colo
nial rule tend to be felt still in a relative absence of manufacturing capital, stark divisions
between cities and the countryside, low levels of literacy and life expectancy, and political
systems devoid of meaningful social contracts (Mamdani, 1996; Besley and Persson,
2011). The key development need of these countries is to change the formal and informal
rules of the game. Current institutions provide few incentives for long-run economic accu
mulation or the building of democratic systems of rule and accountability. In the words of
Rodrik et al. (2004, p. 135), summing up a large body of work based on cross-country re
gressions, ‘Once institutions are controlled for, integration has no direct effect on in
comes, while geography has at best weak direct effects’. Bill Easterly and Robert Levine
(2003) have pushed the ‘institutions matter’ line even further. They maintain that macro
economic policies do not have a significant effect on incomes once the quality of institu
tions is controlled for.
If true, this is a galling finding for the aid industry and the global political elite. In a coun
try like the UK it provides the basis for a sharp retort to those who say that the UK should
challenge the power of the financial industry and become ‘more like Germany’. Well, yes,
but only if that is a meaningful proposition. Even in the wake of the global financial crisis
the willingness of the UK’s political elites to challenge the hegemony of finance capital
Page 3 of 19
ism has been minimal. The contrary suggestion of Easterly and Levine is that countries
have the institutions they have for a reason: the weight of history and the formation of po
litical classes who benefit from them. In this light, institutional change is either rather
slow or it occurs mainly through revolutions or war: the USA in 1776, France in 1789,
Japan in 1868, China in 1949 and again in 1976, and so on. Absent such ruptures there is
unlikely to be great change in the international league table of economic growth perfor
mance.
But here, too, India stands out as an exception. It is significant that a focus on India is
rarely developed in either the strong Bad Geography or institutionalist models of compar
ative economic performance. Sachs might reasonably maintain that the Gangetic plain ar
eas of India are north of the Tropic of Cancer, although that would hardly help his broad
er argument: northern India tends to be poorer than southern (or tropical) India. And In
dia simply does not fit in the model of colonial path dependencies developed in a brace of
famous papers by Acemoglu, Johnson, and Robinson (AJR model) (2001, 2002). Although
their research paradigm has been developed by authors who have tried to measure the ef
fects on growth of different colonial rulers (British, French, Spanish, for instance (Lange
and Mahoney, 2006; Fielding and Torres, 2008)), or particular colonial policies (education
or health care (Bolt and Bezemer, 2009)), the core AJR model is developed around a bina
ry typology of extractive regimes (e.g. the Belgian Congo) or Neo-Europes (the white set
tler colonies of the UK: the USA, Canada, Australia, and New Zealand) that finds no place
for a country like India. Even more significantly, the performance of the Indian economy
post-1980 has (p. 100) been remarkably robust—notwithstanding any evident positive
changes in the quality of the country’s geography or institutions.
Figure 5.1 India’s Long-term Growth, 1950–2009.
GDP, gross domestic product.
Consider the former. Even on a less ‘physical/climatic’ reading of Geography than is pre
sented by Sachs, it is far from clear that improvements in India’s transport infrastruc
tures drove an upwards shift in the country’s economic growth. Major improvements in
India’s air and road systems—including the Golden Quadrilateral linking Delhi, Kolkata,
Chennai and Mumbai—have mainly occurred post-2000, twenty years after the Indian
Page 4 of 19
economy started to grow at consistently higher rates. And then consider institutions.
Economists like to proxy the quality of institutions with reference to the strength of the
rule of law or property rights protection. This makes sense: a high risk of kidnap, murder,
or expropriation is unlikely to encourage entrepreneurship or long-term investment. But
most serious studies of the quality of India’s institutions post-c.1980 do not suggest that
the rule of law has significantly improved over time. Nor has the quality of the country’s
politicians, rather too many of whom have spent time in jail or have been charge-sheeted
with one serious offence or another. Nor too has India climbed the ‘corruption’ league ta
bles compiled by Transparency International. Levels of corruption have now become so
high in the country that major political movements have sprung up post-2000 to articu
late concerns about the persistent misuse of public office for private gain (Sharma, 2014).
And yet what remains undeniably true is that the Indian economy grew after 1980 in a
way that it did not previously, and least of all from c.1965–79 (see Figure 5.1). India’s
GDP grew at an average annual rate of 3.7 per cent from 1950–51 to 1979–80, and at
over 6 per cent annually from 1980–81 until the time of the global economic crisis in
2008–09. Throughout this period the economy grew year on year: the last time it con
tracted was in 1979–80 (by more than 5%). This is extraordinary—and was wholly unex
pected. Over the period 1980–2003 the Indian economy grew faster than all of its rivals
save for China, Botswana, South Korea, Singapore, and Oman. The economy also record
ed two significant upturns. According to Hausmann et al. (2005, p. 305) there were just
eighty-three growth accelerations in the global economy from 1950 to 1982. They define
a growth acceleration as an increase in per capita (p. 101) growth of two percentage
points or more, where the increase in growth has to be sustained for at least eight years
and the post-acceleration growth rate has to be at least 3.5 per cent per year. In these
terms, India has had two growth accelerations, the first beginning in the early 1980s—ten
years ahead of so-called economic reform in India, of which more shortly—and another in
the early 2000s that was spurred on by India’s high-tech boom and greater integration in
to the global economy.
There is, thus, a puzzle. What caused this strong growth performance if not positive
changes in geography or institutions? Three parts of an answer suggest themselves: con
sistency in economic policy; the emergence of competition States; and—notwithstanding
what was said earlier—an underlying robustness (comparatively) in the quality of the
country’s underlying institutions.
Firstly, economic policy. Discounting Easterly and Levine, it seems clear that a continuing
high rate of economic growth in India post-1980 is connected to consistency of economic
policymaking. There are two dimensions to this. When Indira Gandhi returned to power in
India in 1980 she retired much of the socialist rhetoric she had rolled out in the 1970s.
She also began to align herself with leading corporate interests. As Atul Kohli (2006) has
rightly noted, this was not a pro-market turn in Indian economic management, but it was
a pro-business turn. The governments of Indira and Rajiv Gandhi in the 1980s eased re
strictions on capacity expansion for incumbent firms, removed many of the price controls
imposed in the 1960s and 1970s, and reduced corporate taxes. Bosworth and Collins
Page 5 of 19
(2007) have calculated that total factor productivity (TFP) in India increased sharply in
the 1980s to an average rate of growth of 2.49 per cent per annum. This contrasts
markedly with negative TFP growth rates in the 1970s.
Relatedly, when India was forced at last to begin the liberalization of parts of its economy
in 1991—in the wake of a severe crisis of external indebtedness—the reform process that
was unleashed, and which initially involved significant relaxations in trade and financial
sector regulations, built upon the earlier pro-business tilt (Panagariya, 2008). Despite not
uncommon references to ‘neoliberalism’ in India, the truth is that the formal sector em
ploys no more than 10 per cent of the workforce (Harriss-White, 2003; Breman, 2010) and
state services have not been ruthlessly privatized (Nayak, 2010). Nor has India relaxed all
of its constraints on foreign inward investment or property acquisition. Similarly, while
various Left parties maintained their public opposition to ‘economic reform’ in India
through the 1990s and early 2000s, and while the Hindu nationalist Bharatiya Janata Par
ty (BJP) occasionally took pot shots at foreign icons like Coca Cola or Michael Jackson,
the deeper truth is that the liberalization project begun by Manmohan Singh when he was
India’s Finance Minister in the early 1990s was continued by successive coalition govern
ments led by the BJP or third-party movements (the United Front government, 1996–98).
Over a thirty-year period, governments in India have tied themselves faithfully to the
mast of big business. Rhetorics of rule have changed over this period, along with flagship
social programmes like the National Rural Employment Guarantee Scheme rolled out by
Manmohan Singh when he returned to New Delhi in 2004 as Prime Minister. But business
leaders have been able to make investment decisions in most of the country in the knowl
edge that a return to the dirigiste policies of the late 1960s and early 1970s (including the
notorious Monopolies and Restrictive Trade Practices legislation that was enacted in
1969) was not on the cards.
Secondly, competition States. Noting that the Indian economy grew overall at average
rates in excess of 6 per cent per annum through the period 1980–2009 fails to register
the fact (p. 102) that growth rates of more than 10 per cent were recorded in States like
Gujarat and Punjab at this time, while many of India’s central and eastern States, includ
ing Bihar, Jharkhand, and Chhattisgarh (the latter two from 2000, when they were carved
out of Bihar and Madhya Pradesh, respectively), barely grew at more than 1 or 2 per cent
per annum. Aseema Sinha (2004) has suggested that the pro-business and pro-market
tilts of the 1980s and 1990s liberated economic growth most quickly in those States
which decades earlier had large entrepreneurial, merchant, and trading communities—
such as the Marwaris of western India. Private sector growth, which had been sup
pressed in mid-century, now bloomed again. In addition, the Government of India chose in
the 1990s to allow States to compete for foreign inward investment. An early example
would be the competition between Maharashtra and Tamil Nadu to host a Ford motor
plant, a battle won in 1996 by Tamil Nadu. Indeed, the government did more than this.
Prior to the reform period, States within India’s federal system of rule competed with
each other mainly to petition New Delhi for greater grants in aid from the more elastic
tax revenues raised at the centre. New Delhi, in turn, used this system of patronage to re
ward political clients in the States. This game changed markedly when States were set
Page 6 of 19
free to raise loans themselves and to court foreign capital, as they have been doing in
creasingly over the past twenty years.
Here, indeed, is one key reason why economic reform has been relatively audacious in In
dia notwithstanding the conservatism of the political class in New Delhi (Grindle, 2000;
Corbridge et al., 2013). Many of India’s key economic reforms have been made in the
provinces. This is where land acquisition by big business has been at its fiercest, often at
the expense of poorer communities who have seen their property dispossessed. And this
is where India’s allegedly strong labour laws have been most regularly ignored and flout
ed. Further, as Rob Jenkins (1998, 2011) has noted, the unbinding of Prometheus in states
like Gujarat—including under then Chief Minister, Narendra Modi, now India’s Prime
Minister—has put pressure on political leaders elsewhere in India to behave more and
more like chief executive officers. Chief Minister Chandrababu Naidu was the very em
bodiment of this new political–economic creation in Andhra Pradesh in the mid-2000s, but
the model also spread in that decade to include the ostensibly communist political leader
ship of West Bengal. Rightly fearful that the urban middle classes would turn against
them if they did not start to deliver growth and consumption goods, the ruling Commu
nist Party of India (Marxist) significantly changed its policies under the leadership (from
2000 to 2011) of Chief Minister Buddhadeb Bhattacharya (Das, 2012).
Finally, it is worth noting that regional competition and policy consistency in India
post-1980 would have been unlikely to give rise to high and sustained rates of economic
growth in the absence of a fundamentally enabling institutional framework. This will
seem an unlikely claim, but it is consistent with two important observations. Firstly, as
Brad DeLong has shown in an important paper, ‘India’s economic growth from 1960 to
1992 lies smack in the middle of world growth rates’ (DeLong, 2003, p. 189). That is to
say, on the basis of cross-country regressions of the average rate of growth of output per
worker against three proximate determinants of growth in a standard Solow model (the
share of investment in GDP, the population growth rate, and the log of output per work
er), DeLong finds that India did pretty well as expected, even although it is widely accept
ed that the country formulated a raft of policies in the 1960s and 1970s that actively dis
couraged private capital accumulation. Put another way, this seems to suggest that
India’s core institutional framework, compared with those of many developing country
peers, was sufficiently robust to keep the economy (p. 103) afloat, despite the best efforts
of the country’s leadership. Turning this around, it is then not unreasonable to maintain,
with Arvind Subramanian (2007), that the legacies of an English-speaking middle class, of
relatively strong property rights guarantees (a legacy of both the colonial and pre-colo
nial periods), and of a stable political settlement at the centre of the country, allowed In
dia to leverage a consistent run of non-damaging (but not radical or neoliberal) economic
policies post-1980 in order to secure higher growth rates than otherwise would have been
the case. Institutions matter, after all.
Page 7 of 19
Figure 5.2 Headcount Index of Poverty Using the

National Poverty Line (Percentage).
Poverty Reduction, Inequality, and Political–

Economic Geography
Institutions also matter when it comes to maps of poverty reduction and inequality. This is
true both within India and in comparisons between India and other emerging countries. A
key observation about poverty reduction in India is that it was more efficient in the 1970s
and 1980s than in the period following liberalization in the 1990s. The transmission
mechanism between economic growth and reductions in extreme income poverty did pick
up again in the 2000s. But it will be argued here that further reductions will depend heav
ily on improvements on state capacity and institutional quality in those regions of India
that hitherto have benefitted only weakly from sustained economic growth.
Figure 5.2 conveys a good sense of key trends and issues in poverty reduction in India
since independence. Notwithstanding reasonably high rates of economic growth from
1950 to 1965, the percentage of Indian men and women living below the national poverty
line (which recently has been defined even more harshly than the $1.25 per day/PPP used
by the (p. 104) World Bank (Himanshu, 2010)) failed to decrease from 1950 to 1970. The
total number of Indians living in extreme income poverty soared in this period from about
180 million in 1950 to over 300 million by 1970. Significantly, though, the proportion of
Indians living in extreme poverty declined sharply from the early 1970s until the late
1980s, and declined with some consistency (as can be seen from the shape of the curve).
The main drivers of this poverty reduction necessarily have to be found in some of the key
economic policies of the much derided pre-reform years, including the so-called Nehru–
Mahalanobis years of the Second and Third Five-Year Plans (1956–66). Several econo
mists have pointed out that some of the more benign effects of economic policy in these
years—large investments in capital-intensive industries in poorer regions of India, the de
velopment of Indian Institutes of Technology and Management, targeted poverty reduc
tion programmes—were not greatly felt until the 1970s and 1980s (McCartney, 2009). In
addition, the urban-biased policies pursued by Nehru and his chief planner, Mahalanobis,
Page 8 of 19
in the 1950s and early 1960s were abruptly reversed following the food crises of 1965–
67. From that point onwards the income terms of trade have rarely moved against rural
India, and politicians have generally been reluctant to take on the power of organized
farming lobbies (Varshney, 1995). More positively, from about this time the Indian state
invested heavily in the Green Revolution, which flourished particularly in areas with es
tablished irrigation systems or where local governments invested heavily in new systems
of groundwater management and rural electrification. It was the expansion of agrarian
capitalism that largely pulled people above the poverty line in India in the 1970s and
1980s. Throughout this period, the bulk of India’s population, and the great mass of ex
treme income poverty, were to be found in the countryside. The Green Revolution, and as
sociated developments in rural marketing and industrialization, tightened rural labour
markets in key areas like Punjab, western Uttar Pradesh, and Tamil Nadu, and helped
check increases in the real price of staple grains. As a consequence, as Petia Topolova
(2008) has shown (Figure 5.3, column 1), proportionately the main beneficiaries of eco
nomic growth in India in the 1980s (and, indeed, in the late 1970s) were rural households
in the bottom third of the income distribution.
This pattern of relatively inclusive growth changed markedly in the mid- to late 1990s, as
can be seen in the right-hand column of Figure 5.3. In the period from 1993–94 to 2004–
05 most of the benefits of real consumption growth were captured by a small urban elite
and a slightly larger urban middle class (Banerjee and Piketty, 2005). This largely ex
plains the sharp reduction in the rate of poverty reduction in India, described by the
shaded section of Figure 5.2 (in effect, the difference between what happened from c.
1990 to c.2000 and what would have happened had India maintained the rate of poverty
reduction recorded from c.1970 to c.1990). As Robin Burgess and Tim Besley (2003) re
port, India by c.2000 had an elasticity of poverty reduction with respect to income per
capita of around –0.65. This was slightly better than the figure of –0.59 they report for
South Asia as a whole, but it is significantly down on the figure of –1.00 in East Asia and
the Pacific, or the even better number for China alone (–1.05)
In plain English, the capacity of economic growth to drive income poverty reduction in In
dia is only about two-thirds that in China. China’s great success in pulling hundreds of
millions of people out of extreme income poverty in the 1990s was centred squarely on
the countryside (Eastwood and Lipton, 2000). Households with comparatively high levels
of education and health care were able to access new employment opportunities in and
(p. 105) outside agriculture as the old system of collective farming was undone and long
tenancies were introduced in their place (giving de facto stability in property rights over
a long time horizon). In contrast, India’s economic reforms privileged the urban economy
and tradeable good sectors from the start. They set in motion pressures for rural-to-urban
migration, and widening spatial inequalities, which only became pressing in China in the
second stage of its economic reform process. Socially, too, it is very apparent that eco
nomic growth has not delivered benefits to the poorest quintile of urban Indians at the
same rate that benefits have been delivered to the average or median household: the fa
mous proposition of Dollar and Kraay (2002, p. 195) in their well-known paper ‘Growth is
good for the poor’. Undoubtedly, (p. 106) economic growth is necessary to pull poor peo
Page 9 of 19
ple out of poverty, but the type and composition of growth matter just as much as head
line rates (Donaldson, 2008).
Figure 5.3 India: Real Patterns of Consumption

Growth (after Topolova 2008).
Maps of extreme income poverty in India also coincide for the most part with maps of a
wide range of human development indicators (see Table 5.1). There are some important
exceptions that need to be noted. Literacy rates in the south Indian State of Kerala are
much higher than would be predicted on the basis of average household income. Dis
turbingly, too, the sex ratios of women to men are worst in some of India’s richest States,
including Punjab and Haryana, where there are fewer than 900 women for every 1000
men (Dreze and Sen, 2013). By and large, though, the States in India with the lowest
gross state domestic (p. 107) product—Bihar, Orissa (Odisha), Jharkhand, and Chhattis
garh—are the same States that have high levels of underweight children, high infant mor
tality rates, and low literacy rates. If the capabilities of people in the central/eastern re
gion of India are to be put on a par with their fellow citizens in the west and south the
state will need to channel investment directly or indirectly to key public services and new
growth platforms. At a minimum this will mean significant investments in rural electrifi
cation and rural banking (Kale, 2014), but to be more effective there will need to be a sig
nificant redistribution of assets in the countryside (agrarian reform). Inclusive growth al
so presupposes actions to enable members of the most seriously disadvantaged and dis
criminated against communities—dalits (scheduled castes), adivasis (scheduled tribes),
Muslims, and particularly women in each of these communities—to fight more effectively
to gain access to better paid opportunities in local employment markets.
Page 10 of 19
Table 5.1 Ranking of India’s Poorest States by Gross State Domestic Product Per Capita and Human Development Indicators
Rank Literacy rateb Infant mortalityc Underweight chil Sex ratio (0–6
by drend years)e
GSDP
per HDI Diff. Rank Diff. Rank Diff. Rank Diff. Rank
capita ranka
Bihar 13 13 –17.9 13 –5.3 9 –7.4 11 15 5
Orissa 12 10 –1.8 9 –13.4 11 –7.4 12 26 3
Uttar 11 12 –8.0 12 –19.1 13 –4.7 10 –11 8

Pradesh
Madhya 10 11 –1.3 8 –18.5 12 –8.1 13 5 7

Pradesh
Ra 9 8 –4.4 11 –12.8 10 –3.6 9 –18 10

jasthan
West 8 7 3.8 5 18.9 3 –1.7 7 33 2

Bengal
Andhra 7 9 –4.3 10 1.8 8 9.3 4 34 1

Pradesh
Page 11 of 19
Karnata 6 6 1.6 7 16.1 4 3.1 5 19 4

ka
Tamil 5 2 8.1 2 19.4 2 10.3 3 15 6

Nadu
Haryana 4 4 3.2 6 10.8 5 12.4 2 –108 12
Gujarat 3 5 4.6 3 5.0 7 1.9 6 –44 11
Punjab 2 1 4.6 4 10.5 6 18.3 1 –129 13
Maha 1 3 11.9 1 23.9 1 -2.6 8 –14 9

rashtra
All-In 65.4 67.6 47 927

dia
(avg.)
Kerala 7 1 25.5 1 51.3 1 20.1 1 33 3
Notes: GSDP, gross state domestic product; Diff., difference between state-level indicator and all-India average. aHDI ranking refers
to the Human Development Index methodology in the United Nations Development Programme’s Human Development Report 2011.
Ranking across sixteen major states, including Assam. b2001, per cent of population aged seven years and older. c1998/9, per 1000
live births. d1998/9, per cent of children under three years of age. e2001, girls per 1000 boys in 0–6 years age group.
Sources: UNDP (2001); Office of the Registrar General & Census Commissioner, India (2001); International Institute for Population
Scienes (2000); Global Health Data Exchange (1999); World Bank (2006, p. 21).
Page 12 of 19
But herein lie two problems, which, taken together, return us to an account of the geo
graphical dimensions of institutional quality. Firstly, eastern India is simply not well
joined up with the rest of the country. Notwithstanding the imagery of India Shining that
peaked around the turn of the millennium, which liked to reference the new India through
photographs of the new office blocks and industrial spaces of Gurgaon, near Delhi, or
Bandra Kurla in Mumbai, it remained impractical at this time to think of driving from cap
ital cities in eastern India to Delhi, or even to relatively nearby Kolkata (Corbridge, 2011).
As late as 2007 the middle classes of eastern India were forced either to fly to Delhi on
one of two or three daily flights (in the case of Ranchi) or to take an overnight train jour
ney. Moreover, within the region, while there were a few decent roads—as from Ranchi to
Jamshedpur—very often it could take four or five hours to travel just 100 kilometres. And
within districts like Bhojpur at this time, in the middle of the so-called flaming fields of Bi
har, petrol stations thinned out markedly as territories moved quickly out of government
control into the hands of the Maoists (Naxalites) or various landlord armies (senas). In
the wake of the low-intensity wars that have raged in this region for decades—and follow
ing years of investment neglect—the state has simply withered away in some Blocks and
Districts. Schools have been closed (or occasionally blown up), and dispensaries have few
or no stocks of key drugs. Many Block Development Offices that were open for business
two decades ago had effectively been shut down or decommissioned by around 2010. Rot
ting paper files and a chaotic system for the distribution of government employment or
pensions had given way to ghost buildings and never-present public employees (including
teachers). Within this environment any capacity to enforce order or property rights tend
ed to be at the point of a gun—the state having long since given up its claim to an effec
tive and legitimate monopoly over the means of violence. In these circumstances, capital
accumulation made no sense and had little chance.
In Bihar during the 1990s and early 2000s this inauspicious terrain for growth and pover
ty reduction was made even worse by the political calculations of the state’s longtime
Chief Minister, Lalu Yadav. Mr Yadav had come to power in Bihar on the basis of a politi
cal alliance between the state’s Muslims and three of Bihar’s most powerful Backward
Castes—the Yadavs, the Kurmis, and the Koeris. As Jeffrey Witsoe (2013) has shown in his
outstanding account of ‘democracy against development’, Mr Yadav offered the last three
communities the dignity or honour (izzat) of not being trampled upon by the leading for
ward castes (Brahmins, Bhumihars, Rajputs) who ran the state during the years of the
Nehru–Gandhi dynasty. Just as importantly, Mr Yadav offered the Muslims of Bihar protec
tion against the riots that gripped India through the 1990s, which in other states often
led to killings of (p. 108) Muslims at the hands of organized Hindu groups while the police
looked on (Corbridge et al., 2012). Mr Yadav made sure that the police force in Bihar pro
tected local Muslims in the event that a riot flashpoint was lit. Many lives were saved as a
consequence.
However, what Mr Yadav did not promise was either ‘development’ or effectively function
ing public services. On the contrary, Lalu Yadav often dismissed ‘development’ on the ba
sis that its benefits would be captured by the State’s existing economic elites (the for
ward castes), and/or that it was environmentally damaging and linked to destruction of
Page 13 of 19
Earth’s ozone layer (Corbridge et al., 2005). He also reasoned that dignity could be deliv
ered in short order, along with restructured bus companies and police forces in which his
supporters could be quickly placed. What he believed he could not guarantee within a
five-year electoral cycle was infrastructural development or significant economic growth.
Indeed, his policy of favouring his political clients, and running down the all-India ser
vices in Bihar (the Indian Administrative Service, the Indian Police Service, etc.), ensured
that growth and social development could not take place under his leadership (or, indeed,
under the Chief Ministership of his wife, Rabri Devi, when Mr Yadav found himself in jail).
Tens of millions of people were condemned to a decade of almost zero economic growth
on a per capita basis and hardly any serious reduction in extreme income poverty. This
was institutional failure on a grand scale. A disconnected transport geography, coupled
with a political geography that encouraged significant state failure, added up to a recipe
for economic ruin at the same time that west and south India began to boom.
Conclusion
Since the world economic crisis broke in 2008 rates of economic growth in India have fal
tered, but only from around 9 per cent in 2007 to 6.5 per cent in 2012. (There was a
worsening to around 5% growth in 2013–14.) On the plus side, as can be seen in Figure
5.2, the ability of economic growth in India to power poverty reduction resumed its pre-
reform path in the late 1990s. The tilt to the urban middle classes that happened in the
early 1990s was partially corrected in later years.
What happens next will depend on the interplay between the two geographical dialectics
that have structured discussion in this chapter. On the one hand, it is a standard Kuzenet
zian expectation that social and spatial inequalities will increase in the early and mid-
phases of sustained economic growth. Factories have to locate somewhere and some
labour markets tighten more quickly than others. What might be called ‘benign inequali
ties’ open up in the wake of these investment and location decisions. They get corrected
over time—in standard modernization parlance—as other locations catch up with the
growth-friendly policies of the early adopters (the Provincial Darwinism model described
by Jenkins) and when the state is forced to enter a new social contract with its citizens
based around better funded and more efficient public service delivery and democratic ac
countability. Keeping men and women in Gujarat in extreme income poverty to lower the
income gap with Bihar is hardly a sensible way of organizing economic affairs.
However, in India, as in many other countries, this first and largely inter-temporal dialec
tic interacts with a second that tends to the reinforcement of spatial and social inequali
ties (p. 109) for insistently malign reasons. The caste system has been reworked in recent
decades from a largely vertical hierarchy of ‘pure’ and ‘impure’ castes to a more horizon
tally organized system of competing ethnic groups (Chandra, 2004). Nevertheless, India’s
Scheduled Communities continue to be locked out of local and national circuits of power
and prosperity. Merit generally goes unrewarded and social mobility is limited. If these
groups are to work their way out of extreme deprivation they will need far more than gov
Page 14 of 19
ernment employment schemes or generally tighter labour markets to help them. In the
long term they need the support of politicians who are forced to be responsive to their
weight of voting numbers. They also need the support of politicians who will build and not
undermine effective state capacity and public service delivery.
In Bihar, since the end of Mr Yadav’s rule, there have been signs that politicians of this
calibre can emerge and win elections. Nitish Kumar, the Chief Minister of Bihar from
2005 to 2014, raised the growth rate in Bihar from close to 2 or 3 per cent per annum
when he took office to closer to 10 per cent when he stepped down. Much remains to be
done to bring the poorest of Bihar’s dalit communities (e.g. the Musahars) into the tent of
economic growth, but for the urban middle classes especially, and for many in the coun
tryside, the improvements in law and order that Mr Kumar secured did lay the founda
tions for concerted investments in physical and human capital formation.
However, in neighbouring Jharkhand no such transformation has materialized. There, and

in Chhattisgarh and parts of northern Orissa (Odisha), the conflict between the state and
the Maoists became more violent in the mid-2000s. Absent a ceasefire and a lasting politi
cal settlement, there is no prospect of economic growth or poverty reduction in this large
swathe of central and eastern India. Significantly, too, and here there is a faint echo of
the physicalist account of geography that one finds in Sachs, the hilly and forested ter
rain of this ‘Maoist belt’ affords opportunities for guerrilla warfare that are not present in
the Gangetic plains (Shah, 2013). In this part of India institutional failings have given way
to institutional collapse. The sad truth is that effective state capacity will only be rebuilt
after years of bloody struggle. Prosperity remains a long way off.
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Page 19 of 19
Crisis and Austerity in Action: Greece

Maria Tsampra
The chapter addresses uneven prosperity in Europe, based on the geographically diver
gent outcome of the 2008 global financial and eurozone crisis. Austerity-induced reces
sion has led to dramatic output and employment decline in Greece, raising questions
about the causes of territorial economic vulnerability, or resilience. Metropolitan Athens,
the hub of Greece’s economy, has suffered even more severe employment losses and un
employment, massive business closures, increasing poverty, and homelessness. The fac
tors defining the vulnerability of the national and regional economy to the downturn are
traced in inherited and evolving industrial, entrepreneurial, and employment structures.
However, the causes and nature of the crisis, as well as the policy addressing it, deter
mine its place-specific impact as much; and raise critical issues concerning the recovery
of economies severely affected by such shocks.
Keywords: place-based crisis, austerity, geographical divergence, economic vulnerability, path-dependent struc
tures
Introduction
THE 2008–09 global financial-turned-to-sovereign debt crisis in Europe has shaken the
structural and institutional configuration of the Eurozone and the very process of Euro
pean integration, as it put in question the access to, and the consolidation of, prosperity
for many European Union (EU) member states. The crisis exposed the structural weak
nesses of the most vulnerable Eurozone economies, while the implemented-for-recovery
austerity policy has led to prolonged recession with dramatic implications. Despite simi
larities, the impact of the crisis has been more negative in the southern EU region, where
the steepest decline and highest job and income losses are recorded. In effect, the gap
between the ‘core’ and the ‘periphery’ of Europe has deepened, as existing inequalities
among countries and regions are aggravated and new inequalities emerge.
Page 1 of 40
Greece, along with other countries of the Eurozone southern periphery (Portugal, Spain,
Italy), is a case clearly demonstrating the geographically divergent outcomes of the crisis.
Bound to International Monetary Fund (IMF)/European Commission (EC)/European Cen
tral Bank (ECB) troika’s fiscal austerity and regulatory reform memoranda (since its first
‘bailout’ in May 2010), the country has suffered much more drastic and long economic
contraction than the EU average economy. This chapter seeks to illuminate the place-spe
cific causes of the Greek economy’s increased vulnerability to the crisis and provide in
sights on issues critical for recovery. To this purpose, the focus is on the factors underly
ing the EU core-periphery contradiction and diversifying the outcomes of restructuring
processes and austerity policy. Such factors are traced in Greece’s path-dependent
growth patterns, depicted in inherited and evolving industrial and entrepreneurial struc
tures.
Over time, the Greek economy has evolved from semi-Fordist late industrialization, to
post-Fordist deindustrialization; following EU accession in 1981, it has undergone re
structuring towards non-exporting and consumption-dependent sectors; and shifted to fi
nance-led growth since the European Monetary Union (EMU) in 2001. Still, as revealed
by the present economic shock, restructuring and EU integration processes have not
achieved to (p. 114) transform ‘peripherality’ structures to a more sustainable and com
petitive growth trajectory. On the contrary, under the pressure of financial capital, inher
ent structural weaknesses have been transformed in a new pattern that reproduces core-
periphery divergence. The latter was particularly accentuated by fiscal austerity mea
sures implemented in Greece (and all debt-ridden countries) to increase competitiveness
by internal devaluation. This policy has led to a six-year economic contraction, collapse of
the Greek economy’s prominent sectors and related small- and medium-sized enterprise
(SME)-based entrepreneurship, dramatic employment decline, and skyrocketing public
debt-to-gross domestic product (GDP) ratio.
The following section delineates the theoretical background for the exploration of the
chapter’s key-issue, that is, the factors defining economic vulnerability and adjustment to
economic shock. Emphasis is put on the significance of path-dependent processes shap
ing the economic landscape and defining an economy’s place in the international division
of labour. As argued, inherited and evolving structures are incorporated into emerging
growth patterns through corresponding regulatory adjustments. The section ‘The Diver
gent Impact of the Crisis in Europe’ provides empirical background on the spatially diver
gent impact of the crisis in the EU. Data for employment, unemployment, long-term and
youth unemployment, poverty, and at-risk-of-poverty rates establish the severe degrada
tion of the southern Eurozone economies and the destructive impact of austerity policy,
particularly in Greece.
In the section ‘Path-Dependent Growth and Vulnerability in Greece’, the Greek economy’s
vulnerability is outlined with a historical perspective on the country’s semi-Fordist legacy
and peripheral position within the European economy. Structural weaknesses are identi
fied in industrial specialization (in non-exporting sectors dependent on household de
mand and credit) and business patterns (of prominent independent small and microenter
Page 2 of 40
pises), which have been shaped by inherited attributes of strong self-employment, exten
sive atypical labour, weak welfare, dense family and social networks, and by evolving EU
integration processes. The outcome of austerity policy is identified in abrupt restructur
ing that has led to the destruction of the established growth patterns, in a scale that un
dermines any prospect for socio-economic recovery.
The penultimate section, ‘Discussion: Crisis and Austerity in Action’, seeks to link more
explicitly the impact of the crisis in Greece to austerity policy and induced regulatory ad
justments. The issues raised concern the nature of the crisis as an effect of inherent core-
periphery contradictions in Europe, and the impact of austerity measures in reproducing
such contradictions. In the final section, it is concluded that EU policy addressing the cri
sis has not resolved the structural weaknesses of the Greek economy (and Eurozone pe
riphery). Austerity, implemented as a one-size-fits-all policy, has instead disintegrated the
path-dependent structures that have for long sustained resilience and socio-economic co
hesion.
Theoretical Background and Conceptual

Framework
Economic geography theory of neoclassical background has tried to explain uneven re
gional development by concepts of transaction costs and agglomeration externalities. Yet,
despite the importance of such issues, the acknowledgement of the role that historical
circumstances (p. 115) play in economic development and its spatial outcome is crucial for
an adequate explanation of regional divergence (Martin and Sunley, 1996). Marxist ap
proaches regard the geography of accumulation as a consequence of historical and struc
tural conditions governing the organization of capital (Harvey, 1975; Massey and Mea
gan, 1978; Walker, 1978; Harvey, 1985; Massey, 1984; Dunford, 1989, 1990). In structural
analyses, changes in the labour demand lead to changes in investment patterns: industri
al relocations, plant closings, and new plant establishments adjust to labour supply.
Massey’s Spatial Divisions of Labour (1984) goes further by suggesting that a place’s in
dustrial specialization and restructuring reflects the specific combination of past ‘layers’
of investment found there. For Massey, capitalist social relations are spatialized, just as
the spatial is societalized once it is embedded within capitalism. Places react and influ
ence future rounds of investment that determine an economy’s spatial division of labour
(Massey, 1984). For instance, the deindustrialization and economic restructuring of ad
vanced Western economies since the crisis of late 1970s signified not only the decline of
previously successful regions, but also the capability of others to withstand and adjust to
the negative shock. In many countries the contraction of traditional industries resulted in
to factory closings and massive unemployment (UK, France), while in others (Germany,
Scandinavian countries) a new successful development model was built on increased pro
ductivity (Lipietz, 1986).
Page 3 of 40
The institutional structure of capital relations is highlighted by the French Regulationists

(Aglietta, 1979; Boyer, 1979; Lipietz, 1986; Leborgne and Lipietz, 1988; Moulaert and
Swyngedouw, 1989). They argue that structural shocks affect the capitalist accumulation
regime as much as the mode of regulation. In their view, industrial restructuring in ad
vanced economies since the 1970s (i.e. the end of old mass-production forms) was trig
gered by drop in gain rates, caused by the rigidities of the Fordist–Keynesian configura
tion. The outcome was a new international division of economic and political power, es
tablished on new growth patterns of flexible industrialization. The emergent, post-Fordist,
regime of accumulation was institutionalized by a mode of regulation that disintegrated
the ‘rigid’ social pacts of the past and induced ‘flexibility’ in order to enable the recovery
of gain rates (at the expense of labour’s participation in income distribution).
Namely, economic activities are socially embedded and socially regulated as required for
the stability of the accumulation regime, which ‘depends on specific social modes of eco
nomic regulation that complement the role of market forces in guiding capitalist develop
ment’ (Jessop, 2008, p. 24). In this view, wars and major crises are crucial episodes in the
change of accumulation regimes, which initiate regulatory, or else, social (Boyer, 2013)
experiments with credit money, income tax, health and retirement insurance, new mecha
nisms defining salaries, public–private cooperation, and so on. The role of the state in this
process is essential, but the contradictions and crises generetated by globalized capital
accumulation today are governed by supranational institutions (IMF, ECB, or EC). Still,
the need to differentiate between national situations has been acknowledged in the regu
lation approach, despite criticism for overlooking globalization processes (Jessop, 2001;
Becker and Weissenbacher, 2015).
Lipietz (1987) focused on the dynamics of national capitalism, to accentuate historical

and local specificities of capitalist development that differentiate nation from nation with
in the global context of accumulation. His concept of ‘peripheral Fordism’ particularly ad
dressed spatially uneven development and the relative position of countries in the global
(core-periphery) political economy (Lipietz, 1982). Arguably, the internal structures of pe
ripheral economies did not enable core-type Fordist development. This resulted in the
periphery’s (p. 116) incomplete industrialization, specialized in capital goods and depen
dent on imported machinery. Spatial specialization was polarized between the export-ori
ented industrialized core and the periphery, providing low-cost labour and raw materials,
and importing high-value industrial products. After the Fordist crisis in late 1970s, new
divergent economic spaces emerged, shaped by pre-existing structures and restructuring
processes: centres of technological innovation and finance of highly qualified labour and
high wages; traditional industrial areas of qualified labour and lower wages; and spaces
of unqualified labour and low wages.
Since the 1980s, the significance of historical circumstances and processes in the forma
tion of the economic landscape is acknowledged in the work of many more scholars
(Smith, 1984; Harvey, 1985, 2006; Grabher, 1993; Storper, 1997; Cooke and Morgan,
1998; Boschma, 2004; Feldman, 2005; Gertler, 2005; Hassink, 2005). This concept forms
the core of ‘path-dependence’ ideas, which have been elaborated and largely employed by
Page 4 of 40
economic geographers for the interpretation of place-based production structures, inher

ited and evolving specializations, and persisting regional growth disparities. ‘Place de
pendence’ is essential in path dependence, as the latter is actually a locally contingent
and locally emergent process, or effect (Cox, 1996). It can be understood as encompass
ing the legacy of the past and elements of the new in shaping the economic landscape: lo
cal assets, infrastructures, firms, industries, agglomeration externalities, technologies, in
stitutions, social capital, and their interdependencies.
More recently, the ‘evolutionary turn’ in economic geography has assigned particular the
oretical and empirical meaning to the place-specific dimension of path-dependence
processes, with regard to the evolution of the economic landscape in space and time
(Martin and Sunley, 2006, 2007). The idea of ‘path-dependent economic evolution’ (Scott,
2006, p. 85) seeks to interpret the evolution of a region’s growth pattern either to a ‘lock-
in’ phase of maturation and rigidification, or to a ‘path-dissolution’ phase of adaptation
and restructuring (Sydow et al., 2005; Martin and Sunley, 2011). Economic adjustment is
a path-dependent process shaped by inherited and evolving structures: industrial special
ization, entrepreneurial and employment patterns, and institutional and regulatory
arrangements define regional vulnerability or resilience (Martin, 2010).
Hence, our first argument is that the response of a national/regional economy to crisis is
determined by path-dependent growth patterns. An economy of strong underlying growth
dynamic is likely to be less vulnerable to crisis and recession, or even to readjust success
fully its structure and resume dynamic. But an economy of weak underlying growth dy
namic will, conversely, be affected by economic downturn: it may recover to its pre-crisis
growth level, but on a lower long-term trend in output and/or employment; or, it may in
stead decline futher if the destructive impact of the crisis exceeds compensating growth
(Hassink, 2010; Martin, 2010, 2012).
Yet, the comprehensive interpretation of crisis-induced economic restructuring requires

the consideration of changes in the mode of regulation, as well. The globalized finance-
led growth regime that emerged in the 1980s has proceeded with respective institutional
configurations to accomplish stock market and credit growth. Following the 2008–09 cri
sis, those configurations are being drastically transformed, with diverse implications for
national economies. Thus, our second argument is that policy is decisive for the place-
specific outcomes of the crisis and for economic adjustment. Effective policy and planning
would mitigate the regionally differentiated effects of international upheaval (Davies,
2011). (p. 117) National policies tightly confined in the imperatives of supranational gov
erning institutions (e.g. through international assistance programs, and so on) tend to dis
regard the socio-economic specificities of the individual country that would enable pro
tection and recovery from the shock.
Page 5 of 40
Figure 6.1 Employment (15–64 years) Rates (%)

EU27, 2008, 2010, and 2012.
Sources: Eurostat (n.d. (a)); IILS, 2013.
The Divergent Impact of the Crisis in Europe

The global financial crisis hit Europe in a period of progressing regional convergence
largely attributed to the dynamics of the new EU member states. After 2009, that trend
reverted to divergence and the socio-economic outcomes of the crisis became geographi
cally polarized. The severe decline exacerbated existing inequalities among EU countries
and regions, while new inequalities emerged. With regard to employment, divergence
ranges from intact levels in the northern ‘core’ countries, to recovery in the Baltic re
publics, and decline in the southeastern ‘periphery’ (Figure 6.1). In a similar pattern, un
employment is high and increasing in most countries, but stable or significantly lower
(even declining) in just a few (Figure 6.2). Regional divergence is wider: in forty-nine EU
regions (most in Germany and Austria) unemployment was 5.4 per cent or less in 2013
(i.e. half the EU28 average). At the other end, in twenty-seven regions (most in Spain and
Greece) unemployment was higher than 21.6 per cent (double the EU28 average).
In more than a quarter of EU regions, most of the unemployed have been out of work for
at least a year. Since 2008, long-term unemployment rates in Greece, Spain, and Cyprus
have skyrocketed, while in 2014, Greece and Spain recorded the highest long-term unem
ployment rates in EU28 (followed by other peripheral countries) (Figure 6.3). The mem
ber (p. 118) states of the southern EU have also suffered higher rates in youth unemploy
ment (Figure 6.4): between 2008 and 2013, youth unemployment increased by 38.4 per
cent, reaching 59 per cent in Greece, and by 56.1 per cent, reaching 32.2 per cent in
Spain. In 2015, Greece still suffered unsustainable rates of youth unemployment (51.8%),
followed by Spain (48.6%), Croatia (43.1%), and Italy (40.5%). In sharp contrast, the low
est rates of youth unemployment are recorded in Germany (7.0%), Malta (8.7%), and Es
tonia (9.5%).
Page 6 of 40
Figure 6.2 Unemployment (15–64 years) Rates (%)

EU27, 2008, 2010, and 2013.
Sources: Eurostat (n.d. (a)); IILS, 2013.
Figure 6.3 Long-term Unemployment (LTU) Rates,

2008 and 2014.
Sources: European Commission (2015).
Namely, the steepest fall in employment and raise in unemployment, long-term unemploy
ment, and youth unemployment is ascribed to the countries where sovereign-debt (p. 119)
sustainability and credit-worthiness came under question since the outbreak of the Euro
zone crisis. The spatial pattern of growth divergence has been transformed accordingly,
illustrating the most severe implications of the crisis in the debt-ridden economies. Under
the pressure of financial capital and the threat of public bankruptcy, Greece was the first
Eurozone country to receive from the IMF/EC/ECB-troika a bailout package and adjunct
memorandum in 2010 (shortly followed by Ireland, Portugal, Spain, and Cyprus). The
troika’s programmes implemented restrictive fiscal adjustment measures addressing the
crisis as a consequence of budgetary imbalances and public debts. In effect, austerity pol
icy focused on drastic cuts of public expenditure and on regulatory reforms flexibilizing
wage and labour relations.
Page 7 of 40
Figure 6.4 Youth Unemployment (15–24 years) Rates

(Percentage Labour Force) EU27, 2008, 2012, and
2013.
Source: Eurostat (n.d. (a)).
In Greece, budgetary cuts signified dramatic wage and pension reductions (by nearly
30%) rather than cutbacks in welfare spending, which inherently has been poor in south
ern European peripheral economies (and lower than the European average). The drastic
income drop and retreat of household consumption, combined with credit restrictions,
has led to severe demand contraction and recession. In this way, austerity has pushed the
disadvantaged Eurozone economies into a vicious circle of massive bankruptcies and lay
offs (UN, 2012). Moreover, family networks—typical in Greek society—have become un
able to provide income support and protection (to compensate welfare shortages). Yet,
the degradation of the already weak social provision structures has proceeded on the in
stitutional level, mainly through more flexible regulations concerning severance pay and
notification period, benefit allowances, and collective labour agreements.
Rising poverty has been an inevitable outcome of fiscal austerity throughout Eu
(p. 120)
rope, but especially in the most harmed EU economies (EU-SILC, 2014). Even before the
crisis, the highest rates of at-risk-of-poverty were recorded in the Mediteranean and
Baltic EU periphery (20% in Greece, Italy, Spain, and Lithuania; 23% in Romania; and
26% in Latvia) as expected for countries of weak welfare state and poor social provisions.
After 2009, the crisis affected all European countries, but the EU peripheral economies
suffered higher rates of poverty and at-risk-of-poverty or social exclusion, as a result of
deteriorating social and living conditions. In 2012, Greece recorded the EU28 highest at-
risk-of-poverty raise (35.8%) anchored in 2008, responding to 23.1 per cent of population.
At the other end, only in six EU28 member states (Slovenia, Finland, Denmark, the
Netherlands, and Czech Republic) was the at-risk-of-poverty population less than 13.0 per
cent (Figure 6.5).
Greece also ranked first in EU28, with 73.1 per cent of its population reporting having
difficulties making ends meet (followed by Bulgaria, Hungary, Croatia, Latvia, and Roma
nia). In contrast, less than 10 per cent of the population in Germany, Finland, Sweden,
and Norway reported such difficulties (EU-SILC, 2014). During 2010–12, GDP per capita
Page 8 of 40
in Greece declined by an average of 7 per cent every year, accumulating to a total loss of
about 20 per cent (World Bank ECA, 2015). In the same period, household disposable in
come per capita fell 14 per cent annually, almost double the GDP contraction. As a matter
of fact, the Greek economy has been the most harmed by the crisis: contraction (4% an
nual decline in GDP per capita) has lasted longer (six years of negative growth) and has
far exceeded the contraction in other peripheral Eurozone economies (Spain, Portugal,
Italy, or Ireland) over the same period. This has accumulated to a reduction of output of
nearly 26 per cent, equivalent to that of over a decade back (in 2000).
Path-Dependent Growth and Vulnerability in

Greece
Within the Fordist context of increased spatial specialization, Greece has been considered
a ‘semi-peripheral’ economy of Europe, or else a ‘peripheral-Fordism’ economy (Selwyn,
1979; King, 1982; Lipietz, 1986), characterized by late industrialization, labour-intensive
subcontracting, resilient agriculture, dependence on imported capital goods and technol
ogy, outmigration and extensive atypical labour, strong family ties, and social networks
sustaining entrepreneurship and employment (and largely mitigating welfare inefficien
cies). Such characteristics, widespread in Mediterranean Europe, have not enabled core-
type growth in countries that today consistute the Eurozone’s economic periphery. Based
on pre-existing regional disparities, the spatial division of labour that emerged from the
Fordist crisis of the late 1970s reproduced the core-periphery polarization in a new pat
tern: the key economic functions remained concentrated in the core areas of Europe,
while the peripheral economies partially deindustrialized and specialized in construction,
real estate, and tourism (Stathakis, 2010; Becker and Weissenbacher, 2015).
In Greece, the erosion of manufacturing and the turn to non-exporting construction, real
estate, and trade sectors was backed by increasing financialization soon after the
country’s European Economic Community accession in 1981 (followed by Spain and
(p. 121) (p. 122) Portugal in 1986). Strongly depending on household income and credit,
these sectors have been producing fiscal and external deficits since the 1980s. In the
1990s, further restructuring processes were initiated, paving the country’s way to the
EMU. Induced adjustments and reforms aimed at enhancing the international integration
of the Greek economy. Large multinational corporations invaded all major sectors of the
internal market—trade, construction, real estate, and tourism—competing with small-
scale (and, commonly, family owned) domestic enterprises. Yet, it was after 2009 that
Greek SMEs in these sectors massively collapsed, owing to the financial crisis and auster
ity-induced recession.
Page 9 of 40
Figure 6.5 At Risk of Poverty or Social Exclusion

(Percentage of Total Population).
Source: Eurostat (n.d.(b)).
Figure 6.6 Gross Domestic Product (GDP) and Em

ployment Rates in Greece, 1996–2011.
Source: EIEAD (2013).
The outcomes of the current crisis have added up to a ten-year contraction of the
country’s economic output and employment (Figure 6.6). Along with other European pe
ripheral countries (Portugal, Hungary, Spain, Croatia, Lithuania, Latvia, and Romania),
Greece has been facing decline of economic activity since the recession of the early
2000s, which affected developed countries and, particularly, the EU. Hence, we argue
that the vulnerability of the Greek economy is ascribed to its path-dependent peripherali
ty, defined by inherited structures and evolving processes. The 2009 Eurozone crisis fur
ther exposed the structural weaknesses of vulnerable economies, while fiscal austerity,
implemented in a context of deepening EU integration, has led them to downfall. Seeking
to explain the disastrous outcomes of austerity policy in Greece, this chapter focuses par
ticularly on the country’s industrial structures and patterns of entrepreneurship.
Data on employment’s pre-crisis concentration and post-crisis shift across economic sec
tors depict the Greek economy’s industrial specialization and restructuring. In 2000–08,
the country’s ten top employment economic sectors accounted for 70 per cent of total na
tional employment (Table 6.1). All sectors in the 2000 top ten participate in the 2008 top
ten, too, except for food and drink manufacturing (displaced by motor vehicle trade). Re
Page 10 of 40
tail trade outpaced agriculture, which had a significant employment drop (6%) from 2000
to 2008, although still held strong. All other sectors increased their share in national total
employment—particularly construction, public administration, education, and other (ter
tiary) business. The high and increasing employment shares of the top-ranking sectors
(p. 123) manifest the country’s pre-crisis economic specialization in non-exporting indus
tries and non-traded service provision, highly dependent on internal demand (even in the
‘extrovert’ tourism sector: accounting for 70 per cent of total demand in 2008) (McKinsey
& Company, 2011).
Page 11 of 40
Table 6.1 Top Employment Sectors in Greece, Percentage 2000 and 2008
Rank 2000 2008 2000–2008%

change
Sector Share % Sector Share %
1 Agriculture 16.9 Retail trade 11.9 0.8
2 Retail trade 11.1 Agriculture 10.9 –6.0
3 Public administra 7.4 Construction 8.4 1.2

tion
4 Construction 7.2 Public administra 8.3 0.9

tion
5 Tourism 6.7 Tourism 7.1 0.4
5 Education 6.1 Education 7.0 0.9
7 Health and social 4.6 Other business 5.6 1.3

care
S Other business 4.3 Health and social 5.1 0.5

care
9 Wholesale trade 3.4 Wholesale trade 3.8 0.4
Page 12 of 40
10 Food and drinks 2.9 Trade of motor ve 2.8

industry hicles
Total 70.6 Total 70.9 0.3
Sources: INE GSEE (2011); POKE (2011); author’s calculations.
Page 13 of 40
At the regional level, the five top employment economic sectors indicate a more diverse
pattern of sectoral composition and specialization in 2008 (Table 6.2). The national struc
tures coincide with the structures depicted in the capital region of Attiki, where employ
ment accounted for 1.434 million people (one-third of national employment in 2008) and
was highly concentrated in retail trade, followed by manufacturing, public administration,
and construction. Retail trade and construction were among the five most significant sec
tors for employment in nearly all thirteen Greek regions; public administration in eight
and manufacturing in just five. The prevalence of agriculture as the top employer in eight
out of thirteen regions, given the sector’s low (and declining) contribution (3.8%) to the
national GDP, indicates regional lock-in to structures of persisting peripherality, hindering
restructuring prospects.
Overall, Greece’s industrial structure and specialization since the 1980s has been largely
based on private consumption (higher by 20% than the EU average) and domestic de
mand funded by expanding bank borrowing, forming a growth trajectory of low domestic
investments and increasing deficits. After 2009, credit restrictions and fiscal austerity
struck heavily the prevailing industries, resulting to steep employment decline: 900,000
jobs were lost in 2009–13, mainly ascribed to construction (192,200), manufacturing
(178,000), and trade (172,000). Agriculture seems more resilient, but despite much lower
job losses the sector’s aforementioned structural weaknesses and declining performance
do not suggest any compensating alternative (Table 6.3).
(p. 124)
Page 14 of 40
Table 6.2 Top Employment Sectors in the Regions of Greece, 2008
Greek re First sector Second sec Third sec Fourth sec Fifth sector All sectors Employ
gions tor tor tor ment share
East Mace Agriculture Public ad Manufactur Retail trade Construction 147,809 62.6%
donia and ministration ing
Thrace
Central Retail trade Agriculture Manufactur Construction Other ser 399,286 52.3%
Macedonia ing vices
Western Agriculture Construction Retail trade Public ad Education 53,311 54.4%
Macedonia ministration
Epirus Agriculture Construction Retail trade Public ad Education 73,881 51.7%
ministration
Thessaly Agriculture Retail trade Public ad Education Manufactur 174,904 58.4%
ministration ing
Ionian Is Tourism Agriculture Retail trade Construction Other ser 64,790 68.4%
lands vices
Western Agriculture Retail trade Construction Education Public ad 165,185 58.7%
Greece ministration
Page 15 of 40
Central Agriculture Manufactur Retail trade Construction Public ad 130,403 58.3%
Greece ing ministration
Attiki Retail trade Manufactur Public ad Other busi Construction 788,803 45.6%
207,530 ing 164,598 ministration ness 133,537 128,288
154,850
Peloponnese Agriculture Retail trade Public ad Construction Education 161,201 64.0%
ministration
North Public ad Agriculture Retail trade Education Construction 42,450 58.7%
Aegean ministration
South Tourism Retail trade Construction Public ad Other ser 76,682 61.0%
Aegean ministration vices
Crete Agriculture Tourism Retail trade Construction Other trade 149,399 57.2%
Source: POKE (2011).
Page 16 of 40
(p. 125)
Page 17 of 40
Table 6.3 Top Employment Sectors in Greece, 2009 and 2013
2009 2013 2009–13 2009–13
Rank Sector (000) Sector (000) Change Change
1 Wholesale and 828.2 Wholesale and 656.2 –172.0 –20.8

retail trade retail trade
2 Agriculture 529.5 Agriculture 494.0 –3.5.6 –6.7
3 Manufacturing 516.0 Manufacturing 338.0 –178.0 –34.5
4 Public adminis 378.5 Public adminis 333.4 –45.2 –11.9

tration tration
5 Construction 356.5 Education 284.1 –47.8 –14.4
6 Education 331.9 Tourism 265.3 –49.5 –15.7
7 Tourism 314.8 Construction 172.4 –192.2 –52.4
Total 4531.9 Total 3632.2 –899.7 –19.9
Sources: POKE (2011); author’s calculations.
Page 18 of 40
Page 19 of 40
Table 6.4 Top-six Employment-loss Sectors (NACE rev2.0) Greece and EU27, 2008Q1–2011Q1
Greece EU27
NACE 000s NACE 000s
43 Specialized con –68.9 43 Specialized con –1864.4

struction activities struction activities
41 Construction –66.5 41 Construction –947.8
18 Manufacture: –23.0 46 Wholesale except –500.7

printing and motor vehicles
recorded media
45 Wholesale/retail of –21.2 25 Manufacture: fab –469,1

motor vehicles ricated metal
products
14 Manufacture: –14.2 47 Retail except mo –417.4

clothing tor vehicles
71 Architectural and –13.3 14 Manufacture: –407.5

engineering activi clothing
ties
NACE, Nomenclature statistique des activités économiques dans la Communauté européenne.
Page 20 of 40
Source: Eurofound (2011).
Page 21 of 40
The pre- and post-crisis industrial/sectoral patterns of employment in Greece offer a bet
ter insight into economic vulnerability when compared with respective EU patterns. Data
for 2008 and 2011 depict the top-six employment-losing and employment-gaining sectors
in Greece and the EU27 (Eurofound, 2011). As observed, job loss illustrates a homoge
nous (p. 126) sectoral pattern in Greece and the EU27, mainly affecting construction,
trade, and manufacturing (Table 6.4). However, differences are identified in employment
gains (Table 6.5): the sectors of higher employment increase in the EU27 are education,
health, and residential care services; while in Greece, domestic services (of low-skilled
atypical labour) record the highest employment recovery. Evidently, employment gains do
not compensate for employment losses, either in Greece or the EU27; but the trend of job
recovery in Greece is much lower than in EU27 (23% vs 57%, respectively). In other
words, the Greek economy demonstrates a weak underlying growth dynamic, which un
dermines the prospects to resume pre-crisis growth.
Page 22 of 40
Table 6.5 Top-six Employment-gain Sectors (NACE rev2.0), Greece and EU27, 2008Q1–2011Q1
Greece EU 27
NACE 00os NACE 000s
97 Domestic services 13.9 85 Education 591.6
58 Publishing 8.5 86 Health 581.0
82 Office and busi 7.2 87 Residential care 497.2

ness support activ
ities
42 Civil engineering 6.7 88 Social work 377.6
74 Other professional 5.7 42 Civil engineering 326.6

and scientific ac
tivities
1 Agriculture 5.6 70 Head officer man 269.3

agement consul
tancy
NACE, Nomenclature statistique des activités économiques dans la Communauté européenne.
Source: Eurofound (2011).
Page 23 of 40
Post-crisis industrial and employment contraction proceeds along with drastic entrepre
neurial restructuring: SMEs have had the highest losses all over Europe and especially in
the EU periphery (EC, 2013). Still, more than 60 per cent of total EU employment and 50
per cent of gross value added (GVA) was attributed to SMEs in 2012 (ECORYS, 2012). In
the beginning of the crisis, the steep reduction in the number of SMEs was due to the
sharp retreat of consumer demand, and was particularly acute in the southern EU, where
extreme austerity policies led to dramatic income drop. The decline was aggravated as
the crisis evolved, owing to the restricted accessibility of SMEs to finance. Eventually, the
gap between the EU core and periphery economies increased, as well as the gap between
big enterprises and SMEs. As the SMEs constitute the bulk of the business sector in
Greece, economic vulnerability to the crisis is traced in business patterns of sectoral spe
cialization, size, ownership, and employment.
Path-dependent processes have differentiated Greek SMEs from their European counter
parts in many aspects (SBA, 2013): in 2009, 84.8 per cent of private employment is con
centrated in the SME sector and 54.5 per cent (double the EU27 average) in microenter
prises (0–9 employees). At that time, large firms accounted just for 15.2 per cent of pri
vate employment (half the EU27 average). The total share of very small, small, and medi
um enterprises (p. 127) in GVA (69%) was also considerably higher than that of large firms
(31%) in Greece. Comparatively to the EU27, the share of SMEs in GVA was 57.4 per cent
and that of large firms was 42.6 per cent. As indicated, the role of SMEs and particulary
of micro-firms has been very important in the Greek economy, against the lower contribu
tion of large firms. The significance of small entrepreneurship has been nourished by the
economy’s semi-Fordist legacy of petty ownership, flexible industrialization, atypical
labour in the form of self-employment without employees, social networking, and family
assistance.
Inherited and evolving structures of the Greek business sector have for long sustained
broad socio-economic cohesion and resilience. Even in 2012, amidst the crisis, the preva
lence of SMEs in the Greek economy was still indicated by high shares in national em
ployment (85.1%) and GVA (69.9%) (EC, 2013). Nevertheless, the dynamic trajectory of
the Greek SMEs was reversed by the financial crisis. The drastic reduction of internal
purchasing power and access to cash liquidity has led to prolonged recession, destructive
for small entrepreneurship. Over 2008–12, approximately 250,000 SMEs have permanent
ly vanished from the country’s business map. The loss is estimated at 25 per cent of
Greek enterprises, equivalent to the loss of national GDP and employment over that peri
od (EC, 2013). Estimates for up to 2014 illustrate the much steeper decline of Greek
SMEs number, employment, and GVA since 2008, compared with EU SMEs (Figure 6.7).
Today, after six years of recession, employment in SMEs is estimated to have fallen by
more than 450,000 between 2008 and 2014, to 1.8 million; aggregate value added fell by
33 per cent (SBA, 2015). In effect, SMEs have suffered profoundly and disproportionately
more than large enterprises from the downturn. On the one hand, the increased vulnera
bility of the majority of Greek enterprises to the crisis is ascribed to path-dependent at
tributes, such as the predominance of micro-entrepreneurship, the high rates of sole pro
Page 24 of 40
prietorship, the strong tradition of self-employment, and family ownership. To establish a

few: only 220,000 out of 730,000 Greek SMEs had employees in 2012 (SBA, 2013). The
surviving 580,000 Greek SMEs in 2014 generate €93 billion turnover; four of five of them
are sole proprietorships and generate 40 per cent of SMEs’ turnover (National Bank of
Greece, 2014). In other words, the same attributes that have previously sustained busi
ness resilience in Greece are liable for SMEs’ structural weaknesses: shallow specializa
tion and high dependence on household demand, low internationalization and innovation,
poor investments, self-sustained employment, obsolete corporate forms and management,
weak productivity, and competitiveness.
On the other hand, the drastic blow to Greek enterprises is also a consequence of strong
specialization in sectors severely hit by the crisis and economic downturn. At the EU28
level, the most important sector for SMEs—in terms of employment, number of enterpris
es, and value added—is trade, followed by manufacturing and construction (SBA, 2015).
In Greece, SMEs concentrate 80 per cent of employment in manufacturing, 90 per cent in
trade and 95 per cent in the construction sector (far exceeding the EU average, especial
ly in manufacturing and trade). In construction, employment has spectacularly increased
by 30.2 per cent in the 2000–08 period of growth after the country’s EMU, based on the
development of infrastructures and mega-projects, real estate investments, and increased
credit flow. The housing market had a significant contribution in sectoral growth, indicat
ed in residential property prices raise by 80.5 per cent over 2000–07 (against 52.7% in
the Eurozone) (https://www.ecb.europa.eu/stats/services/sdw/html/index.en.html/). (p. 128)
Figure 6.7 Greek and European Union (EU) Small-

and Medium-sized Enterprise (SME) Performance,
2008–14 (estimates (e) for 2011 onwards (2008 =
100))
Sources: Cambridge Econometrics (n.d.)/ECORYS

(2011); IME GSEVEE (2012); SBA (2014).
Nonetheless, rapid increase was abruptly reversed after 2009, as the housing
(p. 129)
market collapse has been a particular implication of the financial crisis in Greece (Spain
and Ireland). Contraction resulted to housing foreclosures and vacant building stock,
comprising unsold or unrented real estate, residential, and commercial property. Non-
performing housing loans exceeded 27 per cent of total non-performing loans in 2013 (i.e.
€16.8 billion) and keep rising (National Bank of Greece, 2014). Over 2008–12, housing
prices fell by 70 per cent as credit restrictions and high taxation forced property owners
Page 25 of 40
to sell low (National Bank of Greece, 2012). Decline in construction was big, but SMEs
suffered the most as they were exclusively focused on private demand. Fiscal austerity al
so hit public-funded construction, turning large enterprises towards small-scale projects
and eventually putting SMEs out of business. The number and combined turnover of
SMEs halved during that period, value added dropped by 40 per cent and employment by
43 per cent (SBA, 2015). The effect of this policy was the higher ranking of Athens among
other ‘cities offering the best real estate investment prospects’ (PwC-ULI, 2015).
In manufacturing, Greek SMEs have traditionally specialized in labour-intensive produc

tion and low-cost subcontracting (Clark et al., 2004). Decline has started since the dein
dustrialization of the 1980s and peaked amidst the crisis of early 2000s, as production re
located to lower-cost Balkan regions (Labrianidis, 2000). As a result, the sector’s share in
national GDP fell from its highest 20 per cent in the mid-1970s to 10 per cent in the
2000s. Since the 2008 crisis, manufacturing SMEs lost 20 per cent of their population, 29
per cent of their employment, and 23 per cent of value added. Big manufacturing enter
prises did not perform better: their employment decreased by 27 per cent and added val
ue by 35 per cent (SBA, 2014). Business outmigration has been rekindled: 1500–2000
Greek SMEs relocated to neighbouring countries between 2010 and 2011 (ΙΝΕΜΥ ESEE,
2010; IME GSEVEE, 2012). Yet, considering pre- and post-crisis job loss in manufactur
ing, the share ascribed to business bankruptcy and closure has increased over the share
ascribed to business off-shoring or relocation (Eurofound, 2013).
In trade, losses have also been heavy as the Greek economy suffered consumption decline
bigger than the EU average (12.4% vs 6.7%). The total value added decreased by 14.6 per
cent in 2011 (vs 3.8% in 2010), against an increase of 1.3 per cent in the Eurozone
(ΙΝΕΜΥ ESEE, 2013). In 2013, trade SMEs recorded a 12.9 per cent decrease in sales
and 13.4 per cent in gross profits for the fourth year in a row. Losses were higher for
smaller firms, as turnover decreased by more than 45 per cent and profit by more than 84
per cent. From 2008 to 2014, approximately 130,000 commercial firms closed down and
200,000 jobs were lost (GSEVEE et al., 2014). Despite losses, trade is still the top employ
ment sector in Greece, accounting for 18.1 per cent of total and 20.9 per cent of non-agri
cultural employment in 2013: 31 per cent are employers, 34.7 per cent are self-employed,
44 per cent are assisting family members, and just 15 per cent are waged employees (Ta
ble 6.6).
The legacy of micro-entrepreneurship, reflected in the high shares of employers, self-em

ployed, and assisting family members in the major sectors of SME specialization, is a
structural characteristic commonly found in all peripheral economies of Europe. Accord
ing to Eurostat (n.d. (a)), the southern and eastern EU member states have the greatest
share of self-employed in EU24, with the highest rate occurring in Greece (30%). Greece
also records one of the lowest EU24 rates of self-employed with employees. This pattern
is related to the (p. 130) prominence of agricultural, service-based, and informal work in
countries such as Greece, Italy, Poland, and Spain. Self-employment is also a way out of
unemployment, sustained by strong family and social relations in labour markets of poor
conditions. The prolonged recession has therefore hit the business owners (employers
Page 26 of 40
and self-employed) rather than the employees. On this ground, austerity-induced restruc
turing of the business sector has actually demolished the predominant small entrepre
neurship in Greece, with no prospect for recovery.
Table 6.6 Occupational Structure of Employment (000s) in Trade, Greece, 2008–13
2008 2013 Job losses 2008–13
Employers (000s) 105.6 68.5 –38.1
Self-employed (000s) 219.4 174.4 –45.0
Waged employees (000s) 439.3 374.2 –65.1
Assisting family members (000s) 57.3 39.1 –28.2
Total (000s) 832.6 656.20 –176.4
Sources: Eurostat (n.d. (a), n.d. (b)); author’s calculations.
Discussion: Crisis and Austerity in Action

Path-dependence and austerity policy are considered in this chapter as critical determi
nants of the vulnerability and the adjustment capacity of national/regional economies to
crisis. Growth disparities are attributed to place-based growth patterns, shaped by inher
ited and evolving production structures and institutional arrangements. As the global fi
nancial crisis unfolded in Europe, the weaker economies of the southern Eurozone pe
riphery have been hit more severely than the core economies, and Greece has suffered
the most steep and prolonged decline. The vulnerability of the Greek economy lies in its
path-dependent structural weaknesses traced in industrial specialization and entrepre
neurial patterns. The fiscal austerity policy implemented to tackle economic disruption in
Greece (and all debt-ridden EU economies) has further exposed vulnerable structures and
aggravated the impact of the crisis.
Greece’s growth trajectory within the broader European economy has been defined by se
mi-Fordist structures, which evolved to post-Fordist patterns of deindustrialization and
restructuring following the country’s European Economic Community (EEC) accession in
1981. Yet, the mode of EU integration and internationalization of the late-industrialized
economies of Greece, Portugal, and Spain has not eliminated inherent ‘peripherality’
structures. The emergent spatial division of labour was based on a less diversified sec
toral specialization where key functions remained in the core economies of Europe; and
the peripheral economies of the south were incorporated mainly through infrastructure-
led (p. 131) growth. Greece’s post-EEC accession production structures and regulatory
Page 27 of 40
configurations comprised flexible industrial specialization in demand-dependent sectors

and in low-cost subcontracting, small-scale entrepreneurship, traditional self-employ
ment, extensive atypical labour and outmigration to advanced industrial countries (Ger
many, Belgium), medium-level wages, and weak welfare state.
Accelerated globalization processes and the opening of Eastern European economies in

the 1990s affected the Greek economy in two ways: firstly, the massive offshoring of tra
ditional (flexible and low-cost) manufacturing SMEs in low-cost neighbouring regions was
triggered; secondly, further restructuring processes towards the country’s integration in
the Eurozone (EMU) were initiated. Place-based path-dependent economic and institu
tional structures were reconfigured accordingly, by industrial policies and regulatory re
forms promoting Greece’s deeper EU integration through compliance with European pat
terns. This process signified the entry of large multinationals in the Greek market and in
creased competition in all major sectors of the national economy. Yet, the EU-induced
changes in the mode of regulation have not achieved the dissolution of peripherality pat
terns: the Greek economy’s specialization in non-exporting and demand-dependent indus
tries was intensified.
The country’s participation in the EMU since 2001 signalled the turn to finance-led
growth, through cheap credit and consumption boost in the prevailing sectors of trade,
construction, and real estate. Multinational corporate groups consolidate their place in
the Greek market and gradually take over (or put out of business) ‘traditional’ indepen
dent (often family-owned or/and sustained) small and micro enterprises in these sectors.
However, the 2008–09 financial turmoil triggered new transformations of the established
growth patterns. The crisis can be thus considered as an episode in the evolution of the
global accumulation regime, stimulating regulatory experimentations to secure its stabili
ty. Such experimentations have been promoted through austerity policies implemented all
over Europe by supranational institutions as the IMF and the EC, to overcome the crisis
by launching a new socio-economic configuration.
Within the outlined context (depicted in Table 6.7), a major issue of discussion concerns
the very nature of the crisis. The consideration of its origins and driving forces allows for
a comprehensive explanation of its spatially differentiated patterns and outcomes. The
shift of the global financial crisis to sovereign debt crisis in the Eurozone has been con
sidered itself a cause of increasing inequality: public debt-to-GDP ratios range from 171.8
per cent in Greece, 132.9 per cent in Italy, and 128.7 per cent in Portugal to 10.0 per cent
in Estonia, 17.3 per cent in Bulgaria, and 27.7 per cent in Luxemburg; Greece and Portu
gal also had the highest relative increase of public debt-to-GDP ratio during the crisis
(Eurostatn.d.(a)). As a result, the crisis hit more severely the countries of problematic
public finances, namely the southern Eurozone member states. Still, for many authors,
the argument that the crisis was caused by different forms of imbalances and public
debts ignores the deeper core-periphery contradictions of the European economy (Becker
and Weissenbacher, 2012).
Page 28 of 40
The economic landscape is shaped by place-specific historical circumstances, inherited

and emerging structures and processes. The evolving spatial division of labour incorpo
rates past growth patterns within new growth trajectories. Accordingly, we sought to ex
plain the spatially divergent impact of the crisis in Europe by associating the much more
severe decline and economic contraction in the southern EU member states, with inher
ent structures of ‘peripherality’. The structural weaknesses of these late-industrialized
countries of ‘peripheral Fordism/capitalism’ were dramatically exacerbated by the crisis
and materialized (p. 132) (p. 133) into increased public deficits and excessive sovereign
debts. The ensuing fiscal polarization within the Eurozone indicates that, despite restruc
turing processes towards EU integration over the last decades, the peripheral member
states have not accomplished core-type growth patterns. Under the pressure of financial
capital, peripherality has been reproduced in a new form undermining the very substance
of the EU integration. On this ground, the author of this chapter adopts the view that in
creased public deficits were the effect rather than the cause of the economic crisis (Beck
er and Jäger, 2010).
Page 29 of 40
Table 6.7 Greece’s Path-dependent Growth Patterns from the 1980s to 2008–09 Crisis
The 1980s following The 1990s on the The 2000s in the Eu Since the 2009 finan
EU accession way to EMU rozone cial/sovereign debt
crisis
Industrial structures • Partial de-industri • Restructuring to • Financialization of • Consumption col

and specialization alization wards infrastruc the economy lapse in trade, con
• Low-cost manufac ture-led • Credit boost of struction, real es
turing subcontract growth consumption tate, and manufac
ing turing
• Manufacturing de • Investments in
• Strong agriculture cline trade, construction • FDI in trade, real
and real estate, estate and construc
• Growing trade, • Growing trade,
tourism and leisure tion, tourism and
tourism, construc construction and re
leisure
tion, services al estate, tourism,
services • Privatization of
public/national as
sets: real estate
property, energy,
and telecommunica
tions and transport
infrastructures
(ports, airports,
highways)
Page 30 of 40
Entrepreneurship / • Predominance of • SME resilience • Consolidation of • Massive business

business structures small and microen MNC groups in the closures
• Manufacturing
treprises Greek market • Housing market
business offshoring
• Sole proprietor in lower-cost coun • Large MNCs take collapse
ship, family owner tries over SMEs • Downfall of the
ship traditional SME sec
• Increased interna
tional competition tor
Occupational/ employ • Strong self-em • Strong self-em • Resilient self-em • Massive layoffs
ment patterns ployment ployment ployment and employment de
• Atypical employ • Migration inflows • Institutionalization cline
ment in agriculture, from Eastern Eu of labour flexibility • Escalating unem
tourism, and sub rope ployment, long-term
contracting • Increasing atypical and youth unem
• Typical employ employment forms ployment
ment forms prevail • Decreasing self-
• Outmigration to in employment
dustrial countries • Expanding atypi
cal employment
EU, European Union; EMU, European Monetary Union; SME, small- and medium-sized enterprise; MNC, multinational corporation;
FDI, foreign direct investment.
Source: Author.
Page 31 of 40
The destructiveness of the 2009 crisis in Greece is related to the national mode of growth
(production and consumption patterns) defined by the national economy’s role in the in
ternational division of labour (Massey, 1984; Lipietz, 1986). The structural weaknesses
and vulnerability of the Greek economy, national in the previous section, are ascribed to
inherited peripherality patterns and to patterns evolving through the country’s EU and
Eurozone integration. As revealed, inherent peripherality and European integration
processes have so far not enabled the adjustment of Greece’s path-dependent pattern to a
more dynamic and sustainable growth trajectory. On the contrary, in the exigency of the
crisis and public bankruptcy, the country has been subjected to bailout programmes of
structural and regulatory reforms with disastrous implications for socio-economic stabili
ty. No other EU country has had a GDP decline, or income and wage drop to such low lev
els as Greece. From a state of growth convergence to the EU average, the Greek econo
my shifted to deprivation reflected in business and employment collapse.
Hence, the issue raised here concerns the policy addressing the crisis, its objectives, and
outcomes. Since 2010, the troika’s programmes for Greece have pursued ‘improv[ing]
competitiveness through internal devaluation’ (IMF, 2010). The key element of this strate
gy was a very restrictive fiscal policy cutting public expenditures and reducing social
spending. Fiscal austerity was eventually adopted in all debt-ridden Eurozone economies
(Ireland, Portugal, Spain, and Cyprus) through bailout packages. Austerity measures in
Greece (and Ireland and Portugal) particularly focused on drastic budgetary cuts, wage
and pension severe reduction, and on the flexibilization of the wage relation. It is note
worthy that the change of the wage relation is a fundamental prerequisite of the EC/IMF
programmes: in this way, national arrangements of wage policies and social spending
passed under supranational supervision and regulation—especially in the indebted Euro
zone countries. Gradually, a mode of non-spatialized governance and non-localized poli
cies has been established through mechanisms that circumvent democratic processes and
public accountability. That is the case of the ‘atypical’ Eurogroup decision-making author
ity, or the troika’s technical evaluation authority.
Under the austerity restrictions and the burden of public deficit, the EC and the IMF have
also demanded an extended privatization programme of national assets in Greece (and
Portugal and other peripheral EU economies) to attract investments. Following the afore
mentioned pattern, an ‘independent’ organization—supervised by the Eurogroup and the
EC—was institutionalized to this purpose: the Hellenic Republic Asset Development Fund
(HRADF) was established in 2011, under the medium-term fiscal strategy, by a new law
that aimed to restrict governmental intervention in the privatization process, and its fur
ther development within a fully professional context (L.3986/2011). Adopting the troika’s
priorities, the HRADF’s privatization portfolio comprises real estate property (mainly
beachfronts and coastal areas, Olympic assets, historic buildings, and hotels), transporta
tion (ports, (p. 134) and airports, railways and motorways), and other (e.g. water supply
and sewerage) infrastructures and corporate organizations (Hellenic Post, etc.).
Page 32 of 40
The programme has so far completed privatizations mostly related to investments in resi
dential and commercial development, tourism, and leisure. A quite revealing fact is that
in 2014, the highest foreign direct investment (FDI) inflow in Greece was attributed to
the privatization of Hellenikon in metropolitan Athens—a coastal area intended for
tourism, shopping, leisure, and residential land use. A year earlier, it was the Canadian
Fairfax Financial Holding Ltd for equity investments in Eurobank Properties. Many more
‘strategic investments’ of such orientation are also among the top FDIs in Greece, consid
ered as the successful outcome of ‘national assets development policy’. Today, even high
er FDIs are expected from the privatization of the country’s fourteen regional airports
(acquired by Fraport for €1.23 billion), also related to tourism; and from the agreement
with Cosco for the central port of Pireaus (expected to be the main entrance of Asian
commercial exports to Central Europe). Yet, investments in productive industries rank
very low.
After six years of recession, the debate on crisis and austerity in Greece is still going on,
as reflected in sociopolitical upheaval. The main question concerns the effectiveness of
austerity policy in terms of the Greek economy’s recovery. For many, this policy has mere
ly served the country’s abrupt socio-economic restructuring and enforced compliance to
EU and global accumulation imperatives. To date, the outcome has been the demolition of
Greece’s path-dependent SME-centred patterns of industrial specialization, entrepreneur
ship, employment, and socio-economic cohesion. Massive business closures and layoffs
(both in public and private sectors), income contraction, extreme unemployment, and in
creasing poverty have undermined the national economy’s capacity to resume growth.
Policy measures adopted to allegedly increase the competitive integration of the Greek
economy in the Eurozone have dismantled labour relations and social rights, leading to
the verge of a humanitarian crisis. Institutional mechanisms controlling public income
and expenditures, adjusting pensions and wages, and enhancing employment and wage
flexibilization have gradually formed a low-cost, low-wage market in the Eurozone periph
ery.
Concluding Remarks
This chapter has addressed the issue of economic vulnerability and uneven prosperity in
Europe, in the context of the 2008–09 financial crisis and the austerity policy addressing
it. The turn of the global financial crisis to sovereign debt crisis in the EU has exposed
the structural weaknesses of the most vulnerable Eurozone member states. The Greek
economy has been in turmoil as soon as the country’s public debt sustainability and credit
worthiness was questioned. Yet, increased public deficits have been rather the effect than
the cause of the unfolding crisis in a context of intense financial pressure and underlying
growth polarization. The extreme fiscal austerity policy that was implemented to tackle
the crisis has instead aggravated its impact and accentuated disparities between the EU
core and peripheral economies.
Page 33 of 40
Southern Eurozone member states have had the sharpest decline, and Greece, in particu
lar, being the first EU country to accept a bailout package and adjunct memorandum in
2010, has suffered the most severe economic contraction and prolonged recession. This
fact has (p. 135) raised questions about the causes of economic vulnerability and adjust
ment capacity to the economic shock. The answer is sought in Greece’s path-dependent
patterns of growth that have been defined by a semi-peripheral legacy and processes of
integration in the EU and the EMU. Preceding and evolving industrial specializations, and
entrepreneurial and employment patterns have been incorporated through regulatory
configurations and formed Greece’s socio-economic setting and capacity to adjust.
The path-dependent attributes of the Greek economy are epitomized in non-exporting dis
tributive and credit-dependent industrial specialization; prominent petty ownership and
micro-entrepreneurship; traditional self-employment and extensive atypical labour. High
dependence on trade and construction, the sectors most heavily hit by recession, has re
sulted in market collapse, entrepreneurial downfall, and massive unemployment. As re
vealed, restructuring processes that have deepend the country’s integration within the
European economy have not dissolved ‘peripherality’ structures: private consumption had
been further promoted to sustain retail trade and leisure, and speculatory investments in
real estate had been reinforced. This strategy was common in all debt-ridden member-
states of the EU south (Portugal, Spain, Cyprus) and overlooked the inherent contradic
tion between ‘core’ and ‘periphery’ economies.
On this ground, austerity policy has sought to tackle economic disruption through restric
tive fiscal measures and abrupt regulatory reforms. Given the specificities of the Greek
ecomy, austerity has accelerated the collapse of consumption, entrepreneurship and em
ployment, and the rise of unemployment and poverty. Fiscal austerity measures inhibit
development initiatives and result in falls in GDP and employment to a permanently lower
trajectory (EC, 2009). The deep and prolonged recession has dangerously downgraded
the country’s capacity to resume growth: a depressed economy cannot provide favourable
conditions for sectoral restructuring, or for investments enhancing productivity. Long-
term unemployment tends to lead to permanent loss of skills; low investment implies the
devaluation of production equipment and infrastructure; and vast youth unemployment
threatens the socio-economic cohesion.
As indicated, the outcome of the austerity measures and reforms, being part and parcel of
rescue packages and adjunct memoranda in Greece, is demonstrated by the emergent
economic and institutional context, which is favourable for FDI and other large-scale in
vestments in the previously prominent and now degraded sectors of (wholesale and re
tail) trade, construction and real state, and tourism and leisure services. In other words,
austerity-induced restructuring has readjusted the ‘mode of regulation’ to better serve
the evolving finance-led global ‘accumulation regime’. Still, the structural weaknesses of
the Greek economy—identified in the need for knowledge-intensive specialization, entre
preneurial modernization, and competitive internationalization—have not been ad
Page 34 of 40
dressed. The bailout programmes even had a negative impact on the debt of Greece; but,
despite failures, their objectives are being adopted throughout the Eurozone.
The issue of transferring decision-making processes and governance to supranational or

ganizations (i.e. IMF/ECB/EC troika) has been central in the implementation of austerity
policy. This strategy has downgraded the political role of legitimate national and regional
authorities, and has resulted in one-size-fits-all and picking-the-winner policies. The disre
gard of the Greek economy’s history and path-dependent specificities has not stimulated
a more competitive structural adjustment to EU and global developments. On the con
trary, austerity policy applied a drastic blow to the country’s vulnerable patterns: (p. 136)
acute budgetary and credit cuts along with further ‘flexibilization’ reforms have demol
ished the established socio-economic formation—which, despite weaknesses, has for long
sustained resilience, cohesion, and inclusive prosperity in Greece. The catastrophic out
comes of crisis and austerity may permanently disintegrate the historically formed al
liance between government, domestic business elites, and the middle class in Greece,
leading to sociopolitical upheaval.
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Maria Tsampra
Maria Tsampra ([email protected]) is an Assistant Professor at the School of

Business Administration, University of Patras, Greece. Her expertise broadly lies in
economic geography, regional, local, and urban development, and, more specifically,
in issues of regional diversity and spatial inequalities, regional entrepreneurship and
competitiveness, local labour markets, economic restructuring, and integration in
south-eastern European countries. She has authored and co-authored several book
chapters and journal articles on regional employment and production patterns, spa
tial division of labour, small- and medium-sized enterprise innovativeness, and so on.
Page 40 of 40
Economic Growth and Economic Development: Geographical Dimensions,
Definition, and Disparities
Economic Growth and Economic Development: Geo

graphical Dimensions, Definition, and Disparities
Maryann P. Feldman and Michael Storper
This chapter reviews and critiques conventional ideas about the relationship of economics
to geography and the implications for growth and development. While economic develop
ment occupies our collective imagination, the term is often not well defined, or defined in
a limited manner that does not accommodate the full range of places faced with restruc
turing and economic uncertainty. All too often the emphasis is on innovation and entre
preneurship as ends to themselves rather than as a means to the end of widely shared
prosperity and human fulfillment. This chapter summarizes recent work that differenti
ates economic development for economic growth, and provides a definition of economic
development that argues for policy focused on building capacities in order to reduce the
highly unequal social and geographical distributions that result from current frameworks.
Keywords: economic geography, economic development, economic growth, geography, innovation, entrepreneur
ship, place-based capacities
Bringing Geography and Economics to the

Same Table
ECONOMISTS have asked why certain places grow, prosper, and attain a higher standard
of living as early as Adam Smith’s The Wealth of Nations in 1776. Smith was motivated to
understand the reasons why England had become wealthier than continental Europe.
While Smith is widely considered the father of modern economics, his most important
theorems originated in geography. When he said, ‘the division of labor is limited by the
extent of the market’, he was referring to the geographical extension of market areas in
Scotland as transport costs declined, which, in turn, allowed larger-scale and more geo
graphically concentrated production, organized in the form of the factory system. The
transition from artisanal production to a modern industrial economy, with a 4800 per cent
increase in productivity, was intrinsically geographic.
Page 1 of 20
The transition that Smith analysed was profound: artisans disappeared; production be
came more centralized in large factories and towns, creating a geography of winning and
losing places; industrial capitalists saw their incomes increase, while a new industrial
working class faced lower incomes than artisans and more difficult working conditions.
Still, there was a long-term take-off of per capita income that ended centuries of econom
ic stagnation in the West (Maddison, 2007). Critically, Smith (and others) showed that the
division of labour inside the new factories was not only key to the astonishing productivi
ty gains of the factory system, but that it also picked winners and losers in terms of indi
vidual and social relationships, and geographical places. Smith was not only concerned
with the positive (p. 144) aggregate economic effects of the new system, but also the more
complex picture of human and geographical development (Phillipson, 2010).
The processes of change that motivated Adam Smith are still at work and are no less com
plex or profound. As in the industrial revolution, the much-heralded growth of the knowl
edge economy is creating significant wealth, but the distribution of benefits is highly
skewed. Indeed, there are elements of a winner-take-all tournament that favours the
lucky and highly skilled, which serves to only further increase income disparities. Many
individuals who have invested in high levels of human capital face unprecedented eco
nomic insecurity and diminished career perspectives. These dilemmas are not new: from
the time that Smith wrote in the mid-eighteenth century, through Marx’s reflections of
the mid-nineteenth century, income disparities were so great that the viability of the
whole industrial market (or, for Marx, ‘capitalist’) system was called into question. In the
twentieth century, these conditions spawned political instability witnessed by unrest, and
the rise of nationalism, fascism, and communism. Yet, considering the long sweep of his
tory, capitalism has generated increases in standards of living never before imaginable
for the majority of the world’s population.
Even in the worst of times, there were very wealthy local economies; just as in the best of
times, there were pockets of stagnation and poverty. The objective of this chapter is to
provide a review of the intellectual history of economic geography as it relates to eco
nomic growth and economic development. We show that economic development always
has a complex interplay of winners and losers. The progress of the modern capitalist
economy always begins in specific places; it does not emerge uniformly across space, but
instead diffuses across the economic landscape. Less-successful people and places repre
sent underutilized capacities. Yet this pattern is not immutable: the relevant question is,
what advice can scholars give policymakers to enhance economic prosperity.
After investigating the geographical dynamics of economic growth, this chapter defines
some new approaches to mitigate the downsides of these dynamics. To do so, we will
challenge some of the sacred cows of economic theory and policy to make a new meal—or
even a feast—of future possibilities. Conventional wisdom tinkers at the margins of the
growth process but does little to address the ways that the economy picks winning people
and places, and underutilizes the capacities of other people and places. By contrast, it
will be shown that with a deeper understanding of the geographical wellsprings of inno
Page 2 of 20
vation and entrepreneurship in capitalism, there are opportunities for higher growth and,
most importantly, better development for both people and places.
The Interrelationship of Growth, Development,

and Geography
The relationship between the quantity of growth and the quality of economic develop
ment is complex (Feldman et al., 2016). In policy circles, however, growth and develop
ment are frequently conflated and incorrectly interchanged. Economic growth is a prima
ry focus of macroeconomists, who rely on quantifiable metrics, such as gross national
product or aggregate income. Economic development was relegated to the (p. 145) do
main of practitioners, often focusing on infrastructure, public health, or education in
poorer places. For much of the twentieth century, economic development relied on specif
ic outcome measures like number of jobs that, while relevant to policy, could not convinc
ingly reflect any broader picture or reveal any longer-term pathways of qualitative im
provement.
Investments in education have not always led countries to long-term growth, and in some
countries economic growth led to significant increases in education. This leads back to
the core debates about directions of causality and the need for systemic understanding of
these relationships. The strong correlation, in the range of 0.95, between per capita in
come and the Human Development Index, suggests that development and growth are in
terrelated (McGillivray and White, 1993). Taking one extreme, some argue that the same
ingredients that generate aggregate growth also deliver improvements in human welfare.
Professional practice and policy tend to emphasize kick-starting growth, based on the im
plicit assumption that aggregate growth can be counted on to deliver qualitative improve
ments in human welfare (Easterly, 2012). Others argue that the sequence of improving in
come—in time and across space—must first start with improving human welfare (Dasgup
ta and Ray, 1986; Barro, 1991) that will, in turn, deliver improvements in per capita in
come, and subsequently increase human welfare. The hubris that once existed in the eco
nomic development field—which assumed that the path of economic development was lin
ear, increasing, and always positive—is gone (Dasgupta, 1993).
With larger samples of growth and development experiences to study, the lesson is that
growth does not automatically occur and continuously improve human welfare. Moreover,
even when processes of economic growth and development appear relatively robust,
there is an uneven geographical distribution of the benefits. All places do not rise, or fall,
at the same time; indeed, there are frequently contrasting processes happening at the
same time across contiguous neighbourhoods, cities, regions, and countries.
This realization led to an explosion of interest in the microeconomic foundations of devel

opment, which consider the economies of places as products of history and local institu
tions and as differently structured environments where people live, work, and invest. This
opens up a completely original line of inquiry into the relationship of growth and develop
Page 3 of 20
ment. It is not only any set of contributing ‘factors’ that enable growth or development,
nor how these factors flow or ‘sort’ into countries and regions, but rather how these fac
tors come together to interact in intricate ways that differ across space and time because
of the variation in human rules, institutions, habits, norms, and conventions.
Geography as a Fundamental Ingredient in

Economics
The relationship of geography and economic development presents itself in different ways
in different places. In very poor places, development cannot start without basic institu
tions such as property rights, a solid legal system, and an infrastructure that make com
merce possible (World Bank, 2009). In the majority of the world market economies, these
basic (p. 146) conditions are already in place, yet significant disparities in income and hu
man development persist. The rest of this chapter is addressed to the middle- and upper-
income regions of the world, as a very different discussion is required to address policy in
the poorest places (Collier, 2007).
There was a time not too long ago when economists were preoccupied with models that
rendered spatial disparities as uninteresting temporary disequilibrium, while geogra
phers focused on complex phenomena described in detailed case studies. There were also
notable differences in the normative perspectives of these disciplines. Many economists
were not fundamentally worried about geographical disparities in development, while ge
ographers tended to be more radical, with a focus on social concerns and left-behind
places. Data were a limitation, as were empirical methods and visualizations. Yet, as fre
quently happens in scientific disciplines, fields converge and recombine to form new
fields of inquiry. This has happened over the last thirty years with economics and geogra
phy. Paul Krugman (1991a, 1991b), unsatisfied with the observation that per capita in
come had not converged between places—a prediction that was at odds with neoclassical
growth theory—launched a new research trajectory, declaring that ‘I have spent my whole
professional life as an international economist thinking and writing about economic geog
raphy, without being aware of it’ (Krugman, 1991b, p. 1). Geographical differences in de
velopment, Krugman observed, had been of secondary importance because existing eco
nomic models could not address them as a central component of the market economy. In
stead, economists tended to use models that assumed away distance or relegated eco
nomic disparities to temporary disequilibrium from frictions due to factor mobility (Krug
man, 1991b). The founders of the new geographical economics in the early 1990s—Krug
man, Fujita, Thisse, and Venables—showed that by incorporating economies of scale,
product differentiation, and trade costs into models of firm location, it would be perfectly
natural for a market economy to concentrate firms together. Following this, it would be
perfectly natural for people—in their dual roles as both workers in firms and consumers—
to concentrate as well (Fujita et al., 1999; Fujita and Thisse, 2002).
Page 4 of 20
Agglomeration economies, clustering, and urbanization are not temporary imperfections
of the modern capitalist economy, but are rather part of its essence. This is not a new in
sight, but a more rigorous formulation of long-standing wisdom. Examining Britain at the
height of its industrial power, Alfred Marshall (1919) referred to localization as a phenom
enon that can be observed throughout human history—the right place at the right time.
At any given moment, the most developed regions or countries specialize in the most ad
vanced industries, which, in turn, take the form of their spatial concentration.
The recognition that agglomeration is hard-wired into capitalism gave rise to a problem
for the pre-existing conventional wisdom about spatial equilibrium. Rather than factor
mobility leading to an even distribution of production and incomes across the economic
landscape, powerful agglomerative forces would actually increase discrepancies. Thus,
agglomeration goes against the grain of contemporary general spatial equilibrium models
(see Glaeser, 2008). It also opens up a major normative debate in economic geography:
while aggregate efficiency may come from strong agglomeration, it may possibly also
come at the price of inequity. In this way, the geography of development entered the very
heart of the economics of development.
The Process of Development: The Nouvelle

(p. 147)
Cuisine of Economics and Geography

The closer relationship between geography and economics does not stop with the obser
vation that there is a deep tension between development and territorial equity or conver
gence. Most importantly, the unexplored mechanisms for creating wealth in more places
and for increasing its diffusion or spreading the benefits has moved to centre stage. The
core of all this is the economics of knowledge (Stephan, 1996) and the geography of inno
vation (Feldman, 1994).
In the classical definitions of growth, from David Ricardo (1891) to Robert Solow (1956),
the economy is conceptualized as a machine that produces economic output as a function
of various inputs (including capital, labour, and technology). Solow showed that the differ
ent factors considered in growth models—such as augmented capital and labour, and the
inclusion of more education, better infrastructure, and better health—only explained a
relatively small part of the observed economic growth since the Industrial Revolution. He
concluded that technological innovation was generating more output per unit of input
over time, and that this was leading to greater total factor productivity. Yet even if innova
tion were a possible cause of greater efficiency in certain industries, it would still be very
costly to the overall economy, owing to the diminishing marginal returns of augmenting
the traditional inputs of labour and capital needed to realize innovation.
Robert Lucas (1988) and Paul Romer (1986) solved this paradox by: challenging the clas
sic assumption of constant or decreasing returns, and observing that knowledge is differ
ent from other inputs to the economy. True knowledge, they argued, has increasing re
turns to scale because of the externalities inherent in its creation and application. Rather
Page 5 of 20
than diminishing over time, the value of knowledge actually increases with use due to
network effects, cumulative reapplication, path dependencies, non-exclusivity, and
spillovers (the recombination through leakage). This all leads to more knowledge over
time and better uses of that knowledge. This insight explains why, from the year 1820 on
ward, capitalism has been able to spring the Malthusian trap of the stagnation in world
wide per capita income that existed from the year 1000 until the Industrial Revolution
(Maddison, 2007). Moreover, since 1820, global per capita income has steadily increased
against a world population boom.
However, the modern era’s astonishing growth has distributed unevenly across people
and places. There are periods of retrenchment, as well as economic booms. The agglom
eration models of the New Economic Geography imply a fundamental trade-off between
efficiency and inter-place convergence However, the new economics of growth, which
centre on innovation, suggest that there are alternative possibilities. The forces that cre
ate innovation also create far-flung production chains that spread knowledge, diffusing it
away from the places where it was initially created (Grossman and Helpman, 2005; Iam
marino and McCann, 2013). If some places are better at innovating than others—and are,
hence, wealthier—why not think about a new type of development policy, based on
spreading innovation capacities or creating them in more places? This approach might of
fer hope for income convergence, which is not offered by factor mobility between places
(the core recipe of traditional models in regional and urban economics), or simple liberal
ization of trade (the core recipe of international development economics).
We will show that the investments in capacity that generate innovation have in
(p. 148)
creasing returns for the regions, firms, and workers who exercise them. Virtuous self-re
inforcing cycles of economic development that are also widely spread in geographical
terms can more widely share the desired social and economic outcomes of prosperity and
more sustainable economic growth. An innovative, place-based development policy ap
proach counters the potentially negative spiral of geographically restricted development
in three ways: firstly, it starts with investment in basic capacities that are essential to a
dignified and creative life (as argued by Amartya Sen in Feldman et al., 2016); secondly, it
expands the sources of creativity and satisfaction that are good, in and of themselves, on
human grounds; thirdly, it works towards the overall goal of having non-routine (innova
tive) functions in the economic mix of more and more economies.
Back to Fundamentals: The States and Markets

Debate
The relationship between government—or the State—and development requires greater
theoretical development. Mainstream economic theory is wary of government interven
tion in markets, only justifying public policy to correct market failures (Laffont and Tirole,
1993). Market failure takes many forms: externalities, market power that inhibits compe
tition, information asymmetries that prevent efficient transactions, and incomplete provi
sion of certain kinds of goods and services. In the specific field of industrial policy, the
Page 6 of 20
most widely accepted rationale for public action are the positive social externalities in R
& D and knowledge creation. Firms cannot fully appropriate all the benefits of their in
vestment in knowledge because some of the benefits accrue to other firms or sectors.
Thus, the social return on investment in R & D and knowledge creation is larger than the
private return. As a result, the private R & D effort will be lower than that which is social
ly optimal. Consquently, the public sector has a role to fund R & D, or to enhance the in
centives of private firms to invest in knowledge creation.
While market failure leads some economists to admit a theoretical role for a mix of regu
latory and investment policies, others claim that these measures lead to government fail
ure, where the medicine is worse than the ailment. In their view, government is intrinsi
cally beset by rigid bureaucracy, entrenched interest groups and inadequate information,
such that interventions become ineffective or actively harmful. The empirical evidence is
much more nuanced, with cases of public stimulus of firms resulting in subsequent pri
vate success (Mazzucato, 2013). Reality certainly lies with detailed empirical analysis of
markets to determine what is required and when to withdraw public supports (Avnim
elech and Teubal, 2006). High-quality public administration is necessary so that govern
ment policies and programmes are well executed.
The real policy world, however, often does not respect the fine points of what theory and
evidence say about dealing with market failures. Starting in the 1980s, the Reagan–
Thatcher agenda was blindly hostile to regulation and public goods. This economic realm
is sometimes referred to as ‘neo-liberal’, a pejorative label for an extreme laissez-faire po
litical philosophy (Fawcett, 2014). For decades, it has failed to protect the public from
predatory economic (p. 149) behaviour in the form of monopolies, crony capitalism, and
rent-seeking behaviour. The private provision of certain goods is lower quality and more
costly than public provision. There is an inherent tension between private firms’ incentive
to generate profits by reducing costs and the public need for high-quality, universally
available, and reliable services. Of course, the highest profits are made in essential ser
vices for which demand is inelastic and there is no functioning market. Yet, as of now,
there is little agreement on the need for government intervention, and the specific poli
cies to implement, and investments for the government to make. In the USA, there is still
a strong contest between proponents of austerity and minimalist government (this is sup
posedly a way to stimulate entrepreneurial energy at the local level), and traditional
macroeconomic Keynesianism (as a way to stimulate development via demand). However,
neither of these perspectives responds to the issues that are specific to the ongoing
process of economic development, nor to its geography. Hence, we now turn to some new
microeconomic foundations of innovation and production, and their geography.
Page 7 of 20
An Alternative Definition of Economic Develop

ment
Inspired by Sen (1990), Feldman et al. (2016) argue to define economic development as
the development of capacities that expand economic actors’ capabilities. This new defini
tion of development involves a twofold difference with standard models in economics. On
the one hand, this definition departs from the strict Benthamite utilitarianism, which is in
terested in simply maximizing the sum of so-called ‘utilities’ in the form of income and
consumption possibilities. This definition goes beyond this hard side of the economy, ex
plicitly incorporating a humanistic vision of the economy as a source of human fulfilment,
where people create, explore possibilities, earn self-respect, and develop a good life for
themselves through well-distributed opportunities (Phelps, 2013). Once this perspective
is adopted, then the mechanics of a desirable growth process itself are also different from
standard models, going beyond factor augmentation to better production through innova
tion (the theme that is threaded throughout every section of this chapter).
Thus, development can be regarded as fortifying autonomy and substantive freedom,

which promotes individuals’ participation in economic life (Sen, 1999). Economic develop
ment occurs when individuals have the opportunity to actively engage and contribute to
society, and are likely to realize their potential. This promotes the advancement of the
whole society. Why is this the case? Part of today’s malaise is due to the increasingly un
equal distribution of income causing large parts of society to see stagnating material wel
fare in the midst of overall plenty (Katz, 1999; Piketty and Saez, 2001). This is, however,
only part of the problem. There have been other periods, as for example the height of
American mass production in the 1950s, when incomes were advancing rapidly for much
of the population, but with a sense of frustration due to the deadening and hierarchical
character of work. Even the sense that the ‘next generation’ was expected to be wealthier
did not entirely compensate for the constraining industrialized lifestyle, leading to the so
cial unrest of the 1960s, and to sociological critiques with titles such as ‘The Joyless
Economy’ (Scitovsky, 1976). Today’s temptation is to think that all we need to do is re
store high-enough wages and low-enough (p. 150) unemployment to have a good-enough
economy. However, it is important not to miss the currently difficult conjuncture of high
inequality, low employment creation, and stagnating median wages, when thoroughly re-
thinking development, and how to best generate it. A broader perspective on develop
ment suggests that we need a better geographical and social distribution of the capacity
to realize opportunity.
In this sense, the expansion of capacities provides the basis for the realization of individ
ual, firm, and community potential, which, in turn, contributes to the ability of the econo
my to prosper—materially, through innovation, and non-materially, through widespread
improvements in human experience, striving, and creativity. The latter may be called ‘en
trepreneurialism’, rather than the frequently reductionist notion today of ‘starting up a
firm’. As Edmund Phelps (2013, p. 14) noted in Mass Flourishing, development occurs not
just through spectacular inventions, but when ‘people of ordinary ability can have innova
Page 8 of 20
tive ideas’. In nineteenth-century America, ‘even people with few and modest talents …
were given the experience of using their minds: to seize an opportunity, to solve a prob
lem, and think of a new way or a new thing’ (Phelps, 2013, p. 15).
Rather than simple counts of jobs or rates of output growth, economic development is
concerned with the quality of any such growth. There are many ways to measure the
quality of growth. Often, the starting point is the rate of change in per capita personal in
come and convergence towards the wealthiest places. But, if per capita income is very
unequally distributed, the majority of people do not benefit. The quality of employment,
which is, in turn, a manifestation of the skills of those employed and hence the wages
those skills command, is another consideration. Even this, however, does not fully capture
development as the overall dynamic is about an economy in relationship to its principals
—the people who work and live in an area. True development includes increasing: the cal
ibre of business practices, the distribution and density of social capital, and many other
things that fortify the ability of the economy to improve economic welfare continually
over time. These are themes that we need to explore in more detail.
This notion of development does not accord easily with classical economics, but there are
bridges that can easily be built. According to Schumpeter (1934), economic development
involves relocating capital from already established methods to new and innovative meth
ods, which further enhance productivity. For instance, not only did mass production drive
the textiles industry in the industrial revolution, but it also influenced other complemen
tary sectors and, in turn, diffused widely, thus increasing quality of life. While economic
growth is measured by returns to inputs or factor augmentation, in reality sustained eco
nomic growth changes the dominant forms of organization, work, market coordination,
needed skills, attitudes and beliefs, and norms for how things get done. Throughout all
this, there is immense learning-by-doing on the part of individuals and organizations (Ar
row, 1962), and a cumulative process of technological change through incremental tweak
ing and continuous improvement (Meisenzahl and Mokyr, 2011). It is through this com
plex process of change that activities that have become simple and repetitive are re
placed with higher value-added, non-routine activities (Levy and Murnane, 2005; Aghion,
2006).
In this updated Schumpeterian view, economic development entails a fundamental sys

temic transformation of an economy, including the industrial structure, the educational
and occupational characteristics of the population, and the entire social and institutional
framework. This point has been revived in the idea that an economy of widespread cre
ativity and innovation requires institutions that facilitate its reorganization (Rodrik et al.,
2004). (p. 151) Institutions, following North and Thomas (1973), promote productive activ
ities, capital accumulation, skill acquisition, invention, and technology transfer. Effective
institutions help individuals and businesses make investment decisions by reducing cer
tain forms of uncertainty through stable and predictable rules that encourage risk-taking.
Thus, to further build the definition, economic development requires institutions that pro
mote norms of openness, tolerance for risk, appreciation of diversity, and confidence in
the realization of mutual gain for the public and private sectors (Feldman et al., 2016).
Page 9 of 20
These institutions do not come easily; they are socially constructed and painstakingly
generated over time. However, these institutions provide the foundation for building ba
sic capabilities for sustainable economic development. These institutions have often been
ignored because they have been evasive to study, but the time for detailed research on
the role of institutions in entrepreneurism and economic development is now ripe (Feld
man and Lowe, 2015). Among institutions, the public sector is arguably the only current
actor in the economy with the required long-term perspective and sufficient command of
resources to make large-scale investments in infrastructure and education, and to coordi
nate effectively economic systems. Moreover, government—as the agent for its citizen—
has the mandate to ensure that the resulting benefits are fairly and widely distributed.
Place-based Innovation Capacities: A New Vi

sion of the Geography of Development
At a time when market fundamentalism has come to guide US policy debates, the public
sector has actually become more and more immersed in the economy through policies re
lated to technology and, more particularly, to innovation (Block and Keller, 2009). When
we move from generic capacities to the specific precursors of innovation, there is also ev
idence of a growing role for public institutions and investments (Block and Keller, 2009;
Mazzucato, 2013). This is partially because the nature of scientific research has changed,
increasingly taking the form of decentralized industrial networks or open innovation (Nel
son and Winter, 1982; Lundvall and Johnson, 1994). R & D and innovation are thus no
longer confined to the laboratories of large corporations or government, but are now col
laborative activities, embedded in networks between both public and private institutions,
and large and small firms. This degree of decentralization fosters a greater dependence
on government programs to coordinate the operations of these networks and limit moral
hazards (Schrank and Whitford, 2009).
In more technical terms, knowledge spillovers among firms are a conduit for innovation,
but such spillovers are a capacity that must be built and sustained over time and are not
an automatic dimension of rational economic behaviour. Regional economists have long
asked whether such spillovers are better encouraged by a regional economy focused on a
few similar industries (‘specialized’), or one with many different industries (‘diversified’).
This is sometimes captured, in our view quite imprecisely, as the difference between Mar
shallian externalities, defined as spillovers between firms in the same sector, and Jacobs
externalities, defined as spillovers between firms in seemingly unrelated sectors. There
is, however, no convincing evidence that either specialization or diversity is key to better
long-term (p. 152) economic performance (Kemeny and Storper, 2015). The deeper issue is
figuring out how to create a local context where there is a dynamic exchange of knowl
edge, widespread experimentation, and minimal penalties for failure, and where there are
institutions that facilitate recombination into new and better products and processes. Re
gardless of the level of specialization or diversification in the local economic base, what
Page 10 of 20
counts most is the local context for these processes. So what can policy do to strengthen
these desirable aspects of local context?
This is where the policy debates engender another significant controversy. Many econo
mists are sceptical of place-based economic development strategies (Einiö and Overman,
2012; Cheshire et al., 2013). If economic development policy is place-based, in the sense
of redistributing resources to specific places, then it might reduce the optimal level of ag
glomeration by dissipating activity, which results in a reduction in total productivity and
output growth of the national economy. Standard urban economics widely defines place-
based to include such things as land-use housing regulations and environmental regula
tions, individual stimulus, or any place-based payments to people or place-based worker
training.
This framework leads the World Bank (2009), for example, to advocate a spatially blind or
people-based approach as the most effective way of generating efficiency, guaranteeing
equal opportunities, and improving the lives of individuals where they live and work. A
key to this approach is the assumption that geographical factor mobility will lead to the
best aggregate outcome and to income convergence across places: human mobility in
creases individual income and productivity, while depleting unproductive regions of their
surplus populations, and hence leads to a smoother geographical distribution of wealth,
also known as general spatial equilibrium (Glaeser, 2008). This is a powerful argument,
but it is nonetheless incomplete in two ways: it overestimates the potential for factor mo
bility to achieve the ends of aggregate economic growth and geographical convergence,
and it underestimates the importance and potential of widely spread capacities for innov
ative, creative mass economic flourishing. It seems unlikely that substantially higher lev
els of migration of skilled labour, reductions in the basic agglomerative tendencies of the
economy, and substantially more even economic development can be achieved simply by
de-regulating housing markets (Kemeny and Storper, 2012). This is, to us, like the ‘tail
wagging the dog’ of economic development.
In this light, the scepticism expressed about place-based approaches can be turned on its
head. The major contribution of the new growth theories is to recognize that knowledge
benefits from increasing returns to scale rather than the constant or decreasing returns
associated with physical commodities (Romer, 1986). Activities that create knowledge—
and encourage the sharing of knowledge—support increasing returns that lead to im
proved national welfare. Agglomeration, with its various forms of returns to scale, is key
to this process. However, there is no evidence that such agglomeration must take a par
ticular national distribution—such as a highly hierarchical national urban system, with a
small number of Silicon Valley-type supernova agglomerations and the rest of the nation
left behind—which would result in steep territorial inequalities. Indeed, the benefits of
agglomeration may be achieved through a more even distribution of middle-sized agglom
erations, that is, on the exact spatial layout and distribution of agglomeration benefits
(Crescenzi et al., 2007, 2012). The notion that any attempt to widely distribute innovation
Page 11 of 20
capacities is going to somehow kill the benefits of agglomeration is not sustained by theo
ry, nor by any robust empirical evidence at this point.
Indeed, economic development policy should be sensitive to the need for agglom
(p. 153)
eration to occur in as many places as possible (Duranton and Puga, 2001). The reason is
owing to the inherent uncertainty of creativity—to the what and where of future innova
tion. Economic development officials and government planners dream of being able to de
fine long-term strategies, but they typically fail at this task. It is impossible to predict sci
entific discoveries, important new technologies, and the ongoing tweaks that transform
our lives. Few predicted the potential of the Internet and how it would change the way we
communicate and access information. Even private firms, such as IBM (once the industry
leader), underestimated the potential of the computer, creating an opportunity for new
firms to enter the market and form new industries. Moreover, successful entrepreneurs
make their own luck, adjusting and adapting to survive. Instead of wisely considered, far-
sighted solutions, entrepreneurial activity is by necessity messy, adaptive, and unpre
dictable. The biggest problem is that it is impossible to predict which technologies are go
ing to yield any pay-off and when. By the time a new industry—for example, biotechnolo
gy or nanotechnology—is on its way to becoming a household name, it is probably too late
for other places to participate as major centres (Storper, 2013). The best economic devel
opment strategy is therefore to enable as many actors as possible to participate produc
tively in the economy to the fullest of their ability. This prioritizes improving quality of life
and well-being by enhancing capabilities and ensuring that agents have the capacities
and freedom to achieve their potential (Feldman et al., 2015). Hence, economic develop
ment strategies need to be adaptive and need to maximize the diversity of the people,
firms, and places involved (Feldman and Lowe, unpublished). Diversity is the most power
ful tool of success in the open probability game of innovation and economic creativity (Ke
meny, 2017).
Effective policy is intricate to design because regional economies are complex systems,
which are notoriously difficult to model and influence. There is no reason to believe that
optimizing the performance of any one component of a complex system will optimize or
even necessarily improve the performance of the system overall. Current thinking is that
economic development is not brought about by discrete projects or programmes, but
rather emerges from the development of interactive and dynamically adaptive ecosystems
(Hwang and Horowitt, 2012). Ecosystems have many different parts and many redundan
cies. Ecosystems also evolve in unpredictable ways, with multiple positive unexpected
outcomes. The knowledge spillovers discussed earlier are the key internal flows and con
nective tissue of economic ecosystems, while institutions are its organic structure.
The problem in most existing policies is that they use economic impact studies that do not
fully capture the returns to a wide range of public economic development investments.
Moreover, the amount of funding provided for economic development initiatives, while im
portant to recipients, is miniscule in relation to the size of a regional economy. Claims
that attribute positive outcomes to any specific programmes or projects are probably
more about good luck, publicity, and hype, and are oftentimes not supported by sound
Page 12 of 20
economic analysis. There simply is no magic recipe. Moreover, external shocks to wider
economic conditions (e.g., major technological changes and macroeconomic policies or
cycles) may wipe out any hard-earned local gains. In this light, policymakers cannot af
ford to wait for perfect predictability and a world free of error. As Kline and Moretti
(2013, p. 34) conclude, ‘Second best may, in practice, be very attractive relative to the
status quo’. And, second-best may be first-best in the long-run, if it promotes widespread
capacities that are the basis for flourishing in ways that cannot be predicted in the short
run.
(p. 154) On to the Feast

Throughout this chapter, we have attempted to slay some sacred cows, that is, received
conventional ideas about economics, growth, development, and geography. Economic de
velopment occupies our collective imagination, but the term is often not well defined, or
defined in a limited manner that does not accommodate the situation of the full range of
places faced with restructuring and economic uncertainly. All too often, the emphasis is
on innovation as an end in itself rather than as a means to the end of widely shared pros
perity and human fulfilment. Alternatively, there are mechanical policy frameworks that
focus rigidly on generating income convergence between places through redistribution,
and others with rigid emphases on generating more employment and output, while ignor
ing their highly unequal social and geographical distributions.
The starting points are different in the different parts of the world, and even between re
gions within nations. In the US, for example, basic infrastructure and public goods are
lacking in many states and regions, leading to large parts of the population with limited
capacities, even when the culture of risk and openness is present. In the high-income ar
eas of Western Europe, infrastructure and basic goods are well distributed, but cultures
of openness and risk-taking are—in many regions—not present. In the eastern regions of
the European Union (EU), educational levels tend to be high, but the basic infrastructure
of connectedness is still being put into place, and old cultures of cronyism and corruption
must be dismantled. In many southern parts of the European Union, low educational lev
els and stagnant demography are combined with rules that are inimical to risk taking and
open sharing of information. The needs that government must address are thus different
in these areas, but in all cases, the quality of government is an overriding concern, espe
cially as government must evolve along with the changing regional context. Indeed, as
the regional context moves forward, government is often left behind doing the same old
thing. The question then becomes how to develop institutions and systems appropriate for
different places and how to motivate ongoing innovation and adaptation to changing ex
ternal conditions in the public sector.
Cutting across a wide variety of different contexts, a set of universally important tasks
can be identified, although they must be addressed in context-specific ways. The first is
entrepreneurship, a staple of discourse about economic development. There is, however,
a difference between entrepreneurship that leads to development (through sustained
Page 13 of 20
build up of innovative productive capacity in a region), and mere firm creation. Industry-
building entrepreneurship leads to the creation of: regional agglomeration, networks of
producers, knowledge exchange, the growth of new types of dealmakers and intermedi
aries, and ongoing waves of creativity (Feldman, 2001, 2014). A second element is the ex
istence of networks of all kinds: between producers, producers and workers, government
and industry, among leaders, between leaders and community groups. These networks
are what creates what Granovetter (1973) called the ‘strength of weak ties’, reducing
transaction costs and increasing confidence without creating cronyism and clubs. They
are the key untraded interdependencies of a dynamic regional economy (Storper, 1995),
and when they fail through predatory and rent-seeking behaviours, or failures in commu
nication, there are negative consequences (Whitford and Schrank, 2011; Storper (p. 155)
et al., 2015). A third, closely related focus for policy is to help the region’s actors create
the informal conventions that enable coordination under uncertainty. Rules are valuable
in creating broad and stable framework conditions for orderly development, and they are
the province of an active government. The successful use of rules, however, under chang
ing circumstances takes place at the level of informal norms and conventions, yet some
times these are the wrong ones for a dynamic process of growth (Storper and Salais,
1997). Linked to this is a fourth actionable domain of policy: beliefs and goals. Nobel
Prize-winning economist Douglass North argues that ‘the dominant beliefs—those of po
litical and economic entrepreneurs in a position to make policies—over time result in the
accretion of an elaborate structure of institutions that determine economic and political
performance’ (North, 2006, p. 2). Beliefs and goals can only be changed through a broad
ly based regional ‘conversation’ that is inclusive and confidence-building, effectively
changing perceptions of who we are and what is possible, and that we are in the process
together (Lowe and Feldman, 2008; Storper et al., 2015). And, finally, for every newly
supplied capacity created in a regional economy, there must be demand. Steve Casper
(2009) showed, for example, that Los Angeles was similar to the San Francisco Bay Area
in the production of university-based scientific outputs related to information technology,
but that the market for such outputs was much greater in the Bay Area, where there is a
community of IT commercial start-ups creating effective regional demand for university-
based inventions.
To summarize a wide body of theory and evidence, economic development can be en
hanced via a longer-term and more expansive perspective that continuously works to
wards measureable increases in regional capacity. The best policies to harness the natur
al tendency of innovative activity to cluster may be policies and investments that allow
economic agents—in as many places as possible, and across as many types of people as
possible—the capacity to be creative and fully engaged in the economy and society. This
expansive view of economic development necessitates important participation of the pub
lic sector as the agent of collective investment in capacity and suggests that businesses
that benefit from knowledge spillovers and local capacity are key partners in building
such public institutions (Feldman, 2014). The geography of this perspective is also more
inclusive than winner-take-all agglomeration geography, although it builds on the essen
tial microeconomics of geographical concentration as a fundamental source of innovation
Page 14 of 20
and development. Thus, our emphasis on creating the capacities for humanly fulfilling
and widely distributed innovation is motivated by both humanism and good economics.
At regional, national, and world scales, this way of thinking offers a different programme
for economic development policy, and a different set of aspirations, from the conventional
ones. To implement such policies, much hard work lies ahead. We will have to abandon
the existing sacred cows, in the forms of the standard metrics of growth, innovation, con
vergence, and well-being. We will have to operationalize new metrics for development as
the broad process defined here (Bartik, 2012). And, finally, we will have to abandon and
redefine many of the politically expedient practices that shape the field of economic de
velopment policy and the local politics of development. The hopeful news is that the eco
nomics and geography of development now provide ingredients in order to better under
stand these processes, and hence to create this new feast.
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Maryann P. Feldman

Chapel Hill and ↵the Kenan Flagler Business School. In 2013, she was awarded with
Page 19 of 20
the prestigious Global Entrepreneurship Research Award from the Swedish Entrepre
neurship Forum and Research Institute of Industrial Economics. She is a member of
the Innovation Forum at the National Academies of Science. Her research interests
focus on the areas of innovation, the commercialization of academic research, and
the factors that promote technological change and economic growth.
Michael Storper
Michael Storper ([email protected]) is Professor of Economic Geography at the

Department of Geography and the Environment, London School of Economics. He is
also affiliated with the Centre de Sociologie des Organisations at Sciences-Po in
Paris, and the Department of Urban Planning in the School of Public Affairs at the
University of California Los Angeles. His research interests include globalization and
regional economic development processes, and the effects of new communication
technologies on face-to-face contact and delocalization. His latest books are The Rise
and Fall of Urban Economies (2015) and Keys to the City: How Economics, Institu
tions, Social Interaction, and Politics Shape Development (2013). He is a Correspond
ing Fellow of the British Academy, and has received the Regional Studies
Association’s Sir Peter Hall Prize for overall contribution to the field.
Page 20 of 20
Heterodoxy as Orthodoxy: Prolegomenon for a Geographical Political Econ
omy
Heterodoxy as Orthodoxy: Prolegomenon for a Geo

graphical Political Economy
Eric Sheppard
For most geographers, thinking geographically about the economy means something very
different than for mainstream/geographical economists: what is heterodox for the latter
constitutes geographers’ orthodoxy. Nineteen propositions about geographical political
economy demonstrate how thinking geographically disrupts core propositions about capi
talism in mainstream economic theory. The spatiotemporality and relational nature of in
ter-sectoral commodity production, shaped by the socio-spatial dialectic, implies that
commodity production generally is far from equilibrium, (re)produces uneven geographi
cal development, and cannot be divorced from political processes. With respect to ex
change, markets are socio-spatial constructs, profit rates are positive, free trade is in
equalizing, and financialization matters. With respect to distribution, globalizing capital
ism (re)produces socio-spatial inequality, an outcome modulated by the necessity of
llabour politics and state intervention. Trajectories of globalizing capitalism co-evolve al
so with cultural and biophysical processes: its constitutional failure to deliver on the
promise of equal opportunity for all makes it necessary to countenance more-than-capital
ist alternatives.
Keywords: geographical political economy, globalizing capitalism, thinking geographically, socio-spatial dialectic,
disequilibrium dynamics, uneven geographical development, cultural and biophysical processes, more-than-capi
talist economies
Introduction
IT has been over two decades since mainstream economists rediscovered economic geog
raphy (Krugman, 1991). In that period, and notwithstanding attempts to produce spaces
for engaged pluralism (The Journal of Economic Geography; Clark et al., 2000), it has be
come a peculiar kind of boundary object (see Star, 1989) in the English literature. There
is an ongoing struggle over how economic geography, and thus capitalism, is to be inter
preted: by whom, and to what ends. While an imperfect dualism, these struggles can be
framed as a disagreement between how scholars working from mainstream economics
Page 1 of 25
omy
and those working from mainstream geography think about the capitalist space economy.
Mainstream economics is an avowedly canonical discipline, with a well-defined orthodoxy
(micro-foundations, equilibrium, mathematics as theory-language). A wide range of topics
of longstanding interest also within economics (historical, institutional, ecological, Marx
ist, feminist, etc.) align poorly with this paradigm, generating a self-described heterodox
economics tradition where these can be discussed (www.worldeconomicsassociation.org;
Lawson, 2005). However, such heterodoxy has failed to gain traction in contemporary
economics’ centres of calculation. Remarkably, even the seemingly existential crisis for
mainstream theory triggered by the 2008 meltdown, occurring as it did in the geographi
cal and institutional cores of capitalism, has had little discernable impact on orthodoxy in
economics (Fine, 2002; Mirowski, 2013).
Heterodoxy in mainstream economics counts as orthodoxy among mainstream (critical

human) geographers; however, they tend to dismiss economists’ orthodoxy as outside
(p. 160) their canon. Geographers’ scholarship on economic geography is notably hetero
geneous and promiscuous, inclined to sally forth expectantly into other domains of geog
raphy, and beyond. As Sheppard et al. (2012, p. 18) write: ‘Economic geography has be
come a peculiarly open-ended sub-discipline [sic], one that has tended to privilege the
analysis of rapidly changing phenomena, studied in real time. It is an anti-canonical
project; it is open-ended and will remain so, repeatedly breaking out of the boundaries
created for itself’. Nevertheless, there is a broadly shared dismissal of equilibrium, micro-
foundations, and mathematical theory, and discomfort with the promises of capitalism it
self. This shared Weltanschauung makes it plausible to gather this heterogeneity under
the label of geographical political economy (Sheppard, 2006a, 2011a). This is economic
geographers’ orthodoxy.
Rather than compare (again) economic geography with geographical economics, in this
chapter I seek to lay out the lineaments of what it means to think geographically about
economic phenomena. My overarching claim is that thinking geographically undermines
the plausibility of what passes as orthodoxy in mainstream (geographical) economics. For
geographers, this argument is largely preaching to the choir. For mainstream economists
and fellow travellers, as my engagements over the years with them repeatedly drive
home, it remains unconvincing.1 One reason for this is a seemingly profound difference in
theory culture. Economists insist that social science requires the theory-language of
mathematics, combined with an empiricist epistemology based in statistical inference; ge
ographers, after dabbling in location theory during the 1960s and 1970s, insist on quali
tative approaches, from dialectics to post-structural ontologies and qualitative empirical
analysis—rejecting, to boot, the possibility of value-free inductive empirical research
(Sheppard, 2014). These are, of course, false binaries: it is not necessary that
‘science’ (Wissenschaft) be value-free or quantitative (Longino, 2002), and political econ
omy need not be qualitative (Morishima, 1973). At issue here are self-representations and
otherings of disciplinary cultures and identities, whose essentialized characteristics are
belied by the heterogeneity of participants’ practices. Writing from my position as a quan
titative (and qualitative) geographical political economist—a geographer by inclination
and profession—in what follows I lay out the consequences of thinking geographically
Page 2 of 25
omy
about the capitalist space-economy in the form of nineteen propositions (a full explication
can be found in Sheppard, 2016). To those aligned with mainstream economics’ ortho
doxy, I can reassure you that these propositions can be logically grounded in the theory-
language of mathematics (albeit derived from very different assumptions about the
world). To those aligned with mainstream geography’s orthodoxy, these propositions
largely confirm geographers’ shared Weltanschauung.
What does it mean to think geographically about the economy, capitalism, or perhaps any
thing (Sheppard, 2015)? Firstly, thinking geographically means thinking through
spatiality. Geographical space (in its various manifestations: territory, distance, scale,
etc.) is not simply ‘out there’, an exogenous backdrop that shapes economic possibilities.
Rather, it is constructed—constituted through societal (and biophysical) processes. These
constructed spaces then have causal effect on things economic—the socio-spatial dialec
tic (proposition 1). But geography is not simply the discipline of space (contra Kant).
Thus, thinking geographically also is to think through the lens of an ‘interdisciplinary dis
cipline’: To attend to how economic, political, cultural, and biophysical processes (to
name but a few) are co-constitutive of one another. For a geographer, the economy cannot
be (p. 161) studied in isolation, nor is it defensible to claim that other processes are domi
nated by, or reducible to, economic processes (economism). The following propositions
derive from this starting point.
It is conventional to argue that any economic system involves three kinds of processes:
production; exchange and consumption; and the distribution of economic costs and bene
fits. Following this convention, I subdivide the propositions into geographies of produc
tion, exchange, and distribution. Yet a fourth cluster is necessary, covering the two ways
in which economic geographical thinking exceeds the study of capitalism: how economic
processes co-evolve with other processes (taking us beyond the economic), and how
capitalism’s inherent contradictions require consideration of alternative economic sys
tems (beyond capitalism).
Geographies of Production
Proposition 1: Geography is Produced (Not Exogenous): The Socio-
spatial Dialectic
It has been said that geography ‘is as exogenous a determinant as an economist can hope
to get’ (Rodrik et al., 2004, p. 133). Not so! Geographies are produced (Lefebvre, 1974
[1991]; Smith, 1984): places are transformed, the nature and significance of geographical
scales altered, and distance and connectivities reconstructed. In a capitalist space econo
my, its geographies also are brought to market. For example, transportation and commu
nications are commodities, manufactured and sold by industries specializing in these ac
tivities. Indeed, considerable private- and public-sector effort is invested in improving
their productivity because of the economic benefits associated with the accelerated mo
bility of capital, labour, and commodities (the attempted annihilation of space by time).
Page 3 of 25
omy
Further, recognizing their distinctive role within a multi-sectoral economy disrupts foun
dational propositions of both mainstream and Marxian economic theory (Sheppard and
Barnes, 1990). Discourses of the Anthropocene reference how features of the more-than-
human world (climate, soils, access to water) have also long been shaped by economic
processes. ‘Nature’ is steadily being commodified and thereby transformed, through ac
tivities ranging from fracking, mining, and agriculture, to genetic modification, environ
mental services, carbon markets, and human organ trading.
Once we acknowledge that geography is produced, some would conclude that geography
thus has no causal effect, obviating any need to theorize the impact of geography on eco
nomic processes. Again: not so! We have moved well beyond such thinking, acknowledg
ing that a phenomenon does not have to be exogenous to exert agency. Edward Soja
(1980) dubbed this the socio-spatial dialectic, by which he means that economic (and oth
er societal) processes shape the geography in which they find themselves, even as they
are themselves influenced by those produced geographies:
[S]patial structures shape spatial interdependencies, but in turn are shaped by

those same interdependencies. Human agency shapes structure, but broader
structural changes may undermine the efficacy of agency. Individuals share inter
ests across class and space lines (p. 162) (not to mention gender, race, etc.) that
can result in collective action and social conflict. Markets cannot automatically ar
bitrate these, and market-based outcomes need not be socially beneficial. [The
capitalist] space economy [is] a complex, non-linear system; one in which space is
no longer Newtonian and time is an emergent property (Plummer and Sheppard,
2006, p. 625).
Proposition 2: The Capitalist Space Economy is not Reducible to Mi

cro-foundations
This proposition disputes two overly simplistic models of causation that have dominated
the social sciences: that individual human agency is the only relevant causal force
(methodological individualism—mainstream economics’ microfoundations), or that hu
mans are deeply constrained by—even dupes of—broader social structures (structuralist
versions of Marxism, also found in anthropology and linguistics). Yet Karl Marx (2008
[1897], p. 15) famously quipped: ‘Men [sic] make history, but they do not make it as they
please’. This aphorism captures a central idea in social theory: structuration (Giddens,
1984). Structuration conceptualizes how human agency shapes broader-scale phenomena
—structures (including spatial organization)—whereas those produced structures, in turn,
shape the conditions of possibility of human agency. Structuration is the corollary of
proposition 1: a defining property of complex, non-linear dynamical systems is that they
generate emergent structures that alter the context in which smaller-scale processes and
actants operate. Micro-foundations, and structuralism, are ruled out.
Page 4 of 25
omy
The logic of structuration is exactly that of the socio-spatial dialectic, and thus can also
be termed a dialectical relationship of causality (irreducible to the specifications used in
most econometric models). Dialectical analysis focuses on the relations between entities:
‘Dialectical reasoning emphasizes the understanding of processes, flows, fluxes, and rela
tions over the analysis of elements, things, structures, and organized systems’ (Harvey,
1996, p. 49). Under dialectical reasoning, entities are neither stable nor well defined;
they are heterogeneous phenomena that emerge through relations. This is not the inclina
tion of mainstream economics, which conceptualizes individuals (but also firms, regions,
and nations) as quasi-autonomous entities with stable, well-defined properties. Economic
geography has undergone a relational turn, often framed as an alternative to (dialectical)
Marxian political economy (Yeung, 2005). Caught between these schools of thought, di
alectical reasoning is unpopular. This is a mistake. Dialectical reasoning can be mathe
matical and consistent with both complex systems theory and post-structural assemblage
theory (Rosser Jr, 2000; Sheppard, 2008).
Proposition 3: The Economy is Multi-sectoral
Writing before Adam Smith (1776) penned The Wealth of Nations, François Quesnay
(1753–58) noted that the economy is multi-sectoral. It cannot be reduced to firms acquir
ing inputs to make commodities, which then are sold directly to households. Rather, a
considerable component of the economy is capital goods—commodities sold by one firm
to another as an (p. 163) input to commodity production. Organizing the multitude of firms
into economic sectors, Russian émigré Wassily Leontief (1928) captured this complexity
through input–output analysis (tables depicting the flow of commodities between econom
ic sectors, as well as from sectors to households). Inter-regional input–output modelling
was a staple of regional science in the 1950s and 1960s (Isard, 1951), but is largely ab
sent from the ‘new’ geographical economics. This is a mistake; the complexities of a mul
ti-sectoral economy challenge the conventions of mainstream (geographical) economic
theory.
Ricardo and Marx, constructed simple multi-sectoral models of capitalism. The so-called
capital controversies of the 1960s laid bare the implications of taking multi-sectorality se
riously. It was demonstrated that the foundational claims of conventional macroeconom
ics, about scarcity, marginal productivity, and the capacity of factor markets to determine
societally appropriate wages and profit rates, are deeply problematic as they depend on
an untenable assumption about multi-sectorality (Harcourt, 1972).2 Mainstream econom
ics has sought to avoid this by assuming the existence of ‘regular’ input–output structures
(i.e. the subset of such structures that is consistent with neoclassical production func
tions), or by turning to micro-foundations (but see proposition 2). Setting aside such pret
zel-twisting assumptions, attention to multi-sectorality calls into question the validity of
some foundational parables of mainstream economics: the free-trade doctrine, self-adjust
ing growth models, the ‘highest and best use’ principle for land markets, and the setting
of wages and profit rates via market mechanisms (Steedman, 1979; Sheppard and
Barnes, 1990).
Page 5 of 25
omy
Proposition 4: A Capitalist Space Economy is Grounded in Commodi
ty Production, not Exchange
When it comes to understanding the functioning of the capitalist space economy, geogra
phers typically begin with places of production, not markets. The process of commodity
production necessarily takes time (unlike the instantaneous translation of the production
function), but also occurs across space.3 Political economists always have recognized the
necessary time lag between the moment when capital is advanced to finance production,
purchasing inputs (even if labour is paid ex post) in the expectation of realizing a profit,
and the moment, after the commodity has been manufactured, distributed to markets and
sold, when profits should be realized: the turnover time. The resulting rate of profit (gen
erally positive in a going capitalist concern) is calculated per unit of time (typically per
annum), and depends not only on the difference between revenues and costs, but also on
the turnover time. Production also extends across space, however: commodities (and in
puts) have to be moved from where they are produced to where they should be sold.
Transcending space takes time and effort, often entailing enhanced risk because of uncer
tainties about how to market commodities successfully in distant markets. Under globaliz
ing capitalism, this challenge of overcoming spatial barriers becomes increasingly impor
tant: the logistics necessary to make this happen (produced as transportation and com
munications commodities) remain a neglected area of study by economic geographers
(but see Cowen, 2014).
(p. 164) Proposition 5: Commodity Production is Political
It is well known that politics shapes outcomes within places of commodity production.
The apparent equity and rationality of a free labour market dissolves as purchaser and
seller of labour power enter the place of production: ‘The one with an air of importance,
smirking, intent on business; the other, timid and holding back’ (Marx 1967 [1867], p.
176). On the one hand, capitalists can enforce labour discipline, enhancing profitability
by extending working hours, speeding up production, and reducing hourly wages. On the
other, workers can organize (more easily in a large production facility), protest, work to
rule, and utilize other ‘weapons of the weak’ (Scott, 1985), to lower profit margins. This
implies that technological change cannot be reduced to the ratio of labour to capital, to
machinery, or the size of the production facility. Labour relations, governed by these un
equal politics of the workplace, and the micropolitics of work are also influential in shap
ing productivity.
Indeed, wages and profits are always inversely related in a capitalist space economy,
ranging along a wage-profit frontier (Sraffa, 1960; Sheppard and Barnes, 1990). The mon
etary surplus produced annually under capitalism (aggregate net revenue) is a pie to be
divided between workers and capitalists (as well as landlords and resource owners).
There is no rational, market-based outcome, whereby factor prices match marginal pro
ductivity. The position on this frontier, defining real wages relative to the mean profit
Page 6 of 25
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rate, depends on such non-economic factors as class power and cultural politics (Mann,
2007).
Proposition 6: There is More to Value than Price
The default measure of the value of a commodity is market price: this is what all econom
ic actors calculate and respond to. Conceptually, prices fluctuate around long-term prices
of production—a centre of gravity that depends on technology, competition, wages, and
profits. Firms seek to set prices for their commodities, seeking to maximize their rate of
profit over costs of production (Lee, 1998). Production factors—labour, capital, and land
(US Federal Reserve sometimes also adds entrepreneurship)—also are valued through
market prices (wages, profit and interest rates, rent). All these prices vary across space
and time. In a space economy, price setting is complicated by how the price of accessibili
ty (transportation/communications) as a commodity, itself varying across space and time,
shapes all other prices, sometimes in unexpected ways.
Yet profound questions remain about the adequacy of price as a measure of the value of
commodities; indeed, questions about whether value can be adequately quantified at all
(Barnes, 1996). Use value, the idiosyncratic question of what an object means to a partic
ular person in a particular place and time, is qualitative and subjective.4 As Marx noted,
exchange happens only when participants assess the use values being exchanged differ
ently: at the agreed-on price, each values the other person’s commodity higher than their
own. Marx also develops a sophisticated framework of labour value, correcting inconsis
tencies in earlier versions popularized by Smith and Ricardo. For an aggregate multi-sec
toral economy in equilibrium, the average monetary profit rate is only positive if workers
are exploited in labour value terms—Morishima’s ‘fundamental Marxian theorem’ (p. 165)
(Morishima, 1973). Empirical calculations of labour value closely correlate with prices of
production, and keep open the question how attention to labour value can bring distinc
tive insights into capitalism (see Henderson, 2013). But labour values also vary geograph
ically, inter alia as a result of incorporating the labour value of accessibility into calcula
tions of the labour value of all commodities, raising questions about the validity of claims
made on the basis of Marx’s aspatial value theory (Sheppard, 2004). This also opens
space to consider other measures of value—features common to all commodities like en
ergy and carbon, bringing their own optics to the study of capitalism (Georgescu-Roegen,
1971; Bergmann, 2013).
Proposition 7: Disequilibrium is the Norm
It is possible, in principle, to calculate a general dynamic equilibrium for any capitalist

space economy. For given technologies, there exists a unique geography of production,
relative quantities of output distributed across space, and associated production prices
(and labour values) that ensure that the economy would grow smoothly (as long as labour
grows at the same rate). But it does not follow that the actions of individual capitalists
and workers, mediated by market mechanisms, will converge on this equilibrium. Even in
an aspatial capitalist economy, this only happens if we are willing to assume that all indi
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viduals are self-interested rational actors, who already know in advance where the equi
librium should be (Duménil and Lévy, 1991).5 Yet the dynamical complexity is such that
human actors would need to have the reasoning capacity of Turing machines, which we
self-evidently do not. Take the elementary example of a two-sector (wage and capital
goods), two-region economy, where capitalists make profit-rate maximizing decisions
about how much capital to invest in commodity production in each time period. Unaware
of conditions for equilibrium, they make their best guesses based on what they know at
the time. Even when transport costs are zero, wages fixed, the politics of production is ig
nored, and no technological change, equilibrium is far from certain and dynamical com
plexity a distinct possibility (Bergmann et al., 2009).
The spatiality of capitalism compounds this complexity, increasing the likelihood that indi
vidual capitalists’ self-interested actions produce unintended aggregate outcomes under
mining their goals (e.g. actions believed to enhance individual profitability undermine ag
gregate average profitability) (Sheppard and Barnes, 1990). For example, Okishio (1961)
postulated that technical changes, calculated as cost-effective by firms, would always en
hance the average rate of profit. Not necessarily, in a capitalist space economy: technical
change need not enhance profitability, wide ranges of technologies coexist, and different
regions pursue quite distinct technological trajectories (Rigby, 1990; Webber et al., 1992;
Rigby and Essletzbichler, 2006). Indeed, regional economies of firms are evolutionary in
nature (Boschma and Martin, 2010; Martin and Sunley, 2015). For a multi-sectoral, multi-
regional economy (including transportation), Bergmann (2012) computes the dynamics of
technical change in each sector and region with fixed real wages. Firms choose stochasti
cally from sets of possible technologies developed by other firms, seeking to raise their
profit rate above the social average. Dynamical equilibrium is possible, but so is regional
collapse, inter-regional divergence, and divergence followed by reconvergence.
Suppose, nevertheless, that the economy were to find itself in dynamical equilibri
(p. 166)
um (by sheer chance, or state policy): would it stay there? No! Any such equilibrium in
cludes a wages–profit rate trade-off along the wage–profit frontier, which self-interested
capitalists and workers would rationally seek to destabilize. Gains for either social class
are possible at the expense of the other. Even in a simple spatial market, with firms com
peting with one another to sell to consumers, any spatial price equilibrium is unstable be
cause some firms can gain by departing from it (Plummer et al., 2012). Thus a capitalist
space economy has no Nash equilibria—stable states where everyone is contented and
that no one would rationally disrupt. It is a complex dynamical system that characteristi
cally is out of equilibrium, with conflicts of interest and crises the norm, not the excep
tion.
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Geographies of Exchange
Proposition 8: Perfectly Competitive Spatial Markets are an Oxy
moron
In a capitalist space economy, the mainstream ideal of a perfectly competitive market is a

never-never land. This has also been long recognized in geographical economics. Starrett
(1978) developed what has been dubbed the spatial impossibility theorem: ‘If space is ho
mogeneous, transport is costly and preferences are locally nonsatiated, then there is no
competitive equilibrium involving transportation’ (Ottaviano and Thisse, 2004, p. 2571).
Effects of local spatial monopoly are known to undermine the societal benefits presumed
to accompany perfect competition among retailers (e.g. Denike and Parr, 1970; Sheppard
and Curry, 1982). Krugman’s (1991) monopolistic spatial competition between firms only
generates quasi-perfectly competitive conditions (equilibrium, zero profits, utilities maxi
mized) when firms have identical technologies and the world is flat (no relative locational
advantage). Thus, in actually existing, spatially differentiated economies, the following
proposition 9 holds.
Proposition 9: Profit Rates are Positive
The capitalist space economy is not some halcyon market where spatial price equilibria
prevail, in which firms in competition, seeking to maximize total profits, never actually
make a profit (at least net of costs) (contra Lösch, 1954 [1940]; Krugman, 1991). In a spa
tially differentiated market, net profits are positive (and spatially variable, depending on
locational advantage). In fact, existing firms do not maximize total profits: they seek to
maximize the rate of profit to be made on the capital advanced prior to production—a
rate that depends on both the profit margin and the turnover time (Lee, 1998; Moudud et
al., 2013). But this is not just an empirical claim. In a spatially differentiated market, ra
tional firms would act to maximize their rate of profit, not total profits (Sheppard et al.,
1992). The fundamental Marxian theorem follows (proposition 6).
(p. 167) Proposition 10: Markets are Emergent
Seeking to present capitalism as making good on Adam Smith’s (1776) invisible hand
principle—that markets enable the self-interested actions of individuals to advance the
general societal interest—economists defined the norm of a perfect market, as well as
other market structures departing from this (e.g. monopolistic competition, duopoly, hier
archy, networks). These categories leached into economic geography (e.g. Greenhut et al.,
1987; Nagurney, 1987; Scott, 1988; Mulligan and Fik, 1989), notwithstanding concerns
about whether they survive the disruptive addition of spatiality (proposition 8). The rub
always has been that really existing markets never fit these categories; debates about the
possibilities of free trade and perfect competition become like those about how many an
gels can dance on the head of a pin. In the rare case that a perfect market can be identi
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fied ‘in the wild,’ it is not because capitalism naturally produces them, but because of the
imaginaries and actions of people in place (Garcia-Perpet, 2007).
Thus, actually existing markets are socio-spatial constructs, producing economic spatiali
ty (proposition 1). By now, a substantial literature, particularly in economic sociology, ex
amines ‘marketization’—how markets are constituted (Çaliskan and Callon, 2010): famil
iar territory also for economic geographers. Attending to these processes does not simply
mean examining the markets that emerge, and the spatialities they reflect and produce
(Berndt and Boeckler, 2012). It also means examining how the nature of really existing
markets reflects the economic—and geographical—imaginaries of those empowered to
make them (Mackenzie et al., 2008; Mackenzie, 2009). Markets are not ‘out there’; they
are made, as economists and economic actors construct the world they aspire to
(Mitchell, 2005). In short, capitalism is not legitimated by the invisible hand; its propo
nents use this myth to perpetuate its legitimacy.
Proposition 11: Unrestricted Inter-territorial Commodity Trade Re

produces Spatial Inequality
The free trade doctrine, stating that territories specializing in and exporting the appropri
ate commodities will mutually benefit from unrestricted commodity trade, is the macro-
geographical equivalent of perfect competition, transferring Smithian invisible hand dis
courses to the global scale. Its plausibility is undermined by the multi-sectorality and spa
tialities of capitalism. Even for a conventional two-region, two-commodity trade model,
the problems identified by Sraffa imply that standard trade theorems do not hold (Steed
man, 1979; Steedman and Metcalfe, 1979; Wong, 1995). Attending to the spatiality of
commodity production further undermines these theorems, raising questions about
whether it is even possible to identify appropriate specializations. The unintended conse
quences of individual capitalists’ specialization decisions also make it unlikely that such
actions would generate trading patterns satisfying the doctrine (Sheppard and Barnes,
1990; Sheppard, 2012).
Proposition 12: Uneven Geographical Financialization Matters
Living in an era of capitalism where the finance sector has vastly expanded its influence
over both the economy and daily life, economic geographers are paying increasing atten
tion to (p. 168) geographies of financialization. Finance is not readily incorporated into
mathematical models of a capitalist space economy, but poses no impediments to geo
graphical research.6 Responding to misguided claims that the flattened landscape of glob
al finance implies an ‘end of geography’ (O’Brien, 1992), geographers are documenting
the geographical differentiations and inequities associated with financialization. These
range from localized studies of financial exclusion, to financial labour, urban and regional
finance, the persistence of financial centres notwithstanding the dissipative forces of digi
tal trading, and to sovereign wealth funds, Islamic finance, sovereign wealth funds, and
global financial markets (e.g. Pollard, 1996; Leyshon and Thrift, 1997; McDowell, 1997;
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Dymski and Li, 2003; Clark and Wójcik, 2007; Pollard and Samers, 2007; Christophers,
2013; Clark et al., 2013; Dixon, 2014).
Geographies of Distribution
Proposition 13: A Capitalist Space Economy Entails Uneven Geo
graphical Development
A core conclusion of the trajectory of geographical research into the nature of a capitalist
space economy is that processes of commodity production, exchange, and consumption
do not level the playing field, thereby creating equal opportunities for all, regardless of
geographical location. Far from mitigating the socio-spatial inequalities preceding capital
ism, it reproduces and enhances such inequality. It is not the case that the socio-spatially
disadvantaged are doomed to impoverishment. Nevertheless, the spatial dynamics of cap
italism tend to create spaces of relative wealth, whose prosperity depends, inter alia, on
unequal (exploitative) relations connecting them with spaces of impoverishment—rela
tions that enhance rather than mitigate inequities between ‘north’ and ‘south’.
Phase shifts occasionally happen, undermining prosperity in core spaces and enriching
selective peripheral spaces (think of suburbanization, the rise of the sunbelt in the USA,
or China’s advancement). Yet the result is not regional convergence, but rewritten geo
graphies of inequality: uneven geographical development (e.g. Harvey, 1982; Smith, 1984;
Storper and Walker, 1989; Harvey, 2014). Such processes concatenate across all geo
graphical scales, consistent with evidence that neoliberal globalization has been an era of
expanded socio-spatial inequality (Milanovic, 2011; Chatty et al., 2014; Piketty, 2014
[2013]).
Proposition 14: Labour Geographies Matter
Contestations along the wage–profit frontier (proposition 5) are key to questions of distri
bution. Notwithstanding the decline of organized labour—a result of both neoliberaliza
tion and shifting geographies of production (abandoning places with a history of indepen
dent unions, casualizing labour, and reorganizing production into smaller, flexible, and
mobile units)—working populations retain the capacity to reshape economic geographies.
Those studying such labour geographies seek to understand the spatial strategies of
labour organizations, playing out across various interrelated scales that range from
places of production to regional- and national-scale organizing movements and labour
markets, to global struggles (p. 169) (Martin et al., 1996; Mitchell, 1996; Herod, 1998,
2001). It also involves examining the strategies and impact of more informal social move
ments that, inter alia, seek to shift the wage profit frontier, and the cultural politics sur
rounding the wage (Mann, 2007; Featherstone, 2012). These more specific struggles
themselves reflect and are shaped by the complex, co-evolving, geographies of social
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class—geographies that immensely complicate Marx’s ‘workers vs capitalists’ narrative
(Sheppard and Glassman, 2010).
Proposition 15: The State Matters
An inescapable consequence of the aforementioned propositions is that the capitalist

space economy is neither harmonious nor equilibrium-oriented. The politics and agencies
of the state, and legal rulings, are necessary for mitigating politically unsustainable in
equalities, regulating commodity production and exchange, mediating the politics of pro
duction, and addressing the multitude of ‘externalities’ associated with capitalist mar
kets. States (and legal systems) have their own spatialities, shaping the entanglements of
politics with a capitalist space economy (Blomley et al., 2001; Brenner et al., 2003; Ag
new, 2012). Geographers have devoted much effort to understanding the spatialities of
state governance, seeking to illuminate how these vary across space, as well as over time,
and across geographical scales (Tickell and Peck, 1992; Brenner, 2004; Peck and
Theodore, 2007). They also analyse how policy mobilizes through space-time, is trans
formed along the way, and articulates with local conditions where it comes to ground
(Roy, 2010; Peck and Theodore, 2015). The broader goal is to illuminate how shifting po
litical agendas are co-implicated with capitalist spatial dynamics.
Exceeding the Capitalist Space Economy

Proposition 16: Capitalism is Cultural
With the emergence of cultural industries, economic geographers have taken a lead in
studying how cultural practices are commodified and brought to market, and the cogni
tive labour involved (Scott and Power, 2004; Markusen et al., 2008). But there is more to
culture and economy than this (Barnes, 1995). Culture is about the relationship between
identity, imaginary, and practice. Economic agents are not quasi-autonomous individuals
driven by exogenous preference functions. They are species-beings whose norms, desires,
and ethics emerge through geographically and socially differentiated processes of social
ization. Their distinct socio-spatial positionalities emerge relationally and intersectionally
(Valentine, 2007; McDowell, 2015), and through power-laden interactions with other (hu
man and non-human) agents. Seemingly persistent, positionalities also can shift unexpect
edly (Sheppard, 2006b). They can be reshaped by economic forces (e.g. advertising), but
emergent identities (gendered, raced, spaced, sexualized, etc.) can also shape commodity
production and exchange—the dialectic again at work. Beyond this are broader processes
through which hegemonic discourses shape economic activities. Understanding the emer
gence, power, and impact of discourses, including their spatio-temporal differentiation, is
the domain of cultural theory (Foucault, 1971; Derrida, 1976). Yet these have powerful
economic implications (p. 170) (Thrift and Olds, 1996; Thrift, 2005). Consider, for example,
how shifting discourses catalysed the dramatic shift in economic norms from Keynesian
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ism to neoliberalism in geographically variegated ways (Mirowski and Plehwe, 2009;
Peck, 2010).
Proposition 17: The Economy is More than Human
Economic geographers have long attended to the biophysical environment, usually reduc
ing it conceptually to a material input for the economy: agricultural and resource geogra
phers have examined how resources are extracted from what was conventionally seen as
an inert ‘nature’, exogenous to the economy (Rees, 1990; Grigg, 2003; Auty, 2007). But
we now know better: humans reside in a more-than-human world that is as embedded in
us as we are in it (Haraway, 1997; Whatmore, 2001; Braun, 2009). Economic (and other
societal) processes and the more-than-human world are mutually constitutive. The nature
and driving forces of geological, geomorphological, biological, and meteorological
processes are quite distinct from those of economic and societal processes. Their articula
tions are not reducible to economic logics, but neither are they determined by immutable
natural laws.
The capitalist space economy seeks to domesticate the more-than-human world to its log
ics, through such processes as commodification, full-cost pricing, carbon markets, and
technological innovations to control and shape nature. At the same time, more-than-hu
man processes consistently exceed and escape such attempts at their containment, re
shaping economic processes (O’Connor, 1991; de Landa, 1997). The immense complexity
of entanglements between the economy and the more-than-human world raise profound
questions about the capacity of mainstream (geographical) economic theory to account
for the evolution of a capitalist space economy, but are an active area of economic geo
graphical scholarship (e.g. Harvey, 1996; Castree, 2005; Bakker and Bridge, 2008; Bum
pus and Liverman, 2008; Robertson and Wainwright, 2013).
Proposition 18: Economic Analysis is a Moral Task
Notwithstanding genuflections to the supposed goal of social science as an impartial and

eventually truthful understanding of the world, questions of morals and ethics cannot be
set aside from studying the economy (Sayer, 2007). There is an inescapably value-laden
frame for all research, whether or not we seek to elevate it by using the adjective ‘scien
tific,’ particularly given the failure of all attempts to identify a philosopher’s stone that is
capable of turning base research into golden truth. Logical positivism, often resorted to
by those seeking to claim scientific impartiality, failed in its attempt to identify such a
foolproof method (Passmore, 1967; Sheppard, 2014).
The best we can do, then, is much more modest—a mutual critical engagement between
different explanations and interpretations of the world, each shaped by the experiences
and norms of differently positioned investigators. Views about justice, imaginaries of
what constitutes a good world, and the nature and extent of our moral community infuse
the very labels framing contemporary geographical research into the economy (radical,
critical, feminist, etc.). But, equally, they are central to mainstream economic orthodoxy,
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whose (p. 171) theories legitimize claims about the societal benefits of globalizing capital
ism, at least in principle. Thus, there can be no single, privileged theory of the economy—
a monism that is no longer subject to question. There will always be multiple, differently
situated theoretical perspectives (in and beyond geography) that should be prepared to
learn from one another (Longino, 2002; Barnes and Sheppard, 2010). Beyond this are the
vital and always-fraught questions of professional ethics, particularly with respect to aca
demics’ relations with the world that we seek to illuminate and change. The anticanonical
nature of geography has the merit of forcing us to attend to such issues, although much
remains to be done to problematize this.
Proposition 19: Alternatives to Globalizing Capitalism are Necessary
We live in a world where it is taken for granted that the capitalist space economy is glob
al. The logics of commodification and marketization seem ubiquitous, and operative at
every geographical scale—pervasive in the public, as well as the private, sector, and seep
ing through the pores of everyday life. Along with this are powerful discourses, associat
ed particularly with this neoliberal era of globalization, that globalized capitalism is the
best (or least worst) form of economy—capable, in principle, of enabling anyone to pros
per and realize their desires. Failure to succeed is characteristically laid at the feet of in
dividuals (unable or unwilling to make the most of the opportunities available to them), or
places (condemned by bad governance, culture, or geography). Geographical political
economy reaches a different conclusion, however. Not only is capitalism far less ubiqui
tous than it seems, but the possibilities associated with such alternatives should be taken
seriously.
Reiterating a long-standing interest by geographers in diverse economic systems stretch

ing back to the early-twentieth-century era of what they termed commercial geography,
geographical political economists have undertaken important and influential work, docu
menting how the capitalist space economy is far less prevalent than it seems. Notwith
standing appearances, our world is also constituted through all kinds of non- or more-
than-capitalist economic processes and logics. Recognizing this diversity of economies
creates critical space to imagine and practice alternatives to capitalism (Gibson-Graham,
1996, 2006; Gibson-Graham et al., 2013). But this is about much more than an existence
claim that diverse economies are ever-present. If socio-spatial inequality is endemic to
any capitalist space economy (proposition 13), then it is vital to experiment with alterna
tives, attending also to how they articulate with capitalism, if we are to move closer to a
world where socio-spatial justice, and justice to our more-than-human cohabitants, is re
alizable (Low and Gleeson, 1998; Harvey, 2000; Sheppard, 2011b).
Conclusion
I have sought to lay out the broad lineaments of a shared vision of geographical political
economy, clarifying what differentiates now-orthodox geographical thinking about eco
nomic geography from now-orthodox mainstream (geographical) economics. The im
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mense (p. 172) diversity of the scholarship gathered under geographical political economy,
in topics, philosophical claims, and methodologies, is simultaneously its great strength
and a potential weakness (Sheppard and Barnes, 2000; Tickell et al., 2007; Barnes et al.,
2012). It is replete with passionate theoretical debates and seemingly intransigent di
vides, supplemented by a wealth of provocative and illuminating empirical studies reflect
ing these different positions. Many of its participants might well resist the label ‘geo
graphical political economy’ at all, seeing their work as quite distinct from Marxian politi
cal economy (often personified as disagreements with David Harvey and his ilk). My claim
is that the eclectic community of critical economic geographers, notwithstanding their
differences, would nevertheless be willing to endorse these nineteen propositions (albeit
prioritizing these claims very differently to that implicit in my sequencing). In this sense,
geographical thinking about the economy has a shared Weltanschauung; a commonality
to return to when things seem to be falling apart at the seams (Barnes and Sheppard,
2010).
Even if I have been somewhat successful in identifying a set of core claims, it goes with
out saying that much remains to be done. My priorities would include: a deeper engage
ment with transportation and communications—the commodities and logistics that hold
globalizing capitalism together, and their mobile workforces (Cowen, 2014); the digitizing
economy (the Internet of things, the misnamed ‘sharing economy,’ the availability to firms
of individualized data on consumption and shopping behaviour, three-dimensional print
ing, etc.); the relationship between the economy and the more-than-human world—a
defining interest of our discipline still plagued by the spectre of environmental determin
ism; and more engagement with the economic geography of the postcolonial world—in
cluding the crucial question whether a geographical political economy, honed through
studies of the North Atlantic realm, is applicable to the very differently positioned soci
eties of the postcolony (Pollard et al., 2011). Others will have much to add to this list, a
symptom of the ongoing vitality and promise of geographical research on economies.
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Notes:
(1.) Related experiences, notwithstanding the occasional counter-example (e.g. Garretsen

and Martin, 2010), have pushed some economic geographers to advocate abandoning al
together any attempts at such engagement (Amin and Thrift, 2000; Peck, 2012).
(2.) This assumption is that all sectors have identical input requirements—the same as
sumption that is necessary for Marx’s transformation problem to work.
(3.) Neoclassical economics reduces production to a quasi-exchange, whereby capital

goods, labour, and technology, demanded by the firm, are translated into goods supplied
(output) by means of a production function.
(4.) Mainstream economics equates market price with marginal utility, but this necessi
tates adopting the profoundly unrealistic presumption (proposition 16) that consumers
are rational, autonomous individuals with exogenously determined preferences, are fully
informed, and seek to maximize personal utility.
(5.) Krugman’s spatial equilibria face the same problem (Fowler, 2011).
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(6.) Finance and money are conspicuous by their absence from canonical texts of geo
graphical economics (see Combes et al., 2008; Brakman et al., 2009; Duranton et al.,
2015).
Eric Sheppard
Eric Sheppard ([email protected]) is Alexander von Humboldt Chair and

Professor of Geography at the University of California, Los Angeles. His research in
terests lie in geographical political economy, uneven geographies of globalization,
neo-liberalism, urbanization in the Global South, urban sustainability and environ
mental justice, and critical geographical information systems. He has published more
than 100 journal articles and twelve books. He serves on the editorial boards of Eco
nomic Geography, The Journal of Economic Geography, and Human Geography. Be
tween 2013 and 2014 he was President of the Association for American Geographers.
Page 25 of 25
Relational Research Design in Economic Geography

Harald Bathelt and Johannes Glückler
This chapter discusses the nature of relational research designs that aim to overcome
separations between different disciplinary perspectives within economic geography and
create linkages to other academic fields. The relational approach is a comprehensive re
search perspective grounded in three principles of relationality of economic action: con
textuality, path dependence, and contingency. Using the cases of manufacturing versus
professional services clusters, it is shown that the relational approach does not proclaim
a meta-theory of economic organization in space but provides a framework for contextual
theorization, adjusted to the specific sectoral and technological contexts under investiga
tion. Relational research designs across academic fields agree (i) that social relations be
tween people and organizations are key to understanding the contemporary economy, (ii)
that economic processes rest on the spatial and temporal interplay between regional and
global networks, and (iii) that innovation and learning depend on simultaneous inter-firm,
intra-organizational and community-based interactions and relations.
Keywords: cluster conceptions, geographical lens, linkages across academic fields, relational economic
geography, relational research design
Introduction: Why a Relational Research De

sign?
In recent years, the field of economic geography has exhibited tendencies not only to
wards segmentation and disintegration, but also towards expansion and reintegration.
Within the context of geography, increasing separations between economic and cultural
orientations and quantitative and qualitative approaches can be observed. At the same
time, a powerful, yet careful, convergence of research interests has occurred across disci
plines such as regional economics, economic sociology, and business and management
studies, all of which have become more interested in questions of unequal distribution
and development of economic activities across space. While being committed to their own
research traditions, a gradual dialogue has emerged which crosses disciplinary bound
Page 1 of 21
aries, for example in the Journal of Economic Geography, which was launched in 2000
with the specific goal of driving such debates.
The ‘relational approach’ is one conceptual tool that aims to overcome separations be
tween different disciplinary perspectives and support cross-disciplinary engagement
(Bathelt and Glückler, 2011). It facilitates productive conversation across academic fields
by embodying a broader social science perspective that applies economic, social, institu
tional, cultural, and political dimensions to the study of economic action (Yeung, 2005).
Relational economic geography analyses economic processes from a spatial perspective,
which generates immediate positionality in studying the specificity and diversity of places
and the flows and interdependencies between them, as well as the spatiality of process
outcomes. It is this analysis of economic and social processes from a spatial perspective
that has attracted interest from other disciplines.
The goal of this chapter is to illustrate how the relational approach enables us to concep
tualize questions and problems in economic geography and how this can facilitate links to
(p. 180) studies in neighbouring fields that focus on similar research objects. Those ques
tions that bring these different research agendas together are fundamental to economic
and social life because they focus on both the processes that drive economic action and
interaction and on their outcomes across space. This is shown in this chapter by investi
gating one specific research question, namely: What are the different ways in which firms
and industries benefit from geographical agglomeration? The goal is to illustrate key prin
ciples of the relational approach and to characterize elements of what we refer to as a re
lational research design. The relational approach is not a theory of economic geography
per se, but a comprehensive research perspective grounded in principles of relationality.
The remainder of this chapter will trace the implications of these principles for the design
of relational research practices.
Fundamentals of the Relational Economy

As opposed to conventional approaches in economic geography that use spatial struc
tures or spatial variables as a starting point for analyses, the relational approach focuses
on the actors most relevant to the problem or question under investigation (Bathelt and
Glückler, 2003; Clark and Tracey, 2004). For instance, instead of using data about spatial
cost structures (alongside other variables) to conduct aggregate statistical analyses and
draw inferences about the decline of regional economies, the relational approach investi
gates the specific technological and institutional contexts and processes that affect the
performance of the corresponding economic actors. By studying corporate linkages and
the relationships between firms in the value chain, the relational approach identifies the
conditions under which firms make localized and trans-local decisions and how this de
pends on the presence of complementary and competing businesses in other regions.
There are three different principles that guide a relational research design in fundamen
tal ways (Bathelt and Glückler, 2011): context, path dependence, and contingency. Firstly,
it is crucial to recognize the context within which specific producer–user relations unfold.
Page 2 of 21
It is this context that drives technological change and generates global competitiveness.
Economic interaction is always fundamentally contextual in nature. Secondly, and related
ly, firms base their decisions on pre-existing structures that have resulted from prior deci
sions and from their evaluation of these decisions. The resulting reflexivity of economic
decision-making translates into path-dependent economic processes, in the course of
which pre-existing economic structures impact future developments. Thirdly, this does
not imply, however, that pre-existing structures or economic contexts determine the out
comes of economic decision-making (Sayer, 1992, 2000). In fact, they do not. Firms may
operate under the same conditions as their nearby competitors, yet they may draw differ
ent conclusions from their rivals about how to differentiate themselves or address a dis
tinct customer clientele. Specialization and differentiation are fundamental principles of
competitive behaviour, which is why economic decisions and their outcomes are contin
gent in nature and not predetermined. A relational research design is thus built around
the fundamental principles of contextuality, path dependence, and contingency of eco
nomic action and interaction, and how these principles translate into spatial and cross-
spatial structures and linkages.
This perspective resonates with concepts of the milieu school (Crevoisier and
(p. 181)
Maillat, 1991), the global production networks approach (Dicken et al., 2001; Yeung and
Coe, 2015), and practice theory (Jones and Murphy, 2011; Faulconbridge, 2017), as well
as other approaches in economic geography that explicitly focus on the interdependen
cies between actors and the situated nature of social and economic relations (e.g. Dicken
and Malmberg, 2001; Hayter, 2004; Hudson, 2004). Recently, and in a similar way, La
gendijk (2017) conceptualizes regional development through processes of circulation, tra
jectories, and logics, fundamentally drawing on a multiple-agent perspective. In all these
approaches, economic action is understood to occur in networks and structures of social
relations that develop in dynamic ways, influenced—yet not determined—by prior action.
Contextual Theorization and the Cluster Ap

proach
One important field in which relational approaches have been widely applied is cluster re
search. Based on Porter’s (1990) seminal work, the cluster approach has signalled an im
portant step forward in management studies by recognizing that a firm’s competitiveness
does not merely rely on its own capabilities, but also depends—sometimes crucially so—
on linkages with suppliers and users and the competitive environment in the industry. The
cluster approach utilizes a relational framework to understand the competitiveness of
firms (Delgado et al., 2016) and extends the analysis of economic action from a corporate
to a territorial perspective, which can be national or regional in character depending on
the specific analytical focus. The cluster approach has generated manifold opportunities
for cross-disciplinary exchanges and created linkages between economics, management,
and economic geography (Porter, 2000). However, as will be shown in the following sec
tions, there is no single cluster concept that establishes a general theory of agglomera
Page 3 of 21
tion. The explanatory framework to understand clustering processes needs to be adjusted

to the specific sectoral and technological contexts under investigation. To illustrate this,
this chapter uses a regional cluster approach and applies it to two different sectoral con
texts: manufacturing and professional services.
Manufacturing Clusters and Know-how Dynamics
The conventional cluster approach has primarily been applied to manufacturing indus
tries. To understand why manufacturing clusters exist, how they grow, and through which
mechanisms they reproduce themselves (Malmberg and Maskell, 2002), value-chain-
based explanations related to Porter’s (1990) original conceptualization have been devel
oped. This work has shown that three conceptual levels of cluster relationships can be
distinguished, each of which is crucial for cluster development and the corresponding
learning and interaction processes. These levels can be distinguished according to (i) the
type of value-chain relationships with other firms (i.e. vertical vs horizontal); (ii) the spa
tial context of relationships (i.e. (p. 182) local/regional vs cross-local/cross-regional); and
(iii) the institutional context of reproduction (Bathelt and Glückler, 2011).
A crucial feature of the first conceptual level of cluster relationships is the diversity of the
learning mechanisms in the cluster’s value-chain linkages. On the one hand, firms are
vertically linked through supplier–producer–user relationships that are complementary in
character (Maskell and Malmberg, 1999; Gordon and McCann, 2000). They produce com
plementary products and benefit from interactive learning processes in generating new
products. This may take the form of co-development of product designs with core suppli
ers or systematic feedbacks from co-located users (von Hippel, 2001; Gertler, 2004). The
learning mechanisms in place here rely on repeated interaction and direct contact be
tween technical specialists. Collaborating with cluster firms has clear advantages in this
case, as it reduces transaction costs (Scott, 1988). On the other hand, firms in clusters al
so benefit from being close to competing firms that produce the same or similar products
and are horizontally related in the value chain. These firms typically have no intention to
collaborate. Rather, they keep developments and new product strategies secret from their
competitors. Being co-located in a cluster, however, creates all sorts of cross-organiza
tional knowledge flows about new product developments or technological changes, based
on rumours, gossip, and personal relationships. This supports the emergence of a specific
knowledge ecology, or local ‘buzz’ (Storper and Venables, 2004). Cluster firms benefit
from these knowledge flows as they operate under similar cost structures and can quickly
identify the reasons why competitors are more or less successful. This generates rivalry
and enables horizontal learning based on observation and monitoring (Glückler, 2013; Li,
2017), which facilitates product differentiation. Essentially, it is the combination of both
horizontal and vertical relations that drives cluster growth.
These arguments suggest that studies of manufacturing clusters should not only be based
on a transaction perspective alone, but they also need to attend to related knowledge
flows. Indeed, recent conceptualizations have emphasized the role of knowledge creation
and transfer (Pinch et al., 2003; Bathelt et al., 2004). This links to the second conceptual
Page 4 of 21
level of cluster relationships, which concerns their spatial context. More precisely: while
cluster-based, internal linkages and knowledge flows may be very effective, owing to lo
calized vertical and horizontal learning processes, important technological breakthroughs
or fundamental changes in consumption patterns may take place in other regional/nation
al markets or competitive environments. These are the changes that require firms to be
open to developments outside the cluster. To avoid lock-in into regional technology paths
and suboptimal localized solutions and strategies, which could cause competitive prob
lems in the future (Grabher, 1993; Clark and Tracey, 2004), cluster firms need to engage
actively in building relationships with partners in other regions and countries. In other
words, they need to establish trans-local or ‘global knowledge pipelines’ (Bathelt et al.,
2004; Owen-Smith and Powell, 2004).
The need for local cohesion and relationship building, as well as trans-local openness to
access different knowledge ecologies, also has consequences for the third conceptual lev
el of cluster relationships. This directs our attention to the institutional context (Glückler
and Bathelt, 2017). Regional clusters benefit from shared institutional settings that have
developed over time based on common experiences and continuous interaction within the
same technological context, supported by specific cluster policies, research networks,
and training programmes. Such coherent settings support the development of highly spe
cialized labour markets, allow for efficient knowledge exchanges with co-located part
ners, and generate (p. 183) manifold opportunities for interaction and learning. However,
if such institutional contexts are too narrow, too exclusive, and too self-referential, cluster
actors may become over-embedded in the localized knowledge ecology (Uzzi, 1997) and
easily miss out technological and market opportunities that are related to institutional
settings outside the cluster (Bathelt et al., 2004; Owen-Smith and Powell, 2004). This dan
ger may be exacerbated by strong regional power asymmetries and rigid hierarchical
power relations, which limit opportunities to break out of dominant routines and institu
tional arrangements and constrain technological change (Dicken et al., 2001; Allen,
2003).
Related conceptions have been used to explain the competitive advantage of manufactur
ing clusters that rely on a value-chain-based organization. Such analyses emphasize dif
ferent dimensions of knowledge generation and suggest that clusters can grow and repro
duce themselves by capitalizing on synergies across these dimensions and avoiding trade-
offs between them (Bathelt and Glückler, 2011). Inter-firm relationships in the context of
manufacturing clusters develop in order to access technological know-how by mobilizing
both local and trans-local knowledge flows.
Professional Services Clusters and Know-who
Professional and knowledge-intensive services are highly concentrated in certain cities,

some of which have become leading international centres of finance, media, advertising,
legal, accounting, and consulting services. The growth of these services favours existing
urban clusters over other locations (Glückler and Hammer, 2011). To account for the de
velopment of dynamic professional services clusters, a different explanatory approach is
Page 5 of 21
needed than that discussed for manufacturing because some assumptions underlying con
ventional cluster research do not apply to professional services. For example, compared
with manufacturing, professional services firms maintain limited vertical value-chain rela
tions with suppliers. Transaction costs and vertical learning processes are thus less im
portant. Additionally, despite the fact that geographical proximity is important to cus
tomers, professional services firms often find the majority of their clients outside of their
immediate catchment area. To understand why knowledge services firms cluster in urban
centres, it is necessary to take these differences into account through context-specific
theorization. The focus of analysis has to shift from backward production linkages to for
ward market relationships (Keeble and Nachum, 2002), from cost considerations to busi
ness opportunities (Johannisson, 1990), and from technological know-how to relational
know-who (Lundvall and Johnson, 1994).
Firstly, instead of linear and sequential transactions along vertical value-chain linkages,
knowledge services follow the logic of so-called ‘value shops’. The value shop framework
(Stabell and Fjeldstad, 1998) that does not rely on vertical relationships captures the
problem-specific alignment of resources and scheduling of activities in response to client
problems. In the context of professional services, problem-solving activities often need to
be carried out precisely in the locations where they are later applied. This impedes the
exploitation of economies of scale through a spatial division of labour in upstream activi
ties. And although the value shop model puts much emphasis on external collaboration,
the required expertise and choice of partners varies with each specific problem at hand.
This need for flexibility runs counter to the rationale for establishing durable relations
among co-located professional services firms. What is important instead is the ‘communi
cation nodality’ (Keeble (p. 184) and Nachum, 2002) of large and interconnected cities,
which facilitates mobility and access to remote partners and clients.
Secondly, while conventional understandings of manufacturing clusters identify local ex

ternalities from a cost perspective, conceptualizations of professional services clusters
need to focus on business opportunities. This is done in the concept of ‘economies of
overview’ (Johannisson, 1990) that applies a demand-side perspective to highlight impor
tant urbanization advantages. These derive from the business opportunities that emanate
from a comprehensive awareness of markets, actors, and recent developments in the
field. Such opportunies increase with the number, diversity, and density of nearby market
participants, intermediaries and multipliers, generating substantial agglomeration advan
tages for large cities. However, if transactions are not important at the local level, the
question remains as to why many knowledge-intensive services firms cluster in metropoli
tan areas. It is here where a shift to a relational perspective is needed, extending cluster
theory by moving from local to trans-local externalities that result from a city’s connectiv
ity with the international city system. The utility of an urban business location can be
viewed as a firm’s access to strategic partners and clients in other locations. This view
suggests that cities generate urbanization advantages because they enable firms to real
ize trans-local externalities in the global network economy (Moulaert and Djellal, 1995).
Page 6 of 21
Thirdly, we need to fit our conceptualization to the type of innovation that dominates
within the specific context at hand. Knowledge services do not produce the same kind of
innovation as manufacturing firms. Since the crucial challenge for firms is how to acquire
new clients for highly specialized services, know-who (Lundvall and Johnson, 1994) be
comes a particularly important form of knowledge. It becomes crucial to mobilize infor
mation, referrals, and reputation through networks of interconnected actors across place
and space. The entrepreneurial value of know-who relates to the fact that it yields busi
ness opportunities by utilizing economies of overview. And urban clustering generates the
size, density, and internal diversity of a pool of specialized firms required to maximize
reputational spillovers. In fact, compared with other services firms, those located in ur
ban services clusters have higher shares of clients and revenues from other regions and
win new clients more frequently through reputational spillovers (Glückler, 2007). This evi
dence underlines the importance of know-who and the economic significance of geogra
phies of reputation in such contexts. Moreover, it suggests that the better connected a
city is with other cities in the urban network, the higher the likelihood of local firms find
ing business opportunities in other places.
The two cases of manufacturing and professional services clusters suggest that cluster
conceptions need to be designed in a relational way. Cluster developments are not uni
form processes and should not be expected to fit a ‘global’ theory. Depending on the con
text, conceptual adjustments have to be made to integrate the specific conditions of eco
nomic action and interaction and to highlight relationships between those variables that
matter.
Reflexivity of Interaction in Spatial Perspec

tive: The ‘Geographical Lens’
The considerations on cluster conceptions illustrate the importance of incorporating a
spatial perspective in a relational approach, as a ‘geographical lens’ (Bathelt and Glück
ler, (p. 185) 2003) that aims to understand economic action and interaction and their con
sequences. Individual actors such as managers and workers are localized in certain
places, defined by the location of their firms and homes, and this is reflected in the differ
ent logics by which they operate in their roles as entrepreneurs, innovators, suppliers,
and consumers. As they perform multiple professional and private roles at the same time,
the place where they operate becomes a focal point where connections with other actors
intersect, overlap, and are bundled. And as these connections are also social in character,
the patterns of relationships that develop do not follow purely economic rationales, but
involve elements such as trust, feelings, and emotions (Bathelt and Glückler, 2011; Jones
and Murphy, 2011).
Firstly, economic actors perform different roles and in each role they develop networks of
relationships with other actors in order to benefit from specialization within the social di
vision of labour. For instance, as innovators they specialize in certain aspects in the re
search process while relying for the supply of parts on the technological expertise of oth
Page 7 of 21
er actors. At least initially, these kinds of relationships may be localized—especially if the

different roles are performed routinely in everyday practices. As a consequence, the same
actors are involved in a number of different and spatially overlapping activity networks.
This creates interdependencies, as resources from one type of relationship can be utilized
in different functional networks in the same localized context.
Secondly, as several networks of relationships of the same type co-develop around differ
ent actors, interdependencies emerge between them. For instance, competitive relation
ships develop with little direct interaction between these networks, even though these re
lationships draw on the same resources and generate opportunities for knowledge
spillovers. This supports the development of specialized labour markets and local supplier
networks. However, co-location may also generate opportunities to create localized ‘net
works of networks’ leading to broader collaborative practices and economies of scale. In
any case, whether by design or otherwise, knowledge flows also develop across multiple
co-located networks of the same type.
Thirdly, economic actors can extend their activity space by connecting with actor net
works in other places through mobile practices such as business travel (Yeung, 2005).
Through the use of modern transportation and communication technologies such places
and their networks can be accessed over large distances (Bathelt and Henn, 2014). But
even if they are relatively close, they may be characterized by different institutional, cul
tural, and political settings, and different sets of material resources may shape their func
tional networks. As a result, different technology and knowledge bases exist in these
places and trigger different kinds of labour market dynamics, specialization tendencies,
and institutional practices. The generation of linkages across different contexts requires
effective understanding and the generation of new professional and/or personal trust (Et
tlinger, 2003). While this may be difficult and risky at first owing to limited experience
and a lack of oversight and local power (Allen, 2003), it may become more of a routine
process over time as mechanisms are developed to reduce uncertainties in trans-local
linkages. All of these processes generate fundamental interdependencies between similar
and different functional networks across space.
Finally, an even higher level of complexity in spatial networks develops as migration and
relocation create permanent linkages across distant localities and territories, sometimes
on a global basis (Dicken et al., 2001; Faulconbridge, 2017). Firms merge with potential
partners in other regions worldwide and develop multiple local identities. This generates
fundamentally interlinked and closely integrated global knowledge networks that extend
the (p. 186) advantages of co-present relationships based on ‘relational proximity’ (Amin
and Cohendet, 2004) across territorial boundaries. This enables firms to combine aspects
of familiarity with otherness, to connect ‘here’ and ‘there’, and to integrate the economy
at the micro and macro scale. It is this level of integration that creates permanently inter
linked economic spaces of relationships that are simultaneously characterized by inter
linked local, trans-local, and global dynamics.
Page 8 of 21
In short, the relational approach requires a spatial perspective as economic action and in
teraction do not occur in a spaceless world. They take place somewhere, are grounded in
and across specific territories, and are embedded in multiple and sometimes-distant
knowledge and resource bases, creating linkages and interdependencies across these
places (Bathelt and Glückler, 2011).
Creating Linkages with Other Fields

It is this recognition of the importance of a geographical lens in relational approaches
that has drawn related social sciences to adopt a spatial perspective and develop an inter
est in economic geography research. With increasing globalization, this has become quite
pronounced in recent years. Aside from fields such as cluster and global value-chain re
search and innovation, global finance, and entrepreneurship studies, where close ties
with economic geography have already existed for some time, numerous other research
programmes have established closer links with economic geography through relational
conceptualization. This has created new trans-disciplinary research agendas.
International Business Studies
Some exchange between the fields of international business and economic geography has
always taken place. Economic geographers have, for instance, used findings from interna
tional business studies to analyse the spatial consequences of foreign direct investments
in developing contexts (Phelps, 2007). And economic geography conceptions of global
production networks (Dicken and Malmberg, 2001; Dicken et al., 2001) have developed
from prior work on global commodity chains (Gereffi and Korzeniewicz, 1994). Despite
these shared research interests, however, both fields have only slowly engaged in more
substantive interdisciplinary exchanges. In the context of cluster research in economic
geography, for instance, the emphasis on localized learning processes has been broad
ened to include fundamental interdependencies between local and global knowledge
flows (Maskell and Malmberg, 1999; Bathelt et al., 2004)—a conceptualization that has
drawn the attention of international business scholars. In globalization research, econom
ic geography studies have focused on the role of trans-regional networks and on the re
gional consequences of internationalization processes (Phelps, 2007), while international
business analyses, following Ghoshal and Bartlett (1990) and Dunning (1993), have con
centrated on the development of intra-organizational networks at the cross-national level
(Cantwell and Mudambi, 2011). However, interactions between economic geography and
international business studies have become more intensive in recent years, especially
with the rise of the global (p. 187) knowledge economy and converging relational research
designs (Beaverstock, 2004; Bathelt and Cohendet, 2014; Giuliani, 2017). This has gener
ated opportunities for cross-disciplinary debate (Lorenzen and Mudambi, 2013; Cohendet
et al., 2014).
Page 9 of 21
Industrial Marketing
Similar convergence processes can be observed between the fields of industrial market
ing and economic geography, for instance in research on trade fairs (Bathelt et al., 2014;
Rinallo et al., 2017). Industrial marketing studies traditionally portray trade fairs as
events that enable producers to advertise and sell their products to buyers. In contrast,
conventional economic geography research focuses on the spatial patterns of trade show
activity and their regional economic impact. Both research streams have shown that link
ages between trade fairs and their regional/national economic environment become
weaker over time. With the observation that the importance of transactions at these
events has declined (Borghini et al., 2006), while their role as facilitators of knowledge
generation processes has become crucial, knowledge-based conceptualizations of trade
fairs have developed, which have triggered cross-fertilization between both fields. In eco
nomic geography, trade fairs have been conceptualized as ‘temporary clusters’ that en
able producers to meet with actors from faraway and learn about trends in global indus
try and technology fields (Maskell et al., 2006). Through interaction and observations,
participants can draw important conclusions for product development and initiate the de
velopment of networks with distant partners. In industrial marketing, a complementary
discourse about ‘temporary markets’ has emerged, which explains how interaction pat
terns between sellers and buyers vary according to different trade fair types and how the
knowledge strategies of trade fair organizers affect these events (Rinallo and Golfetto,
2011). The combination of both perspectives has led to a comprehensive knowledge-
based conceptualization of trade fairs (Bathelt et al., 2014) and triggered cross-discipli
nary research (Gibson and Bathelt, 2014; Li, 2014; Maskell, 2014). In particular, this con
ceptualization does justice to the variety and complexity of the relationships that develop
between trade show specialization and territorial economic specialization. Rinallo et al.
(2017) identify a number of ways in which economic geography and industrial marketing
perspectives can engage in broader cross-disciplinary research agendas.
Economic Sociology
The 1990s and 2000s have also witnessed a convergence towards relational thinking
(Fourcade, 2007) in economic sociology research on network analysis, actor networks,
and organizational fields. Emirbayer’s (1997) early manifesto for a relational sociology
has become a central point of departure that has been echoed across the field in recent
years (Pachucki and Breiger, 2010; Mische, 2011; Powell and Dépelteau, 2013). Propo
nents of relational sociology reject both holistic (macro) and individualistic (micro) think
ing and rather emphasize the need to understand social life by studying social relations. A
belief shared in these approaches is the ‘anti-categorical imperative’ (Emirbayer and
Goodwin, 1994), which rejects a substantialist understanding of social phenomena as
monadic entities and instead conceives them as rooted in social relations. Relational
thinking thus shifts the analytical (p. 188) focus from attributes and categories to context,
process, and emergence (Mutch et al., 2006). While conceptual debates, for example re
garding the understanding of networks (Grabher, 2006), have sometimes developed inde
pendently in the two fields, the relational perspective has become a source of exchange
Page 10 of 21
and commonality between them. Both are interested in the emergence and effects of so
cial structures, such as culture, power, institutions, trust, reputation, and social capital,
on economic development in spatial perspective.
Organization and Network Studies
Another point of cross-fertilization is the intersection of the fields of organization studies

and economic geography, which share a common interest in how new knowledge is creat
ed and mobilized (Glückler and Doreian, 2016). Scholars in organization studies have
adopted network theories (Brass et al., 2004) to study processes of collective learning
and innovation in intra- and inter-organizational relations (Powell et al., 1996; Uzzi, 1997;
Zaheer et al., 2010). Network theories of creativity, learning, and innovation that concep
tualize ‘structural holes’ (Burt, 1992), ‘structural wholes’ (McGrath and Krackhardt,
2003), or ‘structural folds’ (Vedres and Stark, 2010) emphasize that social outcomes are
contingent on both the relational positions of actors in and the overall connectivity of a
social network. While this line of research originally ignored geographical aspects or sim
ply viewed the region as a container confining the focal agents’ actions and interactions,
recent approaches have identified geography as a source of contingency for organization
al change and social outcomes (Whittington et al., 2009; Glückler et al., 2017). The geo
graphical dimension has been found as crucially moderating the association between net
work structure and innovation (Owen-Smith and Powell, 2004) or directly affecting the
structure and dynamics of network formation (Powell et al., 2005). Relational economic
geography has responded by applying network theory to challenges, such as learning in
project ecologies (Grabher, 2004), controversial innovation in organizational and geo
graphical peripheries (Glückler, 2014), or localized knowledge spillovers (Breschi and Lis
soni, 2009; Ter Wal and Boschma, 2009). A recent area of convergence between both
fields is the attempt to understand the dynamic ‘rewiring’ of networks in spatial perspec
tive (Panitz and Glückler, 2017) by theorizing multilevel networks across the spatial
scales of local and global markets and across social scales, such as interpersonal and in
ter-organizational relations, in permanent (Lazega, 2017) or temporary proximity (Brailly
et al., 2016).
Political Economy
Studies in the political economy literature on varieties of capitalism have shown how cap
italist economies develop specific institutional arrangements that trigger distinct national
economic development paths. Adopting a ‘relational perspective of the firm’, which focus
es on the actions and interactions of economic agents within a national setting, the vari
eties of capitalism approach draws particular attention to ‘deliberative institutions’,
which provide the basis for ongoing interaction and exchange (Hall and Soskice, 2001). It
uses a microscale perspective to generate explanations at the macro-level about dispari
ties in capitalist development (Peck and Theodore, 2007) and thus offers manifold oppor
tunities to link (p. 189) with relational perspectives in economic geography. While related
research sometimes still remains committed to a macro-perspective and has been charac
terized as deterministic (Crouch, 2005; Faulconbridge, 2008), the varieties of capitalism
Page 11 of 21
approach provides an important explanation of why economic agents may find it easier to
interact with partners from the same institutional context. This work is therefore closely
linked with investigations by innovation scholars and economic geographers on national
systems of innovation (Lundvall, 2017). This interconnection is illustrated in the work of
Gibson (2018), who uses a bottom-up perspective similar to Hall and Thelen (2009) to
combine political economy and economic geography research questions. Gibson shows
that, rather than promoting convergence of industrial structures between national vari
eties of capitalism, global exchange processes during trade fairs instead support ongoing
specialization and sustained differentiation in technology use and adaptation between
them.
To sum up, researchers from various fields across the social sciences increasingly share
relational perspectives in developing theory. They agree (i) that social relations between
people and organizations are key to understanding the contemporary economy, (ii) that
economic processes rest on the spatial and temporal interplay between regional and glob
al networks, and (iii) that innovation and learning depend on simultaneous inter-firm, in
tra-organizational, and community-based interactions and relations (Bathelt and Glückler,
2011).
Conclusion: Communalities of a Relational Re

search Design
The selection of a research design is a fundamental element of empirically grounded, reli
able, and ‘useful’ theory. The purpose of this selection is to lay out the conceptual founda
tions for an empirical research programme that allows research questions to be answered
as clearly as possible. Research design deals with logical rather than logistical problems
(De Vaus, 2001), and demands consistency between the research questions, theoretical
categories and arguments, operational measures, and empirical observations for the sake
of both internal and external validity. In this chapter we have shown that a relational re
search design embraces the richness of context and the indetermination of change and
that it participates in the increasing conversation among related fields about the space
economy. The analysis presented suggests that there is no single-best relational ap
proach. Rather, different modes of enquiry suit different disciplinary foci and research
contexts. These relational approaches enable cross-fertilization between disciplinary de
bates based on a number of communalities:
(i) A relational research design assumes that it is necessary to study social relations
between actors to understand social and economic outcomes. Accordingly, society
and economy do not ‘have’ relations per se, but are constituted through them.
(ii) Consequently, a relational design is contextual in nature and therefore sensitive
to a rich set of conditions and meanings embedded in time-space-situated phenome
na.
(p. 190) (iii) A relational research design presumes outcomes as necessarily contin
gent and thus prioritizes case-sensitive empirical analysis over the search for univer
Page 12 of 21
sal laws. Because variation is endogenous to context the outcomes of situated prac
tice and specific relations need to be conceived as open-ended and undetermined.
(iv) A relational research design is interested in analysing process rather than
causality and traces the way in which interactions and relational conditions lead to
certain outcomes over time. As process is conceived as undetermined, social and eco
nomic development is theorized as path-dependent in historical perspective and con
tingent with respect to the future. A relational design therefore prefers evolutionary
concepts of change over deterministic or life-cycle frameworks.
(v) A relational research design relies on a spatial perspective, as a geographical
lens (Bathelt and Glückler, 2003), through which research questions are framed and
the economic process is traced across places and spaces and between scales. Geog
raphy is neither reified as an ontological identity or a container of characteristics,
nor is physical distance used as an explanatory variable of social interaction and eco
nomic outcomes. Instead, a geographical lens leads to research questions about the
density, distance, diversity, and disparity of social and economic phenomena.
(vi) Finally, a relational research design is non-idiosyncratic in that it aims to gener
ate abstract and transferable findings. Although relational theories embrace context
and are non-universal, they must involve conceptual abstraction if the concepts,
mechanisms, and processes they employ are to be applicable across multiple con
texts. It is therefore important to distinguish between the necessary and contingent
conditions of a particular context (Sayer, 2000) in order to increase the external va
lidity of emergent theorization. Relational theories can thus be characterized as ‘the
ories of the middle range’ (Merton, 1949) that are close enough to the empirical case
to ensure richness and internal validity (authenticity), and, at the same time, ab
stract enough to develop transferrable theories (structuration) that account for varia
tion, context, and contingency, while resisting universal, scale-free, or deterministic
expectations.
Acknowledgements
We wish to thank Gordon Clark for his encouragement, and Daniel Hutton Ferris for edi
torial support.
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Harald Bathelt
Harald Bathelt ([email protected]) is the Canada Research Chair in ‘Inno

vation and Governance’ at the Department of Political Science, University of Toronto,
Canada. He also holds an appointment as Professor in the University of Toronto’s De
partment of Geography and Planning. His research and teaching interests are in the
areas of industrial and economic geography, political economy, and methodology,
specifically in the analysis of knowledge generation and innovation processes over
distance, industrial clustering, and the socio-economic impacts of regional and indus
trial change. For the past six years, Professor Bathelt was a Visiting Professor at the
East China Normal University in Shanghai, China, and was previously a Visiting Pro
fessor at the University of Heidelberg, Germany and HEC Montréal, Canada. Since
2012, he has been editor of the Journal of Economic Geography.
Johannes Glückler
Johannes Glückler ([email protected]) is Professor of Economic and Social

Geography and Fellow of the Marsilius Center of Advanced Studies at Heidelberg
University. His research and teaching focuses on economic geography, organization
studies, network theory, and the service industries. He is co-founder of the MSc pro
gramme ‘Governance of Risks and Resources’ at the Heidelberg Center for Latin
America in Santiago de Chile, where he regularly teaches methods of social re
search. He has also been Visiting Professor at the University of Salamanca, Spain,
since 2009. Apart from basic research and teaching, he has provided consulting ser
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vices to federal ministries, chambers of commerce, industry associations, corpora

tions, and civil society organizations on questions of regional development, innova
tion, and organizational networks.
Page 21 of 21
Behaviour in Context
Gordon L. Clark
The behavioural revolution has profoundly affected how we conceptualize behaviour. The
rational agent of standard microeconomic theory has been found wanting and, in its
place, new formulations have been presented which take seriously human traits like my
opia and loss aversion. Here it is argued that the behavioural revolution offers a way of
understanding common problems in economic geography, such as co-location, clusters of
innovation, the diffusion of innovation, and home bias. It is noted that earlier versions of
behaviouralism stressed bounded rationality but underestimated the far-reaching conse
quences of the behavioural revolution. To explain the significance of these developments
for understanding the intersection between cognition and context, we look closely at be
haviour in time and space. The implications of behaviouralism for institutions are briefly
considered, emphasizing the role that collective action in or through institutions can play
in ameliorating the adverse effects of behavioural biases and anomalies.
Keywords: behaviour, cognition, context, institutions, rationality
Introduction
HUMAN behaviour is fundamental to our understanding of economy and society. What
people do, where they do it, why they do it, and the costs and benefits of behaviour, indi
vidually and collectively, are key topics of research. It could hardly be otherwise. Being
self-conscious, responsive to the environment, and having regard for the consequences of
our actions in relation to others’ actions and interests, human behaviour is both subject
and object. There are various ways of explaining human behaviour, some of which objecti
fy behaviour as in the rational agent of conventional economic theory (Becker, 1962). Oth
er explanations emphasize the diversity of human experience, giving priority to the ‘con
text’ or ‘environment’ in which action takes place (Pettit and McDowell, 1986). As such,
context stands for the cultural, economic, and social formations that frame but do not
necessarily determine behaviour.
Page 1 of 21
There are reasons to be cautious of the reach of agent-centred models of behaviour. It is

easy enough to begin with the individual, attribute preferences, what they hope to
achieve, and then explain how they go about realizing goals and objectives. This is the
standard mode of reasoning in much of microeconomics (Almenberg and Dreber, 2013).
There are, however, limits to what people can achieve on their own account. These limits
are to be found in their cognitive capabilities, learning and reflective capacities, and ma
terial resources. Where they recognize the constraints on their prospects, people may
seek to transcend these limitations in various ways. For example, collecting better infor
mation and knowledge may give people a deeper understanding of their options and
prospects, thereby enabling them to rethink their future plans. Still, the context in which
people live can impose hard constraints on human prospects. Indeed, how they think
about themselves and others in context can systematically frame behaviour and expecta
tions.
Not surprisingly, researchers often focus upon the formal and informal mechanisms that
frame people’s options. Social science researchers often acknowledge that their own
frames of reference can also be important in characterizing observed behaviour—our po
sition, our goals, and objectives, and the communities of scholarship in which we work
are all significant in this regard. Over the years, sharp lines have sometimes been drawn
between (p. 197) economists and geographers in relation to the significance to be attrib
uted to ‘context’ when seeking to explain observed behaviour. Tools such as indifference
curves, utility functions, and systematic models of behaviour have enabled economists to
cut through the clutter of everyday life to impose order on observed behaviour. If univer
sal in its ambition, critics contend that this strategy fails to do justice to the specific cir
cumstances (history and geography) of behaviour (Clark, 1998). It can also give rise to
misleading recipes for public policy (see Easterly’s critique of the Washington consensus
(Easterly, 2014)).
Economic geography tends to treat context as the centrepiece of explanation. Here, there
is much less about the ‘rational agent’ and much more about how circumstances and so
cio-demographic factors such as gender, race, and income interact to shape patterns of
behaviour. For example, Clark and Whiteman’s (1983) model of US urban labour market
behaviour demonstrates that a central-city location combined with limited resources sys
tematically shapes job-search behaviour so as to reinforce spatial patterns of income in
equality and unemployment. In a way, this type of model foreshadowed more recent at
tempts to explain the consequences of co-location for information acquisition and assess
ment (see Storper and Venables, 2004). At the limit, this approach to behaviour in context
subsumes behaviour by context such that individuals’ goals and aspirations mirror con
text, leaving ciphers rather than active agents. In effect, the objects of research are
meant to stand for the richness or otherwise of specific kinds of situations.
In this chapter, I review the relevant literature on behaviour in context with due regard to
recent developments in both economics and geography. In doing so it is assumed that
people are generally rational. This presumption is grounded in human evolution and relat
ed research (see Hurley and Nudds, 2006). But, as indicated in the next section, the defin
Page 2 of 21
ition and attributes of rationality individually and collectively are subject to debate. In
any event, just because we are rational does not mean to say that we are always effective
decision-makers. Here, I consider the implications of recent research on individual deci
sion-making in time and space. Throughout, a distinction is made between rationality, an
attribute of human beings, and people’s inherited and learnt decision-making competence
given the nature and scope of the problems that people must deal with in their everyday
lives. Whereas much of the literature focuses upon decision-making in time, I suggest
that decision-making in space is more challenging and, perhaps, more important than de
cision-making in time.1
There is little doubt that the behavioural turn in economics was given legitimacy and mo
mentum by the path-breaking research of economists and psychologists such as Herbert
Simon, Daniel Kahneman, and Amos Tversky. Many others have been involved in the re
search programme, which has extended over more than fifty years. To the extent that this
research programme bears upon risk and uncertainty, the work of Keynes (1921) and
Knight (1921) can be seen as the foundations for the modern treatment of the meaning
and significance of time. In geography, behaviouralism has been an ever-present thread
found, for example, in the early work of Hagerstrand (1967), Webber (1972), and Wolpert
(1980). Indeed, Golledge et al.’s (1972) research programme on behaviour is representa
tive of an important stream of research on spatial cognition shared by geographers and
psychologists alike. In economics and geography, behaviouralism now makes important
claims for recognition (Strauss, 2008, 2009), reinforced by the utility of behaviouralism
for understanding behaviour in global financial markets (Clark, 2011).
(p. 198) Rationality

A core assumption underpinning cognitive science and psychology is that human beings
are rational; that is, humans have an instinct for self-preservation. Drawing on evolution
ary theory, cognitive scientists believe that this instinct is characteristic of human beings
whatever the context or environment in which they are situated. Taking the argument one
step further, it is conceivable that this shared trait has come to dominate the human
species because it is consistent with species’ persistence and reproduction; that is, it has
come to dominate via the process of natural selection.2 By definition, this is a statement
about the world as observed rather than a claim made about how people ought to behave
or should behave (a normative standard) (see Pliske and Klein, 2003).
Many social scientists categorize behaviour as more or less rational as if there is a contin
uum or gradation in levels of rationality. Here, there appear to be two basic approaches.
One approach is concerned about the means by which a priori specified goals and objec
tives are realized. Here, the issue is whether the means chosen by which to achieve those
goals and objectives are consistent with individuals’ interests—more precisely, whether
they are the best available means such that the optimal outcome, or set of outcomes, is
realized. So, at this level, means and ends can be expressed through an objective function
(ends), a set of instruments or mechanisms by which those ends are achieved (means),
Page 3 of 21
and a set of constraints or limits on realizing those ends. If we assume, as many econo
mists do, that people maximize their utility, then rational agents are those who choose the
best possible combination of means to realize desired ends.
Using a normative test of rationality, observers of human behaviour can evaluate whether
the means chosen to achieve desired ends are more or less effective, given the available
options. So, for example, given a choice of means in relation to a priori specified ends, ob
servers should be able to determine whether a chosen instrument, or set of instruments,
is superior to another instrument or sets of instruments in realizing those ends. Of
course, it could be that people have insufficient information to assess adequately the rela
tive performance of various instruments. As a consequence, they may be led to certain ac
tions that, upon receipt of better information about the relative performance of other in
struments, prompt them to abandon old instruments in favour of better ways of realizing
their goals and objectives. A significant body of research in economics, and to some ex
tent in economic geography, has been concerned with the causes and consequences of
variable information for human behaviour and social welfare (see Stiglitz, 2000).
Another test of the rationality of behaviour is whether chosen goals and objectives are
consistent with individuals’ self-interest: whether they enhance welfare as opposed to be
ing self-defeating, and are either neutral or positive with respect to the opportunities of
others to similarly pursue their interests. Inconsistency of behaviour is sometimes inter
preted as arbitrary decision-making and, ultimately, self-defeating behaviour (Thaler and
Sunstein, 2008). But, of course, being consistent in the face of changing circumstances
can also be self-defeating. Harming or, worse, exploiting others could be advantageous in
the short term but self-defeating in the long term. So, rationality also involves self-reflec
tion, learning, and adaptation. In a well-functioning society, arbitrary and exploitive be
haviours are likely to violate social norms and conventions associated with cooperation
and collaboration—both of which may be necessary if individuals are to realize their sepa
rate but interrelated goals. In this context, cooperation may be a precondition for individ
ual action, not the product of behaviour.
Just as we can evaluate individual behaviour against tests of internal rationality,

(p. 199)
we can also evaluate individual behaviour in relation to others against tests of external
rationality. Whether these tests of rationality are plausible depends upon the assumptions
we make about the context in which behaviour takes place. It may be difficult to realize
desired goals and objectives if information relevant to human decision-making is uneven
ly distributed, has scarcity value, and is costly to verify. In some situations, information
relevant to decision-making may have such value that it becomes a pawn in games of self-
seeking and competitive behaviour. There may be situations in which individuals can only
realize their objectives at the expense of others. In these circumstances, governments can
play a significant role in regulating the context of behaviour such that the rules that de
fine legitimate behaviour are consistent with individuals realizing their separate but relat
ed interests. By this account, context could matter a great deal—witness recent research
on the institutional preconditions for economic growth and development (Geif, 2006).
Page 4 of 21
Herbert Simon (1956) suggested that observed behaviour is produced at the intersection
between cognition and context. By his assessment, neither is sufficient as an explanation
of behaviour. His scissors metaphor stands for an enormous body of research in psycholo
gy and related disciplines on the processing of signals from the environment. Simon made
other substantial contributions to behaviouralism. He and his colleagues at Carnegie Mel
lon showed that there are physiological limits to humans’ capacity to process signals from
the environment. Referencing the nascent science of computer processing, he suggested
that there are limits to humans’ capacity to store information, retrieve past data, and
process new information against relevant benchmarks.3 Playing off of economists’ com
mitment to a strong version of human rationality, Simon suggested it be replaced with a
more realistic conception of ‘bounded rationality’. Given the limits of human cognition
and the importance of context, he argued that utility maximization was implausible; peo
ple make decisions as best they can, oftentimes ‘satisficing’ rather than maximizing utili
ty.
Unfortunately, Simon’s argument has been misunderstood. For some analysts, bounded
rationality is treated as a special case and the conventional standard of rationality holds
sway. For other analysts, satisficing has been treated as something less than ideal—an un
witting compromise that can be corrected given sufficient time and effort. Simon was at
pains not to discount the rational intentions of human agents. By his account, the out
comes of decision-making are subject to all manner of complications, some of which re
flect limited cognitive capacity in the context of risk and uncertainty. For other analysts,
the idea that humans adapt to acknowledged cognitive limits and the options and re
sources of their immediate environment would seem to discount the possibility of a uni
versal model of human nature. Just around the corner, in fact, is a form of cognitive-cum-
environmental determinism which would return economic geography to a bygone era. It
would also deny the importance of human aspirations, the context, and the possibility of
transcending context.
Coping with Time

Notwithstanding the significance of Herbert Simon, the behavioural revolution in eco
nomics was driven by Daniel Kahneman and Amos Tversky (1979). Much has been writ
ten about their path-breaking research on individual decision-making and the systematic
(p. 200) anomalies and biases identified thereof (see Baron, 2008). Like many cognitive
psychologists, Kahneman and Tversky did not dispute whether humans are ipso facto ra
tional, but focused upon the competency of individual decision-making in the context of
risk and uncertainty (time). They, as well as others following in their footsteps, have
shown that many people heavily discount the future, are loss averse, and are subject to
status quo bias. They also showed that how problems are framed tends to affect how peo
ple solve them; that is, instead of looking through problems to their underlying proper
ties, people are seduced by their perception of problems in relation to other problems
(see Clark et al., 2006, 2007).
Page 5 of 21
Kahneman and Tversky set off a far-reaching search in cognitive science and behavioural
psychology for other anomalies and biases. Recent surveys of research in the area have
identified over sixty such traits (see Krueger and Funder, 2004). It is not my intention
here to identify and explain the nature and scope of these anomalies and biases. Rather, I
focus upon two specific attributes of human experience: all people, whatever their cul
tures or socio-demographic characteristics, act in time and space. Inevitably, individual
decision-making is located at a particular time, with regard to past experience and expec
tations about the future, and in a particular place, with regard to local circumstances and
other possible action spaces. Being located at a particular time and in a specific place
provides individuals with an experiential legacy, as well as a set of possible options and
resources (Shafir et al., 1997). In this section, I deal with time and in the next section, I
deal with space. This separation is necessarily arbitrary for the purpose of exposition.
For many people, everyday life here and now dominates decision-making. The actions
they take in relation to the choices available are well defined in that there are few salient
options. In any event, most choices are marginal to people’s established patterns of liv
ing. In these circumstances it is easy enough to predict with a high degree of confidence
the costs and benefits (consequences) of taking one action relative to other options. At
one level, it is arguable that the degree of certainty varies by social position, stage in life,
and institutional setting (Sharpe, 2007). At another level, it is arguable that as most peo
ple are loss averse, the choices they make over a sequence of related courses of action
tend to place a premium on certainty over uncertainty. That is, current decisions inte
grate selected valued attributes of the past with the desired attributes of the immediate
future. Even so, there are some people who have a preference for more rather than less
risk; a minority are willing to gamble in ways that put at risk their future well-being
(Clark et al., 2009).
When facing similar or analogous choices, people tend to formulate ad hoc rules that
come to stand in place of an analysis of each and every situation. These rules can be for
mally constituted as in if X and Y then decision Z but are more likely heuristics, which are
rough-and-ready approximations of a known world (Gigerenzer et al., 1999). If we were to
utilize an optimizing framework to explain individuals’ decision-making processes, the
adoption of formal as opposed to informal decision rules could be explained by the likely
costs and benefits of each calibrated against past experience with respect to expectations
of the future. However, cognitive psychology disputes the realism of such a formulation.
Assuming they trust intuition over reflection, people are likely to adopt rough-and-ready
decision rules without regard to the full range of past experience and an assessment of
current and expected circumstances (Kahneman, 2003). People tend to recall past experi
ence in a selective manner; having made a decision to act in a certain way people look
back for evidence legitimating such a decision. They allocate scarce cognitive resources
to more difficult issues.
There are, of course, more challenging situations. For example, financial markets
(p. 201)
are subject to risk and uncertainty. In normal circumstances, risk can be approximated by
a probability distribution (although the choice of the probability distribution may be a sig
Page 6 of 21
nificant issue in its own right). By contrast, uncertainty refers to a class of events that are
either unknown or, if known, for which their likelihood of occurrence is unknown (Keynes,
1921; Knight, 1921). Whereas financial markets may experience episodes of relative sta
bility where risk metrics provide a reasonable basis for investment decision-making, mar
ket stability may be disturbed by unanticipated events or shifts in behaviour that under
cut the utility of past practices. As recent evidence has shown, these types of events or
behaviour can come from outside of financial markets or be an endogenous property of fi
nancial markets. One response to unanticipated market events is to assess whether and
to what extent investors should adapt risk-related decision-making protocols to accommo
date these circumstances.
An immediate response runs the risk of overreacting to an event, which is shown later to
be mere ‘noise’ in the context of the known range of market events (Stambaugh, 2014).
Equally, an immediate response could be an appropriate reaction to an event, which is
shown later to be indicative of a shift in the underlying distribution of market events.
There is a risk of underreacting, as well as overreacting, to market signals. The standard
way of dealing with this issue is to assume market agents are Bayesian theorists; that is,
they continuously evaluate market signals against the inherited distribution of market
events and update their expectations accordingly. There is no doubt that some, perhaps a
large number of, investment professionals in financial markets use Bayes’s theorem in
this manner. However, many people do not revise their expectations (financial or other
wise) in a Bayesian manner, being preoccupied with new information (events) as opposed
to its relative significance (Jones and Love, 2011). While people can be taught Bayesian
reasoning, it appears that they are not intuitively Bayesian (Gigerenzer et al., 1999).
Our research suggests that how people cope with risk and uncertainty (time) depends up
on the circumstances in which these issues are pertinent and the domain-specific skills
and expertise of those that must operate in these circumstances. So, for example, being
knowledgeable about probability, having experience in applying these statistical tools to a
range of relevant events, and having calibrated and re-calibrated models of market move
ments can provide these types of decision-makers with the skills and expertise needed to
cope with the unexpected. This does not mean that they are always successful in coping
with risk and uncertainty. But it does mean that, over the long term, these types of deci
sion-makers are more effective in coping with risk and uncertainty than neophytes (Clark
et al., 2012).
Going on recent experience, financial markets can be considered ‘extreme’ environments,

quite foreign to the everyday circumstances of most people. However, as national govern
ments have discounted the expected value of state pensions and have sought to encour
age people to save for retirement either directly or indirectly through financial instru
ments, many millions of people have been drawn into the problem of managing time. This
involves managing short-term decisions in relation to long-term interests, adapting expec
tations and behaviour to shifts in financial markets and performance, and judging recent
Page 7 of 21
events in relation to the past and future where knowing whether a recent event is ‘singu
lar’ can only be known in the future.
(p. 202) Home Bias

As indicated in the previous section, much of the research spawned by the behavioural
revolution has treated human behaviour in the context of risk and uncertainty as an ex
pression of how we cope with time. Research on how we discount the future has brought
to light the fact that while many people heavily discount the future, others value highly
both the immediate and distant future but discount the medium term (Ainslie, 2001; Laib
son, 2003). Just as importantly, it can be shown that some people value the immediate fu
ture but are unable to provide a coherent valuation scheme (discount function) beyond it
(Clark et al., 2006). People are temporally myopic. They are also spatially myopic in that
they tend to value opportunities close at hand and discount opportunities further away.
Distance decay functions are expressions of this apparent fact of everyday life.
In much of the behavioural finance literature, this phenomenon is summarized as home

bias: an apparent local bias in financial decision-making, despite better opportunities for
profit or benefit located further away. For example, Hong et al. (2004, 2005) show that
the structure and composition of mutual fund investment products designed and man
aged in Boston and offered to US retail investors have evident similarities consistent with
a local or neighbourhood effect (taking into account asset class and investment style). Hu
berman (2001) shows that financial institutions’ investment strategies tend to be biased
in favour of their jurisdictions of origin, notwithstanding the risk-related benefits of geo
graphical diversification. Early research in economic geography on the diffusion of inno
vation assumed that the rate of adoption of an innovation from a point of origin is best
characterized as a distance decay process. In a similar vein, tendencies of co-location
have been associated with preferential access to richer sources of information associated
with spatial agglomeration (Storper and Venables, 2004).
The standard way of explaining home bias is to invoke the costs associated with search
ing for, and validating, information relevant to individual decision-making. If we assume
that economic agents maximize profit (and minimize costs), if we assume that the per unit
costs of information acquisition and validation increase with increasing distance from the
site of the decision-maker, and if we assume that signalling costs on the buy side and sell
side of the market also increase from the site of the decision-maker then home bias can
be seen as a response to the spatial configuration of the market. Arrow (1984, p. 171)
claimed that learning is always more effective if done locally: ‘an explorer in hitherto un
known territory will find it easier to explore new areas near to those he has already cov
ered. Geographical propinquity is but a special case.’
Behavioural approaches provide a rather different take on the problem. It is easy enough
to show that where a person is located frames the search process such that the available
local options tend to squeeze out other similar options located further away and deny the
salience of different options not directly observable in the local community. Risk aversion
Page 8 of 21
is also an important element in the story. It is easy enough to show that local options may
be perceived to carry less risk than similar options offered by vendors located further
away. Even if it can be shown that distant options offer greater benefits than local op
tions, Kahneman and Tversky’s (1979) formulation helps explain why, in these circum
stances, decision-makers may prefer local commitment over the possible upside of distant
but untried options. In this (p. 203) way, the preference for the local over the global can be
explained by reference to status quo bias: the preference for repeating past behaviour in
a known situation rather than initiating the assessment and choice of alternative courses
of action elsewhere (Samuelson and Zeckhauser, 1988).
At the heart of behavioural psychology is an assumption that behaviour is experiential.

That is, how people frame issues, assess options, and make decisions is based upon past
experience, the use of information from the immediate environment, and expectations of
the near future (in time and space). See, for example, Shafir et al. (1997) on the framing
of inflationary expectations and Clark (2012) on why people prefer investing in local prop
erty over financial products that offer a diverse portfolio of global stocks. Being experien
tial, we can imagine situations that are rich in beneficial possibilities and situations that
are poor in beneficial possibilities (Smith and Easterlow, 2005). To the extent that people
are trapped in the latter situation by virtue of limited resources and the lack of choice
and decision conditions that encourage risk-taking (boot-strapping) in favour of a desired
future, then people can be knowingly myopic; that is, they are self-conscious of their limit
ed prospects.
Social and behavioural scientists tend to present time as a linear sequence running from
the past, to the present, and to the future. The past is our (selective) memory of behav
iour and events, the present is essentially the events we must deal with or accommodate,
and the future is actually a set of expectations or beliefs based on the past and (especial
ly) the present extended into the future. We cannot return to the past, directly. But we
may face repeated instances of past events. Equally, we may see in new events sufficient
similarities to past events that allow for the use of past experience to inform contempo
rary decision-making. At the limit, Keynes (1921) suggested that reasoning by analogy
provides a way of systemising decision-making even if people tend not to use Bayes’s the
orem. However, people may face a series of events that are not amenable to such decision
procedures. In these situations, loss aversion may paralyse decision-making.
Geography is more complicated. Even if experience of other places may not be as impor
tant as in situ experience, experience of other places can prompt revision of preferences
and expectations. Indeed, given the significance often attributed to isolated events, vivid
experience of other places can assume considerable importance notwithstanding the
habits associated with local living. As Keynes (1921) intimated, there is an issue of
salience: the degree to which experience elsewhere can be applied to local circum
stances. But geography is also an issue of scale (Tversky, 1992). That is, the local in rela
tion to the regional, the national, and the international. Indeed, what counts as a local
event may be an expression of processes that originate not only elsewhere, but also fur
ther up in the spatial hierarchy. Inflation is a case in point. It can be expressed in terms of
Page 9 of 21
local consumer prices, but it typically originates in global commodity markets, national
monetary policy, and regional housing markets.
Quite clearly, people experience local consumer prices and the turbulence or otherwise of
regional housing markets. The implication of behavioural psychology is that if people
were to frame expectations about global commodity markets and national monetary poli
cy, they would do so through their experience of local consumer prices and housing mar
kets. But, as is well appreciated, the causal pathway between local and global economic
processes tends to run from the global to the local, less often from the local to the global.
There are exceptions. For example, the London property market could affect UK price in
flation and, hence, UK monetary policy.
But how do we know? Implied is a causal chain linking property with prices and
(p. 204)
policies. At the highest level of abstraction, theoretical principles based upon established
points of reference would drive the interpretation. At a lower level of abstraction, any
such linkage would be estimated empirically via an econometric model. And yet, there are
reasonable disagreements among experts about the theory of price formation and the di
rection of causation. Likewise, estimating empirically any such relationship is only a
game played by experts or policymakers. Either way, few people are able to make a rea
soned assessment of the issue. So, most people fall back on experience, more often than
not the most recent experience rarely past experience. In this sense, experience is always
partial and the lessons drawn from experience need not always lead to effective decision-
making. In fact, experience can paralyse rather than enhance decision-making, especially
in circumstances where the costs of decision-making are entirely personal (Benartzi,
2015).
To illustrate the costs of experiential learning, consider the following. Naive property in
vestors tend to overemphasize local property prices and often fail to appreciate how local
prices are associated with property prices in adjacent suburbs except when a certain
property appears a ‘bargain’ or as ‘expensive’ (Clark, 2012). Importantly, naive investors
focus on the idiosyncratic attributes of their chosen property, failing to recognize that the
causal linkage between property prices and monetary policy means that, sometime in the
future, the cost of borrowing will affect their capacity to repay the loan used to purchase
the property and the market price of the property itself. Naive property investors also fail
to appreciate the costs and consequences of treating property as a ‘local’ phenomenon
when housing markets become a traded financial product, just like stocks and bonds,
commodities, and infrastructure (Clark et al., 2012). In essence, behaviour in space and
time requires mental models which put options in context. Here, however, is a conun
drum: mental models may well impose a selective view of what is relevant to decision-
making.
Page 10 of 21
Context of Behaviour
In recent years, behavioural psychology has been preoccupied with cognition. In part,
this reflects the ‘universal’ aspirations of the research programme: to say something
meaningful about individual decision-making in the context of space and time. Following
in the footsteps of Herbert Simon, this research programme has also sought a deeper un
derstanding of the ‘nature’ of the rational agent of conventional microeconomic theory.
Critics of the behavioural revolution have suggested that, notwithstanding the success of
this research programme in terms of the insights gleaned about anomalies and biases, it
runs the risk of essentialism: this is an implied or even explicit argument to the effect that
cognition trumps behavioural and social psychology when it comes to explaining observed
behaviour (Pykett, 2013). No doubt there are instances that justify this type of criticism.
There is another important point of dispute regarding the implications to be drawn from
the behavioural revolution. Considering the testing procedures that underpin the search
for behavioural anomalies and biases, it is notable that many of the problems and puzzles
that are used to assess behavioural predispositions do so as one-off instances. Standard
problems and puzzles are designed to elicit certain types of responses, while guarding
against any triggers that would prompt recognition of the problem posed and its related
solution (p. 205) (Baron, 2008). Most people, most of the time, encounter familiar prob
lems and carry with them information and knowledge of the effectiveness of past solu
tions. Whereas Kahneman (2011) emphasizes intuition and discounts learning, delibera
tion is arguably a fundamental characteristic of human reasoning (Doherty, 2003). So, are
we to be optimistic or pessimistic about people’s deliberative and reasoning abilities? The
answer to this question has important implications for public policy (Thaler and Sunstein,
2008).
More generally, it is a truism that individual decision-making is always embedded in some

context or situation. It could hardly be otherwise, unless we are talking about those rare
individuals who lack empathy, a sense of reciprocity, and a commitment to mutual sur
vival and thus have no cognitive appreciation of others. But, of course, what counts as a
person’s context or environment can be quite complex and multidimensional (Clark,
2014). For example, a person’s immediate social environment could include their family,
workplace, community, state, and nation. Likewise, their relevant time horizons could in
clude their own (now and the realization of some goal in the future), their immediate
family’s future plans, and commitments made to workplace colleagues in relation to
shared goals and objectives. Importantly, a person’s reference point or sense of others
they wish to emulate could be found in spatially extensive networks of family and friends,
as well as icons found through social media, which wraps around the globe (Clark, 2013).
The idea that individual decision-making is embedded in time and space is unproblematic
for Simon (1956) and Kahneman and Tversky (1979), and for many other behavioural psy
chologists who take seriously the interaction between cognition and context. But in eco
nomic geography, being embedded is more than recognition of time and space; it is at
once a critique of the ‘atomised view of economic agents’, which dominates conventional
Page 11 of 21
economics (Bathelt and Glückler, 2011, p. 28) and an ontological statement summarizing
a research programme that finds favour in a number of other social science disciplines,
including sociology (Granovetter, 1985) and political economy (Hodgson, 1988). As Grab
her (1993, p. 4) noted, ‘ “embeddedness” refers to the fact that economic action and out
comes, like all social action and outcomes, are affected by actors’ dyadic relations and by
the structure of the overall framework of relations’. In a similar fashion, Bathelt and
Glückler (2011, p. 42) note that ‘interactions between individual and collective actors in
economic contexts’ are a crucial element of their ‘relational economic geography’.
Translating this argument into an analytical framework relevant to study of decision-mak

ing is more challenging than designing a problem or set of problems to test the compe
tence of individual decision-makers. Hogarth (2001) tackles the issue by situating learn
ing in different types of situations, distinguishing between situations that do not reward
learning from sequential decision-making and situations that facilitate learning. Here,
Hogarth brings together three threads of research found in decision theory. Recognizing
the importance of intuition and the interaction between cognition and context, Hogarth
provides an analytical framework whereby behaviour can be situated in time and space at
a general level, and in specific kinds of situations with certain types of institutions. Hoga
rth also identifies a key role for deliberation in context, going beyond the shortcomings of
non-reflexive intuition. Moreover, his model is particularly useful in situations where peo
ple combine knowledge and understanding about their part of the world with the rules or
algorithms used by others to make decisions in that domain.
Extending this argument further, analytical frameworks can be designed that combine the
nature and scope of individual behaviour with the attributes of different kinds of situa
tions. (p. 206) Imagine that individuals are required to make two kinds of decisions, one
that is rather simple and incremental in effect, and one that requires a level of imagina
tion and commitment that goes beyond routine decision-making. The first kind of deci
sion-making relies upon tried-and-true heuristics informed by fresh information which ei
ther reinforces intuition or prompts minor adjustment. The second kind of decision-mak
ing requires individuals to take stock of that which is inherited in relation to the chal
lenge before them in time and space. Let us also assume that there are two kinds of envi
ronments, where one region is poor in knowledge and information, while the other region
is rich in knowledge and information. These two types of decisions and the two regions
are set out in schematic form in Figure 10.1 (a version of Figure 5.1 in Clark et al., 2012).
Page 12 of 21
Figure 10.1 Interaction Between the Environment

(Resources) and the Nature of the Decision Problem.
Source: author.
Quite obviously, the institutional fabric of the two regions (poor and rich) that can aid in
dividual decision-making can be quite significant in terms of the sophistication of re
sponse by the average person to decisions that require either incremental or intuitive rea
soning as opposed to complex or judgement-related reasoning. In effect, the gap between
the average person in region one compared with region two with respect to the conse
quences of incremental reasoning may be relatively modest, although in all likelihood
would favour the average person in region two. By contrast, the gap between the average
person in region one compared with region two with respect to the consequences of com
plex reasoning may be relatively large, clearly favouring the average person in region two
(Clark et al., 2012).
If we add to the argument the possibility that social position is a significant factor in the
quality of financial decision-making (Sharpe, 2007), and that regions one and two are
each composed of two groups of people—one group that is relatively poorly educated and
financially illiterate, whereas the other group has the skills and education consistent with
financial literacy—then it is easy enough to imagine why the financially illiterate group lo
cated in region one is likely to fall behind the welfare of the financially illiterate group lo
cated in region two. That is, a rich institutional structure consistent with the nature and
scope of problems faced by decision-makers can compensate for shortfalls in individual
decision-making competence and consistency (Clark, 2013). This may be particularly im
portant in (p. 207) covering the downside risks associated with decision-making, even if on
the upside of decision-making, those most equipped by virtue of their social position are
able to take advantage of opportunities in ways that others are not able to either concep
tualize or carry through by virtue of their limited skills and expertise.
Here, then, is the most significant implication of this argument. Whereas the thought ex
periment above refers to the inherited decision-related resources of two regions, recog
nizing the vulnerability of the financially illiterate to complex financial decisions, the com
Page 13 of 21
munities of both regions might reasonably consider how best to ensure the welfare of this
group in the face of the costs and consequences of poor decision-making (Thaler and Sun
stein, 2008; Campbell et al., 2011). Clearly, this is a complex issue involving social issues
of mutual respect and common commitment, as well as issues of institutional design and
performance. These are the subjects of a much larger research programme that crosses
over and joins social science disciplines with philosophy. As such, consideration of institu
tional design goes beyond the purpose of this chapter. Nonetheless, the implication is
clear: understanding the interaction between cognition and context requires much more
than an account of individual behaviour; it requires a theory of how and why people are
embedded in space and time, as well as a theory of institutional formation and perfor
mance.
Conclusions
For many years, the standard economic model of individual behaviour assumed a rational
actor who maximized utility subject to budget constraints. While people were assumed to
differ in terms of their preferences and their resources, it was assumed that they share
the same process whereby decisions are made. If people were to deviate from the opti
mizing framework used to characterize the decision-making process, it was widely as
sumed that markets would penalize those who deviated from convention. As such, incen
tives were assumed to drive people to rationality. Given a shared decision framework, the
orists were then able to sum up individuals to the economy as a whole, providing the mi
croeconomic foundations for macroeconomic phenomena (Weintraub, 1979). It was a
short step, indeed, to rational expectations (Lucas, 1972).
Whereas economic geographers and economic sociologists railed against the essentialism
underpinning this model, invoking instances that seemed to go against the idealized no
tions of rationality, too often these challenges were side-lined into a debate about ratio
nality versus irrationality. The behavioural revolution initiated by Simon (1956) and given
force by Kahneman and Tversky (1979) is less about rationality per se and more about
whether people are competent decision-makers in a given spatial and temporal context.
Most importantly, the behavioural revolution has sought to show that identified behav
ioural anomalies and biases are systemic rather than simply isolated instances of aber
rant behaviour. The behavioural revolution has provided the empirical foundations for a
revised theory of behaviour which, when summed to the economy as a whole, undercuts
the plausibility of conventional theorizing. These behavioural insights have proven impor
tant in understanding recurrent financial crises (Clark, 2011; Haldane and May, 2011).
In this chapter, space and time have been identified as fundamentally important
(p. 208)
descriptors of the situation in which people must make decisions. Many people who live
and work in Western capitalist democracies must juggle short-term considerations with
long-term commitments. The short term, for most people, is rather unproblematic in that
the decisions that must be made are, more often than not, incremental rather than trans
formative. But the long term is more problematic, especially when they must cope with
Page 14 of 21
risk punctuated by systemic shocks which unexpectedly shift the basis upon which to
make judgements about the future. Likewise, the here and now is that which is inherited
from the past, whereas individual prospects are bound up with the place of their commu
nity, region, and nation in the global economy.
Recognizing the significance of risk and uncertainty in individual financial decision-mak

ing has prompted governments to reconsider policies that require those least able to cope
in this situation to bear consequences of their decision-making (Clark, 2012). One branch
of institutional theory is content to focus on the rules of the game, in effect the institu
tional framework for individual behaviour, cooperation and collaboration, and reconcilia
tion of conflict (North, 1991). Another branch of institutional theory is not so sanguine
about the power of rules, and seeks to reinforce the significance of established organiza
tions like national welfare agencies that protect those least able to be effective in space
and time while enabling those better able to cope with incentives to carry forward their
own ambitions (see Rodrik, 2013 on the relevance of the nation state). Whereas much of
economic theory has focused upon the representative agent, only obliquely recognizing
the diversity of behaviour around the mean (Becker, 1962), others have sought a better
understanding of the diversity of behaviour per se while holding to an empirically in
formed theory of human nature (see Henrich et al., 2004).
Once we accept the intimate relationship between cognition and context, empirical re
search on the systematic impact of context on observed behaviour must inevitably flour
ish. Here, there are many signposts for the future. For example, Fehr and Schmidt (1999)
have sought to integrate evidence on the significance of moral commitments with eco
nomic reasoning. Their project is indicative of the importance of Hacker’s (2007, p. 4) ar
gument that ‘while human being is a biological category, person is a moral, legal and so
cial one. To be a person is, among other things, to be a subject of moral rights and duties.
It is to be not only an agent, like other animals, but also a moral agent, standing in recip
rocal relations to others.’ Recognizing the importance of institutions in framing the con
text of behaviour, and recognizing that institutional design is a deliberative act in cooper
ation with others, economic geography may be precisely the right venue through which to
make good on institutionalism in general and in particular (Bathelt and Glückler, 2014).
Acknowledgements
This chapter was first presented at Seoul National University. It bears the imprint of a
long-term research programme on savings behaviour in conjunction with the late John C.
Marshal, Dorothee Franzen, Heribert Karch, Emiko Caerlewy-Smith, Janelle Knox-Hayes,
and Kendra Strauss. Initial support for the project was provided by the National Associa
tion of Pension Funds, Mercer, the Economic and Social Research Council, and Metall
Rente GmbH. More (p. 209) recently, this work has been supported by the Monash–CSIRO
Superannuation Research Project with data from Mercer (Australia). In this regard, I am
pleased to acknowledge collaboration with Christine Brown, Maurizio Fiaschetti, Paul
Gerrans, and David Knox. Dane Rook provided penetrating comments on a preliminary
Page 15 of 21
draft of the chapter; it is better for his intervention even if I could not accommodate all of
his criticisms. Cody McCoy and Sarah McGill provided advice on successive drafts of the
chapter. None of the above should be held responsible for any views or opinions ex
pressed herein.
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Notes:
(1.) Cognitive scientists emphasize the importance of spatial awareness, noting that the
visual processing of information from the environment is fundamental to behaviour. As
such, it is arguable that the cognitive processing of space comes before time and is in
that sense more meaningful for understanding observed behaviour (Bor, 2012). In this re
spect, time and space are substantive rather than relational; that is, they exist indepen
dent of our place in the world (Simons, 2016). Nonetheless, the status and significance of
time and space are framed by the institutional context in which human beings must make
decisions. This issue is considered in the penultimate section of the chapter.
(2.) Selection operates at the level of the population, mediated by the imperatives faced
by people in specific situations. In some accounts, selection is suggested to function at
the level of the individual in that rational people are assumed to act in a manner consis
tent with ‘surviving a very harsh competitive world’ (Becker, 1962, p. 1). This suggests
the necessity of a certain kind of rationality, rather than an empirically justified statement
about the nature and scope of actual behaviour.
(3.) It was standard practice to suppose that the brain stores and retrieves information in
the same linear fashion as computers code, store, access, and use data. Cognitive science
suggests that humans perform these functions simultaneously and memory is selective in
that we tend to retrieve past experience so as to reinforce immediate commitments (D.
Rook, ‘Aligning representation: doxastic distances and fiduciary delegation’, draft).
Gordon L. Clark
Page 20 of 21
Gordon L. Clark ([email protected]) DSc (Oxon) FBA is the Director

of the Smith School of Enterprise and the Environment with cross-appointments at
the Saïd Business School and the School of Geography and the Environment at Ox
ford University. He holds a Professorial Fellowship at St Edmund Hall, Oxford. He is
also Sir Louis Matheson Distinguished Visiting Professor at Monash University’s Fac
ulty of Business and Economics (Melbourne) and a Visiting Professor at Stanford Uni
versity. Previous academic appointments have been at Harvard’s Kennedy School of
Government, Harvard Law School (Senior Research Associate), the University of
Chicago, Carnegie Mellon’s Heinz School, and ↵Monash University. Other honours
include being Andrew Mellon Fellow at the US National Academy of Sciences and
Visiting Scholar Deutscher Akademischer Austausch Dienst at the University of Mar
burg.
Page 21 of 21
Evolutionary Economic Geography

Ron Boschma and Koen Frenken
The chapter gives a brief overview of the most recent, relevant literature on evolutionary
economic geography. We describe how evolutionary economic geography has provided
new and additional insights on a number of topics that belong to the core of the economic
geography discipline: why do industries concentrate in space, how do clusters operate
and evolve, how are innovation networks structured in space and how do they evolve over
time, what types of agglomeration externalities induce urban and regional growth, how
do regions diversify, and how do institutions and institutional change matter for the devel
opment of new growth paths in regions?
Keywords: evolutionary economic geography, related variety, regional branching, proximity, path dependence, co-
evolution, institutional change
Introduction
FROM its start, evolutionary economic geography (EEG) has aimed to contribute to the
understanding of several topics in economic geography, as to why industries concentrate
in space, how networks evolve in space, and why some regions grow more than others.
These core topics are by no means new in economic geography, but theorized and
analysed from an evolutionary perspective, EEG provides new and additional insights,
and in some cases alternative explanations (Boschma and Lambooy, 1999; Boschma and
Frenken, 2006; Martin and Sunley, 2006; Boschma and Martin, 2010; Kogler, 2015; spe
cial issues on EEG in Journal of Economic Geography 2007, Economic Geography 2009,
Regional Studies 2015, and Journal of Economic and Social Geography 2015). The main
objective of this chapter is to provide a short outline of key contributions of EEG with re
spect to industrial clusters (‘Clustering as an Evolutionary Process’), geography of net
works (‘Networking as an Evolutionary Process’), urban and regional development (‘Re
gional Development as an Evolutionary Process’), and the role of institutions (‘Institutions
and Evolutionary Economic Geography’).
Page 1 of 22

Key to the emergence of EEG has been the establishment of evolutionary economics (Nel
son and Winter, 1982; Dosi et al., 1988), which presented itself in the 1980s as an alterna
tive to orthodox or mainstream neoclassical economics, rejecting the representative
agent, optimal decision-making, and equilibrium analyses. Because the evolutionary cri
tique on mainstream economics appealed to many economic geographers, while evolu
tionary economics itself was basically a-spatial (Boschma and Lambooy, 1999), economic
geographers started (p. 214) to develop new concepts based on evolutionary thinking, in
cluding ‘windows of locational opportunity’ (Storper and Walker, 1989), ‘technology dis
tricts’ (Storper, 1992), and ‘regional innovation systems’ (Cooke, 1992).
This led to a lively debate about how to apply evolutionary principles to economic geogra
phy in a coherent manner. Several bodies of literature have served as key sources of in
spiration to evolutionary scholars in economic geography in particular (Boschma and
Martin, 2010): generalized Darwinism (Essletzbichler and Rigby, 2010), path dependency
theory (Martin and Sunley, 2006), complexity theory (Martin and Sunley, 2007), and geo
graphical political economy (MacKinnon et al., 2009). What these evolutionary approach
es to economic geography have in common is a focus on historical processes that explain
the uneven development and transformation of the economic landscape. This spatial pat
tern is perceived as the outcome of largely contingent, yet path-dependent and place-de
pendent historical processes.
Since the late 1990s, EEG slowly developed into an alternative to equilibrium-based per
spectives dominant in the ‘new economic geography’ and in large parts of the regional
science literature (Boschma and Frenken, 2006). At this time, most work in EEG built on
biological notions as variety, selection, retention, mutation, and adaptation, as well as
economic notions such as path dependence, lock-in, and proximity (Boschma and
Frenken, 2003, 2006; Martin and Sunley, 2006). It often has a strong micro-foundation,
taking organizational routines (Nelson and Winter, 1982) as a point of departure. Rou
tines are capabilities on the basis of which organizations, like firms, try to adapt and sur
vive in a dynamic environment. Economic evolution is understood as the creation and se
lective transmission of new routines in space. This transmission process is imperfect be
cause of bounded rationality, as actors have no full access nor a perfect ability to respond
to information, and because of spatial conditions (like institutions) that favour (or not) the
creation and diffusion of routines. This leads to uneven geographical patterns, as embod
ied in agglomerations, centre-periphery patterns, clusters, and networks. The main focus
of EEG is on how these spatial structures of the economy emerge from and are trans
formed by the micro-behaviour of individual and collective agents, and why and how
these processes of change are themselves path- and place-dependent (Boschma and
Frenken, 2006).
Within this alternative framework to equilibrium-based perspectives, EEG has made a

number of contributions to the field of economic geography. Firstly, EEG has challenged
the Marshallian view on industry clustering in economic geography, in which firms in
Page 2 of 22
clusters would automatically benefit from Marshallian externalities, and clusters are con
ceived to exist and persist because of that. Secondly, EEG has proposed a dynamic prox
imity view on the geography of knowledge networks that has led to additional insights in
the cluster and network literatures. Thirdly, EEG has made new contributions to the ag
glomeration externalities literature with the introduction of the concept of related variety,
and it has initiated a new literature on regional diversification, known as regional branch
ing. Fourthly, EEG has taken a critical view on the way institutions have been analysed in
economic geography, by drawing attention, for example, to the contingent role of (local)
institutions, as exemplified by the existence and persistence of heterogeneity of actors in
the same institutional environment (Boschma and Frenken, 2009). In what comes next,
we elaborate on each of these key contributions of EEG one by one.
(p. 215) Clustering as an evolutionary process

A classic question in economic geography is why some industries are concentrated in
space. Marshall (1920) raised this question a century ago when he investigated the clus
tering of the metals industry in Sheffield and South Yorkshire in the UK (Potter and Watts,
2011). His explanation of such spatial clustering of an industry has dominated the field of
economic geography for a long time: as soon as an industry locates somewhere, economic
benefits can be derived from the co-location of firms in that industry, provided by a local
pool of specialized knowledge, labour, and suppliers, also known as ‘localization
economies’ or ‘Marshallian externalities’. What attracted special attention was Marshall’s
remark that the ‘mysteries of trade’ in an industry were ‘in the air’ in clusters. His ideas
implied that knowledge spillovers are geographically bounded, that intra-industry knowl
edge is accessible almost exclusively to firms in clusters, and that cluster firms are ex
pected to perform better than firms outside clusters.
This dominant Marshallian thinking has been challenged, and EEG has made important
contributions here. Sorenson and Audia (2000) and Stuart and Sorenson (2003) claimed
that clusters emerge and exist because of a self-perpetuating process of local entry: the
more local firms in a new industry, the more local entry. This has been called ‘cognitive le
gitimacy’ in organizational ecology, in which a high rate of local entry generates informa
tion that diffuses to potential entrepreneurs inducing them to create their own firms
(Aldrich and Fiol, 1994; Maggioni, 2002; Wenting and Frenken, 2011). More local entry
also generates more local competition rendering it harder for cluster firms to survive. In
this ecological view, clusters decrease entry costs, while increasing the chances of exit at
the same time.
Klepper (2007) challenged Marshallian thinking even more by providing an alternative

theory on spatial clustering from an industry life-cycle perspective. The point of depar
ture is an evolutionary micro-perspective in which firms are depicted as being heteroge
neous in their routines and capabilities because of bounded rationality, and therefore
firms show differential growth rates. Firms have different routines because their pre-en
try experience differs. In particular, spin-off companies inherit superior capabilities from
Page 3 of 22
successful parents from the same or related industries and therefore tend to outperform
other types of entrants. As firms often locate in the founder’s home region and rarely re
locate (Stam, 2007; Dahl and Sorenson, 2012), a cluster can simply emerge through a lo
cal self-reinforcing spin-off process, and there is no need for Marshallian externalities to
make that happen. Klepper (2007) found evidence for his spin-off thesis for the US auto
mobile industry that concentrated in the Detroit region. He showed that survival rates de
pended primarily on the quality of pre-entry experience, not on Marshallian externalities
(here, being located in Detroit). This finding has been replicated for other industries as
diverse as semiconductors, tyres, fashion design, and book publishing. However, some
studies, especially on creative industries, found that also Marshallian externalities, be
sides pre-entry experience, positively affected firm performance (for surveys, see
Boschma, 2015a; Frenken et al., 2015).
Such an evolutionary approach explains not only why industries concentrate in space, but
also why an industry historically emerged in one particular place, rather than another. As
a cluster can, theoretically, emerge from a single successful firm generating many spin-
offs, a cluster can emerge anywhere where this firm happens to locate (e.g. in the
entrepreneur’s (p. 216) home region). The question holds to what extent such a path-de
pendent process can be said to be also place-dependent (Martin and Sunley, 2006). Al
though the location of a cluster is rather unpredictable owing to the path-dependent, self-
reinforcing logic of the spin-off process, there is substantial evidence that the first gener
ation of successful firms in an emerging industry are often firms diversifying, or spinning
off, from local related industries (Boschma and Wenting, 2007; Klepper, 2007; Buenstorf
and Klepper, 2009). This is line with evidence that regions hosting industries that are re
lated to a new industry have a higher probability of giving birth to it (Neffke et al., 2011).
Combined with Klepper’s findings, recent studies suggest that clusters are characterized
by positive related-industry externalities and (possibly) negative Marshallian externali
ties. In the conventional definitions of Marshallian externalities, as well as Porter’s (1990)
original cluster concept, intra-industry externalities and related-industry externalities are
not analytically separated. This distinction, however, is very relevant because the two
types of externalities tend to have opposite effects on firm survival. Related-industry ex
ternalities among local firms are expected to be positive, arising from knowledge
spillovers and the mobility of skilled people, while intra-industry externalities among local
firms are expected to be mainly negative owing to competitive pressure and involuntary
knowledge spillovers (Boschma, 2015a; Frenken et al., 2015). In particular, intra-industry
externalities mostly harm well-performing cluster firms that have the most to lose and
least to gain from other cluster firms, while young and small firms may still benefit from
intra-industry externalities to compensate for their weak internal capabilities (Rigby and
Brown, 2015). Similarly, firms are also heterogeneous to the extent to which they profit
from the local presence of multinationals, with the most internationalized firms benefit
ting most (Crescenzi et al., 2015). Thus, given that firms are heterogeneous in their capa
bilities, the extent to which firms suffer or profit from co-location is expected to vary ac
cordingly.
Page 4 of 22
Another branch in the EEG literature is the ‘cluster life-cycle’ approach that studies the
evolution of clusters, in particular the endogenous dynamics that may turn successful
clusters into declining ones (Pouder and St. John, 1996; Brenner, 2004; Iammarino and
McCann, 2006; Belussi and Sedita, 2009). It is crucial to underline that the life-cycle no
tion should be understood here in a non-deterministic, evolutionary manner (Martin and
Sunley, 2011), as a cluster can renew itself, for instance. Menzel and Fornahl (2010)
proposed a cluster life-cycle model in which firms enter and exit clusters, capabilities of
firms interact and evolve, and inter-organizational linkages are formed and dissolved
within and beyond clusters. When a cluster emerges, the heterogeneity of firms’ capabili
ties initially increases but subsequently decreases, as firms engage in competition, inter-
firm learning, and networking (Rigby and Essletzbichler, 1997; Vicente and Suire, 2007).
If this convergence continues, the recombinant potential of the cluster decreases and its
principal activities will decline. Menzel and Fornahl (2010) argue that a declining cluster
can revive itself by upgrading its knowledge base through inflow of new knowledge from
outside the cluster (‘adaptation’), by integrating various local knowledge bases (‘renew
al’), or by diversifying into new activities while building on the local knowledge base
(‘transformation’). Clusters can only adapt if firms and other agents proactively engage in
such a change process, but this is far from easy, given their proximity to local networks
and institutions (Glasmeier, 1991). This ‘lock-in’ may be reinforced when public policy is
responsive primarily to demands from vested interests (Grabher, 1993; Hassink, 2005),
and local actors hold on to a collective identity (Staber and Sautter, 2011).
Life-cycle dynamics may also stem from herding behaviour in location decisions,
(p. 217)
indicative of hypes. Suire and Vicente (2009) developed a model of cluster emergence and
stability that takes into account such herding effects. Firms may locate in clusters not for
alleged Marshallian externalities associated with co-location, but for reasons of what Ap
pold (2005) called ‘geographical charisma’. Some clusters have a strong reputation owing
to very visible and successful firms that attract other firms to the cluster. Here, being lo
cated in a cluster with successful firms acts as a signal to their stakeholders that they are
present ‘where the action takes place’, hereby legitimating the location choice. The mod
el by Suire and Vicente (2009) shows that if legitimation effects prevail, a cluster can
grow very fast, but remains fragile, as the pattern of co-location is not based on positive
externalities. As a result, once the reputed firm would lose its reputation, or would relo
cate to another location, the cluster is likely to break down.
To conclude, the main contribution of EEG to the topic of spatial clustering of industries
is that the dominant explanation of industry clustering resulting from Marshallian exter
nalities has been challenged: (i) clusters can emerge despite the absence of localization
economies; (ii) clusters can emerge and exist because of a self-reinforcing process of lo
cal entry, in particular the entry of successful spin-offs; (iii) emerging clusters tend to be
characterized by positive related-industry externalities; (iv) not all firms perform equally
in clusters—some have better routines, partly owing to the pre-entry background of the
entrepreneur, and firms differ in their ability to exploit positive externalities and cope
with negative externalities in clusters; (v) emergent clusters produce new institutions or
Page 5 of 22
adapt existing institutions by the collective action of agents; (vi) declining clusters can re
vive and overcome lock-in, but not necessarily so.
Networking as an Evolutionary Process

In economic geography, it is well known that spatial clustering provides opportunities to
make connections between people and organizations. Firms not only compete, but also in
teract and collaborate with a range of organizations like other firms, banks, research in
stitutes, or universities. As geographical distance often forms a barrier, organizations in
the same region are more likely to connect, but not necessarily all of them. EEG is well
equipped to incorporate these relational issues because it reasons from the heterogeneity
of agents (Boschma and Frenken, 2010). As capabilities differ between organizations,
they do not easily connect, nor do they easily learn from each other. This is exactly why
networks in general, and knowledge and innovation networks in particular, are not ran
domly structured but skewed: that is, some organizations are more connected than others
(Powell et al., 1996; Giuliani, 2007).
Such an evolutionary take on the geography of knowledge networks has led to additional
insights in the cluster literature. Contrary to what the literature often suggests, being
part of a cluster does not necessarily mean that all cluster firms are connected with each
other. Indeed, there is strong evidence that some cluster firms are highly connected in
(local) knowledge networks, while other cluster firms are poorly connected, or not con
nected at all. Giuliani and Bell (2005) showed in a seminal study on a Chilean wine cluster
that firms with a high absorptive capacity occupy a more central position in the local
knowledge network. (p. 218) Such firms are attractive partners to connect to and capable
of absorbing knowledge from other firms in and outside the cluster. This means that only
a few firms in clusters (the most connected) have access to crucial local knowledge. This
goes against the Marshallian view that knowledge is ‘in the air’ in clusters, in which all
cluster firms are perceived to have equal access to local knowledge because they share
the same location and the same norms and values. As Giuliani (2007) put it, knowledge
networks are not pervasive but selective, and networks in clusters are no exception to
that rule.
Besides individual features of firms, like absorptive capacity, proximities are also key dri
vers of network tie formation, and this is where the proximity literature and EEG clearly
meet (Boschma and Frenken, 2010). As actors differ, they show a strong bias towards
which firms they interact and collaborate with, preferring those with whom they share
similar knowledge (cognitive proximity), norms and values (institutional proximity), the
same location (geographical proximity), social ties (social proximity), or organizational
boundaries (organizational proximity) (Boschma, 2005; Breschi and Lissoni, 2009). As
other forms of proximity can substitute for geographical proximity, the proximity concept
can explain why networks within clusters are not pervasive, and why some cluster firms,
sometimes acting as gatekeepers (Morrison, 2008), have most of their relations with
firms outside the cluster.
Page 6 of 22
The relationship between proximity and firm performance is more ambiguous. While
proximity promotes actors to collaborate, it does not necessarily increase collaborative
performance, and may even turn out to be harmful. This has been referred to as the ‘prox
imity paradox’ (Broekel and Boschma, 2012). For instance, cognitive proximity not only
facilitates communication and knowledge transfer between firms, but it also reduces the
scope for learning and enhances the risk of involuntary knowledge leakage. Moreover,
one expects proximity in relationships to increase over time, as interacting agents tend to
become more similar as a result of social interaction and interactive learning (Balland et
al., 2015). This has led to a search for ‘optimal’ proximity to cope with the negative as
pects of proximity (Boschma, 2005). For geographical proximity, scholars have underlined
the importance of a combination of local and non-local knowledge linkages for the long-
term development of clusters (Asheim and Isaksen, 2002; Bathelt et al., 2004), or the im
portance of temporary proximity between agents who meet at conferences or trade fairs
where they exchange knowledge (Torre, 2008). A questionable assumption in most prox
imity studies, however, holds the assumption of symmetry. A future challenge is to take up
and integrate power and asymmetric relations in the proximity framework, as an actor
can be proximate to another actor but not necessarily vice versa.
The evolution of networks has been a subject of recent research in EEG (Ter Wal and
Boschma, 2011). Balland et al. (2013) studied network dynamics in the global video game
industry by looking at collaborations of co-developers of new video games. Their study
demonstrated that geographical proximity became a more important driver of network tie
formation as the industry evolved. This increasing tendency of inter-firm collaboration at
shorter geographical distances could be explained by the increasing technological com
plexity of video games (Sorenson et al., 2006) and the project-based nature of video game
production in which ‘local buzz’ and ‘who-knows-who’ are key inputs (Grabher, 2006). Ter
Wal (2014) found the opposite result in biotech: geographical proximity became less im
portant as driver of co-inventor networks, possibly owing to the increasing codification of
biotech knowledge. However, there still is little understanding of how spatial networks
change: little is known of how proximities in networks evolve over time (Balland et al.,
2015), how network (p. 219) structures in clusters change, to what extent network dynam
ics exhibit path dependence (Gluckler, 2007), and how network dynamics affect the evolu
tion of a cluster (Cantner and Graf, 2006; Hendry and Brown, 2006; Balland, 2012).
In sum, the contributions of EEG to the topic of spatial knowledge networks are, so far,
the following: (i) knowledge is not ‘in the air’, but channeled through networks that are
uneven and selective in clusters; (ii) networks are selective, because firms and other
agents have different capabilities and routines; (iii) various proximities, including geo
graphical proximity, are important drivers of network formation, but proximities do not
necessarily increase the performance of firms; (iv) while geographical and institutional
proximity may drive network tie formation in clusters, not all cluster firms will connect
and perform equally, despite being part of the same local institutional environment; (v)
network relations in clusters have a tendency to become more inward-looking over time;
(vi) non-local linkages, or temporary proximities, are crucial for the competitiveness of
Page 7 of 22
cluster firms, but they require other forms of proximities to enable effective transmission
of knowledge.
Regional Development as an Evolutionary

Process
EEG has devoted attention to how regions can secure their long-term development by de
veloping new industries or new growth paths. A source of inspiration has been
Schumpeter’s (1912) description of innovations as new combinations. This has been fur
ther developed in the notion of recombinant innovations, which emerge from recombining
parts of pre-existing technologies or services in new way’s (Fleming, 2001). When recom
binant innovations are the rule rather than the exception, this implies that the existing va
riety in a region conditions the scope for innovation. This builds on the seminal work by
Jacobs (1969, p. 59), who argued that ‘the greater the sheer numbers and varieties of di
visions of labor already achieved in an economy, the greater the economy’s inherent ca
pacity for adding still more kinds of goods and services. Also the possibilities increase for
combining the existing divisions of labor in new ways’. This idea was taken up by Glaeser
et al. (1992), who tested whether diversified or specialized regions tend to grow more. Di
versified regions should be more innovative owing to Jacobs’ externalities, while special
ized regions could benefit from Marshallian externalities. Glaeser’s study was followed by
many others, but, despite massive empirical efforts, there is conflicting evidence for both
hypotheses: there are almost as many studies proving that regions benefit from variety as
there are studies showing that regions benefit from specialization (De Groot et al., 2009,
2015).
A possible reason for the weak evidence on Jacobs’ externalities is that many technolo
gies and services cannot be meaningfully combined. Rather, one expects that recombi
nant innovations more often stem from related industries that share similar knowledge
and skills. Frenken et al. (2007, p. 687) argued that for variety to be supportive in innova
tion processes, variety must be related (i.e. cognitively close), as related variety ‘im
proves the opportunities to interact, copy, modify, and recombine ideas, practices and
technologies across industries giving rise to Jacobs externalities’. This motivated studies
to test whether related variety increases regional employment growth. The evidence col
lected so far indicates by and large a (p. 220) positive effect of related variety on employ
ment growth (Essletzbichler, 2007; Frenken et al., 2007; Quatraro, 2010), especially in
knowledge-intensive industries (Bishop and Gripiaos, 2010; Hartog et al., 2012).
The question of new industry formation is associated with the concept of related variety.
Frenken and Boschma (2007) depicted local industry formation as a branching process in
which the local presence of industries that are related to a new industry increases the
probability for a new industry to occur, given that related industries provide the main
source for knowledge, capabilities, and potential entrepreneurs (Klepper, 2007). The
more related the variety of industries is vis-à-vis the new industry, the more likely a re
gion can be successful in that new industry. Hence, the existing set of industries condi
Page 8 of 22
tions the likelihood of new industries emerging, and in that sense there exists ‘regional
path dependence’ (Iammarino, 2005; Martin and Sunley, 2006; Fornahl and Guenther,
2010).
Empirically, the branching phenomenon has been analysed at the level of countries by Hi
dalgo et al. (2007), who demonstrated that countries tend to develop new export products
that are related in ‘product space’ with existing export products. The product space spec
ifies the relatedness between products based on the frequency of co-occurrence of prod
ucts in countries’ export portfolios. The same reasoning has been applied to understand
the development of regions becoming active in new markets. Neffke et al. (2011) found
that an industry had a higher probability of entering a region when technologically relat
ed to pre-existing industries in that region. Studies have confirmed relatedness driving
regional diversification in new industries (Boschma et al., 2013; Essletzbichler, 2015),
new technologies (Kogler et al., 2013; Rigby, 2015), and new eco-technologies (Tanner,
2014; van den Berge and Weterings, 2014).
What these studies tend to show is that related diversification in regions is the rule and
unrelated diversification the exception. That unrelated diversification is a more rare
event does not come as a surprise, as it is more uncertain and risky to recombine previ
ously unrelated domains. It is a crucial question whether regions can keep relying on re
lated diversification to sustain long-term development, or whether they need to diversify
in unrelated activities now and then. Studies have started investigating the conditions
that make regions more likely to diversify into unrelated activities. Castaldi et al. (2015)
found that unrelated variety is associated with high rates of breakthrough innovations in
US states. In the rare cases that recombination innovations between unrelated technolo
gies or services succeed, they become related (Desrochers and Leppälä, 2011). Such a
radical new combination not only opens up new markets and innovation opportunities,
but it might also provide the basis for long-lasting competitive advantage, as other re
gions will face difficulties in coping with such radical change. A similar issue is analysed
in the expanding literature on new growth paths (Garud et al., 2010) in which new path
creation is defined as the emergence of entirely new sectors or products, while path re
newal occurs when local activities switch to different but related activities (Isaksen and
Trippl, 2014). To break with path dependence and create new growth paths, regions will
have to rely more on knowledge and resources residing in other regions. Hence, the pres
ence of multinationals, the immigration of entrepreneurs, and a targeted government pol
icy are all elements that come into play in explaining new path creation (Binz et al., 2013;
Dawley, 2014; Neffke et al., 2017).
The contributions of EEG on regional development so far are: (i) related variety is a key
concept in EEG that has shed new light on the MAR (Marshall–Arrow–Romer) versus Ja
cobs’ externalities debate—there is emerging evidence of positive externalities stemming
(p. 221) from the co-presence of firms in related industries; (ii) EEG has shed light on how
regions diversify over time—regional development is depicted as a branching phenome
non in which new recombinations stem from related activities that share similar knowl
edge and skills, and in which local capabilities in existing industries or technologies con
Page 9 of 22
ditions the set of industries and technologies that are more likely to emerge; (iii) unrelat
ed diversification, recombining previously unrelated fields, is expected to be a more rare
event, and tends to rely more on the inflow of resources and capabilities from other re
gions.
Institutions and Evolutionary Economic Geog

raphy
A recurrent critique to evolutionary scholars in economic geography has been the per
ceived neglect of the role of institutions in firm behaviour and economic development
processes (MacKinnon et al., 2009). This critique is understandable given that many em
pirical studies in EEG did not pay explicit attention to the institutional contexts in which
economic processes take place, or ‘bracketed’ such processes in dummy variables or
‘fixed effects’.
However, this relative empirical neglect says little about the theoretical possibilities to in
tegrate institutional analysis into the EEG framework. EEG has engaged at length with
the question of how institutional and evolutionary approaches can be combined (see e.g.
Boschma and Lambooy, 1999; Boschma, 2004; Boschma and Frenken, 2009; Martin,
2010). Institutions provide incentives, but they may also form obstacles that make the de
velopment of some industries and organizational practices in some places more feasible
(Malmberg and Maskell, 2010). Institutions are depicted as co-evolving with new tech
nologies and markets that are deemed crucial for the development of new industries (Nel
son, 1994). The chances for new industry formation in a region depend on the timing and
direction in which institutions are adapted in a way that supports the industry’s further
development (Murmann, 2003). This requires more understanding of the conditions that
favour or hamper institutional change in regions. In an attempt to come to a theory of in
stitutional change and new industry formation, Battilana et al. (2009) argued that condi
tions supportive of institutional change are a common sense of urgency (e.g. due to a cri
sis), institutional contradictions and discontent (e.g. as new industries challenge existing
categorizations), and a low degree of past institutionalization. These conditions may have
a strong regional dimension, suggesting that regions are not all equally likely to engage
in effective institutional change.
EEG has also made progress in taking up explicitly the role of institutions in recent em
pirical work. There is an increasing attention paid to how local agents (private and pub
lic) engage in collective action to mobilize knowledge, resources, and public opinion as to
create new or adapt existing institutions, how vested interests may be circumvented, and
the key role that both regional and national governments can play in regional economic
development (Feldman et al., 2005; Strambach, 2010; Sotarauta and Pulkkinen, 2011;
Binz et al., 2013). In quantitative studies, the role of institutions has been highlighted as
well. In their study on the local entry dynamics of fashion designers across the world,
Wenting and Frenken (2011) could show that the institutional environment in Paris
blocked the starting (p. 222) up of new firms in commercial design owing to strict regula
Page 10 of 22
tions in Paris’s design profession, while designers in other cities did not experience such
obstacles. A recent study by Boschma and Capone (2015), building on the literature on
varieties of capitalism (Hall and Soskice, 2001), found that institutions associated with
‘liberal market economies’ give countries considerably more freedom to diversify in more
unrelated activities than institutions associated with ‘coordinated market economies’,
thus shedding light on different development logics channelled by national institutional
environments.
An issue that has remained little elaborated is how the concept of innovation system can
be integrated in EEG. The regional innovation system (RIS) literature has explained the
clustering of innovative activities by focusing on the nature of relationships between or
ganizations such as firms, governments, universities, and non-governmental organiza
tions that are involved in the innovation process at the sub-national level (Cooke, 1992;
Asheim and Isaksen, 1997). Having strong evolutionary roots (Freeman, 1987), this ap
proach has drawn attention to the importance of localized capabilities for the production
and transmission of tacit knowledge (Asheim and Gertler, 2005). Given the path-depen
dent nature of building up localized capabilities, as embodied in local knowledge bases
and institutions, it is hard for regions to imitate ‘constructed regional advantages’ from
successful regions (Asheim et al., 2011). Recently, scholars have expressed a need to go
beyond a static approach that maps actors and institutions in a RIS, and to concentrate
more on how RIS change in response to globalization, technological change, and societal
challenges. This necessitates an understanding of how changes in RIS are initiated and
implemented by agents, how changes in institutions are activated, and how relations at
multiple spatial scales are constructed, managed, and utilized. Recently, there is increas
ing attention to the global dynamics that underlie the early formation of new innovation
systems (Binz et al., 2013, 2014). The understanding of where new technologies emerge
requires not only insight into the local mechanisms of capability transfer from related
technologies to emerging ones, but also into the organization of knowledge production
and regulatory processes at the national and international level (Morrison and Cusmano,
2015).
EEG has a particular take on the role of institutions: (i) the influence of (local) institutions
is contingent given the existence and persistence of heterogeneity of firms in the same in
stitutional context; (ii) institutions have an effect on the intensity and nature of interac
tions between agents in RIS, and therefore they affect the process of regional diversifica
tion; (iii) new industry formation is depicted as co-evolving with the establishment of new
institutions or the adaptation of existing ones; (iv) local agents engage in collective action
to create new or adapt existing institutions and challenge vested interests that may op
pose such change; (v) regions may differ in their ability to induce required institutional
change; (vi) there is still little understanding of what conditions at various spatial scales
support or hamper institutional change.
Page 11 of 22
Final Remarks
This chapter has given a brief outline of recent theoretical and empirical contributions of
EEG with respect to clustering, networking, urban and regional development, and the
role (p. 223) of institutions. Give the limited space available, this outline has been partial
at best. Studies in EEG have provided new but often still preliminary answers to old en
during questions in economic geography, and also bring up new questions and problems
not yet explored. Although advancing, the empirical literature on EEG is work in
progress. This also applies to the development of its main concepts like institutions
(MacKinnon et al., 2009), path dependence (Martin, 2010), life cycle (Martin and Sunley,
2011), development (Martin and Sunley, 2015), and the use of appropriate methodologies
that do justice to evolutionary principles (Hassink et al., 2014).
Recently, EEG has been moving into topics like regional resilience (Simmie and Martin,
2010; Boschma, 2015b), the geography of transition (Truffer and Coenen, 2012; Patchell
and Hayter, 2013), and public policy and governance, especially in the context of the
smart specialization debate (Foray, 2015; McCann and Ortega-Argiles, 2015). An EEG ap
proach on resilience aims to leave behind an equilibrium perspective that is primarily in
terested in a recovery to pre-existing or new equilibrium states, and instead proposes an
evolutionary perspective in which regional resilience is redefined and analysed in terms
of the impact of shocks on the capacity of regions to develop new growth paths (Boschma,
2015b). The newly emerging literature of the geography of transition (Truffer and Coenen
2012) is also promising, as it provides a comprehensive view on niche formation and the
role of collective agents that has not yet been fully developed in EEG. In turn, EEG pro
vides concepts like regional branching that describe how regions move into new green
technologies, and why some regions are more successful in doing so (Tanner, 2014; van
den Berge and Weterings, 2014). The smart specialization literature explores how the en
trepreneurial discovery process can be organized and governed to make regions move in
new specializations. To the main adherents of smart specialization strategies, related va
riety and regional branching, are regarded as key building blocks of smart specialization
policies (Foray, 2015; McCann and Ortega-Argiles, 2015). Without doubt, this future work
on smart specialization will boost the further development of regional innovation policy in
an EEG framework that is far from fully developed (Coenen et al., 2015).
These continuing debates and emerging topics bear testimony to the fact that EEG is
alive and evolving, and they will surely make EEG develop further into a more compre
hensive approach in economic geography.
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Ron Boschma
Ron Boschma ([email protected]) is Professor in Regional Economics at the Urban

and Regional Research Centre Utrecht (URU) at Utrecht University, the Netherlands.
He is also Professor II in Innovation Studies at UiS Business School and Stavanger
Centre for ↵Innovation Research, University of Stavanger, Norway. In 2013, Profes
sor Boschma received an Honorary Doctorate in the Natural Sciences (‘Doktor der
Naturwissenschaften ehrenhalber’) from Marburg University (Fachbereich Geogra
phie) in Germany. His research interests include evolutionary economic geography;
spatial evolution of industries; geography of innovation; geography of knowledge net
works; agglomeration externalities and regional growth; and regional diversification.
He is editor of the Cambridge Journal of Region, Economy and Society, and associate
editor of Industrial and Corporate Change, Papers in Regional Science, and Regional
Studies.
Koen Frenken
Koen Frenken ([email protected]) is a Full Professor of Innovation Studies at Coperni

cus Institute of Sustainable Development, Utrecht University. His research interests
include sharing economy, innovation studies, economic geography, and the evolution
of science and technology. His theoretical interests are evolutionary economics, com
plexity theory, and network science. He has published numerous articles in the Jour
Page 21 of 22
nal of Economic Geography and Regional Studies, and is an author of several books
on innovation, complexity theory, and evolutionary economic geography. He is also an
associate editor at Industrial and Corporate Change and a member of the editorial
boards of Research Policy, Environmental Innovation and Societal Transitions, and
Revue d’Economie Industrielle.
Page 22 of 22
Institutions, Geography, and Economic Life

Meric S. Gertler
Institutional approaches to understanding economic activity have become widespread in

recent years. Both economists and economic geographers have embraced the idea that in
stitutions shape, constrain, and enable economic behaviour, and that the nature of this re
lationship will vary according to the institutional architecture of particular geographical
spaces. While much work has focused on national institutions, geographers have shown
interest in the role and influence of regional institutions in shaping economic behaviour.
Economists have largely confined their analysis to how formal national institutions shape
aggregate outcomes of nation states. While geographers have begun to focus on the ques
tion of how regional institutions interact with national institutions, the analysis still re
mains preliminary and tentative. Equally pressing questions pertain to the processes of
institutional change—both regional and national, the role and influence of individual
agency, and the extent to which the path and direction of institutional evolution are pre
dictable.
Keywords: institutions, economic behaviour, regions, nation states, evolution
Introduction
THE idea that institutions play a major role in shaping economic behaviour is now widely
shared. The intellectual lineage underlying this idea goes back at least to Veblen (1899),
although the long reign of neoclassical thought as the dominant paradigm within econom
ics largely suppressed a wider appreciation for the role that institutions play in shaping
economic behaviour. With the emergence of post-Keynesian and other heterodox schools
of economic thought, the place of institutions in economic analysis was gradually re
stored. Indeed, Veblen’s own work has enjoyed something of a revival in recent years
(Davenzati and Pacella, 2014; Lawson, 2015).
Moving closer to the mainstream of economics, the institutional turn within the past ten
to fifteen years has produced a substantial body of work examining how institutions might
help explain divergent growth and development paths across different national economies
Page 1 of 16
(Rodrik et al., 2004; Acemoglu et al., 2005; Rodrik, 2013). This work argues that institu
tions may well trump other more conventional drivers of economic prosperity, such as
natural resource endowments, human capital, gains from trade, and new technologies.
Going further still, others have argued that state institutions have created the very foun
dations of societal wealth, creating the basis for private-sector profitability (Mazzucato,
2013).
Within economic geography, the openness to ideas originating outside the neoclassical
tradition has fostered a healthy and growing interest in the role of institutions at least
since the mid-1990s (Amin and Thrift, 1995; Gertler, 1997; Morgan, 1997; Maskell and
Malmberg, 1999; Gertler, 2004; Storper and Rodríguez-Pose, 2006; Boschma and
Frenken, 2009; Gertler, 2010; Rodríguez-Pose, 2013; Zukauskaite, 2013; Tomaney, 2014).
The central idea emerging from this literature is that the competitive advantages (or dis
advantages) and innovative potential associated with particular regional economies are
shaped, in large part, by their distinctive institutional configurations and the unique ‘cul
tures’ of economic practice they foster.
(p. 231) Notwithstanding the increasingly widespread awareness of the pervasive impact
of institutions on economic decision-making and macroeconomic performance, important
questions about the precise ways in which ‘institutions matter’ remain unresolved. This
chapter provides a synoptic overview of the key issues by addressing a series of core
questions. How do we understand institutions—both formal and informal—and the way
they structure and shape economic activity? How does the approach to this question vary
between contemporary economics and economic geography? How do institutions at dif
ferent spatial scales shape economic activity, and how do they interact with one another?
And how do institutions evolve and change over time? To what extent do they evolve
along paths that can be predicted?
This chapter concludes by suggesting some of the most pressing areas of contention, de
bate, and unfinished business. It critically examines the argument that national institu
tions may be losing their purchase in favour of both sub- and supra-national institutional
forms.
Institutions and the Contours of Economic Life

For decades, mainstream economics revolved around the neoclassical assertion that the
market as a means for exchanging goods and services and for equilibrating supply and
demand was a natural phenomenon. Markets were presented as a self-evident and univer
sal mechanism, whose ‘perfection’ was considered an ideal state no matter what the par
ticularities of location or history might suggest: ‘an ethically colorless state of nature in
human relations’, as one commentator has recently put it (Martin, 2016, p. 13). In this
world view, intervention by government was justified only as a means to correct imperfec
tions or failures, most typically in the form of externalities in which social costs (e.g. pol
luting behaviour) or benefits (e.g. public goods) exceed private costs or benefits. Other
Page 2 of 16
forms of government action were viewed with scepticism or worse, as they served only to
distort or corrupt the inherent, natural purity of the market form.
One of the most trenchant and comprehensive critiques of this view comes from Karl
Polanyi (1944), whose signal contribution was to demonstrate that the market was, in
fact, the product of deliberate, coordinated action by state and state-like actors. It re
quired sustained and concerted planning and support for its birth and continued exis
tence. Polanyi famously observed: ‘Laissez-faire was planned, planning was not’ (1944,
pp. 139–140), having demonstrated that there was, in fact, nothing natural about the mar
ket form. Rather, Polanyi argued that it was more properly regarded as an institution that
was socially constructed, with deliberate effort and conscious planning, to produce partic
ular kinds of outcomes.
This debate over the origins of the market provides a fundamental insight into the nature
of institutions and their effects on economic activity. Nevertheless, this begs the obvious
question: What exactly do we mean by ‘institutions’, and how should we understand their
influence on economic activity?
(p. 232) What Are Institutions and What Do They Do?
While a widely accepted definition of institutions remains elusive, the work of North
(1990) has been particularly influential. North likens institutions to ‘rules of the game’
that shape and guide economic behaviour. Although there is a natural tendency to equate
institutions with formally codified rules, that is, laws and regulations, as well as constitu
tionally defined rights (e.g. property rights)—implicit in North’s concept is the notion that
many of the rules that shape our economic behaviour are informal rather than formal.
They reside more in the realm of socially shared norms, conventions, traditions, and rou
tines (Storper, 1993). They underlie pervasive expectations and shared values (Gertler,
2004). Seen in this way, institutions are much closer to Veblen’s notion of ‘settled habits
of thought’ (1919, p. 239).
In this view, the primary function—and power—of institutions is to facilitate economic

transactions. Property rights confer power of ownership—an essential precursor to ex
change. Labour market and industrial relations institutions shape practices around the
hiring and firing of labour, and the character of the employment relation between owners
and workers. Capital market institutions define how firms typically raise funds to finance
their operations and growth, as well as the relationship between lenders and borrowers,
the degree of integration across different ‘pillars’ of finance, and more. Competition and
trading institutions shape the nature and extent of inter-firm interaction, the degree of
ownership concentration in particular industries, the rights of consumers, and the preva
lence of foreign ownership in domestic economies.
Understood this way, institutions comprise the scaffolding or ‘exoskeleton’ on which eco
nomic activity unfolds (Martin and Sunley, 2015). They make particular decisions and
transactions easier to perform, and, at the same time, they discourage others. However,
they do not determine outcomes directly: individual economic actors do so by asserting
Page 3 of 16
their own agency (Rantisi, 2002). Moreover, the relationship between formal and informal
institutions is complex and nuanced. Informal conventions, attitudes, and norms become
formalized in regulations and legislation, and in the structures and practices of regulato
ry organizations. In turn, these formal structures reinforce and reproduce informal rules
and norms.
Gertler (2004) documents this interaction with respect to the production, adoption, and
use of advanced manufacturing technologies. This study revealed the profound variation
in characteristic practices between German and North American (American and Canadi
an) users of such technologies, during a period in the 1990s and early 2000s when digital
ly controlled manufacturing systems were revolutionizing production methods in many in
dustries.
Such diverging practices and attitudes could be understood superficially by pointing to

differences in national industrial ‘cultures’: production managers in German firms put a
higher value on workforce training and machinery maintenance, were more inclined to in
volve their shop-floor workers in technology acquisition and implementation decisions,
and were more ‘patient’ in being willing to wait for such investments to pay back their
original outlays. North American firms spent far less on training and maintenance, rarely
—if ever—consulted workers when making technology purchases, and insisted on much
shorter payback periods for their investments in new production technologies.
This study revealed how these distinctive national industrial ‘cultures’ could instead be
understood on a deeper level to stem from the underlying architecture of national (p. 233)
institutional structures. German labour and industrial relations institutions foster long-
term worker tenure and minimal workforce turnover, which boosts the incentive to invest
in workplace training. They have also produced a ‘co-determination’ model of gover
nance, in which workers (through their unions and works councils) have a formal voice in
major decisions such as adoption of new technologies. German firms raise most of their
capital through private markets and bank loans, rather than public markets. As a result,
the pressure for short-term payback or return on investment is much lower. Machinery is
purchased with the expectation that it will be in place for longer periods of time, creating
a stronger incentive for generous spending on maintenance. As a result, German users of
advanced technologies were shown to be much more successful at exploiting the full po
tential of such production systems, achieving higher quality, fewer defects, and fewer dis
ruptions due to breakdowns.
In sum, both formal and informal institutions shape the behaviour of economic actors.
Moreover, they do so in ways that are not always obvious to the actors themselves
(Gertler, 2003). Indeed, the habits, routines, conventions, and norms that produce com
monplace behaviours and practices are often deployed in unreflective ways, although
their roots can be traced to prevailing architectures of national institutions.
Page 4 of 16
Institutional Economics versus Institutional Economic Geography
As noted at the outset of this chapter, the discipline of economics has taken something of
an institutionalist turn itself. The leading proponents of this approach seek to identify
those institutional factors that determine aggregate economic performance and economic
development over time (Acemoglu et al., 2005; Rodrik et al., 2004; Rodrik, 2013). This lit
erature also highlights particular ‘barriers’ to successful economic performance, in the
form of specific institutions that are absent, only weakly developed, or influential in ways
that undermine performance.
Methodologically, this work stands in contrast to much of the work of institutional eco
nomic geographers as described above, in that it is almost exclusively national in focus,
and largely confines its analysis to formal institutions. Moreover, it adopts either a com
parative statics approach or a comparative longitudinal analysis of time-series data by
country, using econometric tools to identify the influence of particular institutions—such
as property rights, political stability, or the rule of law—as new ‘factors of production’. Fi
nally, it stands apart conceptually by focusing only on the impact that formal institutions
have, in the aggregate, on economic behaviour and performance. In doing so, it affords
no role for individual agency as asserted by economic actors (see Farole et al., 2011 for
further discussion of this issue).
In comparison, economic geographers have been interested in understanding more

broadly how formal and informal institutions shape and constrain all forms of economic
behaviour and practices, including production, investment, innovation, and organizational
change, labour and capital markets, inter-firm relations and learning, and more. They
have tended to draw on more diverse conceptual foundations, including the work of soci
ologists, political scientists, management theorists, and heterodox economists.
In terms of method, much of the geographical work on institutions has been based
(p. 234)
on case studies using ethnographic approaches, in order to understand the influence of

historical-spatial specificity (see Barnes et al., 2007). And, as we shall see in the next sec
tion, geographers have tended to be more sensitive to questions of the relative impor
tance of institutions operating at different spatial scales, and the potential interactions
between them.
Institutions and Geography

As the case study documented in Gertler (2004) demonstrates, while institutions serve to
facilitate economic activity, they are themselves shaped by the distinctive historical and
political evolution of particular geographically defined polities—with nation states being
the primary unit of analysis. Hence, no single, universal institutional forms exist: observ
able institutional architectures vary from one nation state to the next, and are the out
come of locally distinctive political and historical processes.
Page 5 of 16
Pushing this idea further, Christopherson (2002) has argued that these distinctive nation
al architectures of institutional form play a major role in shaping the industrial strengths
of particular nation states. She demonstrates how the capital market and labour market
structures of a country like Germany have produced and reinforced its traditional
strengths in mechanical engineering and advanced manufacturing. The collective impact
of such institutions has promoted longer time horizons to guide decision-making and rein
forced stability of tenure in the employment relation, minimizing employee turnover and
inter-firm mobility of labour.
Christopherson compares this to analogous institutional forms in the USA, where very dif
ferent capital market institutions, including dominant public markets, a well-developed
venture capital system, and shorter time horizons, have shaped labour market practices
that foster much shorter average lengths of tenure, much higher rates of employee
turnover, and much more prevalent circulation of workers between firms. Christopherson
argues that these conditions have been conducive to the emergence of American competi
tive advantages in digital media, entertainment, advertising, information and communica
tions technology, software, and related activities.
More generally, the idea that different nation states produce distinctive constellations of
institutions, which, in turn, produce and reproduce particular economic strengths and de
fine distinctive evolutionary trajectories over time, has figured prominently in the social
sciences, at least since the early 1990s, with the emergence of the Regulation School
(Boyer, 1990). It is also a dominant theme in the body of work examining national systems
of innovation (Lundvall, 1992; Nelson, 1993), and in the national business systems litera
ture (Whitley, 1999).
However, this idea finds its strongest expression in the extensive literature on ‘varieties
of capitalism’ (Hall and Soskice, 2001), in which a set of mutually reinforcing institutional
forms combine to create coherent, complementary, distinctive, and self-reproducing na
tional constellations. This literature emphasizes two ideal typical varieties: the liberal
market economies, or LMEs (US, UK, Canada, Australia), and the coordinated market
economies, or CMEs (Germany, other Northern European nations, Japan).
Peck and Theodore (2007) provide a balanced and comprehensive critique of this
(p. 235)
approach, noting the challenge of fitting all national cases into the binary LME–CME
scheme—especially recently emerging forms such as China, India, and Brazil. They also
highlight the static nature of this approach, which emphasizes the forces that produce
distinctive national systems, but which is seemingly incapable of theorizing how such sys
tems change over time. One of the consequences is that there seems to be little scope for
individual economic agents (firms, managers, workers) to assert their agency in any
meaningful way. Finally, they point out that the varieties of capitalism approach appears
to fetishize the national scale over all others. In particular, it does not seem to be able to
accommodate significant variations in institutional forms between different regions of the
same nation state.
Page 6 of 16
This last element of Peck and Theodore’s critique seems particularly problematic in the
face of several well-known and influential studies that accentuate the stark differences in
regional institutional forms, and their consequences in terms of shaping divergent eco
nomic performance and trajectories. Saxenian’s (1994) classic comparison of Silicon Val
ley and Route 128 stands out in this regard, as does Grabher’s (1993) analysis of
Germany’s Ruhr Valley (in contrast to Baden-Württemberg or Bavaria), not to mention the
huge volume of work documenting the distinctive nature of Italian regions such as Emilia-
Romagna relative to other parts of Italy (see e.g. Brusco, 1982; Trigilia and Burroni,
2009). Moreover, the large literature on regional innovation systems (Cooke et al., 2004;
Asheim and Gertler, 2005; Asheim et al., 2011; Wolfe and Gertler, 2016) underscores the
importance of distinctive sub-national constellations of institutions that, in turn, shape
the innovation-generating activities of economic actors.
On this important question of the possibility of sub-national variation in institutional

forms, recent years have seen a blossoming of interest. This is long overdue, as an
overview of this literature several years ago concluded:
… any reconstituted institutional economic geography needs to have more ‘geog

raphy’ in it. That is, it needs to illuminate the processes by which institutions are
produced and reproduced at a number of spatial scales, from the local to the na
tional to the global, as well as promoting one’s understanding of how these institu
tions shape and constrain (but do not determine) economic action. At the same
time, it should also address the vexing issue of interscalar institutional interac
tion. In other words, one needs to understand far better than is done currently ex
actly how institutional forms and the incentives they create at any one particular
scale influence, are influenced by, and interact with, the institutional architectures
that are erected at other geographical scales (Gertler, 2010, p. 6).
As a result, a new geography of institutional analysis has begun to emerge, one that ex
plores the conditions under which distinctive regional forms are produced, and how these
might interact with the national institutional framework within which they are embedded
(Pike et al., 2015; Ebner, 2016; Grillitsch and Rekers, 2016).
Addressing one of the most glaring lacunae in the ‘varieties’ literature, Zhang and Peck
(2016) consider the nature of China’s economic institutions. In doing so, they adopt an ex
plicitly spatial perspective, providing a detailed analysis of ‘the regional subspecies of
Chinese capitalism’ (p. 73). In their insightful analysis, a key feature that differentiates
one regional formation from another is its type and degree of transnational economic con
nections. In Guangdong, capital from Hong Kong has played a critical role in spurring de
velopment. In Chongqing, foreign direct investment by the likes of Cisco and HP, and the
local prominence (p. 236) of contract manufacturer Foxconn, which is deeply embedded in
global supply chains, have led the way.
Having successfully identified these regionally distinctive models, Zhang and Peck never
theless conclude that ‘seeking explanations for their (re)production in the context of on
going scalar transformations of capitalism … is a task that must remain for future work’.
Page 7 of 16
They offer only the most general of explanations at this point: ‘regional variability is a fea
ture of all “national” capitalisms … every national model internalises particular configura
tions of uneven geographical development’. They opine further that ‘the challenge must
be to theorize across scales, not to privilege, a priori, one scale of analysis over
another’ (p. 73).
Schröder and Voelzkow (2016) take up this question of exploring the interaction between
institutions at different spatial scales. They argue that the influence of national institu
tions relative to regional institutions will vary by nation state, depending on whether or
not a country has a federal system of government, as well as the overall strength and ef
fectiveness of its national government. The stronger the degree of centralization, the low
er the likelihood that particular regional-institutional forms will diverge significantly from
national institutions. However, federally organized nation states are more likely to sup
port the emergence of significant inter-regional variation in institutional architectures.
Citing the work of Elbing et al. (2009) and Crouch et al. (2009), Schröder and Voelzkow
document the mechanisms by which regional-industrial clusters begin to evolve along
pathways that are not consistent with the wider national institutional environment:
Television and film production firms in Cologne invent new institutions when those
of the German market economy lack the flexibility that their fast project-based
workflow requires. Media firms in London similarly build regional institutions for
training and financing, generating more coordination than their embedding liberal
market economy would lead one to assume (2006, p. 13).
In contrast to one of the central tenets of the varieties of capitalism approach, in which
internal coherence and strong complementarity of institutions are assumed, Schröder and
Voelzkow reach a different conclusion:
(F)irms seem to be increasingly at liberty to diverge from a national regulatory

framework; they are free, that is, to build up institutions locally that cater to sec
toral needs … Insofar as such divergence from a national model is productive, one
can speak of “productive incoherence” … (W)hen national institutions do not pro
vide the support that regional economies need, liberal clusters spring up in coordi
nated countries and coordinated clusters spring up in liberal countries (2006, p.
13).
In their view, the initiative to chart such distinctive regional paths originates with groups
of firms constituting a critical mass in a local industry, leading to ‘collective rule-break
ing’, and forming ‘an institutional island, in which regulation diverges from the embed
ding national regime’ (2006, p. 14).
This conclusion is worth considering more fully, as it suggests that the driving forces for
institutional change become more obvious when one adopts a regional (vs. national) lens.
Indeed, Schröder and Voelzkow’s analysis raises an interesting question: Does national
institutional change actually originate in collective action organized at the local and re
Page 8 of 16
gional scale, or do such ‘institutional islands’ at the regional scale remain just that? What
potential (p. 237) do such phenomena have to transform the prevailing, dominant national-
level institutions? Moreover, this analysis leads to other key unanswered questions. How
sustainable are such ‘productive incoherencies’ at the regional level over time? And can
these institutional innovations spread from one region to another? If so, what are the con
ditions under which such institutional diffusion is more likely to occur?
Pike et al. (2015) undertake a comprehensive study of local institutional change, examin
ing the rollout of local enterprise partnerships (LEPs) by the national government in the
UK since 2010. By adopting a comparative approach that examines institutional evolution
across 39 LEPs, they are able to document the distinctive paths charted by each region,
defined by local histories and social dynamics. Their consciously multi-agent and multi
scalar framework reveals much about the forces shaping institutional change, including
the influence of local agency in charting evolutionary pathways. They elaborate a typolo
gy of institutional change processes, including ‘layering, converting and recombining as
well as dismantling and improvising’ (2015, p. 201). On the question of how regional insti
tutional change might shape national institutional architectures, Pike et al. (2015)
conclude that, notwithstanding the emergence of substantial local variation, national in
stitutions remain dominant. At the same time, they acknowledge that this finding may not
be generalizable to other national settings, demonstrating the need for further interna
tional comparative work.
Institutional Change Over Time

The above discussion provides a helpful segue to one of the most fundamental shortcom
ings of institutionalist analysis as noted by Peck and Theodore (2007) and others—namely,
its failure to theorize how institutions change over time. Not surprisingly, this glaring gap
has begun to generate some thoughtful responses in the past few years.
For example, Thelen and colleagues (Streeck and Thelen, 2005; Hall and Thelen, 2009)
have made important conceptual contributions in advancing our understanding of how in
stitutions change over time. They document a range of different pathways to institutional
change, in which the locus of the actions that instigate change may be, alternatively, in
side or outside of government itself. In a way that helps guide the later work of Pike et al.
(2015), they also describe a path-dependent, evolutionary dynamic, in which new institu
tional forms are ‘layered’ on top of pre-existing forms whose contours continue to exert
influence on the directions in which those new forms may evolve over time.
This last idea anticipates subsequent conceptual developments in economic geography—

in particular, evolutionary economic geography (EEG). While the common starting place
for institutionalist approaches is to demonstrate how ‘big structures’ shape and influence
(although they do not determine) the behaviour of individual economic actors, Martin and
Sunley (2015) see the relationship as two-way. In their manifesto for a ‘developmental
turn’, they advocate a grand synthesis of conceptual ideas from EEG, geographical politi
cal economy, and institutional economic geography (see also MacKinnon et al., 2009; Pike
Page 9 of 16
et al., 2015). In such a synthesis, institutional forms and the ‘big structures’ that figure
prominently in political–economic approaches would be viewed as subject to the same
kind of evolutionary dynamics that help determine the fortunes of individual firms:
(p. 238)
Not only do institutions of all kinds and at all scales condition, constrain and en
able the operation of evolutionary mechanisms in the economy, but also these
same institutions are themselves subject to similar such evolutionary mechanisms
and processes: an economy and its institutional forms and arrangements co-
evolve. Institutions are both context and consequence of economic evolution (Mar
tin and Sunley, 2015, p. 724, original emphasis).
Although Martin and Sunley (2015) suggest that we can understand institutional evolu
tion as being shaped by core concepts of developmental evolutionary biology, such as
homeostasis (mechanisms that foster stability) and adaptive plasticity (processes of
change in response to new competitive, technological or regulatory features), they stop
short of outlining exactly how this might work.
Such questions are of more than conceptual interest, but have very real and practical im
plications. If institutions are incapable of significant change over time, then the very co
herence and complementarity that provided the foundation for economic success in the
past could become problematic when broader competitive conditions or technological
paradigms emerge—akin to the familiar notion of institutional ‘lock-in’ from EEG. Indeed,
it is precisely such questions that have propelled much of the interest in institutional
change in recent years.
The work of Thelen and colleagues cited earlier has been motivated, in large part, by ex
istential concerns over the ‘future of the German model’ in the face of global competitive
pressures. The dominant narrative predicts convergence between different national eco
nomic models over time towards the Anglo-American variety of capitalism, a process dri
ven by mobile capital and the global organization of production systems. Moreover, there
is at least preliminary empirical evidence of such convergence tendencies emerging with
in capital market structures and practices (Clark and Wójcik, 2003; Wójcik, 2003).
In response, Thelen, Streeck, and others working in this field have argued instead that
the German variety of capitalism is more resilient than it may seem. While they document
the gradual change in Germany’s economic and social institutions, they make the case
that the end result will not be convergence so much as continued evolution along a dis
tinctive path—one that differs from the evolutionary paths of other nation states (see also
Bathelt and Gertler, 2005). In making this argument, they have anticipated more recent
work by Boschma (2015) at the regional scale. Their arguments are also consistent with
the findings of a study of production methods, workplace organization, and associative in
teraction adopted by German firms operating in three different regions of North America
Page 10 of 16
(Gertler and Vinodrai, 2005), which finds little evidence of practices learned overseas be
ing transposed back to operations in Germany.
Conclusions
The analysis presented here confirms that institutionally inflected conceptual approaches
have become widespread in recent years. Both economists and economic geographers
have embraced the idea that institutions shape, constrain, and enable economic behav
iour in characteristic and predictable ways. Furthermore, we know that the nature of this
relationship will vary according to the precise institutional architecture of particular geo
graphical (p. 239) spaces. While much of the literature has focused on national-level insti
tutions, geographers, in particular, have shown a keen interest in the role and influence
of regional institutions in shaping economic behaviour and performance. Economists
have, for the most part, confined their analysis to formal institutions and how they shape
aggregate outcomes at the level of nation states. While the geographical literature has re
cently turned its attention to the pressing question of how regional institutions interact
with institutions of the nation state within which they are nested, the analysis thus far—
both conceptual and empirical—remains partial, preliminary, and tentative in its conclu
sions. As noted a few years ago (Barnes et al., 2007; Gertler, 2010), the scarcity of rigor
ous comparative analysis within economic geography may explain the slow progress on
this front.
An equally pressing question pertains to the sources of institutional change—both region

al and national—and the processes by which this occurs. Here, too, early musings remain
just that. While the literature has tended to emphasize exogenous sources of institutional
change, more recent work (Elbing et al., 2009; Hall and Thelen, 2009; Pike et al., 2015;
Grillitsch and Rekers, 2016) has attempted to understand the way in which endogenously
generated institutional change might work. Nevertheless, we are still far short of a com
prehensive understanding of how and when institutions evolve—or, to use the language
proposed by Martin and Sunley (2015), what determines the relative influence of home
ostasis versus adaptive plasticity in institutions.
Nor has our understanding of the role and influence of individual agency developed much
in the past few years (Gertler, 2010). What impact do the actions of individual agents—
workers, managers, firms, and other organizations—have in determining economic out
comes, and to what extent do institutional structures accommodate such decisions and
actions? How does the agency of individual actors shape institutional change, and which
actors are most influential in this regard? While some (Schröder and Voelzkow, 2016)
have suggested that collections of firms may be responsible for catalysing institutional
change, there does not yet appear to be much systematic analysis of the relative impor
tance of other types of actors in effecting such change. Once again, comparative case
studies have the potential to shed useful light on this issue, as the fine-grained, theoreti
cally grounded work of Vinodrai (2013) and Pike et al. (2015) so clearly demonstrates.
Page 11 of 16
And while some would argue that the path and direction of institutional evolution at the
macro level are quite predictable (read convergence towards an Anglo-American norm),
others view this process in a far more indeterminate way. While institutions in all nation
states and regions evolve continuously, the rate, direction, and overall trajectory of this
evolution may itself be shaped by inherited histories and politics. And as Gertler (2010)
has pointed out, the capacity for variation in evolutionary paths between countries (or
cities) situated within broadly similar macro-institutional structures, and subject to simi
lar macroeconomic and competitive conditions, should not be underestimated:
Social, economic and geographical outcomes are contested and determined

through the interplay between inherited national, provincial and local institutional
structures, political processes, and the agency of individual actors such as munici
pal leaders, civic entrepreneurs, and community activists. And there remains a
surprising degree of latitude at the local scale to modify existing institutions, cre
ate new institutions, and enact policies promoting progressive social change
(2010, p. 11).
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Meric S. Gertler

vation Systems (PROGRIS) at the Munk School of Global Affairs. His research focus
es on the geography of innovative activity, the economies of city regions, and eco
nomic restructuring in North America and Europe. He is the author, co- author, and
co- editor of more than ninety scholarly articles and chapters, and nine books, includ
ing Manufacturing Culture: The Institutional Geography of Industrial Practice. He
has served as an advisor to local, regional, and national governments in Canada, the
USA, and Europe, and international agencies such as the Organisation for Economic
Co-operation and Development. He is the founding associate editor of the Journal of
Economic Geography.
Page 16 of 16
Economic Ecosystems
Economic Ecosystems
Philip E. Auerswald and Lokesh M. Dani
In this chapter the concept of ecosystems as applied to economic geography is reviewed.

It is argued that economic systems taking the metaphor of the ecosystem more literally
than has been done in the past may advance understanding of economic systems at the
regional scale are, literally, ecosystems. An ecosystem is defined as a dynamically stable
network of interconnected firms and institutions within bounded geographical space. It is
proposed that representing regional economic networks as ‘ecosystems’ provides analyti
cal structure and depth to theories of the sources of regional advantage, the role of entre
preneurs in regional development, and the determinants of resilience in regional econom
ic systems. The chapter frames regional economic change in terms of ecosystem dynam
ics, with reference to ecologically derived concepts of succession, speciation, diversity, re
silience, and adaptation.
Keywords: Economic ecosystem, ecosystem dynamics, succession, speciation, diversity, resilience, adaptation
Introduction
‘THE Mecca of the economist lies in economic biology rather than in economic dynamics’,
the great economist Alfred Marshall famously wrote in 1920, in the preface to the eighth
edition of Principles of Economics. ‘But biological conceptions are more complex than
those of mechanics’, he continued, ‘a volume on Foundations must therefore give a rela
tively large place to mechanical analogies; and frequent use is made of the term “equilib
rium,” which suggests something of statistical analogy’ (Marshall, 1920, p. 19). Inspired
by these words of Marshall’s and the work of other foundational figures in the field of
economics who similarly perceived a fundamentally biological order in the evolution of
the economy,1 economists have for decades sought to represent the adaptive dynamics ev
ident in economic systems.2
A second celebrated passage in Marshall’s Principles relates to the localization of eco

nomic activity: ‘When an industry has thus chosen a locality for itself, it is likely to stay
there long: so great are the advantages which people following the same skilled trade get
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Economic Ecosystems
from near neighbourhood to one another. The mysteries of the trade become no myster
ies; but are as it were in the air, and children learn many of them unconsciously.’ Empha
sizing the central role of invention and innovation in geographical localization, Marshall
continues, ‘Good work is rightly appreciated, inventions and improvements in machinery,
in processes and the general organization of the business have their merits promptly dis
cussed: if one man starts a new idea, it is taken up by others and combined with sugges
tions of their own; and thus it becomes the source of further new ideas’ (Marshall, 1920,
p. 225). This observation similarly has inspired a now decades-old literature within eco
nomics on the localization of economic activity, in general, and of inventive activity, in
particular.
Economists have only recently begun to connect these two Marshall-inspired literatures,
studying localized systems of innovation as ‘ecosystems’ at the sub-national or regional
level.3 This new work on regional entrepreneurial ecosystems has been prompted equally
by the advance of models and empirical methods to represent the adaptive evolution of
ecosystems (Holling et al., 1995; Gavrilets, 1999, 2004; Holling, 2001), a discontinuous in
crease in the volume and quality of data available to economic geographers (Rosenthal
and Strange, 2001, 2004; Wallsten, 2001; Auerswald et al., 2007), and strong interest
among policymakers (Isenberg, 2010; Auerswald, 2015).
In this chapter we review the concept of ecosystems as applied to economic geog

(p. 246)
raphy. We define an economic ecosystem as a dynamically stable network of interconnect

ed firms and institutions within bounded geographical space. We propose that concepts
familiar to economic geographers, such as ‘clusters’ (Porter, 1990) and ‘production net
works’ (Piore and Sabel, 1984), are subsystems within regional economies, and further
that representing regional economic networks as ‘ecosystems’ provides analytical struc
ture and depth to otherwise mostly ad hoc theories of the sources of regional advantage,
the role of entrepreneurs in regional development, and the determinants of resilience in
regional economic systems. We frame regional economic change in terms of ecosystem
dynamics, with reference to ecologically derived concepts of succession, speciation, diver
sity, resilience, and adaptation. We seek both to provide a summary of the scholarly dis
cussion on economic ecosystems and to sketch directions for future research.
In the next section we summarize the conceptual origins of the term ‘ecosystem’ and the
concept of the ‘fitness landscape’ in evolutionary biology and explain their application to
the study of economic ecosystems. In the section, ‘Unit of Analysis’, we introduce the con
cept of the ‘production algorithm’, which is analogous in economic ecosystems to the
gene in biological ecosystems. In the fourth section, ‘Structure’, we summarize the struc
tural characteristics of economic ecosystems, with a focus on the determination of ecosys
tem boundaries. In the fifth section, ‘Dynamics’, we describe the hypothesized dynamics
of economic ecosystems, with particular emphasis on the systemic processes that lead to
speciation and ecosystem-scale life cycles. In the penultimate section, ‘Health’, we pro
pose some potential definitions of the health of ecosystems in terms of their resilience,
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Economic Ecosystems
adaptive capacity, diversity, and entrepreneurial dynamism. We conclude with a discus

sion on the future potential and direction of economic ecosystems research.
Conceptual Origins
The Definition of ‘Ecosystem’
In an 1857 essay titled ‘Progress: its Law and Cause’, Herbert Spencer argued that sys
tems of all types—natural and social—tended to grow from simplicity to complexity
through stages of differentiation, a process he characterized as ‘an advance from homo
geneity of structure to heterogeneity of structure’ (Spencer, 1857, p. 234). Presenting an
array of examples of such progression from simplicity to complexity, Spencer endeav
oured to establish that the
law of progress is the law of all progress. Whether it be in the development of the
Earth, in the development of Life upon its surface, in the development of Society,
of Government, of Manufactures, of Commerce, of Language, Literature, Science,
Art, this same evolution of the simple into the complex, through a process of con
tinuous differentiation, holds throughout (Spencer, 1857, p. 234).
Nearly six decades after the publication of ‘Progress: Its Law and Cause’, Sir Arthur Tans
ley published a paper entitled ‘The Use and Abuse of Vegetational Concepts and Terms’ in
which he introduced the term ‘ecosystem’. Tansley’s insight was that dynamically stable
networks of interconnected organisms and inorganic resources constituted their own dis
tinct domain of analysis. Evolutionary biologists in the 1930s were as naturally inclined to
place (p. 247) ‘the organism’ at the centre of their inquiry as economists in the 1930s
were to place ‘the firm’ at the centre of production theory, but Tansley rebelled against
the application of the term ‘complex organism’ to describe dynamically stable networks of
interconnected organisms and inorganic resources because ‘the term [“complex organ
ism”] is already in common use for an individual higher animal or plant, and because the
biome is not an organism except in the sense in which inorganic systems are organisms’.
Accordingly, a new term was required. Tansley proposed the word ‘ecosystem’, which he
defined as follows:
It is the systems so formed which, from the point of view of the ecologist, are the
basic units of nature on the face of the earth. Our natural human prejudices force
us to consider the organisms (in the sense of the biologist) as the most important
parts of these systems, but certainly the inorganic ‘factors’ are also parts—there
could be no systems without them, and there is constant interchange of the most
various kinds within each system, not only between the organisms but between
the organic and the inorganic. These ecosystems, as we may call them, are of the
most various kinds and sizes. They form one category of the multitudinous physi
cal systems of the universe, which range from the universe as a whole down to the
atom (Tansley, 1935, p. 299).
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Economic Ecosystems
As Tansley emphasized in defining the term, ecosystems come in a variety of sizes and
scales determined by internal linkages and external boundaries. Tansley included the in
teractions between both the organic biome and the inorganic habitat in which these or
ganisms live in determining the scope of the ecosystem. Accordingly, biological ecosys
tems can be as small as ponds, or as large as forests, and collections of ecosystems can
be combined into higher-order systems. Nationally and globally, ecosystems are classified
into a hierarchy of nested geographies of interacting networks (Bailey, 2009).
In this chapter we elaborate on the proposition that the firm in an economic ecosystem is
analogous to the organism in a biological ecosystem. We propose that economic ecosys
tems are characterized by interactions among densely interconnected firms, but that such
ecosystems cannot reasonably be considered ‘complex firms’. Firms within an ecosystem
are generally less tightly interconnected than subunits within a firm, but more tightly in
terconnected than atomistic entities reacting anonymously to price signals in a market.
Evolution as the Solution to a Search Problem
At about the same time that Tansley was defining the ecosystem and establishing the ba
sis for ecology as a field of study, fellow biologist Sewall Wright was setting the stage for
the ‘modern synthesis’ in evolutionary biology: the systematic integration of the ‘micro’
genetics of combination and recombination first postulated by Gregor Mendel with the
‘macro’ theory of evolution first and most famously expounded by Charles Darwin, with
significant contemporaneous contributions from Herbert Spencer that described changes
in the character of populations over time. Sewall Wright’s work constituted a significant
advance over Darwinian theory and offered a bridge from evolutionary biology to other
domains of inquiry.
Wright began his 1932 paper ‘The Roles of Mutation, Inbreeding, Crossbreeding, and
Selection in Evolution’ by distinguishing between two mechanisms by which genetic nov
elty might be introduced into particular populations. The first was the one emphasized by
Darwin: single-point mutation, which would constitute incremental change for an (p. 248)
offspring as compared with a parent. The second was that emphasized by Mendel: sexual,
or ‘bi-parental’, reproduction, which would constitute large-scale, combinatorial change
for an offspring as compared with parents. Wright noted the fundamentally unsatisfactory
nature of mutation as a sole explanatory factor in the evolutionary process:
The observed properties of gene mutation—fortuitous in origin, infrequent in oc

currence and deleterious when not negligible in effect—seem about as unfavor
able as possible for an evolutionary process. Under bi-parental reproduction, how
ever, a limited number of mutations which are not too injurious to be carried by
the species furnish an almost indefinite field of possible variations through which
the species may work its way under natural selection (Wright, 1932, p. 356).
Wright supported his claim by describing the astronomical number of combinations of

genes that are possible in higher organisms, in comparison with the linearly scaling num
ber of possible single-point mutations. As a consequence of the enormous space of combi
Page 4 of 28
Economic Ecosystems
natorial possibilities afforded through sexual reproduction, populations of higher organ

isms (including humans) demonstrate tremendous genetic diversity and thus different im
plications for a species’ reproductive success:
There is no reasonable chance that any two individuals have exactly the same ge
netic constitution in a species of millions of millions of individuals persisting over
millions of generations. There is no difficulty accounting for the probable genetic
uniqueness of each human being or other organism which is the production of bi-
parental reproduction (Wright, 1932, p. 356).
To organize inquiry regarding the way in which populations evolve over time, Wright in
troduced the idea of a ‘landscape’ that assigns an environmentally determined level of
‘fitness’, or reproductive success, to each genetic combination. ‘The problem of evolu
tion’, he states, ‘is that of a mechanism by which the species may continually find its way
from lower to higher peaks in such a field. In order that this may occur, there must be
some trial and error mechanism on a grand scale by which the species may explore the
region surrounding a small portion of the field which it occupies. To evolve, the species
must not be under the strict control of [mutation-driven] natural selection’ (Wright, 1932,
p. 359).
As introduced by Wright (1932), fitness landscapes are a two-dimensional visualization of

the relationship between a species’ reproductive success and its genotype. The
organism’s genotype is one possible combination in the ‘genotype space’, itself represent
ed as a hypercube with vertices composed of all possible gene combinations. When plot
ted as two-dimensional contour map representing levels sets of reproductive fitness, fit
ness landscapes show multiple local and global optima, as well as ‘maladaptive
valleys’ (see Figure 13.1).
Although the combinatorial possibility of the genotype space is nearly boundless, not all
of the landscape is accessible to a given individual of a species. The geometric features of
the landscape play an important role in the accessibility to higher peaks of fitness for a
given species. Sexual reproduction—which we will propose is analogous to Schumpeter
ian entrepreneurship and innovation in an economic ecosystem framework—thus pro
vides a mechanism by which the population can reach regions of the fitness landscape
that lie beyond its immediate ‘neighbourhood’ composed of adjacent genetic variants.
The presence of sexual reproduction alone is, however, not sufficient to sustain continued
evolution. Genetic diversity is also necessary. The reason for this is that, for a closed pop
ulation, inbreeding among members of the population combines with natural selection to
shift (p. 249) the distribution of genetic combinations ‘uphill’ on the landscape towards a
fixed number of peaks, where a ‘peak’ on the fitness landscape is defined as local maxi
mum in terms of favourable adaptation to the environment. After a sufficient time has
elapsed such that the population converges on such peaks, a certain stasis sets in. While
mutation may continue to introduce some variation after the population has reached a set
of high points on the fitness landscape, ‘the species will occupy a certain field of variation
about a peak … The field occupied [on the landscape] remains constant although no two
Page 5 of 28
Economic Ecosystems
individuals are ever identical’. Under such conditions ‘further evolution can only occur by
the appearance of wholly new (instead of recurrent) mutations, and ones which happen to
be favorable from the first [instance it appears]’.4 Absent fortuitous encounters with en
tire new populations of the same species, the single most effective way out of this trap is
for the species to subdivide into local subspecies that occasionally crossbreed. This al
lows for the regular introduction of truly new combinations that fundamentally expand
the field of variation occupied by the species.
Figure 13.1 Sewall Wright’s Fitness Landscapes.
Source: Wright (1932, p. 3).
Wright’s primary conclusion is that evolution requires a balance among the various mech
anisms for generating novelty upon which it depends: mutation, selection, inbreeding,
and crossbreeding. ‘There must be gene mutation, but an excessive rate gives an array of
[maladapted] freaks, not evolution; there must be selection, but too severe a process de
stroys the field of variability, and thus the basis for further advance; prevalence of local
inbreeding within a species has extremely important evolutionary consequences, but too
close inbreeding leads merely to extinction’. In the short term, narrow specialization
leads to economies of scale and increased productivity; however, in the long term, narrow
specialization leads to the exhaustion of possibilities for search, and thus to evolutionary
dead ends. Success for a species depends on balancing these factors.
(p. 250) As we will see, an ecosystems perspective on economic geography suggests that
the same holds for the densely interconnected firms that comprise economic ecosystems:
specialization yields increased productivity, but success in the long term depends equally
on the continued introduction of novelty.5
Page 6 of 28
Economic Ecosystems
Unit of Analysis
Representing the ‘DNA’ of Firms
Markets exert a selection pressure on firms that is reflected in the dynamics of indus
tries. Standard theories of industrial organization suggest that firms with greater-than-av
erage productivity will grow over time within a given industry, while low-productivity
firms are likely to shrink or exit (Viner, 1932; Jovanovic, 1982; Hopenhayn 1992; Ericson
and Pakes, 1995; Foster et al., 2008). However, contrary to the predictions of Viner
(1932), productivity differences among industries in different geographies, among firms
within industries, and even among plant within firms, are large and tend to persist over
time.6 Work by Bloom and Van Reenen (2010) singled out the influence of management
practices on cross-country variations in firm productivity. These results suggest that eco
nomically relevant knowledge is generally firm-specific and costly to transmit. Imperfect
appropriability of the production process allows entrepreneurs to capture persistent rents
(Aghion and Howitt, 1992; Auerswald, 2010).
While surprising in the context of the knowledge-based variants of ‘new growth’ theory
that emphasize the ostensible ubiquity of ‘knowledge spillovers’,7 these results fit com
fortably within an ecosystems view of economic geography. If firms are organisms, then
the DNA of firms is the economically relevant knowledge embedded within the firm on
which the firm’s survival depends. We will term such economically relevant knowledge
embedded within the firm the firm’s ‘production algorithm’.
A notable conceptual antecedent to the production algorithm is the firm-level

‘routine’ (Nelson and Winter, 1982), or those firm-specific functions that relate inputs to
outputs given the internal context and the external environment of the business opera
tions. Nelson and Winter (1982) proposed that routine plays ‘the role that genes play in
biological evolutionary theory’ (Nelson and Winter, 1982, p. 17).8 Auerswald et al. (2000)
refer to the economically relevant knowledge encoded within a firm as its ‘production
recipe’, which represents ‘the complete description of the underlying engineering
process’. Employing a culinary rather than biological analogy, the notion of recipes em
phasizes that a firm’s production plan extends well beyond the mapping of ingredients
(inputs) to outputs, that is the focus of standard production theory, to incorporating the
specific list order for routinization of the production plan. More important, the production
algorithm consists of the ‘how’ of the production process—the code that specifies the dis
tinct operations required to convert inputs into outputs.9 Invoking the Coasean notion
that firms exist to internalize externalities (Coase, 1937), it follows naturally that the pro
duction recipes or production algorithms—two terms we will use interchangeably—that
are mostly likely to survive under evolutionary pressure are complex and cannot be easily
imitated.
In the ecosystems framework, therefore, production recipes/algorithms are analo

(p. 251)
gous to genes in organisms. They are the basic units of economic recombination.
Page 7 of 28
Economic Ecosystems
Learning by Doing and Adaptive Walks on Fitness Landscapes
In 1936, four years after Sewall Wright published his pioneering work introducing the
concept of the fitness landscape to evolutionary biology, his brother, T.P. Wright, pub
lished a paper titled ‘Factors Affecting the Cost of Airplanes’ that set the stage for a fu
ture modern synthesis in economics, linking of systematic modifications at the scale of
the production algorithm to observed outcomes at the scale of economic ecosystem. This
paper was a contribution to the engineering literature that documented the manner in
which the cost of airframes declined as experience accumulated. Yet what T.P. Wright had
discovered—the organizational learning curve—turned out to have fundamental signifi
cance in fields as varied as business strategy, industrial organization, macroeconomics,
and economic geography.
Citing Wright (1932), Arrow (1962) proposed a growth model based on the observation
that per unit costs of production can fall even in the absence of capital accumulation and
R & D inputs. He attributed this productivity gain in the absence of increased inputs to
‘learning by doing’. Also citing Wright (1932), Muth (1986) began to link production algo
rithms to the emergence of learning curves by suggesting that higher efficiencies in the
search procedure can be achieved by breaking the design problem into smaller compo
nents and systematically modifying the components individually. Building on this work,
and employing the intuitive conceptualization of fitness landscapes articulated by Wright
to explain the emergence of learning curves as documented by Wright (1932), and Auer
swald et al. (2000) applied the production recipes approach to learning by doing as a
process of systematic search in space of possibilities represented by adjacent production
algorithms.
The specific form of a fitness landscape employed in Auerswald et al. (2000) is Kauffman
and Levin’s (1987) NK model. In the NK model, N refers to the number of traits of an or
ganism that contribute to increasing fitness of the organism, while K refers to the number
of other traits of the organism that have a bearing on its fitness. The evolutionary path
way is modelled as an ‘adaptive walk’ or a step-wise optimization process. Genetic muta
tions happen at random but only those mutations that increase the species’ fitness are
adopted and it is through this evolutionary process that a species traverses the fitness
landscape in search of a more optimal peak. As K increases, the ruggedness of the land
scape increases with the number of peaks increasing, but the typical height of the peaks
decreases to reflect that an increase in the epistatic linkages increases the conflicting
constraints of the fitness landscape (Kauffman, 1989). More recently, Sergey Gavrilets
suggested that the properties of multidimensional landscapes can differ significantly from
low-dimension landscapes, which can have implications on how a species’ population
moves from one peak to another, or crosses a valley. Gavrilets and Janko Gravner (1997)
answered this question by suggesting that a population can cross maladaptive valleys to
reach a higher fitness peak by traversing along ‘ridges’ if and where available. However,
these ridges are determined by how peaks cluster on that landscape, and they may not be
accessible.
Page 8 of 28
Economic Ecosystems
In the production recipes application of the NK model introduced in Auerswald et al.

(2000), N refers to the number of individual operations in the production recipe, and K
refers to the average number of interactions among operations that have a bearing on
overall (p. 252) efficiency of the production recipe. In this framework, the difficulty of the
search problem solved by the firm is determined primarily by K, ‘the richness of epistatic
linkages in the system’ (Kauffman and Johnsen, 1991). Strumsky and Lobo (2003),
Siggelkow and Levinthal (2003), and McNerney et al. (2010) have similarly employed
landscape models to study how the co-evolutionary patterns of organizational and design
subsystems can improve efficiency of the search process while reducing costs.10 Hidalgo
et al. (2007), Neffke and Henning (2013), and Muneepeerakul et al. (2013) have further
advanced work on economic ecosystems by mapping the search space of possibilities em
bedded in the knowledge structures of regional production processes, industries, and oc
cupations, respectively.
Combination and Recombination
The correspondence between genes and production algorithms in biological and econom
ic ecosystems, respectively, suggests that evolution as search may occur not only as a
consequence of mutation and selection—analogous to competition among firms in the
presence of learning by doing as described by Wright (1932) and Arrow (1962)—but also
as a consequence of the combination and recombination—analogous to combination and
recombination as a driver of technological advance, as emphasized by Schumpeter (1911)
and Arthur (2013), among others. Schumpeter famously wrote: ‘The carrying out of new
combinations we call “enterprise”; the individuals whose function it is to carry them out
we call “entrepreneurs” ’. Echoing Wright (1932) and deriving conclusions from a combi
nation of theoretical first principles and insights derived from a plethora of historical cas
es, Arthur (2013, p. 129) argues that novel technologies—new technological ‘species’—
arise overwhelmingly as the consequence of the purposive recombination of existing solu
tions:
We … have our answer to the key question of how novel technologies arise. The
mechanism is certainly not Darwinian: novel species in technology do not arise
from the accumulation of small changes. They arise from a process, a human and
often lengthy one, of linking a need with a principle (some generic use of an ef
fect) that will satisfy it. This linkage stretches from the need itself to the base phe
nomenon that will be harnessed to meet it, through supporting solutions and sub
solutions … In the end the problem must be solved with pieces—components—that
already exist (or pieces that can be created from ones that already exist).
Learning by doing, analogous to mutation combined with selection, and recombination,

broadly analogous to sexual reproduction, drive the dynamics as the scale of production
algorithms that determine the evolution of economic ecosystems.
Page 9 of 28
Economic Ecosystems
Co-evolutionary Dynamics
Species do not just evolve, of course. They co-evolve with other species in their environ
ments. The preceding section talked about the evolution of a species as a search for a bet
ter fit along a fixed fitness landscape. Yet, the adaptive progress of one species in an envi
ronment is likely to have implications for the evolution of a different species sharing the
same environment. “Anecdotally, development of a sticky tongue by the frog alters the fit
ness of the fly, and what changes it must now make to increase its fitness; given the frog’s
sticky tongue, the (p. 253) fly should now develop slippery feet. In this framework, adap
tive moves by any partner may deform the fitness landscapes of other partners.” (Kauff
man and Johnsen, 1991, p. 468).
The study of the evolution of a species should also incorporate the co-evolutionary pat
terns of other interacting species. To model this mathematically, Kauffman and Johnsen
(1991) extend the NK framework to include C, the number of traits of the other interact
ing species that have a bearing on its fitness. Such ‘coupled NK fitness landscapes’ have
varied emergent properties and the co-evolutionary process applies particular pressures
on the evolutionary pathways of different species.
Key developments in this field that further carry over to the economic ecosystem perspec
tive is that ecosystems are not completely connected, but instead each species in the
ecosystem only interacts with a subset of other species in the ecosystem, forming a web
of interactions. Co-evolutionary patterns of industries and technologies within economic
ecosystems are driven by specific and relevant interactions that can be identified and
evaluated in the context of different search strategies.
Structure
Spatial Agglomeration and the Definition of Ecosystem Boundaries
In economic geography the periphery is often contrasted with the core. Agglomeration
arises from the locational choices of manufacturing firms in the presence of transport
costs, thereby determining how the core and periphery grow over time (Krugman, 1991).
More generally, economic ecosystems are defined within specific geographies by internal
linkages and external boundaries. Just as biological habitats comprise ecosystems, which,
in turn, make up biomes, economic ecosystems are also nested within larger hierarchies
of regional, national, and global systems. While ecologists are able to rely on the physical
and topographical characteristics of space to define the boundaries of ecosystems (Bailey,
2009), these methods have limited applicability when dissecting abstract strategic net
works that comprise economic ecosystems. The ability to identify internal linkages and
define boundaries is thus a necessary condition to applying the concept of the ‘ecosys
tem’ to economics. To specify interactions that contribute to defining ecosystem bound
aries, they must be complemented with methods to map knowledge networks, strategic
Page 10 of 28
Economic Ecosystems
alliances, and other outcomes of processes that develop social, cultural, and economic
ties.11
Gunderson and Holling (2001) recommend a method of mapping ecosystems that is simi
lar to the biological approach of the ‘controlling factors method’ (Bailey, 2009). They sug
gest that ‘the complexity of living systems of people and nature emerges not from a ran
dom association of a large number of interacting factors rather from a smaller number of
controlling processes. These systems are self-organized and a small set of critical
processes create and maintain this self-organization’ (Holling, 2001, p. 391). The Gunder
son and Holling (2001) approach has developed alongside theoretically similar applica
tions of evolutionary theories in the multi-level perspective, particularly to the study of
technological transitions (Geels, 2002; Genus and Coles, 2008). In an outcome-based ap
proach to specifying the internal (p. 254) interactions that correlate with the overall per
formance of economic ecosystems, Stangler and Bell-Masterson (2015) recommend evalu
ating the overall performance of economic ecosystems based on a set of four regional en
trepreneurship-specific indicator variables: density; fluidity; connectivity; and diversity.
Figure 13.2 Ecosystem Boundaries—US/Mexico Bor

der.
Source: Google Earth satellite image.
Ecosystem boundaries are characterized by an exchange of energy and information be

tween neighbouring ecosystems and are termed ‘transition zones’ (Banks-Leite and Ew
ers, 2009). In natural ecosystems, these transition zones may be abrupt, such as the
boundary between a marine and terrestrial ecosystem, or a field and an adjoining forest.
Alternately, the transition zones may be more gradual, incorporating a series of overlap
ping structures, such as in estuaries and marshes. While the width of the transition zone
depends largely on the geography of the region, these zones provide spaces through
which one ecosystem influences another, what is termed an ‘edge effect’ (Murcia, 1995).
These edge effects are primarily driven by abiotic conditions and pose a strong influence
on the environmental conditions of the transition zones, creating unique habitats to which
species are specifically adapted. Accordingly, the greater the contrast between the habi
tats sharing an edge, the stronger will be the edge effect.
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Economic Ecosystems
Boundaries of economic ecosystems resemble transition zones in biological ecosystems.

In the most direct geographical sense, the political boundaries reflect sharp contrasts in
the transition zones making the difference between ecosystem structures sharply visible.
For instance, Figure 13.2 shows an aerial view of a section of the USA/Mexico border, one
of the most controlled and frequently crossed borders in the world. The edge of the two
national ecosystems is very apparent in the image.
In another example, metropolitan statistical area (MSA) definitions in the USA are updat
ed every few years to reflect population changes along border counties (Office of Man
agement and Budget, 2013). These changes can include the reassigning of counties from
one MSA to an adjacent one based on commuting zones, or the addition or exclusion of a
(p. 255) county from an MSA based on population change. Although MSA definitions are
political boundaries, they reflect the socio-economic relationships between interior and
boundary regions of a common physical system.
Interdependencies
Firms in economic ecosystems are not uniformly distributed, and a firm’s location within
the ecosystem has strong implications on its productivity and evolution.
Many new economic combinations fail to survive in the market because complementary
factors or vital inputs for production and commercialization may not yet be available.
Fagerberg (2005) gives the example of Leonardo da Vinci, who had presented designs of
advanced technologies, including airplanes, but he lacked the adequate materials or pro
duction processes to realize them during his time. A contemporary example is the recent
explosion in the fields of computational sciences. Although much of the mathematics be
hind pattern-recognition algorithms was well established more than a century ago, it took
the computational power of modern computers to allow researchers to apply fully the pro
gramming methods that today are branching out new technological fields in augmented
reality, artificial intelligence, and cybernetics. In this sense, it is hard to conceive of the
structure of innovation without also considering how the structure evolves over time.
When looking at a static representation of the innovation system we would be hard
pressed to identify the relevant components that have led up to the current opportunity
for commercialization.
Spencer (1857) long ago described how different components of an economy, when con
nected, become mutually dependent and begin to differentiate themselves by assuming
different functions: ‘When roads and other means of transit become numerous and good,
the different districts begin to assume different functions, and to become mutually depen
dent.’ Economic complexity in this sense is a result of increased interdependence within
systems and where more complex interactions imply more complex social arrangements.
These complex interdependencies in ecosystems are multidimensional and can be mea
sured in a number of ways. Most often they are studied in terms of the number of parts to
a technological artifact (Strumsky et al., 2012), but they may also be reflected in terms of
organizational complexity of production processes within firms (Auerswald et al., 2000),
Page 12 of 28
Economic Ecosystems
the diversity of teams required to develop new technological innovations (Kash and
Rycroft, 1999; Adams et al., 2005), as well as the in the intricacies of buyer–supplier net
works and peer-production networks (Appleyard, 2003; Auerswald and Branscomb, 2008).
Dynamics
Succession
Ecosystem succession refers to the process by which the structure of the system evolves
over time. In broad terms, succession in biological ecosystems is represented by the
emergence of a new biological community following a large disturbance. These changes
in biological (p. 256) composition of the ecosystem, termed ‘succession’, are analogous to
the progressive development of practices within an industry or local economy. Tansley de
scribes succession as follows:
Succession is a continuous process of change in vegetation which can be separat

ed into a series of phases. When the dominating factors of change depend directly
on the activities of the plants themselves (autogenic factors) the succession is au
togenic: when the dominating factors are external to the plants (allogenic factors)
it is allogenic. The successions (priseres) which lead from bare substrata to the
highest types of vegetation actually present in a climatic region (progressive) are
primarily autogenic. Those which lead away from these higher forms of vegetation
(retrogressive) are largely allogenic, though both types of factor enter into all suc
cessions (1935, p. 306).
Just as succession can be either autogenic or allogenic, the evolution of industries in eco
nomic ecosystems can be either endogenously driven or exogenously driven. Further
more, just as Tansley defines successions that lead towards greater biological complexity
as progressive change in biological systems, so we are suggesting that the evolution of
the capabilities of a city or region towards greater complexity constitutes progressive
change in economic systems.
Speciation
Gavrilets (2004, pp. 399–400) proposes that ‘speciation can be visualized as the process
of formation and subsequent divergence of clusters of organisms in genotype space ac
companied by the evolution of RI [reproductive isolation] between the emerging clusters’.
In developing this higher-order complexity of fitness landscapes, Gavrilets coined the
term ‘holey adaptive landscapes’, defining them as ‘an adaptive landscape where relative
ly infrequent well-fit combinations of genes form a contiguous set that expands through
out the genotype space’ (Gavrilets, 1997, 1999). These holey adaptive landscapes, being
less contiguous and offering fewer pathways for adaptive walks, have properties that can
result in subdivision of populations, leading to speciation.12
Page 13 of 28
Economic Ecosystems
Ecosystem Life Cycles
Adaptive Capacity or the Resilience of the System

As Figure 13.3 illustrates, the biological adaptive cycle alternates between short periods
of systemic restructuring triggered by a disturbance (release and reorganization), fol
lowed by longer periods of accumulation and transformation of resources (exploitation
and conservation). The development of the ecosystem from the exploitation phase to the
conservation phase captures the traditional notions of ecological succession. Organisms
rapidly colonize a disturbed space to accumulate stores of energy and form complex in
terdependencies. The shorter period beginning with the release is often referred to as the
phase of ‘creative destruction’ to parallel Schumpeterian entrepreneurship (Schumpeter,
1911, 1939). It occurs when the over-connected dependencies resulting from the conser
vation phase collapse under some external disturbance, such as a fire or disease. The re
sult is a release of a great (p. 257) amount of stored energy, potentially creating new op
portunity for more complex reorganization with more diverse inputs.
Figure 13.3 Succession and Reorganization of

Ecosystems.
Source: Bengtsson et al. (2000).
These features are paralleled in social and economic ecosystems as well and can be ob
served in the entrepreneurial activity that drives change in the structure of the ecosys
tem. To summarize the argument presented by Gunderson and Holling (2001) in their
book Panarchy: Understanding Transformations in Human and Natural Systems, we can
consider the exploitation phase to be crowded by entrepreneurial activity that is working
and defining a new space of opportunity. Pioneers and opportunists who have preferential
access to the newly released energy and resources will be the first to jump to entrepre
neurial action and the overall diversity of the cluster will increase. As the system matures
into the conservation phase, consolidation across firms will establish new system-level
standards that, in turn, enable more specialized innovative activity. The structure of the
ecosystem will have become denser and more interconnected across different scales of
economic activity. As the networks become denser and more embedded, the structure of
Page 14 of 28
Economic Ecosystems
the ecosystem becomes more rigid and, consequently, more vulnerable to large-scale dis
turbances. In certain configurations,13 a strong stochastic shock, such as a regulatory
change, can significantly disentangle many networks of the structure and release abun
dant energy into the environment. Entrepreneurs will once again seek opportunity in this
disturbance and begin to establish a new order to the ecosystem in the reorganization
phase.
Figure 13.4 provides a generalized summary of the features of each of the four phases.
Note that the two axes of the diagram indicate levels of realized entrepreneurial potential
and the connectedness of the economic ecosystem. In the next subsections we discuss in
more detail the two life-cycle loops of ‘release and reorganization’, and ‘exploitation and
conservation’ in more detail according to the processes that enable systemic phase shifts.
(p. 258)
Figure 13.4 Phase Characteristics of the Entrepre

neurial Ecosystem.
Source: Author’s adaptation.
Release to Reorganization
Release refers to the opportunity that fuels the creative destruction phase. Resulting from
some external disturbance, the tightly knit connected structures of the ecosystem come
undone and large amounts of stored capital and energy are released within the ecosys
tem. This initiates the undoing of old established networks from the prior period of suc
cession. Networks established during the shift from exploitation to conservation mature
over a long period of time; however, the structural shift from release to reorganization oc
curs over a much shorter time scale and is very disruptive. Although established net
works deteriorate and the interconnectedness of the ecosystem declines, reorganization
sets the stage for a new rapid phase of exploitation and entrepreneurial opportunity fol
lowed by a long period of innovation and economic succession.
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Economic Ecosystems
Exploitation to Conservation
Exploitation refers to the colonization of disturbed ecosystems where species capture eas
ily accessible resources. It is the beginnings of establishing order to a chaotic system.
The conservation phase, however, is the ‘climax’ phase of succession where stored nutri
ents and energy are at their peak and the system has achieved a high level of intercon
nectedness. It is a result of a long period of growth and reorder in the system, and refers
to the phase of the adaptive cycle when the ecosystem has developed strong and complex
interdependencies. (p. 259) As the ecosystem embarks on a long period of succession, it
develops broader networks and increases its connectivity. When no market niches are left
unexploited, entrepreneurs will look for new opportunities through innovations in estab
lished technologies rather than opportunity identification or imitation. A key feature of
succession is the macro-level stability of the system relative to significant churn at the mi
cro-levels of the organization. Consequently, strong cross-level synergies such as spin-offs
from large firms and more active mergers and acquisitions markets develop in the ecosys
tems. The networks that build on these interactions not only incentivize greater innova
tive activity, but also reinforce the structures of the ecosystem.
Health
Diversity
Jane Jacobs (1961, 1969) made early and seminal advancements on the hypothesis that in
creasing economic diversity is key to the vitality of cities. She described the engines of
growth for regions to be enabled by increasing connectivity to cities, as well as increas
ing economic diversity within the region itself. Glaeser et al. (1992) studied a cross-sec
tion of US cities and found that ‘at the city-industry level, specialization hurts, competi
tion helps, and city diversity helps employment growth’. Work by Feldman and Audretsch
(1999) similarly emphasized the importance of economic diversity in innovative activity.
Saxenian (1994) documented the relative success of Silicon Valley in developing its tech
nology sector in the 1980s as compared with Boston Route 128. She argued that inter-
firm and inter-industry networks in Silicon Valley played a significant role in providing it
with regional technological advantage as a result of knowledge externalities leading to
greater innovative outputs.
Hidalgo et al. (2007) studied the co-occurrence of products in the export portfolios of
countries to identify a relatedness measure across products, based on the expectation
that countries are more likely to produce goods together that require ‘similar institutions,
infrastructure, physical factors, technology, or some combination thereof’ (Hidalgo et al.,
2007, p. 484). The revealed network of products, called the ‘product space’, showed that
more sophisticated products were located in denser regions of the network, while less so
phisticated products were on the periphery. Furthermore, they also found that advanced
countries tended to have more diverse and densely networked product spaces than the
less developed countries. They explain the developmental constrains on countries in
Page 16 of 28
Economic Ecosystems
terms of the connectedness of their product space and the co-evolutionary patterns of
their firms. Hidalgo et al. (2007) apply a biological analogy similar in intent as the adap
tive walks of firms along ‘holey adaptive landscapes’:
Think of a product as a tree and the set of all products as a forest. A country is
composed of a collection of firms, i.e., of monkeys that live on different trees and
exploit those products. The process of growth implies moving from a poorer part
of the forest, where trees have little fruit, to better parts of the forest. This implies
that monkeys would have to jump distances, that is, redeploy (human, physical,
and institutional) capital toward goods that are different from those currently un
der production. Traditional growth theory assumes there is always a tree (p. 260)
within reach; hence, the structure of this forest is unimportant. However, if this
forest is heterogeneous, with some dense areas and other more-deserted ones,
and if monkeys can jump only limited distances, then monkeys may be unable to
move through the forest. If this is the case, the structure of this space and a
country’s orientation within it become of great importance to the development of
countries (Hidalgo et al., 2007, p. 482).
Regions develop comparative advantage by having diverse but related economic struc
tures.
Neffke and Henning (2013) studied the flows of labour across industries to identify an ‘in
dustry space’. They define a skill-relatedness measure based on the expectation that
workers are more likely to move across jobs that have similar skill requirements. Conse
quently, industries that have similar skill requirements should show greater cross-indus
try flows after controlling for other industry dynamics. Applying the industry space to
study regional diversification, they find that firms are 100 times more likely to diversify
into industries that are more skill-related.
Ecosystem Resilience and Adaptive Capacity
The notion of resilience is an ecological concept that in economic geography has most of
ten been applied to a region’s capacity to resist and recover from disturbances, including
natural disasters (Fingleton et al., 2012). Rose (2004) discusses the behavioural response
of individuals and regional markets to large-scale disruptive events such as earthquakes
within a computation general equilibrium framework. He defines resilience as ‘the inher
ent and adaptive responses to hazards that enable individuals and communities to avoid
some potential losses’ (Rose, 2004, p. 41). Notably, he distinguishes the ‘inherent’ re
sponse as that which allows for the substitution of inputs within the system for those that
were affected by the disturbance, and the ‘adaptive’ response as that which actively re
configures the network of relationships between suppliers and customers for better real
location of resources. Both these responses reflect the expectation for the region’s social
and economic structure returning to a pre-disaster equilibrium as its ability to accommo
date shocks (Rose, 2004). While initially appealing to traditional regional economists, eco
nomic geographers highlight that as a necessity of the response to the shock the econom
Page 17 of 28
Economic Ecosystems
ic structure of the region also changes and a new equilibrium state is reached through
adjustment (Martin, 2012). Accordingly, an evolutionary approach has been recommend
ed whereby following a disturbance, the ecosystem does not return to pre-disaster equi
librium, but instead is set on a new equilibrium path (Holling, 2001).
In our ecosystem perspective we adopt not only a similar conception of ecological re
silience set in an evolutionary framework, but also emphasize the dynamically stable
growth trajectories of regional economies (Martin and Sunley, 2007; Boschma, 2015). We
consider ecosystem resilience to be the ability of the economy to return to, or continue
on, its path of long-term development following a disturbance, and also allow for the
ecosystem to develop new pathways to development as a response to the disturbance.
The trade-off between these two structural responses is framed in the literature in terms
of ecosystem adaptation versus adaptability (Hassnik, 2010; Pike et al., 2010; Boschma,
2015). Where adaptation refers to a region’s ability to return to its pre-disaster develop
ment trajectory, adaptability refers to the region’s ability to innovate new pathways for
growth (Pike et al., (p. 261) 2010) through industry speciation, for instance. In both these
responses an ecosystem’s diversity plays a critical role.
In terms of adaptation, regions with more diversified industrial sectors have been shown
to better accommodate sector-specific shocks, provided other sectors in the economy are
not strongly coupled with the affected sector in terms of supply-chain relations, but are
similar in their skill composition (Essletbichler, 2007; Frenken et al., 2007; Neffke and
Henning, 2013). These circumstances limit the diffusion of the supply or demand shock
across sectors while providing better-matching opportunities for labour displaced by the
shock in other local skill-related sectors.
In terms of adaptability, diversified ecosystems have improved capacity for algorithmic re
combination (Auerswald, 2008) resulting from ‘Jacobs’ externalities’ (Jacobs, 1961), thus
enabling opportunity for the region to innovate new development pathways. Industry spe
ciation, in this case, is one potential development of ‘new pathways’ that can improve
ecosystem outcomes as has been empirically identified by Neffke et al. (2011), but co-evo
lutionary patterns in institutional change also facilitate or inhibit the ability of ecosystems
to respond to large disturbances.
Key to the evolutionary perspective worth iterating here is the path-dependent and co-
evolutionary nature of the ecosystem, because an ecosystem may respond to a distur
bance in a maladaptive fashion that can reduce the overall welfare of the system, or set it
upon a new evolutionary path that is less socially optimal than the initial development tra
jectory (Holling, 2001). Yet, in general, the potential for adaptation versus adaptability of
the ecosystem is viewed as a trade-off whereby the prior is the expected response of
densely connected and interdependent structures, while adaptability is more plausible for
systems that have looser, more malleable ties.
Page 18 of 28
Economic Ecosystems
Entrepreneurial Dynamism
Entrepreneurship is at the heart of economic change (Schumpeter, 1911), yet it takes an

entire ecosystem to help entrepreneurs bring innovations to market. Novelty in an eco
nomic ecosystem is a result of coordinated activities both within firms and with agents ex
ternal to the firm.
Entrepreneurship is a collective achievement that resides not only within the par
ent organization of the innovation but also in the construction of an industrial in
frastructure that facilitates and constrains innovation. This infrastructure includes
(1) institutional arrangements to legitimize, regulate, and standardize a new tech
nology; (2) public-resource endowments of basic scientific knowledge, financing
mechanisms, and a pool of competent labor; (3) development of markets, con
sumer education, and demand; and (4) proprietary research and development,
manufacturing, production, and distribution functions by private entrepreneurial
firms to commercialize the innovation for profit (Van de Ven et al., 1999, p. 149).
Furthermore, innovation is a dynamic, non-linear process. Some innovations can have a

radical impact on the market, while most others are incremental (Freeman and Soete,
2009), but it is far from a well-defined phenomenon and requires the coming together of
many factors to produce the right opportunity for commercialization. For instance, many
inventions never make it to market because complementary factors or vital inputs for pro
duction and (p. 262) commercialization may not be available yet (Fagerberg, 2005). Feld
man and Zoller (2011) found evidence that the presence of dealmakers in regional
economies played an influential role in fostering regional entrepreneurship. Dealmakers
acted as brokers who functioned to shape the network, manage structural holes, and
‘connect disparate actors to social networks’ (Feldman and Zoller, 2011, p. 27).
Such coordinated activities across various organizations within institutional frameworks

allude to multi-level, networked, and interdependent relationships that define and enable
the innovative process. Entrepreneurial action is essential to evolution in economic
ecosystems as it provides a selection mechanism that impacts structural change and is
thus an important indicator for assessing the health of economic ecosystems.
Conclusion
At the time when Alfred Marshall stated that ‘the Mecca of the economist lies in econom
ic biology rather than in economic dynamics’, the concept of the ecosystem had not yet
been developed; the ‘modern synthesis’ in evolutionary biology had not yet occurred; and
mathematical models of evolutionary processes did not yet exist. Nearly a century later,
economists have access to powerful analytical tools developed by evolutionary biologists
and ecologists that have the potential to be directed towards the study of economic
ecosystems.
Page 19 of 28
Economic Ecosystems
In proposing that economic systems are, literally, ecosystems, and thus that they may be
fruitfully be studied as such, we are mindful of the fact that human beings do differ along
multiple dimensions from other biological entities. We expect that the path for research
that we suggest in this chapter ultimately will lead to an understanding that the study of
economic ecosystems requires different tools from those developed by ecologists and evo
lutionary biologists. Thus, our contention in this chapter is not that humans are the same
as other biological entities, or that existing biologically inspired models ultimately will
prove adequate in the study of social systems. Rather, it is that we will only understand
the boundaries for the application of biologically inspired models if we begin by taking
economic systems seriously as ecosystems, and studying their properties from that start
ing point.
In such a process, we are only at the beginning.
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Notes:
(1.) Herbert Spencer’s (1857) early work on evolution, specifically his seminal essay
‘Progress: Its Law and Cause’ arguing that all structures in the universe evolved from
simplicity towards ever-increasing complexity, had a foundational impact on developing
biologically informed theories in the study of physical and social systems.
(2.) Thorstein Veblen, influenced by Spencer’s early work, first used the term ‘evolution
ary economics’ in his 1898 essay ‘Why is economics not an evolutionary science?’ (Ve
blen, 1898). More recently, pioneering work by Nelson and Winter (1982) has embraced
biological analogies to advance the field of evolutionary economics.
(3.) Acs et al. (2014) introduced the related, but distinct, concept of a national entrepre
neurial ecosystem.
(4.) Inbreeding also leads to greater risk of generically caused disease, as well as dimin
ished resilience of the phenotype.
(5.) As Lucas (1993, p. 263) finds: ‘A growth miracle sustained for a period of decades
clearly must thus involve the continual introduction of new goods, not merely continued
learning on a fixed set of goods.’
Page 26 of 28
Economic Ecosystems
(6.) Syverson (2011) provides a survey. Productivity is a residual measure of how well
firms convert their inputs to outputs after accounting for observed characteristics, that is,
a measure for how well firms perform in given market structures (Syverson, 2004a), as
well as their ability to imitate the practices of the most productive firms (Bloom and Van
Reenen, 2010). Firm productivity is directly associated with firm-specific attributes that,
although unobserved, explain the wide dispersion in firm behaviour, even for firms in the
same industry producing similar output. In the USA alone, considering manufacturing
plants at the four-digit level of industry, plants in the ninetieth percentile of the productiv
ity distribution made twice as much output with the same inputs as plants in the tenth
percentile of the distribution (Syverson, 2004b). Hsieh and Klenow (2009) found these
productivity differences to be even larger for firms in China and India, where the nineti
eth percentile made nearly five times the output of the firms in the tenth percentile. Fos
ter et al. (2008) account for price changes (idiosyncratic demand shifts) that can affect
the measure of productivity across firms and show that the differences in output persist
even in the case of firms in industries that produce homogenous products. How firms or
ganize their production activities to produce output has been a core consideration of eco
nomic theory.
(7.) For example, as pioneered by Romer (1986, 1990, 1994). An inspiration for these the
ories was Marshall’s observation, which was quoted at the outset, that ‘the mysteries of
the trade become no mysteries; but are as it were in the air’. Either Marshall was mistak
en on this point, or processes of production have become sufficiently more complex in the
intervening century that his observation no longer holds.
(8.) The biological analogy grants these routines the evolutionary features of determinis
tic behaviour, heritable characteristics across generations of routines, and selection
based on some routines being better suited to their markets than others (Nelson and Win
ter, 1982, pp. 51–138).
(9.) Along similar lines Winter (1968) observes: ‘ “Knowing how to bake a cake” is clearly
not the same thing as “knowing how to bring together all of the ingredients for a cake.”
Knowing how to bake a cake is knowing how to execute the sequence of operations that
are specified, more or less closely, in a cake recipe.’
(10.) Early foundational work on innovation as search by Evenson and Kislev (1976)
modelled a simple trade-off between the costs of search and the expected yield of success
to determine that a research team will stop the search process when the costs exceed the
expected returns from success. Weitzman (1979) iteratively added to this discussion by in
troducing a dynamic programming model of an optimal sequential search strategy. His
model identified objective conditions under which a research team should engage in
search, in what order should they pursue multiple research options, and when should
they stop the search. In support of this observation, Kauffman et al. (1994) provided a
simulation model to show that parallel processing algorithms can increase the efficiency
of search for complex designs.
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Economic Ecosystems
(11.) An interesting recent development along these lines is the application of satellite
imaging and big data to study how economic systems grow or shrink over relatively short
timeframes (Kearns, 2015). Such methods help delineate physical boundaries of economic
ecosystems.
(12.) In his book Fitness Landscapes and the Origin of Species, Gavrilets (2004) makes a
strong case for the modern synthesis of the evolutionary approach to studying speciation
across academic disciplines outside of evolutionary biology. He outlines a series of models
that can be used to study various types and rates of speciation of populations. He devel
opes a series of models that can be applied to various studies beyond their immediate ap
plication in evolutionary biology to even the social sciences.
(13.) Stochastic events may affect ecological niches differently in an ecosystem (Holling,
2001). Similarly, a large disturbance to an entrepreneurial ecosystem may lead to col
lapse of some entrepreneurial niches over others.
Philip E. Auerswald
Philip E. Auerswald ([email protected]) is an associate professor at the

Schar School of Policy and Government, George Mason University. He leads the Glob
al Entrepreneurship Research Network, an initiative of the Kauffman Foundation,
and is the co-founder and co-editor of Innovations, a quarterly journal published by
MIT Press about entrepreneurial solutions to global challenges. He is most recently
the author of The Code Economy: A Forty-Thousand Year History, published by Ox
ford University Press in 2017. He has served as a consultant to foundations, corpora
tions, and national governments, including the World Bank, Gates Foundation, the
National Academy of Sciences, and the National Institute of Standards and Technolo
gy. From 2010 to 2013 he was an advisor to the Clinton Global Initiative, focusing on
job creation and market-based solutions.
Lokesh M. Dani
Lokesh Dani ([email protected]) is a doctoral candidate in public policy at

the Schar School of Policy and Government, George Mason University. He is a re
search assistant for the Center for Regional Analysis where his interests focus on
measuring entrepreneurial ecosystems, as well as evaluating the skill composition of
regional labour forces. He has an MS degree from New York University with a con
centration in International Business, Economics and Development, and a BA from
Bucknell University in English. Prior to his studies in economics he worked in bio
medical research at the Cardiovascular Research Foundation in New York City.
Page 28 of 28
How Geography Shapes—and Is Shaped by—the Internet
How Geography Shapes—and Is Shaped by—the Inter

net
Shane Greenstein, Chris Forman, and Avi Goldfarb
The literature on the geographical implications of the Internet are reviewed, both those
studying the adoption and use of the Internet, as well as those examining the Internet’s
economic consequences for productivity, wealth, innovation, trade, and consumer behav
ior. The chapter emphasizes that the Internet reduces three key interrelated economic
frictions: communication costs, transportation costs, and search costs. The impact of re
ducing these frictions varies across locations because it depends on three factors that
vary locally: preferences, the availability of substitutes, and the availability of comple
ments. Thus, the diffusion of the Internet benefits some locations more than others. The
chapter concludes by discussing directions for future research.
Keywords: Internet, geography, communication costs, transportation costs, search costs
Introduction
IN the mid-1990s the inter-networking infrastructure and protocols of the research com
munity became available to private users. Known colloquially as the ‘Internet’, and newly
enhanced with the additional functionality of the World Wide Web, the Internet became
adopted widely and spread quickly. The new network grew at an astonishing rate, and
transformed economic activity across a breadth of sectors. The Internet almost defied his
torical precedent for combining rapid diffusion with large economic impact, generating
large and impatient investments by households and businesses, and catalysing major re
structuring across a large range of industries (Greenstein, 2015).
What consequences did the spread of the Internet have for the geographical location of
economic activity? The precise economic effects defy simple description. Offline, distance
creates a variety of economic frictions and, at first glance, the Internet reduces these fric
tions to be more similar across locations. However, because the strength of these fric
tions differs across places, the marginal impact of removing them will differ. To put it
plainly, the Internet has different economic consequences in distinct locations because lo
Page 1 of 21
cal factors shape the impact. Specifically, the Internet reduces the importance of three in
terrelated location-level frictions in economic transactions: communication costs, trans
portation costs, and search costs.
Communication costs are lower on the Internet because it is inexpensive to communicate

with others, whether they are in the same building or across the world. The cost of send
ing and receiving email and other forms of digital communication are the same, irrespec
tive of the distance between the sender and receiver.
Transportation costs are lower on the Internet in two ways. Firstly, for goods that can be
digitized, distribution is nearly free. Delivering physical newspapers to people’s doors
(p. 270) requires a costly operation to transport the physical object; once digital infra
structure is in place, delivering digital news has almost zero marginal cost. Music, books,
video, and other information-based goods also benefit from near-zero distribution costs.
Secondly, for items that cannot be digitized, online interactions reduce the need for trav
el. A consumer does not need to travel when ordering an item to be shipped. Digital con
ferencing can reduce the need for physical travel.
The reduction in search costs on the Internet follows directly from lower transportation
and communication costs. If communication costs and transportation costs fall, then it is
easier to compare potential choices before making a selection. These choices can not only
be physical goods, but they can also be business decisions such as outsourcing and hir
ing. Economic models show that lower search costs have distinct implications from the
general models of lower communication and transportation costs.
We begin with the hypothesis that the Internet had a variety of effects across locations
because the impact of lower communication, transportation, and search costs varies by
location, depending on three main factors: local preferences, the availability of substi
tutes, and the availability of complements. The principal goal of this chapter is to show
the manifest ways in which research has documented the scope of changes. We build on
prior reviews of the interaction of online and offline, especially Forman (2014) and also
Goldfarb (2012) and Lieber and Syverson (2012). Zook’s chapter in this book (Chapter 30)
complements our approach and highlights how the Internet has affected the geography of
global capital flows, reducing the importance of distance in some ways, and increasing it
in others.
We begin by discussing models about whether and how the Internet might decrease the
importance of geographical factors in economic activity. This is followed by an explo
ration of how location has affected the incentives for firms and consumers to adopt Inter
net technology. The following sections then, in turn, discuss the consequences of Internet
adoption for the geography of wealth and productivity, innovation, consumer purchasing,
and globalization and trade. We conclude with some directions for future research.
Page 2 of 21
Death of Distance?
Perhaps the most commonly discussed framework is the ‘death of distance’ model popu
larized by Cairncross’s (1997) book of the same title and Friedman’s (2005) The World is
Flat. This model assumes that the Internet is a substitute for other communication, trans
portation (or distribution), and search technologies. Electronic communication therefore
implies that agents will rely less on offline communication channels (especially face-to-
face), and substitute into digital communication. Similarly, Internet distribution replaces
physical transportation of goods and Internet search replaces physical search. A key im
plication of these models is that cities become less important as the Internet diffuses:
there is a decrease in the relative value of agglomeration benefits related to low commu
nication, transportation, and search costs within the city.
One implicit assumption for such models is that the costs of using the electronically en
abled channel will fall for all types of communication, transportation, and search equally:
they (p. 271) do not highlight the comparative advantage that one channel may enjoy over
others in certain types of communication.
In search, some attributes may be easier to appreciate online than others (Lal and Sar
vary, 1999; Brown and Goolsbee, 2002). In transportation, some goods may be easier to
ship than others (Lal and Sarvary, 1999). Even in communication, a large body of litera
ture has shown the unique advantages that face-to-face interaction has over other forms
of communication,1 particularly in communicating certain kinds of tacit or ‘sticky’ knowl
edge (e.g. von Hippel, 1998). For example, while information technology (IT) may be an
effective means of coordinating ongoing projects and collaborations, it may be less effec
tive as a means of establishing new partnerships or collaborative relationships (e.g. Gas
par and Glaeser, 1998; Charlot and Duranton, 2006; Glaeser and Ponzetto, 2007). In this
way, rich offline communication might make online communication more valuable, sug
gesting complementarity between face-to-face and digital communication (Gaspar and
Glaeser, 1998).
Adoption and Use of the Internet

Geographical variance in the adoption of IT produces variance in reduction of search, dis
tribution, and especially communication costs. That is because adoption of the Internet
relies on complementary inputs such as broadband service or expertise in implementing
IT systems, which varies across locations, creating variance in the net benefits to adop
tion. As a result, the diffusion of the Internet did not have the same impact on all loca
tions.
Internet Adoption Among Firms
In Forman et al. (2005), we demonstrated that the costs and gross benefits of technology
adoption may vary significantly across geographical locations, often in quite different
ways. For example, the highest-value users of Internet technology may reside in rural ar
Page 3 of 21
eas and small cities, because of the potential for the Internet to reduce the costs of eco
nomic isolation. However, the costs of adoption may also be highest in such regions be
cause of the absence of key complementary inputs such as broadband service, skilled
labour, and third-party services. We showed that the net benefits of adoption for firms in
2000 were decreasing in location size for basic Internet technologies that reduced the
costs of economic isolation. Further, because implementation is straightforward, the fric
tions associated with adoption costs do not vary much across locations. In contrast, the
net benefits of adoption are increasing in location size for advanced technologies that re
quire extensive adaptation and co-invention (Bresnahan and Greenstein, 1996) to be used
successfully. This is particularly true for establishments in small, single-establishment
firms that are unable to rely on IT skills and other complementary inputs that may reside
elsewhere in the organization and that rely on external markets to facilitate implementa
tion of new IT (Forman et al., 2008). Thus, the net benefits of Internet-enabled frontier
services are frequently higher in urban areas.
Using data on domain name registrations, Kolko (2000) and Moss and Townsend (1997)
also document cases in which adoption of Internet technology increases location size.
Because domain name registrations are based on the business location of the reg
(p. 272)
istration rather than that of the Internet service provider (ISP), they can be a useful mea
sure of the location of Internet adoption; however, they are limited because some firms
have Internet but no domain name and because domain names are typically only associat
ed with the headquarters of multi-establishment firms, which are disproportionately in
larger cities (Aarland et al., 2007)
The availability of complements necessary for Internet adoption appear to be increasing

in location size. For example, the supply of third-party outsourcing firms that are used in
IT implementations are increasing in location size, as are the use of outsourcing services
(Arora and Forman, 2007; Ono, 2007). As outsourcing firms frequently play a key role in
the implementation of frontier Internet services, such variance in local outsourcing sup
ply is likely to influence adoption costs. Further, a rich literature has demonstrated vari
ance in the supply of broadband providers and the quality of the ISPs across locations
(e.g. Greenstein, 2000; Downes and Greenstein, 2002; Prieger, 2003; Flamm, 2005; Zook,
2005). Such variance may influence the costs of technical inputs such as broadband ser
vice and, more broadly, Internet connectivity.
IT Adoption Among Individuals
A variety of studies has shown variance in the extent of individual Internet adoption
across urban and rural (and small city) regions (e.g. Hindman, 2000; Wellman et al., 2001;
Mills and Whitacre, 2003; Agarwal et al., 2009). Much of the urban–rural variance ap
pears as a result of other factors that may be correlated with location, such as income,
age, and education (e.g. Hindman, 2000; Mills and Whitacre, 2003).
Even after controlling for these demographic factors, location characteristics may play an
independent role on adoption because of differences in the availability of complements
Page 4 of 21
such as the local supply of Internet service. Owing to low fixed costs of entry and the
widespread availability of entrepreneurs from related industries, dial-up ISPs quickly en
tered most small geographical markets relatively soon after the commercialization of the
Internet, providing access at competitive rates in all but the smallest markets (Downes
and Greenstein, 2002; Greenstein, 2015). In contrast, owing to differing economics of de
ployment, differences in the supply of broadband providers have persisted (Prieger, 2003;
Flamm, 2005; Zook, 2005; Grubesic, 2012).
Spillovers have also likely shaped the adoption of Internet technology among individuals.
For example, Agarwal et al. (2009) have shown that adoption is correlated among users in
the same metropolitan statistical area. Their results support the existence of network ef
fects, particularly among those located in regions with high housing density and those
within a dense network of social interactions. The approach of Agarwal et al. (2009)
builds upon earlier work by Goolsbee and Klenow (2002), who found evidence that
spillovers related to Internet use influenced the adoption of personal computers. Goldfarb
(2006) also provides evidence that local spillovers influenced individual adoption of the
Internet: the impact of prior university attendance on Internet use is much higher for
people who attended university in the mid-1990s (and people who live with them) than for
others.
Consequences of the Internet for Wealth

(p. 273)
and Productivity
A small literature has focused on the implications of IT investment for local economic out
comes, shedding light on whether the diffusion of the Internet has contributed to conver
gence or divergence in income. One view supporting convergence stresses that the diffu
sion of the Internet led to employment growth and wage gains in regions that have low
populations and are economically isolated; that is, by lowering communication costs, the
Internet contributes most to economic growth in regions that are not well off. An alterna
tive view stresses divergence; that is, that the Internet disproportionately benefits re
gions that have large cities with highly skilled populations who already have high in
comes.
Research in this area is, in part, motivated by work on the broader literature on enter
prise IT that has emphasized the value of complementary labour and information inputs
to achieving value from IT systems (e.g. Bresnahan and Greenstein, 1996; Bresnahan et
al., 2002; Bloom et al., 2012). As was highlighted in the previous section, the supply of
some of these complements is distributed heterogeneously across locations. The returns
to IT investment may be greater in large cities owing to Marshallian externalities. In addi
tion, theories of skill-biased technical change have suggested that IT investment is com
plementary with skilled labour (e.g. Katz and Autor, 1999; Autor et al., 2003), which is
found in larger quantities within cities. Further, the productivity benefits of IT investment
have been shown to be systematically higher for a subset of ‘IT-intensive’ industries that
have typically had long-lived IT capital investments (e.g. Stiroh, 2002; Jorgenson et al.,
Page 5 of 21
2005), and the productivity benefits of IT investments among IT-intensive firms have been
found to be particularly strong in large cities (e.g. Henderson, 2003). The presence of IT-
intensive industries can indirectly increase the supply of other complements. As a result,
firms’ response to new IT will be likely be non-uniform across regions, leading to diver
gence.
Forman et al. (2012) examined the relationship between investment in advanced Internet
technology and local wage growth across 2743 counties in the USA. We identified a puz
zle in the relationship between Internet investment and local wages. On average, the im
pact of advanced Internet investment on local wages is small and on employment is non-
existent. However, investment in the Internet is correlated with wage and employment
growth in about 6 per cent of US counties, representing 42 per cent of the US population.
These counties were already well-off prior to 1995, with high income, large populations,
high skills, and concentrated IT use. These well-off counties averaged 28 per cent wage
growth from 1995 to 2000 (unweighted by population), while all counties averaged just
20 per cent wage growth over this period. The Internet exacerbates regional wage in
equality, explaining over half the additional wage growth experienced by the 6 per cent of
counties that were already well-off. This is the pay-off puzzle: only a few counties experi
enced wage growth, despite widespread Internet investment.
Dranove et al. (2014) demonstrate a similar result in exploring the effects of health infor
mation technology on hospital costs between 1996 and 2009. Hospitals in IT-intensive
(p. 274) locations experienced declines in costs three years after adoption, while hospitals
in other locations experienced an increase in costs even after six years. These differences
appear to be driven by agglomeration of IT employment in other hospitals.
There is less empirical evidence on convergence. One example is Kolko (2007), who finds
that service industries that trade with one another are more likely to collocate within the
same zip code if IT use is high, but less likely to collocate in the same state if IT use is
high. One potential interpretation of this result is that IT reduces the costs of transport
ing services output over long distances.
Formal theory has provided some insights into other ways that the Internet may reshape
the geography of production through changes to communication patterns. For example,
Gaspar and Glaeser (1998) present a model and some empirical evidence that show that
Internet-enabled communications may not only substitute for some face-to-face interac
tions but also increase the demand for face-to-face interactions that cannot easily be per
formed electronically. This can make cities even more appealing, particularly for indus
tries or activities where ideas are complex and difficult to communicate electronically.
Lower communication costs may enable some industries like manufacturing to move out
of cities. However, innovative ideas-producing industries that involve frequent exchange
of complex knowledge will likely continue to rely on face-to-face interactions in cities, and
these industries will likely continue to be agglomerated (Glaeser and Ponzetto, 2007).
Such industry-level variance has been used to explain the resurgence of cities with high
concentrations of innovative industries, like New York and San Francisco, and for the de
Page 6 of 21
cline of traditional manufacturing centres, such as Detroit and Cleveland. Similarly, the
costs of performing headquarters and support functions have historically been lower in
cities owing to the propensity of such functions to outsource business services (Aarland et
al., 2007), while some production activities can take place outside of big cities. If Inter
net-enabled communications costs fall so may the costs of managing multiple firm loca
tions. As a result, we may observe both an increasing number of multi-unit organizations
and a specialization of cities by functional area (Duranton and Puga, 2005).
Much work has investigated the role of upgrades to Internet access in the form of broad
band technologies. Several papers have also investigated the relationship between local
broadband availability and local economic outcomes (e.g. Gillett et al., 2006; Crandall et
al., 2007; Van Gaasbeck et al., 2007; Kolko, 2012). These have consistently found a posi
tive relationship on average between local broadband availability and local employment
growth. However, as Kolko (2012) notes, the majority of these studies show correlation,
not causality—it is difficult to identify empirically whether broadband provision leads to
employment growth or whether regions with high employment growth have more broad
band providers. Further, none of these studies examine heterogeneity in outcomes in re
gion; in particular, whether broadband availability disproportionately benefits large or
small cities or urban or rural regions.
Overall, the evidence suggests Internet technology has the biggest economic effect on
larger cities, although there are particular situations in which small cities and rural areas
do benefit.
(p. 275) Consequences of the Internet for Innova

tion
Lower communications costs can influence the productivity of scientists, as well as shape
the localization of innovation.2 This line of research is important because understanding
what influences the productivity of individual scientists is inherently important for firms
and the science of science policy. Further, researchers have long observed that innovative
activity is localized (e.g. Jaffe et al., 1993), and there is an important public policy ques
tion about the extent to which recent declines to communication costs can enable more
geographically dispersed innovation (e.g. Macher and Mowery, 2008). If the diffusion of
the Internet has differing implications for the geographical concentration of innovation
compared with the geographical concentration of production, this suggests important
changes in the geographical concentration of the value chain over the very long term
(Forman et al., 2015).
Most research in this area has examined how IT investments have influenced research
productivity and collaboration patterns in the academe. Research in this area provides
ambiguous predictions, reflecting not only differences in research design, but also differ
ences in setting, ranging from economics (Hammermesh and Oster, 2002; Rosenblatt and
Page 7 of 21
Mobious, 2004), life sciences (Winkler et al., 2009; Ding et al., 2010), and engineering
(Agrawal and Goldfarb, 2008) to other disciplines (Jones et al., 2008).
Several authors have examined time-series trends in research collaborations. Such re
search generally finds that co-authorship has risen over time across a wide variety of
fields (Hammermesh and Oster, 2002; Jones et al., 2008), and co-authorship has increas
ingly spanned university boundaries (Jones et al., 2008) and metropolitan areas (Ham
mermesh and Oster, 2002).
While research has found that co-authorship has increased, it has also found that the
trend has been increasingly towards segmentation or ‘balkanization’ of research collabo
ration. If agents have preferences to collaborate with those with similar preferences and
if IT lowers the costs of collaborating across distance, than the diffusion of new IT will
lead to a ‘balkanization’ of communities and that within-group separation may increase
even while the costs of distant collaborations decline (Rosenblatt and Mobius, 2004; Van
Alstyne and Brynjolfsson, 2005).
Research has found a direct empirical link between digital communication and the rise in
research collaboration. Agrawal and Goldfarb (2008) examines how BITNET adoption in
fluenced the likelihood of collaboration among engineering scientists in universities. They
find that BITNET disproportionately increased collaboration between top-tier and middle-
tier universities, particularly among those that were collocated. They argue that this re
sult may reflect gains from trade, perhaps through the increased use of underutilized re
search equipment or increased specialization. Research on life scientists has also shown
that investments in the Internet are associated with an increase in researcher productivi
ty (Winkler et al., 2009; Ding et al., 2010), and disproportionately aids researchers in low
er tier institutions (Winkler et al., 2009) and female scientists (Ding et al., 2010).
Forman and van Zeebroeck (2012) examine commercial innovation, demonstrating that
Internet adoption leads to a significant increase in the likelihood of research collabora
tions among inventors within the same firm in geographically dispersed locations, but no
(p. 276) increase in collaborations among collocated inventors. That is, their data support
the view that Internet adoption led to a decline in the costs of coordinating distant re
search.
Forman et al. (2015) examined whether the Internet increased or decreased the geo
graphical concentration of invention. This can be framed much like the prior work on
wages and productivity: convergence or divergence. The results generally favour the view
that the Internet worked against the concentration of invention. In particular, while in
vention became more geographically concentrated over this period, this is not true for
the counties that were leaders in business Internet adoption.
Page 8 of 21
Consequences of the Internet for Consumer

Behaviour
Electronic commerce can benefit consumers through lower prices (surveyed in Baye et
al., 2006), lower search costs and greater product selection among online merchants
(Brynjolfsson et al., 2003), and better convenience (e.g. Sinai and Waldfogel, 2004; For
man et al., 2009). These benefits are likely to be particularly salient for consumers in
small local markets, where the number of retailers is likely to be low and where con
sumers with idiosyncratic or minority preferences may be underserved (e.g. George and
Waldfogel, 2003; Waldfogel, 2003). In addition, consumers with relatively unusual prefer
ences may benefit, even if they live in densely populated areas (Sinai and Waldfogel, 2004;
Choi and Bell, 2011).
The Internet reduces distribution costs for a variety of consumer goods. If distribution is
digital, as for music, news, and (increasingly) movies and books, then the marginal cost of
distribution is near zero, across all locations. Even when distribution still requires ship
ping, these costs fall, and they likely fall more for relatively isolated individuals. They also
fall more for some goods than other goods (Ellison and Ellison, 2009). For example, distri
bution costs remain high online for big-ticket items such as automobiles (Overby and For
man, 2014).
The fall in distribution costs is likely to improve the welfare of economically isolated con
sumers. Balasubramanian (1998) structured the main consequences of lower distribution
costs in his model of consumer channel choice in commodity markets. In the model, con
sumers trade-off between the fixed disutility costs of buying online (e.g. shipping time or
the inability to view the product physically) and the transportation costs of buying online
(in addition to the price differences between the two channels). A variety of empirical pa
pers has documented the usefulness of this framework on understanding geographical
patterns in online purchasing. Forman et al. (2009) show substitution between online and
offline stores: when a Walmart, Barnes and Noble, or Borders store opens offline, local
sales on Amazon change. Brynjolfsson et al. (2009) show substitution between online and
offline channels in apparel. By lowering distribution costs, electronic commerce lowers
the sum of purchase price plus transportation costs for consumers.
Lower distribution costs online also enable a wider selection of products, particularly for
geographically isolated customers. Online retailers have the potential to offer a much
greater product selection than what can be carried by any physical store (Brynjolfsson et
al., 2003; Anderson, 2006) and new search tools make it easier to find niche products. As
a result, consumer propensity to purchase such ‘niche’ or ‘long tail’ products online is
greater in (p. 277) online than offline channels (Zentner et al., 2013) and is insensitive to
local offline supply (Brynjolfsson et al., 2009; Forman et al., 2009).
Electronic commerce can improve offline options if information about offline products is
offered online. This can lead to either lower average prices or less price dispersion, or
both. For example, the increasing use of electronic commerce in wholesale car auctions
Page 9 of 21
led to price convergence across geographically dispersed auction sites: buyers increas
ingly shifted from using high-price to low-price auction sites because they could more
easily observe prices in other locations (Overby and Forman, 2014). Competition from the
online channel also shifted the market structure of offline industries such as travel agen
cies, bookstores, and new-car dealers towards larger lower-cost establishments (Goldma
nis et al., 2009).
While growing evidence shows that consumers use the Internet to lower the costs of eco
nomic isolation, there also remains significant evidence that location significantly shapes
how consumers behave online (see Bell, 2014 for a review). Consumers are more likely to
visit websites that are hosted by firms geographically proximate to them. One reason is
that a lot of online content is local (Sinai and Waldfogel, 2004); further, consumer tastes
are spatially correlated and vary significantly across regions (e.g. Jank and Kannan,
2005). As a result, consumers may self-select into websites that tailor to their prefer
ences; this is particularly true for taste-dependent digital products such as music, games,
and pornography (Blum and Goldfarb, 2006). Consumers have also shown a preference to
trade with others who are geographically proximate to them. Again, this is, in part, be
cause many products are heavily taste dependent or consumed locally (Hortacsu et al.,
2009).
In addition to reductions in communication, distribution, and search costs, there are reg
ulatory reasons why consumer use of the Internet varies by location. For example, Inter
net purchasing is higher in places with higher sales taxes (Goolsbee, 2000; Ellison and El
lison, 2009; Anderson et al., 2010; Einav et al., 2014). Internet advertising is more expen
sive and more effective in places with restrictions on offline advertising (Goldfarb and
Tucker, 2011a). Copyright can add costs to international distribution (Aguiar and Waldfo
gel, 2014). Also, regulation of the Internet varies across locations. For example, privacy
regulation and Net neutrality regulation vary across countries (Goldfarb and Tucker,
2011b; Lee and Wu, 2009).
The interplay of consumer behaviour between the online and offline worlds is particularly
important to understanding mobile Internet behaviour. Consumer behaviour on the mo
bile Internet differs from that on the traditional fixed-line Internet: some types of search
costs are higher and consumers are even more likely to browse on websites that are geo
graphically proximate (Ghose et al., 2013). Research has emphasized how mobile adver
tising can influence demand for local products and services (Ghose et al., 2014; Luo et al.,
2014).
Consequences of the Internet for Globalization

and Trade
A wealth of anecdotal evidence has been used to argue that IT investments, by reducing
coordination costs, have facilitated the globalization of economic activity (e.g. Friedman,
2005). However, systematic empirical evidence on the link between Internet investment
Page 10 of 21
and globalization is relatively rare. One exception is the work of Freund and Weinhold
(2002, 2004), who examine the association between IT investment and trade in goods and
services and find that increases in web hosts are associated with an increase in goods ex
ports and an even greater climb in services exports. They argue that the Internet will
have a greater impact on trade volume in services as many services can now be trans
ported costlessly. In other words, trade in goods is likely to increase because of lower
search and communication costs, while trade in services is likely to increase even more
because transportation costs also fall through digital distribution.
Recent work has sought to understand the implications of IT investments for global sup
ply chains. Fort (2014) finds that IT investments lead to the fragmentation of production
in industries where production specifications are most commonly formalized in electronic
formats. However, Fort’s evidence also suggests that electronic communication lowers
the coordination costs of production fragmentation disproportionately more for domestic
than for foreign sourcing. Fort argues this latter result may reflect a need for skilled sup
pliers. Country-level IT adoption is also associated with an increase in north–south verti
cal mergers, particularly for industries with low ‘routineness’; this may suggest that IT in
vestments will facilitate monitoring of distant enterprises (Basco and Mestieri, 2014).
While systematic evidence linking IT investments to changes in trade or the structure of

global supply chains are relatively rare, researchers have claimed that time series trends
in each of these variables may be influenced, in part, by IT investments. For example,
Blinder (2006) and others have argued that what can be traded has been steadily increas
ing over time. While traditionally any good that can be shipped and placed in a box has
been considered tradable, IT has changed the sets of services that can be delivered at a
distance (Blinder, 2006).
Some services work cannot ever be done at a distance—hairdressers need hair to cut and
janitors cannot be in another continent to do their job (Blinder, 2006). However, there are
a number of occupations at the margin, and recent research has attempted to identify
which kinds of work presently represent tradable services or soon will. The methods used
to answer this question vary widely. One approach is to examine the geographical concen
tration of an industry to identify whether its outputs are likely to be tradable (Jensen and
Kletzer, 2005). A more common method has been to construct an index of whether work
is routine or can be codified using descriptions of work from references like the US Dic
tionary of Occupational Titles. Work that is more routine or can be more easily codified
can, for example, be more easily performed at a distance (e.g. Mithas and Whitaker, 2007;
Autor and Dorn, 2013; Basco and Mestieri, 2014). Overall, research in this area demon
strates that many occupations and forms of work remain non-tradable, although the mar
gin between tradable and non-tradable is likely changing over time, and IT investments
are increasing the potential for transactions to span great distances and country bound
aries.
Page 11 of 21
Directions for Future Research

This chapter has summarized the literature on the importance of geography in under
standing the causes and consequences of the diffusion of the Internet. It has emphasized
that the (p. 279) Internet reduces three key interrelated economic frictions: communica
tion costs, transportation costs, and search costs. The impact of reducing these frictions
varies across locations. It depends on three factors that vary locally: preferences, the
availability of substitutes, and the availability of complements. Thus, a reduction in com
munications cost benefits some locations more than others. Overall, the existing litera
ture that stresses ‘the death of distance’ is too simplistic; offline differences across loca
tions leads to heterogeneous impacts of Internet technology, and many offline factors me
diate how the diffusion of the Internet shapes the location of economic activity.
This literature is far from complete. A number of open questions remain, particularly with
respect to the broad economic consequences of Internet adoption across geographies and
with respect to how these consequences might change as the technology changes.
In terms of the broad geographical consequences, one key open puzzle is why the Inter
net has only increased economic outcomes in a small number of locations. Despite the
promise of a death of distance, the Internet has thus far exacerbated differences in in
come across locations. One promising avenue to study this puzzle comes from microdata
on the wage profiles of individuals, either from US census data (Vilhuber and McKinney,
2014) or from online resume and career histories (e.g. Agrawal and Tambe, 2016). A sec
ond open puzzle is how the Internet has affected trade in services. The key challenge to
study this question is that services often do not cross borders in easily measured ways. In
the absence of systematic internationally representative data, one promising avenue
might be to do case studies of particular firms (or even government agencies) that pro
vide access to their email and web browsing. One source of such information is legal pro
ceedings, as with the release of the Enron emails. A related approach identifies the role
of strong and weak institutions for policing piracy across countries (Athey and Stern,
2015).
Technological change will also continue to provide new questions. Much of the research
in this chapter has focused on the causes and economic consequences of broadband
adoption. Smartphones and the mobile Internet are already changing the geography of
consumer behaviour and are likely to affect firms and non-profits. Social media provide
the opportunity to meet, and keep in touch with, friends from around the world, yet most
social networks remain highly local (Agrawal et al., 2015). Zook’s chapter (Chapter 30)
provides case studies of how new technologies such as Bitcoin can rework global capital
flows.
We foresee the prospects for research about how new applications that make use of
broadband, smartphones, and social media affect economic activity. New Internet applica
tions do not diffuse evenly across geography and such uneven diffusion provides quasi-
natural experiments for understanding the impact of the Internet on local economic activ
Page 12 of 21
ity. For example, Craigslist did not deploy across US geography all at once, and that en
abled research to analyse its impact on newspaper advertising (Seamans and Zhu, 2014).
In a similar spirit, ride-sharing services such as Uber build off the use of smartphones,
and have not entered every city at the same time, enabling research to examine how its
deployment affects activities, such as drunk driving (Greenwood and Wattal,
forthcoming).
A variety of other technologies are on the horizon that may also someday influence the lo
cation of economic activity. These technologies will provide new puzzles to study and
deeper understanding of the interaction between digital communication and economic ge
ography.
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Notes:
(1.) Starting with Polanyi (1966) but continuing on in diverse fields such as urban eco
nomics and regional studies (e.g. Moss, 1998; Leamer and Storper, 2001; Storper and
Venables, 2004) and communications (e.g. Daft et al., 1987).
(2.) Lower search costs also have important implications for innovation, but less so for the
geography of innovation. In particular, McCabe and Snyder (2015) show that lower online
search costs through online referencing and JSTOR lead to increased citations to past
work.
Shane Greenstein
Shane Greenstein ([email protected]) is the MBA Class of 1957 Professor of Busi

ness Administration and co-chair of the HBS Digital Initiative at Harvard Business
School. He is also co-director of the Program on the Economics of Digitization at the
National Bureau ↵of Economic Research. His research spans issues of strategy, regu
lation, history, marketing, information systems, and organization design. He has pub
lished more than fifty journal articles on economics of enterprise IT, technological
competition in computing, and the commercialization of the Internet infrastructure,
and has written or edited nine books. His recent book, How the Internet Became
Commercial: Innovation, Privatization, and the Birth of a New Network, traces the
evolution of the Internet from government ownership to privatization to the commer
cial Internet, showing how interplay between government and private industry trans
formed the Internet. He has served as the President of the International Organization
Page 20 of 21
Society, and has been a member of the editorial board of Telecommunications Policy,
Research Policy, and other prominent academic journals.
Chris Forman
Chris Forman ([email protected]) is the Peter and Stephanie Nolan Professor

of Applied Economics and Management at the Charles H. Dyson School of Applied
Economics and Management at Cornell University. His research interests include the
geography of IT use, electronic commerce, diffusion of IT innovations, and IT strate
gy. He has published widely on issues related to innovation in enterprise IT, including
the business process innovation that accompanies enterprise IT investment within
firms, as well as the strategies of enterprise IT suppliers. He currently serves as a
Department Editor at Management Science, and previously served as Senior Editor
at Information Systems Research.
Avi Goldfarb
Avi Goldfarb ([email protected]) is Ellison Professor of Marketing at

Rotman School of Management, University of Toronto. He serves as Senior Editor at
Marketing Science. His research focuses on understanding the opportunities and
challenges of the digital economy. He has published a number of articles in areas of
economics, marketing, statistics, computing, and law, and is co-editor of two books,
including Economic Analysis of the Digital Economy.
Page 21 of 21
Schumpeterian Customers? How Active Users Co-create Innovations
Schumpeterian Customers? How Active Users Co-create

Innovations
Gernot Grabher and Oliver Ibert
Up until recently, the role of the customer in economic geography seems to have been
confined to a passive recipient of products at the end of the value chain. Innovation, in
particular, has been conceived as an affair within and between firms. More recently, how
ever, this traditional perception has been challenged. Consumers, in fact, are no longer
seen as mere buyers of commodities but are more and more perceived (and perceive
themselves) as competent users who contribute valuable knowledge to innovation
processes and who have the power and capacity to intervene at all stages in the value
creation process. Value co-creation has emerged as a new paradigm that signifies this
transformation of the role of consumers. The prime aim of this chapter is to map out the
evolving terrain of value co-creation and to draw conclusions for economic geographical
inquiry into innovation processes.
Keywords: value co-creation, knowledge creation, user innovation, consumer empowerment, lead user, user com
munities, open source
Co-creation of Value: Open Firms and Active

Customers
‘THE customer is king’, of course. Despite this universal mantra, the role of the customer
in economic geography up until recently seems to have been confined to a traditional role
of a passive recipient of products at the end of the value chain. Innovation, in particular,
has been conceived as an affair within and between firms. The customer, the alleged king,
has largely been absent from the portrayals of the most influential economic geographical
innovation models (for a detailed review see Grabher et al., 2008, pp. 258–260). However,
during the past two decades, in adjacent fields such as management studies and econom
ic sociology a novel paradigm to conceptualize the role of consumers in innovation
processes has been advanced: value co-creation (Prahalad and Ramaswamy, 2004; O’Hern
Page 1 of 23
and Rindfleisch, 2009; Banks and Potts, 2010; Bogers at al., 2010; Cova et al., 2011; Ra
maswamy and Ozcan, 2014; Garcia Haro et al., 2014).
In contrast to the traditional approach, the term ‘co-creation refers to any activity in
which the consumer participates in an active and direct way with the company to design
and develop new products, services, or processes’ (Garcia Haro et al., 2014, p. 70). Com
munication between firms and customers is no longer understood as being unidirectional
and short-termed. Rather, co-creation essentially implies a continuous collaboration be
tween producers and customers to create joint value (Grönroos, 2008). For instance, cus
tomers and producers jointly engage in the development of connoisseurship that aug
ments knowledgeability and prompts increasingly sophisticated demands (Jeannerat,
2013). Consumers, in fact, are no longer seen as mere buyers of commodities (p. 287) but
are more and more perceived (and perceive themselves) as competent users (von Hippel,
2005) who contribute valuable knowledge to innovation processes and who have the pow
er and capacity to intervene at all stages in the value creation process (Garcia Haro et al.,
2014; Ramaswamy and Ozcan, 2014). This empowerment transforms users into ever more
entrepreneurial agents who, ultimately, might even switch sides and turn into producers
themselves (Shah and Tripsas, 2007; Haeflinger et al., 2010; Agarwal and Shah, 2014;
Brinks and Ibert, 2015). The Schumpeterian momentum, then, shifts from the producer to
the customer.
The re-apprehension of consumption, however, is not only confined to a change from pas
sive customers into active users, but, in fact, is also shifting along a second dimension,
from individual to collective action. The formation of tastes and preferences, the patterns
of adoption, and the domestication of, as well as the resistance to, products, are, indeed,
genuine social processes that are deeply enmeshed in a variety of networks (see e.g.
Howells, 2004). The locus of these social processes, and therein lays the new quality, in
creasingly shifts to open arenas and public domains (Callon et al., 2002, p. 195). More
over, beyond ephemeral forms of association, more enduring communities are mobilized
for collective knowledge production (Mahr and Lievens, 2012). The emblematic case in
point, of course, is open-source communities like Linux (Weber, 2004). Community self-or
ganization and value co-creation also pioneers novel modes of virtual co-presence, both
synchronous and asynchronous (Ritzer and Jurgenson, 2010; Grabher and Ibert, 2014).
The Internet, however, does not induce co-creation practices in a deterministic fashion;
instead, the social practices of co-creation and the technical affordances of Internet tools
co-evolve (Haythornthwaite, 2005). Even though the Internet has enabled co-creation
practices, and open-source communities have contrived techniques and practices of virtu
al knowledge sharing, co-creation is not at all confined to intangible content or software
code. As we will demonstrate, the respective practices proliferate in a broad range of do
mains that heavily rely on embodied skills and close interaction between humans and ma
terials, like, for instance, furniture making, medical practices, trend sports, or cooking. In
each of these cases, virtual knowledge sharing and locally situated interaction between
practitioners and their material workarounds interfuse and enact spatially distributed but
Page 2 of 23
locally anchored networks of more or less similar situated practices (Faulconbridge, 2010;
Brinks and Ibert, 2015).
The geographical engagement with innovation1 processes more recently has extended to
the wide spectrum of spatial arrangements in innovation processes that are created and
enacted by innovative users or that sustain intensified user–producer interaction. Spatial
innovation theories can no longer neglect the customer as an increasingly significant
source of entrepreneurial dynamics. From the perspective of the geography of consump
tion the involvement of users into innovation processes has to be taken into account as
these practices fundamentally shift the ways consumers use and acquire products and the
ways consumers interact with other consumers and producers. In this chapter, we ad
vance a conceptual framework for a more systematic economic geographical exploration
of the contested terrain of co-creation.2 More specifically, we propose a typology of differ
ent modes of co-creation that seeks to capture the heterogeneity of approaches and to
provide a conceptual template for further empirical research on user involvement in inno
vation.
(p. 288) Situating Co-creation

What, then, is so different and challenging about co-creation that it deserves the atten
tion of economic geographers? From a historical perspective, learning from and with the
customer is anything but a new practice for corporations. The more traditional repertoire
for involving the knowledge of customers is composed of deductive, as well as inductive,
approaches.
The deductive approach
Market research epitomizes the chief logic of the deductive approach that primarily tar
gets general needs and knowledge about the customer. It has developed an extensive reg
ister of tools, ranging from large-scale quantitative surveys to more qualitative instru
ments, such as focus groups, usability tests, and field ethnographies. Although market re
search continues to be perceived as an indispensable input into innovation processes, the
increasing volatility of preferences and the segmentation of demand into differentiated
niches drastically reveal the limitations of this approach, however sophisticated the tools.
The concept of ‘mass customization’ (Tseng and Piller, 2011) is an attempt to compensate
for the limitations of the deductive approach by offering the modular flexibility to specify
products according to individual customers’ needs or tastes: the Dell strategy. However,
the customized product is not a result of the user’s direct involvement in the development
process; rather, it is assembled from a given variety of modules after development is com
plete. The customer, thus, cannot exert a ‘voice’ to influence the innovation process di
rectly, but is left with the ‘exit’ option—simply to decline the offer—which provides, at
best, indirect feedback to the producer.
Page 3 of 23
The inductive approach
Whereas deductive strategies move top-down from the aggregate market to the represen
tative customer, the inductive approach works bottom-up from the individual customers
to market segments. The quintessential organizational form of inductive user–producer
interaction is the project that is built around the distinctive needs of individual cus
tomers. Projects, in fact, rather than for customers are performed with customers (Girard
and Stark, 2002). As the project sponsor, the customer specifies the task to be achieved
and contributes critical knowledge throughout the entire development process. The locus
of control, in other words, rests primarily with the customer; his or her ‘voice’ shapes the
course of the project. Although projects are built around the specific needs of an individ
ual customer, the knowledge that is generated in the course of the project may be useful
beyond its clearly specified temporal and technical boundaries. Projects are not isolated
learning episodes; rather, the one-off mission can feed into a cumulative process of learn
ing from a series of related ventures (Brady and Davies, 2004). (p. 289)
Table 15.1 Situating Co-creation
Deductive approach Co-creation Inductive ap

proach
Target Representative customer Hybrid commu Individual customer

group (‘market research’) nity (‘project’)
Type of Knowledge about the cus Knowledge of Knowledge of the

knowledge tomer the community customer
Locus of Producer Producer and Customer

control customer
Mode of Exit Exit, voice, and Voice

governance loyalty
Mode of in Absence Virtual co-pres Physical co-pres

teraction ence ence
Learning Customization Iteration Modularization

trajectory
Source: authors’ own design.
Page 4 of 23
Co-creation
Deductive and inductive strategies signify the poles of a continuum of customer involve
ment in innovation. More recently, this continuum has been increasingly extended by a
class of new approaches in between these two poles that pursue the logic of co-creation
(Table 15.1). While producer–customer interaction is set up as a 1:n–environment in de
ductive approaches and as a 1:1 relation in inductive approaches, co-creation is built
around ‘hybrid communities’ (Grabher and Ibert, 2014). These communities encompass
not only experts and professionals, but are also composed of sophisticated customers
with intimate knowledge about product architecture and heavy users who are familiar
with products from everyday use (Ramaswamy and Ozcan, 2014). Owing to this heteroge
neous composition hybrid communities unfold horizontal (expert-to-expert; user-to-user)
and vertical (expert-to-user, professional-to-layperson) dynamics and catalyse the genera
tion of new knowledge in two ways. Firstly, in the vertical relation between users and pro
ducers, they combine the iterative and intensive interaction of inductive strategies with
the broader representation of the market of deductive strategies; they are deeply in
volved and widely focused at the same time. Secondly, and more critically, the circulation
of knowledge also unfolds laterally between customers. The lateral exchange of individual
users’ experience, recommendations, and warnings, the revelation of individual
workarounds and product modifications, makes explicit users’ tacit knowledge and it ‘un
sticks’ von Hippel’s (1994) ‘sticky information’, at least partially (Grabher and Ibert,
2014).
Hybrid communities thus exert a powerful ‘voice’. At the same time, ‘exit’ is a real option,
as the termination of the relationship would incur only low sunk costs. Beyond this ‘exit’
or ‘voice’ calculus, however, hybrid communities are essentially governed by
‘loyalty’ (Wiertz and de Ruyter 2007; Brinks and Ibert, 2015). Loyalty pushes the dynam
ics of interaction (p. 290) from the singular intervention to ongoing conversation and af
fords the social context for the circulation of knowledge that ranges from fairly personal
experience to elaborate design proposals. Owing to these dynamics the locus of control is
not fixed, but seems to shift back and forth between the customer and the producer in the
course of development processes. Although control may eventually gravitate more strong
ly towards the producer or the customer, co-creation essentially implies a redistribution of
power, although an unstable and contested one. Communities may be instrumentalized in
a straightforward fashion or may develop ‘a life of their own’ (Wiertz and de Ruyter, 2007,
p. 370) that evades the control of the producer or even turns against him or her (Thrift,
2006, p. 290).
Page 5 of 23
Table 15.2 A Typology of Co-creation Formats and Practices
Producer-driven User-driven
Consultation Participation Generation
Epistemic communi Expressive user Lead user Professional user

ty E.g. Bicycle design E.g. Medical equip E.g. Open source
Usage knowledge ment Procedural knowl
Physical co-presence Design knowledge edge
Physical co-presence Virtual co-presence
Practising communi Consumer commu User community Interest communi

ty nity E.g. Computer ty
E.g. Instant food games E.g. Geocaching
Usage knowledge Design knowledge Procedural knowl
Virtual co-presence Blended co-presence edge
Blended co-presence
Page 6 of 23
While direct physical co-presence is the prime constellation of inductive approaches and
deductive strategies are limited to indirect interaction, co-creation pioneers novel modes
of virtual co-presence, both synchronous and asynchronous. The Internet pushes the de
velopment process beyond the familiar organizational domains and transforms innovation
into an activity that is spread across multiple locations and that mobilizes ever more het
erogeneous sources of knowledge in real time. Yet, the Internet does not only afford a
passive link between globally dispersed sites. Rather, it is a site of collaborative knowl
edge production (Grabher and Maintz, 2007; Hwang et al., 2015).
Towards a New Knowledge Ecology of Innova

tion: Mapping Co-creation
The historically new key features of co-creation—hybrid communities, the redistribution
of power between the customer and producer, and virtuality—denote a wide corridor
within which producer–customer interaction is reshaped. To capture the width and
breadth of the geography of co-creation, we propose a typology that unfolds along two di
mensions (see Table 15.2).
The horizontal dimension denotes the degree of involvement and stretches from consulta
tion over participation to generation and thus elucidates the unequal distribution of pow
er (p. 291) among producers and users involved in co-creation. Consultation designates a
type of limited and producer-driven interaction in which the customer primarily collabo
rates in the role of a layperson and control remains largely on the side of the producer.
Participation entails a deeper, but still primarily producer-driven, form of involvement in
which the customer holds the status of a quasi-expert. Although users and user communi
ties often create their own forums for interaction and hence are more independent from
producers than in consultation, the focal products and brands remain under the control of
producers. Similarly, generation involves expert knowledge that is mainly accumulated by
using and modifying a product. Generation, however, denotes a shift from producer- to
user-driven development as it often occurs in situations in which communities evolve
around novel practices or genres unknown to established producers.
In the vertical dimension, the proposed typology draws a distinction according to the pre
vailing locus of knowledge production. The first type corresponds with a process of delib
erate and goal-oriented knowledge production. Knowledge is produced in the vertical pro
ducer–customer relation that is strictly focused on the specific ‘epistemic object’ (Knorr
Cetina, 2001, pp. 181–184) and is governed by an accepted procedural authority (Amin
and Roberts, 2008). The second type refers to a practice in which knowledge is produced
as a by-product of socializing and situated learning. In this dimension, knowledge is not
only produced in the orchestrated vertical producer–customer relation but crucially un
folds in the horizontal exchange and evolving socializing among customers. The vertical
dimension, put briefly, distinguishes between the epistemic community (Knorr Cetina,
1999) and the practising community (Neff and Stark, 2003; Müller and Ibert, 2015).
Page 7 of 23
By moving along these two axes, we differentiate six types of co-creation that embody
unique constellations of types of knowledge and spatial arrangements of interaction. De
spite the essential differences among these six modes of co-creation, they do not repre
sent static categories demarcated by strict boundaries. Communities are prone to social
dynamics that may eventually transform one type of co-creation into another type (see
e.g. Brinks and Ibert, 2015). In this sense, the typology provides a continuum along which
we identify ideal–typical constellations that may move in the course of their life in one di
rection or the other.
The Expressive User
An example of this type of producer–user integration is the consultation of bike messen

gers and devoted car users in a project on the design of bicycles (Grabher et al., 2008).
The enrolment of expressive users from the edges of the market, where one can ‘find “ex
treme” users who live differently, think differently, and consume differently’ (Brown and
Katz, 2011) might be instrumental to approach challenges from a novel angle and to fos
ter the proverbial thinking ‘out of the box’.
The rich experience of expressive users cannot be seized through the traditional reper
toire of market research, such as questionnaires. Rather, the critical information is often
part of the ‘embodied’ (Blackler, 1995, p. 1024) knowledge that eludes the user’s full
awareness. Following the paradigm of ‘design thinking’ (Brown, 2008), the collaborative
production of knowledge unfolds largely through selecting and testing prototypes so the
user can be observed instantaneously while interacting with the product. ‘Rarely will the
everyday people […] be able to tell us what to do. The only way we can get to know them
is to seek them (p. 292) out where they live, work and play’ (Brown and Katz, 2011, p.
382). Critical information for product development can thus only be harnessed outside
the R & D laboratory in the real-life contexts of users and consumers. For a meaningful
interpretation of the observed behaviour, however, additional interview data may provide
helpful background information on the user’s irritations or emotions during the test situa
tion (Grabher et al., 2008). Thus, expressive users are also partly valued for their capaci
ty to explicate the experiences they have gained in everyday practice with a commodity
and to convey motivations of adoption or consistent non-adoption. The interaction be
tween the producer and expressive user is orchestrated by the producer and focuses
strictly on an object (e.g. a new bicycle); social dynamics among users are inconsequen
tial for the knowledge dynamics.
The involvement of expressive users may thus push stages of the development process
outside the corporate boundaries, but in terms of geographical distance not too far from
the producer’s site for pragmatic reasons. As the knowledge of the expressive user is rich
but not necessarily specialized, expressive users typically can be identified in close vicini
ty of the producer. However, if the involvement of extreme users (like the ‘collector who
owns 1400 Barbie dolls’ or the ‘professional car thief’; Brown and Katz, 2011, p. 382) is
imperative, producers are ready to cross larger distances.
Page 8 of 23
The Consumer Community
Consumer communities are initiated and maintained by professional and commercial pro
ducers and thus are also categorized as ‘firm-hosted communities’ (Grabher and Ibert,
2014). Manufacturing firms set up the online forum of exchange, employ the community’s
moderators, define and police the norms of interaction, and can, if deemed necessary, set
the agenda by explicitly soliciting feedback on specific topics. Illustrative cases in point
are the Consumer Channel of Kraft Foods, the Huggies Baby Network of Kimberly-Clark
(Grabher et al., 2008), or Dell’s Idea Storm Forum (Grabher and Ibert, 2014).
Like expressive users, members of such communities are assumed to contribute mainly
non-expert knowledge. For instance, consumers of Kraft packet soups know little about
the recipe or the natural and chemical ingredients. Yet, their vivid interaction offers sev
eral clues on the everyday situations in which such products are prepared, the social oc
casions on which they are served (or cannot be served), and how these products are ap
preciated (or not) by followers of different kinds of diet (representing target groups of the
producer). The categorical difference between expressive user and consumer community
is denoted by the locus of knowledge circulation and production. In contrast to the ‘inti
macy averse’ (Mateos-Garcia and Steinmueller, 2008) product-focused dialogue between
the producer and the expressive user, the exchange of knowledge in consumer communi
ties is, to a significant extent, a by-product of ongoing conversation within a community
that provides sociability, information, support, and a sense of belonging, however
ephemeral (Wiertz and de Ruyter, 2007; Langner and Seidel, 2015).
Consumer communities are particularly appreciated for the conversations that unfold not
only around mutual advice in solving everyday problems, but may also crystallize around
shared hobbies or current events that are not or only loosely related to the focal product
or brand. However, these conversations are not derided as detracting noise by producers,
but are valued as catalysts that foreground coping strategies in everyday life and as fil
ters (p. 293) and gauges of unmet needs and wider concerns. Knowledge revealed in later
al exchange is regarded as more authentic, reliable, and richer than information solicited
through the traditional repertoire of market research, such as the standard question
naire.
Consumer communities are dispersed online communities, and interaction occurs almost
exclusively in virtual co-presence. If face-to-face events are arranged at all, they are
staged as a forum for public gratification. They are regarded as instrumental neither for
creating the social dynamics of community formation nor for accessing concealed layers
of knowledge. On the contrary, more surprising insights may surface because the commu
nity members remain within their diverse local contexts while interacting. In cases of dis
sent and misunderstanding, for instance, the members have to enrich their contributions
with additional contextual information to clarify their statements for the physically absent
interaction partners (Grabher and Ibert, 2014). These parts of lateral conversation may
be useful for producers because they unveil the multitude of locally situated strategies
that users apply to integrate a commodity into their daily lives.
Page 9 of 23
The Lead User
Pioneering physicians who contribute to the specification of functions and the interface
design of tomography scanners, for example, epitomize the principal features of lead
users (Grabher et al., 2008). Producers seek to integrate lead users into development
projects because they are at the frontend of the adoption curve and ahead of the market
(von Hippel, 1986, p. 795; Jeppesen and Laursen, 2009).
The lead user embodies close-to-expert knowledge about the architecture and modus
operandi of the product. For instance, experienced medical surgeons do not only know
the technical sequences of diagnostics performed by the scanner, but also have a vivid
idea about the assumptions underlying the programming of the sequencing software by
medical equipment engineers. This design knowledge defies any straightforward transfer
from user to producer. Rather, it is co-created through joint reflection in the context of
application, such as the diagnostic department of a hospital, for example. Relevant knowl
edge is ‘sticky’ and place bound, as it is to an extent inscribed in the physical layout of
workflows. Observation and socializing in practice, however short-lived, is imperative be
cause users are generally no longer aware of the problems they have already ‘solved’
through their own idiosyncratic workarounds. The circulation and generation of knowl
edge are focused on the product and do not evolve in lateral conversations in communi
ties. Instead, the particular setting of producer–user interaction may even preclude com
munity building as peer dynamics (like status competition among physicians) may distract
the development process from more general market needs (Grabher et al., 2008).
Although frequent face-to-face communication is one of the emblematic characteristics of

lead user–producer interaction, the prerequisites to initiate physical co-presence without
any great effort are not the main drivers of the respective geography of knowledge cre
ation. Rather, the situated nature of the lead user’s knowledge and the information that
virtually ‘sticks’ (von Hippel, 1994) at the place of application induce time–spatial prac
tices that alternate between basic research in the producer’s laboratory and phases of
collaborative knowledge production at the customer’s site (Ibert, 2010). Hence, in spatial
terms, the integration of lead users unfolds a dispersed and temporary geography that
follows the pattern of user (p. 294) locations right to the diagnostic centres and hospitals
in the case of medical equipment. As physical co-presence at the site of usage is indis
pensable, lead users are most likely not located in close proximity of the producer.
The User Community
Typically, user communities are launched by community members who also create and
enforce the rules of interaction in a self-organized process. However, these communities
are not independent from professional producers. Rather, the object of common interest
is associated with a distinct brand or even a specific product. Hence, they might be cate
gorized as ‘firm-related communities’ (Grabher and Ibert, 2014). The Command & Con
quer 3 computer-game community, (Grabher et al., 2008), IKEA fans, photographers us
ing Nikon cameras, BMW motorcyclists (Grabher and Ibert, 2014), or the Adult Fans of
Page 10 of 23
Lego (Tapscott and Williams, 2006, pp. 130–131) embody the principal features of a user
community.
Similar to lead users, members of a user community contribute intricate design knowl
edge to producer-driven innovation that they have acquired through intense use and on
going tinkering. The accumulation of this close-to-expert knowledge, however, does not
resemble the goal-oriented and systematic co-creation with the lead user; rather, it un
folds in a more unfocused socialized process that evolves within the community. Never
theless, user communities seize the opportunities of online interaction (see also Mahr and
Lievens, 2012, p. 174). The asynchronicity of interaction allows for heedful interrelating
and reflective reframing of problems and iterative prototyping (Hargadon and Bechky,
2006). Moreover, the ‘hypertextual’ nature of online conversations ‘encourages writerly,
active reading rather than passive consumption of what has been produced by a conven
tional authorial author’ (Gulbrandson and Just, 2011, p. 1099). Despite playfulness, the
practice of explicit cross-referencing in online interaction generates a collective memory
(codified in databases with advanced navigation functions) and a certain sense of focus
within user-communities. Like the consumer community, user communities combine the
vertical dimension of dialogue with the producer and the lateral dynamics of conversation
among users.
User communities regularly evolve into enduring and socially differentiated formations
with status hierarchies, community norms, and conventions. At the periphery of the com
munity, the vast majority of members lurk in the background and observe silently. Closer
to the core of the community, a smaller group of temporary active members provide ‘focal
feedback’ (Jeppesen, 2001, p. 17) by testing variants, revealing ‘bugs’, mutually solving
problems, or simply spreading more or less relevant information to a responsive audi
ence. Producers like Lego explicitly encourage inventive tinkering in their copyright man
agement by publicly granting a ‘right to hack’ (Tapscott and Williams, 2006, p. 130; Ra
maswamy and Ozcan, 2014). As they reach the top of the status hierarchy, members of
the core group not only enjoy the highest esteem and professional authority of the com
munity members, but also become formally acknowledged as community leaders or ‘help
ful authorities’ (Jeppesen, 2001, p. 22) by the producer. Crucially, members of the core
group provide also novel inputs into wider community and, thereby, propel processes of
collective tinkering and knowledge accumulation. By absorbing knowledge from the out
side and sharing it within the community, core members, phrased differently, take on the
role of both lead adopters and gatekeepers (Jeppesen and Laursen, 2009, p. 1588).
The geography of collaborative knowledge production in user communities blends

(p. 295)
virtual exchange with transient physical encounters. Community members can share
knowledge without physical co-presence by purposefully creating similar material condi
tions at different sites. For instance, in the case of IKEA fans or Nikonians, community
members frequently refer to product IDs and order codes to assemble almost identical
material ‘constellations of practice’ (Faulconbridge, 2010) at geographically dispersed lo
cations. Photographers who share knowledge in the Nikonian discussion forum seek to
enrich the shared knowledge base by discussing to what extent their insights apply only
Page 11 of 23
for specific places and particular circumstances, or are also valid for more general chal
lenges. In such cases the similarity and dissimilarity across the sites respectively creates
a multi-locally shared material–virtual context that facilitates the exploration, variegation,
and validation of the shared knowledge (Grabher and Ibert, 2014).
Even in the case of computer gamers, who rely excessively on online interaction, interac
tion in user communities is not restricted to the virtual realm. Rather, the community oc
casionally gathers at particular events, like game conventions or ‘LAN’- parties, in the
case of computer gamers, or the Lego World exhibits in the case of the Adult Fans of
Lego. These events constitute temporary sites of knowledge performance (Thrift, 2000).
‘Being there’ offers opportunities to experience corporeally not only the ‘look’n feel’ of
different products, but also to engage physically with their actual performance and to
compare functionalities and features directly during collective and challenging applica
tion. During an event, participants experience the resonance of the community to modi
fied features and new versions of products, and vaguely perceived user preferences be
come manifest through critique or encouragement. Furthermore, as a showcase, the
event represents the achievements of a community. The choice of items that are deemed
worthy of display and the proper ‘positioning’ (Power and Jansson, 2008) of brands or
products at the event, in a sense, project the involved knowledge domains into the physi
cal space and hint at relational structures within the field. Community gatherings, in fact,
are also conducive for strengthening the social cohesion of the spatially dispersed com
munity (Franke and Shah, 2003, pp. 160–161); conventions are not only about shoptalk,
but also partying.
The Professional User
The emblematic cases of generation by professional users are, of course, open-source

projects. Open source, pioneered in the software field with Mozilla (a browser), with
Apache (server software), and, most prominently, with Linux (an operating system) are
founded on two chief principles: public ownership of the intellectual property and a pro
duction model of generating knowledge in a globally dispersed context (see e.g. Lakhani
and von Hippel, 2003). More recently, initiatives that seek to exploit the principles of
open source have emerged beyond software, in the development of drugs, for example.
Open-source projects have been launched particularly in the development of treatments
for diseases that affect a comparatively small number of people (such as those with
Parkinson’s disease) or that mainly affect poor countries (with diseases such as malaria or
typhoid) (e.g. The Tropical Disease Initiative; The Synaptic Leap; see also Tapscott and
Williams, 2006, pp. 169–172; Yaqub and Nightingale, 2012).
These diverse projects share a strict focus on the ‘epistemic object’ (Knorr Cetina,
(p. 296)
2001, pp. 181–184) and a deliberate organization towards generating knowledge about
the joint project, whether it is an operating system or a vaccine against typhoid. In the
case of Linux, a committee, in charge of evaluating inputs from dispersed users, repre
sents a procedural authority to guide the process of knowledge generation; lateral con
versation and sociability are not typically part of the repertoire of these communities. The
Page 12 of 23
code of conduct emphasizes strict ‘on-topic’ professionalism (Ren et al., 2007), distract
ing statements are explicitly precluded from the circulation of knowledge. Users not only
contribute design knowledge, but, as this case amply illustrates, also generate knowledge
of how to produce the solution collectively.
As exemplified by open-source projects, professional communities typically, but not exclu

sively, are online-only communities (Amin and Roberts, 2008). Software projects like Lin
ux indicate that even complex tasks can be achieved over longer periods in Internet-only
global communities. Physical interaction may occur, but it does not seem imperative. On
the one hand, face-to-face interaction hardly appears necessary for reasons related to
knowledge exchange, at least for projects in which tasks can be parsed and modularized
and the product is digital or can be transformed into a digital form (Mateos-Garcia and
Steinmueller, 2008). On the other hand, face-to-face encounters do not seem indispens
able for strengthening the social coherence or reinforcing the relational ties within the
community (Amin and Roberts, 2008). Rather, the identification with the goal of the
project and a procedural authority that guides the production of knowledge afford the re
silience of these communities and their tolerance of a high turnover of membership (Ren
et al., 2007, p. 400).
However, virtual interaction again does not necessarily lead to arbitrary geographies.
Rather, analogous to user communities, the spatial patterns of the ongoing interaction
among professional users are shaped by the unevenly distributed material and locally sit
uated preconditions for knowledge production. Virtually transmitted data can be turned
into productive use only if they will be put into practice in an adequate work setting. De
veloping a sequence of open-source code requires little more than an up-to-date comput
er system with a fitting development environment; testing a modified formula of a vac
cine, in contrast, can be achieved only at highly specific sites that provide, for instance, a
well-equipped laboratory, experimental animals, and technical staff.
Shared practice across distance, then, is not a result of socialization in a context of co-lo
cation, but rather of collective heedful engagement (Weick and Roberts, 1993) across
similar but physically distanciated material contexts. Crucially, shared practices afford
the preconditions for those interrelating activities that are critical for triggering moments
of collective creativity (Hargadon and Betchky, 2006): help seeking, help giving, reflective
reframing (in which each actor in turn attends to and builds upon the comments and ac
tions of others), and affirmation (e.g. through organizational values that support individu
als seeking and providing help and reflective reframing).
The Interest Community
Interest communities had already evolved in the pre-Internet area around sports like
mountain biking, kayaking, and windsurfing (for an overview, see Grabher et al., 2008).
However, they have spectacularly taken off with the Internet in the vast and rapidly ex
panding universe (p. 297) dubbed Web 2.0. that boosted the generation of contents in
‘remix genres’ (Tapscott and Williams, 2006, p. 137) like music and video production or in
Page 13 of 23
pioneering new forms of amateur journalism or citizen science. Empowered by a new

generation of digital tools, users in this expanding universe increasingly differentiate into
niche communities that are organized around shared interests. The online feature-film
project The Swarm of Angels, sandboarding (Grabher and Ibert, 2014), geocaching, or fin
gerboarding (Brinks and Ibert, 2015) are examples of interest communities that are orga
nized around a shared passion. An example of an interest community that has emerged
around a shared (existential) concern is the dichloroacetic acid (DCA) forum, an online fo
rum on which an informal global research network that seeks to advance the develop
ment of a new drug against cancer interacts with a community of committed members,
mainly patients with cancer and their relatives (Grabher and Ibert, 2014).
The evolution of interest communities is not the result of a goal-oriented and systematic
endeavour of a collective project to invent. Typically, they metamorphosed out of combi
nations of everyday problem solving, competitive performance, piecemeal improvements,
and serendipitous encounters. Accidental discoveries resulted from using products and
technologies in ways in which they were originally not conceived. For instance, geo
caching emerged from a small group of technophiles who explored the possibilities of us
ing Global Positioning System (GPS) devices for non-military purposes after the deactiva
tion of the distortion of the GPS signal in 2000. To test the accuracy of the undistorted
GPS signal, one member had the idea of hiding a container in the landscape and posting
the GPS coordinates on the Internet. What started as a technical test soon transformed
into hybrid online/offline hide-and-seek game (Brinks and Ibert, 2015).
There is nothing particularly heroic or technologically spectacular about these reconfigu

rations. However, they elucidate how lifting products and technologies out of their pre
scribed context, reconfiguring them, and placing them in a new context opens up a devel
opment trajectory that might even engender a new genre that subsequently continues to
be driven by users (see also Pinch, 2003) who eventually might turn their passion into
profit by establishing new firms (Shah and Tripsas, 2007; Agarwal and Shah, 2014).
Knowledge created here, as in the case of the professional user, extends beyond design
knowledge and encompasses knowledge about how to produce it. In the infant stages of
mountain biking, production was also performed by the bikers, who began to build bikes
commercially for others and thus laid the foundation of a craft business that later turned
into a mainstream industry (Lüthje et al., 2005, p. 954).
Interest communities blend physical encounter and virtual co-presence in various combi
nations. In the case of sports, in which competition and performance are at the essence of
the activity, temporary physical co-presence at events is indispensable (Brinks and Ibert,
2015). Particularly, competitions afford the key sites for display, comparison, and collec
tive tinkering. In the case of fashion, innovations by interest communities are urban phe
nomena (Kawamura, 2006) as the dense co-location of various overlapping subcultures is
conducive to cross-cultural re-contextualization (Jacobs, 1969). The vast domain of the
‘remix cultures’ (Tapscott and Williams, 2006, p. 137), however, typically evolves online
Page 14 of 23
and, like user communities and interaction among professional users, unfolds a dispersed
geography around materially similar ‘constellations of practice’ (Faulconbridge, 2010).
(p. 298) Discussion

The various practices and formats of co-creation problematize some of the key notions of
the economic that theorists (for very good reasons, of course) implicitly assume as given.
For instance, the traditional clear-cut separation between producers and consumers be
comes more porous and sometimes even contested. Products, for instance, transform
from a fixed and frozen thing into a ‘variable’ (Callon et al., 2002, p. 197) and increasing
ly lose their ‘object-ivity’ (Knorr Cetina, 2001, p. 528). Through their lack of ‘ontological
stability’ (Zwick and Dholakia, 2006, p. 21), products become focal entities of iterative,
never-ending processes of experimentation, negotiation, and modification: they remain in
a state of ‘permanently beta’ (Neff and Stark, 2003). As epistemic objects, products are
not given facts but reveal their look, content, shape, and ‘story’ in processes of interac
tion, observation, and examination. ‘Such objects demonstrate a propensity to change
their “face in action” vis-a-vis consumers through the continuous addition and subtraction
of properties’ (Zwick and Dholakia, 2006, pp. 20–21).
Additionally, co-creation practices also highlight an affective dimension of human–object

relations. In particular, in community-based approaches of co-creation most participants
have developed strong emotional bonds to the objects of inquiry. Community members be
came initiated to co-creation practices by experiencing moments of affective amazement
while using (rather than consuming) a product in a particular practice (Jeannerat, 2013).
The subsequent desire to stabilize such positive affective experiences has been interpret
ed as one of the main driving force for the formation of communities (Brinks, 2016).
Co-creation practices also put into question the notion of markets as simple means of sell
ing products that are composed at the terminus of the value chain. The market becomes a
forum for an ongoing dialogue between producers and consumer communities (Thrift,
2006, p. 287), a dialogue that is deeper than in the classical accounts on marketing or
market research. The market is no longer outside the value chain, acting as the locus of
interchange between the producer and the consumer. Greater interactivity means that
the market, in a sense, ‘pervades the entire system’ (Prahalad and Ramaswamy, 2004, p.
125). Not far from the invisible hand that is ritually criticized as an unrealistic assump
tion of mainstream economics, markets are frequently absent from economic geographi
cal analyses. A stronger appreciation of co-creation practices in economic geography will
most likely shift this absent assumption centre stage of the analysis. The notion of mar
kets is brought down from the totalizing force ‘out there’ to the level of actual practices
of negotiation between producers and consumers (Callon and Muniesa, 2005).
Page 15 of 23
Conclusions
Co-creation practices pose new challenges to economic geographical inquiry and offer
fascinating new possibilities to theorize the spatiality of learning and innovation. In par
ticular, consumer communities and interest communities are narrow in terms of their fo
cal topic but far-reaching in terms of spatiality (see also Hwang et al., 2015). Apart from
the joint passion, participants share rather little in common, most of them have never met
personally, (p. 299) and direct interaction normally has to be initiated and orchestrated
across physical distance. The resulting spatiality of innovation is intriguing and at the
same time challenging for geographical inquiry. The traditional approaches to study pro
duction by exploring either local and regional concentrations or global organizational net
works are not sufficient to grasp the unfolding spatial logics of co-creation. Co-creation
practices exploit all available online/offline technologies and media to share ideas across
physical distance (Bathelt and Turi, 2011; Bathelt and Henn, 2014; Maskell, 2014), enact
ing a much more diffuse and ephemeral geography.
Firstly, collaborative knowledge production through producer–customer interaction does

not fit well into the registers of our more enduring geographies of knowledge creation
among producers. Co-creation practices rather leave ephemeral spatial imprints around
temporary physical encounters: at the trade fair, the sports contest, or the hackathon.
However, temporary co-presence is by no means confined to these obvious and exception
al occasions. On the contrary, encounters at rather mundane sites of everyday use such as
the home kitchen or the sandboarding track are less spectacular, but by no means less
important. Collaborative knowledge production at temporary encounters is sustained
through physical mobility, of experts, users, and prototypes. Co-creation, in other words,
is sustained by shifting physical geographies of circulation (Urry, 2003), a theme that has
partly been picked up in debates on temporary clusters (Maskell et al., 2006), for exam
ple, but opens up rich opportunities for further exploration.
Secondly, this ephemeral geography in a sense reiterates the importance of the specific
physical site of encounter and interaction. User knowledge is inscribed in the physical
layout of the workplace, in the temporal sequencing of everyday routines, in the impro
vised workarounds. Co-creation, in other words, is not only about company representa
tives talking to customers, but also about interaction at these unique constellations of
things and objects that make up the site of usage. Co-creation thus shifts the locus of
knowledge-production from the R & D department right to the site of usage or, more gen
erally, pushes knowledge production from the ‘context of discovery’ to the ‘context of ap
plication’ (Gibbons et al., 1994), at least temporarily.
Thirdly, co-creation dramatically re-values the role of virtual co-presence. The Internet,
however, is not merely about speeding up, spreading out, and lowering costs of communi
cation. Nor is it a simple (and deficient) substitute or artificial extension of face-to-face
communication. The Internet is charged with social software that tracks, categorizes, and
channels information, sediments memory, or automates word-of-mouth, aggregates idio
syncratic interests, induces connectivity, and sustains communities (Grabher and König,
Page 16 of 23
2017). In a sense, social software turns networks ‘inside out’ (Riles, 2000): it turns net
works from latent social embeddedness into a strategic practice to deliberately furnish
knowledge ecologies.
The increased importance of virtual platforms for interaction, however, does not result in
a-spatial or immaterial practices of interaction. For instance, when users share knowl
edge in an online environment, community members establish a common framework with
in which they negotiate which elements of the present material contexts are crucial to es
tablish a shared practice and which of these elements, respectively, represent mere local
idiosyncrasies. In other words, community members actively create identical material
‘constellations of practice’ (Faulconbridge, 2010) at geographically dispersed locations to
allow a more meaningful in situ validation, exploration, and variation of the virtually
shared knowledge. As (p. 300) a result, co-creation practices give rise to complex ‘topolo
gies of learning’ (Faulconbridge, 2014) in which actors utilize similarities and differences
between local contexts to create new insights.
The highly dynamic geographies of co-creation pose some exciting puzzles of wider rele
vance that seem worthwhile to be addressed by future research. On the right- hand side
of our typology of co-creation practices (see Table 15.2, p. 290), innovating users who op
erate by and largely independently from firms or producers are located. We maintain that
this particular type of user, in fact, appears of eminent importance for economic develop
ment. Interest communities share knowledge in order to refine designs, extend function
alities, or invent new fields of application—and hence create value long before the first
firms enter the field. In other words, the role of interest communities is not confined to
the co-creation of value; rather they are the originators of value and, indeed, create mar
kets and invent genres. Although research on user–entrepreneurs as company founders is
already available (Shah and Tripsas, 2007; Haeflinger et al., 2010; Agrawal and Shah,
2014), knowledge on the spatialities of the respective economic activities remains patchy
at best. User–entrepreneurs, by transforming ideas born out of everyday practice into
marketable products, thus combine local opportunities with globally shared knowledge
(Brinks and Ibert, 2015). Hence, they truly signify the advent of the Schumpeterian cus
tomer.
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Notes:
(1.) We understand innovation in a broad Schumpeterian sense of ‘new combinations’ in

the realm of products, processes, markets, inputs, or organization (Schumpeter, 1912/
2006).
(2.) Our geographical conceptualization of user-driven innovation processes as presented

in this chapter has been developed in close dialogue between theory and empirical field
work over the past ten years. Two successive research projects contributed substantially
to it. The first research project, ‘Mobile Places, Virtual Networks: The Geographies of
User-Induced Innovation Processes’ (2006–09; funded by the German Research Founda
tion GR 1913/7), was an explorative study of user-driven innovation processes across a
broad range of sectors and organizational settings. As a result of this study we developed
a typology of different ways of integrating users in innovation processes (Grabher et al.,
2008). In this research context we also advanced a conceptualization of collaborative
knowledge practices across physical distance, their peculiarities, strengths, and weak
nesses (Grabher and Ibert, 2014). This research has been complemented with a second
research project on ‘Sources and Paths of Innovation: A Spatial Perspective on the Dy
namics of Knowledge Generation and Utilisation in the Economy’ (2012–14; funded as
Lead Project of the Leibniz Institute for Regional Development and Structural Planning
Erkner) in which a particular focus was on the time-spatial dynamics of selected innova
tion biographies that have strongly been driven by user entrepreneurs. In this project we
developed further conceptualizations of different types of communities of practice, their
Page 22 of 23
impacts on innovation processes (Müller and Ibert, 2015), and an empirically grounded
phase model of the process of firm foundation from within communities of interest
(Brinks and Ibert, 2015). Warm thanks are owed to our colleagues Verena Brinks, Saskia
Flohr, Felix C. Müller, and David Tamoschus, who contributed to our research projects.
Gernot Grabher
Gernot Grabher ([email protected]) is Professor of Urban and Re

gional Economics at the HafenCity University Hamburg. He is conducting research
that explores how cities can learn from rare events; how new social practices in the
sharing economy transform urban life; and how social network sites reshape socializ
ing, creativity, and knowledge production. In his recent project, funded by the Ger
man Research Foundation, he examines how social network sites transform practices
of interpersonal networking. He has published numerous articles in the leading acad
emic journals and edited eight books, most recently the volume Self-Induced Shocks:
Mega-Projects and Urban Development (2015). He is co-editor of the Regions and
Cities series of the Regional Studies Association, and was co-editor of Economic Ge
ography. Currently, he serves on the editorial boards of Cambridge Journal of Re
gions, Economy and Society, Economic Geography, European Planning Studies, Re
gional Studies, Progress in Human Geography, and Environment and Planning A.
Oliver Ibert
Oliver Ibert ([email protected]) is Professor of Economic Geography at the

Department of Geographical Sciences at the Freie Universität Berlin, and head of the
research department ‘Dynamics of Economic Spaces’ at the Leibniz Institute for Re
search on Society and Space. His research interests include economic geography of
knowledge practices, temporary organizations in economic settings and planning ad
ministrations, customer-driven innovation processes, economic geography of virtual
online communities, planning theory, and governance. He has published widely on
these topics in journals such as Economic Geography, Journal of Economic Geogra
phy, Environment and Planning A, Research Policy, Geoforum or Regional Studies.
Page 23 of 23
The Geography of the Creative Industries: Theoretical Stocktaking and Em
pirical Illustration
The Geography of the Creative Industries: Theoretical

Stocktaking and Empirical Illustration
Mark Lorenzen
Economic geographers are increasingly interested in the creative industries because not
only does this set of industries have increasing economic impact, but also because their
complex interrelationships with societal factors and profound ongoing change make them
useful for employing and examining theory on the geographical organization of economic
activity. This chapter summarizes recent developments of the geography of the creative
industries and takes stock of the main theoretical arguments made for explaining them.
By way of illustration, the chapter applies these arguments in a brief juxtaposition of the
recent developments of the filmed entertainment clusters in Copenhagen, Denmark, and
Mumbai, India (‘Bollywood’).
Keywords: creative industries, external economies, localized learning, market scale, sunk cost, connectedness,
connectivity, filmed entertainment industry, Bollywood
Introduction
EARLY on, social sciences paid attention to the economics of arts and culture under the
heading of ‘cultural’ industries (Horkheimer and Adorno, 1944; Hirsch, 2000). More re
cently, attention has turned to a broader economy comprised by the so-called creative in
dustries. The creative industries can be defined as those that are organized principally to
take advantage of human creativity and capture its market value, and include ‘cultural’
industries such as visual and performing arts, and also media, software, architecture, and
design (some definitions also include events, sports, heritage, and tourism). ‘Creativity’ is
a term often used about invention of something new by combining elements that already
exist (Boden, 1990; Sternberg, 1999). Such processes hinge upon individuals capable of
and willing to engage in open-ended and uncertain activities of search and experimenta
tion. Thus, most companies in the creative industries are skill-intensive, leveraging expert
labour and specialized technologies for value creation through producing new experience
product ‘content’.
Page 1 of 22
Creative industries are important for dissemination of cultural expressions and values
(Giddens, 2000; Anheier and Isar, 2008). Furthermore, they have comparatively high im
pact on economic development owing to their prospects for social and economic growth
and spillovers to other sectors in the economy (Cunningham and Potts, 2015). For these
reasons, creative industries attract interest from policymakers (e.g. European Commis
sion, 2001; OECD, 2006; UNESCO, 2006; DCMS, 2007) and from scholars across the so
cial sciences (e.g. Caves, 2000; Towse, 2003; Hartley, 2004; Ginsburgh and Throsby, 2006;
Flew, 2013; Hesmondhalgh, 2013; Jones et al., 2015). In economic geography, there is al
so growing (p. 306) attention paid to creative industries (e.g. Scott 2000, 2005; Power and
Scott, 2004; Cooke and Lazzeretti, 2008; Lorenzen et al., 2008; Vorley et al., 2008; Pratt
and Jeffcut, 2009; Lazzeretti, 2013). For geographers, creative industries are particularly
interesting owing to their complex interrelationships with cultural, social, and economic
societal factors and profound ongoing changes of their local, as well as global geography.
The latter development makes the creative industries a useful vehicle for employing and
examining theory on the geographical organization of economic activity.
This chapter will stylize recent developments of the geography of the creative industries
and summarize the main theoretical arguments made for explaining these developments.
To illustrate, the chapter will then apply some of these arguments in a brief juxtaposition
of the recent developments of the film industries in Copenhagen, Denmark, and Mumbai,
India (‘Bollywood’).
The Geography of the Creative Industries

Clustered Production
Since antiquity, art and culture has been centred in cities (Jennings, 2011), and a key fea
ture of the geography of the creative industries is pronounced clustering of production
activities. Even after the emergence of technologies that enable mass production and the
separation of production and consumption (e.g. book printing and audiovisual recording
and broadcasting), the tendency of creative production to cluster in larger cities has in
tensified (Scott, 2000; Lazzeretti, 2013). During the second half of the twentieth century,
well-studied creative industry clusters have grown larger and more diversified (Langdale,
1997; Power and Scott 2004; Scott, 2005; Cooke and Lazzeretti, 2008). Recently, creative
industry clusters in emerging economies have also attracted scholarly attention (Barrow
clough and Kozul-Wright, 2006).
Local Consumption
Some creative industries, such as advertising, design, and architecture, are service
providers. Their production processes encompass customization in direct interaction with
clients, and long-lasting client relationships are valuable. Consequently, these industries
mostly serve purely local, typically urban, markets. Other creative industries, such as
publishing, audiovisuals and media, games, and performing arts, serve consumer mar
Page 2 of 22
kets. In some of these, such as concerts and stage plays, a significant part of production
entails physical presence of audiences and hence takes place at the same time and locali
ty as consumption—again, typically in larger cities. Other creative consumer industries
are able to reproduce (replicate) products at low cost, and, consequently, separate pro
duction from consumption (Caves, 2000). However, the latter (as measured by, for in
stance, product distribution and sales) often exhibit distinct national patterns: most cul
tural consumer industries produce for the home market. Throughout the twentieth centu
ry, only the USA and a handful of Western European countries managed to export on a
large (p. 307) scale. Over the last decades, however, this geography of consumption is
changing, and more countries, such as Japan, India, and Brazil, now have substantial ex
ports of creative products (UNCTAD, 2008; Lorenzen, 2009; Hirsch and Gruber, 2015;
Khaire, 2015; Pratt, 2015).
Spatial Division of Labour
During the second half of the twentieth century, the creative industries saw the emer
gence of a spatial division of labour between increasingly specialized clusters. Like in
many other industries, this process was been primarily cost-driven, with multinational en
terprises (MNEs) in some creative industry clusters offshoring labour-intensive produc
tion activities to other clusters with lower factor costs. Hollywood’s ‘runaway’ produc
tions in Toronto and Wellington are well-known cases (Wasko, 2003; Coe, 2015). This off
shoring continues today, but during the last decades, it has been complemented by a
knowledge-based spatial division of labour (Mudambi, 2008). One facet of this is in
creased product content sourcing by MNEs from local producers (e.g. record labels or
book publishers) with the purpose of distributing this content globally. Another facet of
the increased importance of local specialized knowledge is international co-productions
between production companies, suppliers, and artists in different creative industry clus
ters (Morawetz et al., 2007).
Complex and Interconnected Global Geography
The result of the aforementioned developments is a shift towards higher complexity of

globally competing and complementary creative industry clusters. For half a century, the
creative industries had a relatively stable hierarchy of clusters with Hollywood, New
York, Berlin, Rome, Milan, London, and Paris as the top performers, exporters, and off
shorers. Recently, however, this hierarchy is being challenged by the catch-up by globally
operating clusters such as Beijing, Hong Kong, Bollywood (Mumbai), Tokyo, Istanbul,
Mexico City, Bangkok, and Singapore. Furthermore, emerging market clusters such as
Nollywood (Lagos) are creating regional markets for ‘frugal’ cultural product innovation
(Barnard and Tuomi, 2008). The geography of the creative industries is becoming more
complex and interconnected in (at least) two dimensions: (i) exports and cultural hegemo
ny; and (ii) value creation and value capture.
Page 3 of 22
Exports and Cultural Hegemony
From a configuration with only a handful of clusters exporting creative products (and, in
the process, disseminating cultural expressions and values worldwide), the creative in
dustries are seeing a shift towards a diverse population of clusters in a variety of coun
tries that serve local, regional, and global markets. Not only does this create notable eco
nomic development in new localities, but it also challenges the thesis of homogenization
and Western cultural hegemony (Appadurai, 1996; Tomlinson, 1999) by making cultural
expressions and values from, for example, Japan, India, and Brazil globally known.
(p. 308) Value Creation and Value Capture

From a hierarchy with dominant creative industry clusters capturing the bulk of value
through focusing on intellectual property (IP)-generating activities and other clusters un
dertaking offshored less attractive activities, the creative industries are seeing a shift to
wards global production networks of specialized, knowledge-intensive clusters (Coe,
2015; Pratt, 2015). These networks have more complex and fluid distribution of activities,
generation of IP rights, and value capture (Hirsch and Gruber, 2015).
The next section takes stock of what we know about the mechanisms that shape the
above geography of the creative industries, and attempt to explain theoretically the cur
rent developments.
Theoretical Stocktaking
The following combines arguments from economic geography and neighbouring disci
plines, primarily economics, and management.1 The theories are presented in a themati
cal rather than chronological order. In turn, the section will outline explanations of the
clustering of creative production, localization of creative consumption, spatial division of
labour among creative industry clusters, and the emergence of an increasingly complex
and interconnected global geography in the creative industries.
External Economies
Two well-established theoretical arguments in economic geography, the ‘Marshallian’

idea of external economies of agglomeration and the ‘Jacobian’ perspective of external
economies arising from urbanization, are decisive in explaining clustering of creative pro
duction.
Creative industries need to develop product content through recombination of aesthetic

and/or narrative elements (Caves, 2000; Hesmondhalgh, 2013). For that reason, produc
tion in the creative industries is organized in temporary projects that bring together di
verse sets of creative skills and other resources on a temporary basis (Grabher, 2002;
Pratt, 2002). Some creative industries have relatively long product cycles and/or a focus
on product brand and quality. Hence, they use relatively long-lasting projects and reuse
resources, such as labour, between projects. This entails internal scale economies and
Page 4 of 22
leads to integrated ‘production studios’, as in Hollywood during the first half of the twen
tieth century, or in some contemporary computer games companies and advertising agen
cies. Most creative industries, however, have short product life cycles and need to devel
op highly varied new product content. Thus, they use projects with non-standardized,
flexible tasks and highly diverse skills, people, and motivations. This entails no internal
scale economies and projects are typically market based (Lorenzen and Frederiksen,
2005), organized as temporary networks of collaborating freelancers (e.g. artists or writ
ers) and specialized skill containers (e.g. technical services), orchestrated by project co
ordinators (e.g. record labels or film producers) (Whitley, 2006). During the last decades,
this form of organization of production has become dominant in many creative industries,
including filmed entertainment and (p. 309) recorded music: the production studios in Hol
lywood, London, and even Bollywood have long since disintegrated.
Market-based projects hinge on external economies made possible by spatial agglomera

tion. Geographical proximity, local institutions, and the presence of specialized local
project coordinators and boundary spanners in creative industry clusters allow labour
and companies to collaborate and specialize (Storper, 1989; Storper and Christopherson,
1987; Scott, 2000). For example, Grabher (2002), Pratt (2002), and Lorenzen and Fred
eriksen (2005) demonstrate how proximity lowers transaction costs and allows for exter
nal economies in production projects among clustered advertising, media, and music
companies. Another external economy of agglomeration relates to the local labour mar
ket, where training, exchange, and formal education of skilled labour is made possible by
the large size of the local creative industries (Marshall, 1890).
Creative industry clusters are unequivocally urban (Scott, 2000; Power and Scott, 2004:
Scott, 2008; Lazzeretti, 2013). External economies related to urbanization (Jacobs, 1961)
include the unique ability of large cities to attract creative talent (Glaeser et al., 2001;
Florida et al., 2008). They also include the presence of urban venture capital and of clus
ters in other industries providing synergies in reusing IP and brands (e.g. across films,
books, soundtracks, and merchandise) and inspiring experimentation and new forms of
product content generation (Lorenzen and Frederiksen, 2008).
Localized Learning
The argument of localized learning (in its several guises) has been prominent in economic
geography since the late 1990s. It adds to the explanation of clustering of creative pro
duction, and is also useful for explaining the local nature of creative consumption. The
argument’s fundamental tenet is that while transaction costs of operating globally (across
distance) have generally declined owing to improved information, digitization, logistics
and transportation technologies, spatial costs related to knowledge and learning remain
significant for a range of industries (Morgan, 2004; McCann, 2007; Christopherson et al.,
2008). The reason is that the production, appropriation, and sharing of knowledge is con
text specific (Gertler, 2003): it depends on local ‘codebooks’ (Maskell and Malmberg,
1999; Maskell, 2001) and embeddedness in high-trust local networks (Maskell and Loren
zen, 2004; Gordon and MacCann, 2005). Furthermore, knowledge may be ‘in the air’ lo
Page 5 of 22
cally (Marshall, 1890) through local informal information spillovers (Storper and Ven
ables, 2004).
The creative industries are a set of industries with high spatial costs of knowledge and
learning, and localized learning is an important element of external economies in cultural
industry clusters. Cultural expressions and understanding of cultural values are depen
dent upon local context, so access to local networks and information spillovers is crucial
in the production of creative content. For example, Bathelt (2005) outlines how local in
formation ‘buzz’ can propagate sharing of knowledge among clustered media production
companies. Furthermore, consumer trends and preferences change so fast that creative
companies often need to be physically present in a market: they need to access local
knowledge in order to design effective marketing campaigns and distribution activities.
By contrast, on export markets, creative companies suffer from notable liabilities of for
eignness (Hoskins and Mirus, 1988; Oh, 2001): they know little of cultural expressions,
trends, and preferences, and (p. 310) have difficulties tapping into local networks in order
to obtain pertinent knowledge. For that reason, most cultural consumer industries focus
on their home market.
Market Scale
The localized learning argument is not helpful in explaining why some cultural industry
clusters have been more successful than others in exporting beyond their home market.
In order to explain the early export dominance of the USA and a few Western European
countries, we may turn to an argument originating in marketing theory in management:
that of market-scale advantages.
As creative production is labour-intensive and uncertain, in order to be profitable, cre

ative products need either be sold at premium price (on niche markets) or in large quanti
ties (on mass ‘mainstream’ markets (Caves, 2000)). For reasons outlined earlier, creative
industries first and foremost focus on the home markets in order to capture value. For
most of the twentieth century, only a few countries were able to build notable exports,
and they all shared one feature: they had sizeable home markets.
On mainstream markets for creative products, there are substantial scale advantages in
marketing, as the marginal costs of, for example, promotion campaigns decrease rapidly
(Vogel, 1998; Lee and Waterman, 2007). Creative companies with large home markets are
able to build mass marketing that can be used not just on home markets, but also for ex
ports. Even if companies with mass marketing still suffer from liabilities of foreignness on
export markets, they will be powerful compared with companies with less home market
scale and marketing muscle (Elberse and Eliashberg, 2003; Bakker, 2005).
On mainstream markets, efficient distribution is necessary to take advantage of mass

marketing (Donahue, 1987; Vogel, 1998). During the twentieth century, when many cre
ative consumer products were distributed in physical format (e.g. CDs, books, prints),
there were significant scale advantages owing to decreasing marginal costs of transport
and contact to retailers. Today, even with digitization and online distribution, distribution
Page 6 of 22
on mainstream markets still entails large investments (and online distribution sites hinge
on efficient marketing for visibility). Consequently, creative companies with large home
markets stand at an advantage when building mass distribution infrastructures that can
be used for exports: the most prominent digital distribution platforms are owned by com
panies in the USA, Japan, China, UK, and France.
Home market-scale advantages not only account for why countries with large home mar
kets have been successful exporters, but they also explain why such countries are virtual
ly impenetrable to imports: competitors from smaller countries have smaller home mar
kets, less marketing and distribution muscle, and stand at a comparative disadvantage
when trying to enter larger countries with strong incumbents (Bakker, 2005).
Sunk Cost
While the market-scale argument explains the successful exports by a few countries, it
does not explain why a range of countries with very sizeable home markets, such as Chi
na, India, and Brazil, have not been able to export until late in the twentieth century. Fur
thermore, (p. 311) market scale is not helpful for understanding the spatial division of
labour and hierarchy among creative industry clusters in the twentieth century. To under
stand these phenomena, we turn to an argument derived from industrial economies: that
of sunk cost.
As outlined earlier, creative companies with large home markets have leveraged home
market scale to invest in mass marketing and distribution. Such investments were made,
in particular, by US film companies (since the 1910s and accelerating since World War II),
US and UK recorded music companies (since World War II), and by US, French, German,
and Japanese cross-media conglomerates (during the latter half of the twentieth century)
(Wildman, 1995; Hoskins et al., 1997; Vogel, 1998). These investments represented sunk
costs (i.e. irretrievable investments),2 changing the overall nature of competition in cre
ative industries by setting the minimum competitive scale of marketing and distribution
higher (Caves, 2000; Bakker, 2005, 2015). Early-mover companies having sunk costs into
marketing and distribution are able to reinforce continuously their competitive advan
tage: capturing revenues at home, as well as abroad, they have the capacity to sink fur
ther costs in factors that further influence the nature of competition (e.g. production
quality values and technological formats). Thus, the sunk-cost argument explains the ex
port success of early movers, such as the USA and a few Western European countries, as
well as why latecomers, such as China, India, and Brazil, were not able to build exports in
spite of being strong in their home markets: they faced entry barriers, in the guise of min
imum competitive scale of marketing, distribution, production quality values, and so
forth, that made them unable to compete on export markets.
Sunk cost also helped early-mover companies in the USA and Europe to build ‘cultural
competitiveness’: Preferences of consumers for particular types of product content, such
as cultural expression, or, simply, language. By investing in marketing and distribution on
export markets over decades, US and European countries (in particular, the UK) have in
Page 7 of 22
fluenced consumer preferences on export markets (Wildman, 1995; Vogel, 1998). For ex
ample, the preferences in many countries for Hollywood-type productions and for Eng
lish-language films over other foreign-language films have been created by Hollywood it
self. The greater differences in cultural expression there are among the world’s other ex
porting film clusters, the greater the export advantages of Hollywood (Hoskins et al.,
1997; Papandrea, 1998; Oh, 2001; Elberse and Eliashberg, 2003).
The sunk-cost argument explains the dominance of Hollywood and a range of other cre
ative industry clusters in the USA and Western Europe on export markets everywhere, in
terms of exports, cultural hegemony, value creation, and value capture: for the latter half
of the twentieth century, these early-moving and scale-based clusters became the ones to
produce, develop IPs, and export, and later, the ones to offshore the most costly produc
tion activities in, for example, media and computer games to later-moving clusters that
were slower to build exports. To a high extent, early sunk cost influenced the later spatial
division of labour in the creative industries.
Connectedness and Connectivity
During the last decades, the global geography of the creative industries has been chang
ing rapidly, with more and more countries exporting, and with a more knowledge-based,
less hierarchical, and more fluid spatial division of labour. In order to understand the
emergence (p. 312) of this more complex and interconnected global geography, we turn to
a theoretical argument developed in the intersection of the international business studies
in management, economic geography, and innovation studies: global connectedness and
connectivity.
During the last decade, scholars have paid increasing attention to connections between
clusters (Amin and Thrift, 1992; Dicken et al., 2001; Bathelt et al., 2004; Hudson, 2005;
Coe et al., 2008; Lorenzen and Mudambi, 2013, 2015). One type of such connection is
personal relationships, such as family relations, friendships, and acquaintanceships be
tween individuals living in different clusters (diasporas) (Lorenzen and Mudambi, 2013).
This type of connection has been on the rise during the last decades as mobility of labour
has increased due to political (de-) regulation, emerging international employment oppor
tunities, and developments in communication and transportation technologies that enable
personal relationships to be maintained across geographical distance. Personal relation
ships enable flows of knowledge and finance and facilitate entrepreneurial opportunities
across clusters (Saxenian, 2006). A second type of connection is organizational pipelines
(Bathelt et al., 2004), such as strategic alliances, joint ventures, or ownership-spanning
organizations or organizational units located in different clusters (the most prominent ex
ample being MNE branch plants). Organizational pipelines have increased dramatically
over the last half of the twentieth century, owing to declining spatial costs of transporta
tion, communication, and governance across geographical distance. This type of connec
tions facilitates flows of goods (trade), as well as more substantial flows of knowledge and
finance than personal relationships allow for. Through personal relationships and organi
zational pipelines, different clusters may be connected with varying power and network
Page 8 of 22
centrality of the partaking individuals and organizations. A cluster’s particular configura
tion of connections, that is, its ‘connectivity’, is likely to influence its ability to innovate
and capture value (Lorenzen and Mudambi, 2013, 2015).
Creative industry clusters are increasingly connected by personal relationships between

diasporas of industry professionals, artists, and other skill-holders. For instance, Currid-
Halkett and Ravid (2012) report on a global network of celebrities from different clusters
who meet and interact at various industry events. The rise of personal relationships be
tween creative industry clusters may explain the rise in international co-productions, that
is, project networks that cross the boundaries of clusters, bringing labour and companies
from different clusters together temporarily. Organizational pipelines between creative
industry clusters, in the guise of local subsidiaries of MNEs (e.g. record labels or publish
ers) have been present for more than half a century. However, across the creative con
sumer industries, MNEs are now changing the mandate of local branch plants. From be
ing mostly about local marketing and distribution of imported products, the mandate is
changing towards being more ‘competence-creating’ (Cantwell and Mudambi, 2005),
sourcing local content for local, and sometimes also export, markets. Furthermore, MNEs
are increasingly changing their offshoring strategies towards knowledge-based global
production networks, using suppliers in different clusters on account of their skills rather
than their low labour costs. The search for local specialized knowledge also leads MNEs
to enter into creative-industry clusters by joint ventures and acquisitions rather than
branch plants. For instance, Disney’s rather unsuccessful local branch plant in Bollywood
has been supplanted by an acquisition of major local production company in order to ac
cess its localized knowledge and develop product content for both the Indian and export
markets (Lorenzen and Täube, 2008).
The rise of connections between clusters, and between clusters and their export
(p. 313)
markets for creative products, helps to explain how clusters in small countries and late-
coming clusters are increasingly able to overcome their disadvantages and entry barriers.
Firstly, global production networks in the guise of co-productions increasingly develop ex
portable products, by including labour and companies from different clusters, contribut
ing with their specific knowledge of different markets. Some co-productions that target
particular export markets may be able to take advantage of diasporic connections to
these markets in obtaining knowledge of trends and preferences. Secondly, creative prod
ucts are increasingly digitized, and, as a result, global niche markets,3 such as those for
Manga cartoons or Kung Fu films, are emerging. On such markets, audiences have high
consumption capital (Caves, 2000) and are actively searching for content, and small, late-
coming companies can leverage their personal relationships and forge strategic alliances
in order to market and distribute. While revenues on global niche markets for ‘world’ and
‘arthouse’ creative products are still modest, they are distributed across a broad range of
companies and clusters globally, by contrast to revenues on mainstream markets that are
still captured largely by the hitherto dominant clusters in Hollywood, New York, Berlin,
and so forth.
Page 9 of 22
Empirical Illustration: The Filmed Entertain

ment Clusters in Copenhagen And Bollywood
This section illustrates the chapter’s theoretical arguments by way of examples from the
filmed entertainment industry.4 This remains the largest of the creative industries mea
sured by revenues. As a paradigmatic case, it has attracted scholarly attention from a
range of social sciences, including not the least a range of empirical studies by geogra
phers (e.g. Christopherson and Storper, 1986; Storper and Christopherson, 1987; Storper,
1989; Brito Henriques and Thiel, 2000; Scott, 2000, 2005; Coe, 2001, 2015; Turok, 2003;
Coe and Johns, 2004; Christopherson, 2006; Lorenzen, 2007, 2009; Currah, 2007; Kaiser
and Liecke, 2007; Vang and Chaminade, 2007; Mossig, 2008; Zademach, 2009; Johns,
2010). Not surprisingly, the bulk of studies of the filmed entertainment industry focuses
on Hollywood. In the following, we will address two less studied empirical examples,
those of the Danish cluster in Copenhagen and the Indian cluster in Mumbai (‘Bolly
wood’).
Copenhagen
Producing 20–25 feature films annually and with a turnover of roughly US$135 million in
2014, the Copenhagen filmed entertainment cluster is small. With a small home market,
significant public subsidies, and organized as a swarm of small producers relying on the
distribution channels of a few larger corporations, Copenhagen resembles many other
small filmed entertainment clusters in Europe. However, with 4.5 films produced per Dan
ish citizen (Hollywood produces around two), a home market share of 30 per cent, and a
strong (p. 314) presence in global arthouse markets, Copenhagen performs notably better
than comparative small filmed entertainment clusters. This aligns well with the theoreti
cal arguments outlined in this chapter. The cluster was early to build external economies,
as well as early-mover sunk cost advantages on export markets, but owing to lack of
home market scale, lost its exports. Later, through localized learning and the emergence
of connectedness to clusters in other European filmed entertainment clusters, Copen
hagen rebuilt its performance, recapturing a large share of its home market and estab
lishing a presence on global niche markets.
The filmed entertainment cluster in Copenhagen originated with the world’s oldest con
tinuously operating film production company, Nordisk Film (established 1906). For the
first decades, the cluster operated without notable external economies: in a model not un
like the early Hollywood studios, Nordisk Film integrated much of the production in the
cluster. In the silent film era, the localized knowledge of cultural expressions and prefer
ences was not acutely important and liabilities of foreignness on export markets not sig
nificant. Consequently, Nordisk Film, moving early in sinking cost into production quality,
as well as mass marketing and distribution, came to dominate not only the Danish home
market, but also European export markets: until World War I, Copenhagen was Europe’s
most exporting film cluster. Hollywood’s rise to dominance, along with the spread of
sound films in the 1930s and the resulting importance of localized knowledge, meant a
Page 10 of 22
collapse of Copenhagen’s film exports. After World War II, Hollywood increased invest
ments in Europe, aided by favourable export conditions for American products. With a
very small home market, the Copenhagen cluster had no scale to counter the competition
from Hollywood, and like all other European filmed entertainment clusters, even if pur
chase power was growing, lost the majority share of its home market to Hollywood im
ports.
From the late 1960s, the Danish state invested massively in upgrading of the Copenhagen
cluster. From 1964, the Danish Film Act channelled tax revenues from cinemas back into
production subsidies. The Act was expanded notably in 1972 with the establishment of
the Danish Film Institute, channelling subsidies though independent consultants, advising
film production projects, and promoting skill development. During the first decades, sub
sidies were handed out mostly to niche films, but since a revision of the Act in 1989, it al
so promotes mainstream films with up to 60 per cent of their production budget. This cre
ated incentives for incumbent companies to invest in marketing, distribution, and exhibi
tion infrastructures (cinemas). It also attracted new entries to the cluster, creating exter
nal economies: with new and more specialized local labour and companies, projects be
came increasingly market-based and relied on shared knowledge of expressions, styles,
and market trends (as well as of successful ways of obtaining public subsidies). External
economies also related to urbanization, as traded and untraded interdependencies with
the Copenhagen TV, theatre, and software games industries grew in importance. As a re
sult of these developments, Copenhagen recaptured significant shares of its home market
from Hollywood since the 1960s.
Another important public investment in the Copenhagen cluster was the establishment in
1966 of the National Film School of Denmark. After a restructuration and increased pub
lic funding in the 1980s, the school became successful in training filmmakers to manoeu
ver between niche and mainstream markets. A generation of new Danish directors
trained at the School was able to target successfully the emerging global niche markets
and win awards at high-profile international festivals, such as the Academy (Bille August;
Susanne Bier) and Cannes (Lars von Trier; Thomas Vinterberg). Coined by the latter two
directors, the Danish (p. 315) ‘Dogme 95’ manifesto of avant-garde film-making was suc
cessful in adding to the international brand of Danish films and promote niche exports.
Inspired by the growing exports to global niche markets, the largest Copenhagen compa
nies began investing in infrastructures to promote exports of mainstream films, particu
larly to Scandinavia and Western Europe. Since 2000, the export rate of Danish films has
grown to above 10 per cent.
The post-1980 generations of film-makers who increasingly collaborated inside the clus
ter also began to establish global connectedness in the guise of international co-produc
tions with companies in clusters in, for example, Sweden, Norway, the UK, and Germany.
Such connections were successful in obtaining funding (regional production subsidies),
incorporating new talent, and establishing new channels to European markets. The ma
jority of the Danish films winning awards at international festivals are international co-
productions, but in spite of the positive impact on exports of global connectedness, the
Page 11 of 22
Copenhagen cluster remains predominantly locally embedded and focused on the home
market. Of the twenty-three feature films produced in 2015, eight were international co-
productions.
Bollywood
By contrast to Copenhagen, Bollywood is big business. Bollywood produces roughly the

same number of films as Hollywood, 200–250 films annually, and sells more than a billion
tickets annually.5 Even if the low Indian purchase power means that Bollywood’s earnings
are around a tenth of Hollywood’s, less than US$2 billion in 2014, Bollywood enjoys no
public subsidies and, like its American cousin, is unabashedly profit-seeking in its pursuit
of mass markets for filmed entertainment, increasingly on export markets. While these
two clusters in some ways resemble each other, their historical contingencies have been
very different, resulting in very different industry structures and geographies.
Bollywood’s history is as long as Hollywood’s (and Copenhagen’s), but the cluster is cur
rently undergoing comparatively dramatic restructuring and geographical change. The
theoretical arguments outlined in this chapter are very relevant to understanding this de
velopment. Significant external economies have enabled Bollywood to become dominant
on the very diverse Indian home market, but given the low purchase power here, the clus
ter did not earn sufficient revenues to sink early investments into marketing or distribu
tion capacity. Thus, it did not develop notable exports before Hollywood’s rise to domi
nance. However, during the last decades, Bollywood’s global connectedness now facili
tates rapid catch-up to Hollywood in terms of exports, value capture in global networks,
and dissemination of cultural expressions and values.
The first Indian film was produced in 1913 in Mumbai (formerly Bombay), and filmed en
tertainment clusters emerged here and in a handful of other major Indian cities. During
the first decades of the twentieth century, Bollywood had to carve out its existence con
fronted with British censorship and Hollywood imports, but with the presence of large ur
banization economies in Mumbai, where talent and venture capital flocked, Bollywood
grew fastest of all Indian filmed entertainment clusters. After two decades, more than
half of India’s film production took place here.
With the advent of sound films, film imports to India from Hollywood collapsed and the
home markets segregated along regional languages. The other Indian filmed entertain
ment clusters focused on each their regional market and developed integrated studios
and star actors with durable regional audience brands. Bollywood, by contrast, focused
on Hindi, (p. 316) a language widely used in Mumbai owing to centuries of inflow of Hindi-
speaking immigrants. Hindi became India’s national language with independence in 1947
and this created a substantial market across India, in the Indian diaspora, and in India’s
neighbouring countries. The Hindi film market remained very segregated in terms of so
cial class, regional culture, and religion. Bollywood developed product content able to ap
peal across these divides, recombining expressions, narratives, and styles from Indian re
gional art forms, as well as international trends (this formula was later coined masala,
‘spice mix’). As a result, Bollywood captured the major share of the Indian national mar
Page 12 of 22
ket. Today, the cluster represents 15 per cent of India’s film output but captures 40 per
cent of film revenues.
The reason for Bollywood’s success in developing such product content was that the clus
ter shifted from an integrated studio system, dominant in its first three decades, to mar
ket-based project networks of freelancing actors, directors, technicians, specialized
stages, and studios, and small, typically family owned production companies. The reason
for Bollywood’s shift from internal to external economies was a high entry of small inde
pendent film-makers from other Indian cities and from the North (e.g. the film cluster in
Lahore) following the division of India and Pakistan in 1947. While Bollywood’s horizontal
disintegration made the cluster able to develop competitive product content for the Indi
an market, it also created high transaction costs in film production and prevented the
cluster from sinking costs into marketing and distribution infrastructures. Consequently,
India’s film exhibition remained fragmented, and Bollywood had difficulties in collecting
from the thousands of stand-alone cinemas across India. Furthermore, for most of the
twentieth century, Bollywood collected virtually no export revenues. The cluster had no
export infrastructure to compete with Hollywood, and Bollywood consumption outside In
dia largely took place as imports by small-scale and inefficient independent agents from
the Indian diaspora.
During the last decades of the twentieth century, Bollywood began to build a new type of
global connectedness with a tremendous impact on the cluster’s performance and geog
raphy. Bollywood’s early connectedness—the personal relationships between Bollywood
producers and directors and European filmmakers—disappeared with the studio system,
and for almost fifty years, the cluster remained largely isolated from global markets and
other filmed entertainment clusters. However, Indian emigration for education and work
burgeoned after the 1950s, and by the end of the century, more than ten million non-resi
dent Indians and persons of Indian origin lived in North America, the UK, and the Middle
and Far East. Direct interaction between the diaspora and their family and friends in In
dia has been propagated by growing purchase power of the diasporas and the Indian mid
dle class, as well as cheap air travel and communication technology. Bollywood is now
highly connected by personal relationships between Bollywood producers, directors, in
vestors, and other professionals, and thousands of individual consumers, investors, and
skill-holders of Indian origin living abroad, and there is also growing immigration into
Bollywood by specialized skill-holders (actors, scriptwriters, directors, etc.) from the Indi
an diasporas. As a result, knowledge flows into Bollywood of Western and global trends
and preferences, allowing the cluster to change its product content to become more ex
portable.
Hence, Bollywood challenges Hollywood as an exporter. At first, the cluster targeted the
very attractive market of the Indian diasporas in the UK and North America. In the
process of developing product content and export infrastructures to serve the diaspora,
Bollywood also became able to reach other export markets. Bollywood is now a major
player on global markets for filmed entertainment products. During the first decade of
the twenty-first (p. 317) century, the cluster’s export revenues grew by 450 per cent, and
Page 13 of 22
since then, export rates have been between 10 and 15 per cent. Bollywood has become
the largest foreign exporter of filmed entertainment to the US market, and every year
several Bollywood films are in the top-twenty box-office charts in North America and the
UK. The export boom means that Bollywood also challenges Hollywood with respect to
dissemination of cultural expressions and values: Bollywood films now appear at most in
ternational film festivals, as well as on national TV across the globe, and new generations
of cinemagoers are increasingly familiar with Indian film stars and styles. By setting up
its own global production networks, Bollywood also challenges Hollywood’s dominance in
the spatial division of labour in the filmed entertainment industry. Focusing on generating
IP rights, Bollywood is now a major offshorer of less value-capturing production tasks to
specialized suppliers in other countries (both low-cost, such as Pakistan and the Philip
pines, and knowledge-intensive, such as the UK, Australia, and the USA). The cluster rou
tinely shoots on location, typically in iconic locations such as New York, London, Dubai, or
Sydney that add to the films’ export potential, and also places outward foreign direct in
vestment in filmed entertainment companies in the UK and North America (e.g. Bolly
wood company Reliance Entertainment owns the majority share of Hollywood’s Dream
works).
With annual growth rates between 10 and 20 per cent, Bollywood currently outperforms
most other filmed entertainment clusters in emerging economies. At home, the cluster is
expanding urbanization economies as it interacts with complementary industries in Mum
bai like TV, pop music, computer games, and advertising. Abroad, the cluster continues to
sink costs into marketing and distribution infrastructures, and now own more than 250
cinemas and several TV distribution platforms in North America alone. It is largely owing
to Bollywood that entertainment is currently India’s second biggest growth sector.
Bollywood’s expansion is fuelled partly by growing Indian purchase power and more effi
cient collection at home. However, given the significantly higher purchase power on ex
port markets, Bollywood’s global connectedness lies at the heart of the cluster’s rapid
growth and the reconfiguration of its geography.
Conclusion
The chapter has provided an introduction to the geography of the creative industries, as
well as the set of theories regularly used to understand them. The creative industries are
diverse and dynamic, and the chapter’s overview of their recent geographical develop
ment has been highly stylized. Likewise, the chapter has only focused on a narrow set of
theories from economic geography and its neighbouring disciplines, providing a very con
densed overview. Nevertheless, the chapter has attempted to show that while well-estab
lished theories of external economies, market size, and sunk cost are still valid in under
standing the fundamental organization of the creative industries, we need to engage re
cent and less-established theories of localized learning, connectedness, and connectivity
to understand the creative industries’ wide-ranging global changes.
Page 14 of 22
Thus, the creative industries remain not just important in their own right, but also as an
excellent showcase for the current shortcomings and potentials of theory development in
economic geography.
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Notes:
(1.) By necessity, what follows is very schematic, omitting much of the richness of insight
presented in the source material.
(2.) Such sunk costs are referred to as ‘endogenous’ as they are made by early-mover
companies as a competitive strategy, not determined by exogenous industry factors such
as technologies (Sutton, 1991).
(3.) By contrast to an international market, which is usually defined as the sum of several
distinct national markets with different institutions and preferences, a global market is
integrated across countries. Sharing institutions and preferences, a global niche market
may offer significant scale (Daly, 1999).
(4.) This section draws upon empirical material also reported in Lorenzen (2007, 2009),
Lorenzen and Taübe (2008), Andersen (2013), and Lorenzen and Mudambi (2013), as well
as figures and overviews provided by Federation of Indian Chambers of Commerce and
Industry/KPMG (2015), the Danish Film Institute (dfi.dk, accessed 1 March 2016) and the
Danish Producers’ Association (pro-f.dk, accessed 1 March 2016).
(5.) Bollywood is the best known, but by no means the only, filmed entertainment cluster
in India. Clusters in other Indian major cities all produce hundreds of regional-language
films annually, making India the world’s largest film producer with well over 1000 films
annually.
Mark Lorenzen
Mark Lorenzen ([email protected]) is Professor of Innovation, Entrepreneurship and In

dustrial Dynamics at the Department of Innovation and Organizational Economics at
the Copenhagen Business School and director of the Danish Research Unit for Indus
trial Dynamics. His research is in the field of industrial dynamics, with a special fo
cus on the relationships between innovation and the economic organization of the
market in networks, projects, and clusters, currently within the creative industries.
He has published in journals such as Journal of Economic Geography, Organization
Studies, and Economic Geography, and he is editor-in-chief emeritus of Industry and
Innovation, series editor of the Routledge Studies in Industrial Dynamics, and co-edi
tor of The Oxford Handbook of Creative Industries.
Page 22 of 22
Firms in Context: Internal and External Drivers of Success
Firms in Context: Internal and External Drivers of Suc

cess
Mercedes Delgado
How important is location for successful regional and firm performance? To answer this
question the first part of the chapter reviews studies using sophisticated methods for
defining and mapping clusters—geographical concentrations of related industries, firms,
and supporting institutions. These studies show the importance of clusters for entrepre
neurship, innovation, and other performance dimensions. The second part of the chapter
examines the relationship between location and firm strategy and performance. Location
within a cluster by itself does not ensure that a firm will benefit. Thus, a firm’s strategic
positioning and its location choices are interrelated. I offer a framework that takes into
account the role of internal agglomerations (intra-firm linkages that are facilitated by ge
ographical proximity) and external agglomerations (inter-firm linkages in clusters) on the
location choices and performance of firms.
Keywords: firm location choices, defining and mapping clusters, internal agglomerations, external
agglomerations, innovation
Defining The Boundaries of Clusters

LOCATIONAL attributes are at the core of formulating and implementing firm and region
al strategies. In the Competitive Advantage of Nations, Porter (1990) developed the mi
croeconomic business environment framework to help firms, regions, and countries as
sess the sources of locational advantages and disadvantages, and decide how to compete.
This influential framework has four interrelated components, graphically depicted in a di
amond: factor conditions (the costs, quantity, and quality of a variety of inputs); the con
text for firm strategy and rivalry (incentives to invest and compete); demand conditions
(the sophistication of local customers); and related and supporting industries (the pres
ence of suppliers and complementary industries).
Page 1 of 25
In this diamond framework, clusters play an important role on firm and regional competi
tiveness. Clusters are geographical concentrations of related industries and firms that are
connected through various types of linkages (skill, technology, knowledge, supply, de
mand, and others) and supporting institutions (training, trade promotion, educational, or
financial). These clusters emerge in the conditions that a specific microeconomic busi
ness environment provides in a region. Within clusters, firms compete but also cooperate
(Porter, 1998).
The agglomeration of related economic activity in a small number of locations is a central

feature of economic geography (Marshall, 1920; Porter, 1990, 1998; Krugman, 1991; Feld
man, 1994, 1999; Ellison and Glaeser, 1997). A number of distinct drivers of agglomera
tions have been identified in the literature. The early work by Marshall (1920) highlighted
three drivers associated with improved firm performance: supplier–buyer linkages; labour
market pooling; and knowledge spillovers. Over time, an extensive literature broadened
the set of agglomeration drivers. In Porter’s (1990, 1998) cluster framework many ag
glomeration forces can be at work: not only Marshallian agglomerations, but also local
demand (p. 325) conditions and specialized institutions. Other studies have focused on the
organizational structure of businesses (e.g. the presence of specialized firms) and socio-
economic networks of firms and individuals as important agglomeration drivers (Saxen
ian, 1994; Storper, 1995; Markusen, 1996; Sorenson and Audia, 2000; Becattini et al.,
2003; Dahl and Sorenson, 2012; among others).
Clusters are everywhere. In the USA some common examples of clusters are information
technology in Silicon Valley, biopharmaceuticals in Boston, and financial services in New
York city, but there are many others. Each region has some comparative advantages mani
fested in its clusters. The types of strategies, organizational practices, operations, and, ul
timately, performance of firms are shaped by the attributes of the locations and clusters
they participate in. But, how best to define and measure the boundaries of a cluster?
In order to implement cluster research and offer implications for managers and policy
makers, we need an operational definition of clusters that measures their boundaries (i.e.
the set of related economic activities that constitutes a cluster). Because there are many
ways to group related firms and industries, we need to assess and score groupings. That
is, are they the best groups possible? Do they capture the types of linkages we are inter
ested in?
In Defining Clusters of Related Industries (Delgado et al., 2016), we tackle some of these
questions. Over the last twenty years, two main approaches to defining clusters have de
veloped: definitions based on inter-industry linkages inferred from multiple regions (re
ferred to as benchmark or comparable cluster definitions); and definitions based on ob
served linkages in a single region (referred to as region-specific cluster definitions).1
There are advantages and disadvantages to each approach.
Page 2 of 25
Benchmark Cluster Definitions
A set of benchmark cluster definitions allocates individual industries (or technology class
es) into specific clusters based on the inter-industry linkages that are inferred from multi
ple regions. By defining clusters as a fixed set of related industries, we can compare dif
ferent regions in terms of that cluster definition.
Some studies use national-level data to capture particular inter-industry linkages, includ
ing knowledge links based on patenting (see e.g. Glaeser and Kerr, 2009); input and out
put links (see e.g. Feser, 2005); labour occupation links (see e.g. Glaeser and Kerr, 2009;
Neffke and Henning, 2013); and product similarity as defined by the industry classifica
tion system (Frenken et al., 2007). Other studies define measures based on the co-loca
tion patterns of industries across many regions to capture various types of linkages (Elli
son and Glaeser, 1997; Porter, 2003).
A few studies then use these measures of inter-industry relatedness to define benchmark
clusters. Some studies define input–output clusters based on supplier–buyer links be
tween industries (Feser, 2005). Others define innovation clusters by measuring knowl
edge linkages among industries or technology classes. These studies focus on manufac
turing industries, and group them based on patent citation patterns (see e.g. Koo 2005),
or based on their science and technological base (Feldman and Audretsch, 1999). Finally,
in groundbreaking work, Porter (2003) defined clusters based on the co-location patterns
of traded industries across regions, following the principle that co-location reveals the
presence of many linkages (p. 326) between industries. Using a comprehensive set of ser
vice and manufacturing industries, the methodology first distinguishes traded versus lo
cal industries. Traded industries are geographically concentrated and produce goods and
services that are sold across regions and countries (e.g. surgical instruments).
Local industries sell primarily in the local market and are geographically dispersed (e.g.
retail). Because local industries do not cluster, they are excluded. To measure the related
ness between a pair of traded industries, Porter (2003) computes the pairwise correlation
of industry employment across regions and then uses an iterative approach to define clus
ters.
Using particular benchmark cluster definitions, a growing body of research has shown
that the presence of related economic activity matters for regional and industry perfor
mance, including job creation, innovation, and entrepreneurship (see, among others, Feld
man and Audretsch, 1999; Porter, 2003; Feser et al., 2008; Glaeser and Kerr, 2009; Delga
do et al., 2010, 2014; Neffke et al., 2011).2 These findings are based on different defini
tions of clusters (which often use the subset of manufacturing industries), and without a
methodology to generate and compare alternative sets of cluster definitions it is difficult
to reconcile them.
In ‘Defining clusters of related industries’ (Delgado et al., 2016), we address this issue by
developing a novel clustering algorithm to generate and assess alternative sets of cluster
definitions—groups of industries closely related by skill, technology, supply, demand, and/
Page 3 of 25
or other linkages. Our approach to defining clusters accounts for multiple types of inter-
industry linkages, and allows us to compare alternative sets of cluster definitions by com
puting scores for each set.
To derive clusters of traded industries, we use cluster analysis: numerical methods to

classify similar objects (cities, firms, genes, industries, technology classes, people, etc.)
into groups (Everitt et al., 2011). Cluster analysis measures how each object (e.g. an in
dustry) is related to any other object, and then creates groups (termed ‘clusters’) so that
objects in the same group are more similar to each other than to objects in other groups
(clusters).
We generated many cluster configurations (i.e. groupings of industries) based on alterna

tive clustering functions, inter-industry relatedness measures, and parameter choices.
Our method develops a score function to choose a candidate configuration that will cap
ture the broadest range of inter-industry linkages. The methodology concludes with an
expert assessment and adjustment of individual clusters. The result is the US benchmark
cluster definitions (BCD), which groups all traded industries covering services and manu
facturing into fifty-one clusters based on the strength of input–output links, shared labour
occupations, and co-location patterns of industries across regions. These clusters and
their linkages are illustrated in Figure 17.1.3
The benchmark cluster definitions can be mapped into any administrative region (e.g.
metropolitan statistical areas, economic areas, and states) and into spatial units based on
density of businesses.4 Region-industry data from the County Business Patterns and ZIP
Code Business Patterns datasets are coded with the BCD to map the specialization in
clusters for all regions in the USA. Using these and many other data sources, the U.S.
Cluster Mapping Project (USCMP) has created a detailed regional cluster dataset and in
teractive tool that facilitates comparisons across regions and across clusters on numer
ous dimensions.5 (p. 327)
Page 4 of 25
Figure 17.1 Portfolio of Fifty-one Traded Clusters

and their Connections.
Note: Clusters with solid connection lines are highly

related: the between cluster relatedness (BCR) score
is above the ninetieth percentile value and the per
centage of related industries (RI) is above 20%.
Source: Delgado et al. (2016) and the U.S. Cluster

Mapping Project.
For example, consider the Information Technology (IT) and Analytical Instruments
(p. 328)
cluster, which contains twenty-seven narrowly defined industries (six-digit North Ameri
can Industry Classification System code). Using this definition, we can evaluate how dif
ferent regions compare in terms of their size and specialization in that cluster. Figure
17.2 shows the US regions (economic areas) with high employment specialization in IT
and Analytical Instruments. While it is common knowledge that the San Jose–San Francis
co, CA Economic Area (which includes Silicon Valley) is highly specialized in IT, cluster
mapping allows us to identify other regions that also are specialized in the cluster (e.g.
Austin–Round Rock, TX; Boston, MA; Seattle, WA; and Portland, OR).
Our clustering method can be applied to other countries using their specific data. The
BCD are a good starting point for many countries that may not have the appropriate data
(i.e. defining clusters is best undertaken using data from large and diverse economies
with integrated regions). Mapping the BCD in multiple countries has the additional ad
vantage of allowing comparison of clusters across countries and can inform firm global lo
cation and investment decisions.6
What constitutes a good set of benchmark cluster definitions ultimately depends on the
particular research and policy question. Clusters based on a single linkage (e.g. labour
occupations) could inform policies in support of a particular link. Clusters based on multi
ple linkages (like the BCD) could facilitate externalities of various types. Multi-linkage
clusters could be most meaningful for policies supporting multiple complementarities
across industries. For example, promoting the skills needed by the suppliers in the clus
ter and thus facilitating supplier–buyer and knowledge linkages in the cluster and related
clusters. They could also be more informative for firm location strategies, which are not
Page 5 of 25
based on a single link but rather on a complementary set of locational attributes (skills,
suppliers, buyers, supporting institutions, etc.).
Region-specific Cluster Definitions
Benchmark cluster definitions can capture most economic activities and are necessary for
studies that aim to examine clusters across regions. However, a limitation of the multi-re
gion cluster approach is that it overlooks specific inter-industry linkages that may exist in
particular regions. The region-specific cluster approach instead focuses on a single re
gion to measure industry and firm interdependencies and define the region’s clusters.
Studies vary greatly in their industry coverage, type of economic unit (industry, technolo
gy class, or firm), regional unit, and method. The majority of studies focus on particular
clusters and rely on existing organizations, industry directories, and other primary data
collection and bottom-up approaches to identify clusters (e.g. Allen and Potiowsky’s
(2008) work on Portland’s Green Building cluster). They can offer rich detail on the firms
and institutions within particular defined clusters, but are less appropriate for comparing
clusters across regions.
One conceptual limitation to using region-specific approaches to defining clusters is that

they are based on observed linkages in a single region and therefore can be myopic
(Bathelt et al., 2004; Maskell and Malmberg, 2007). Activities that are absent or weak in
the region (e.g. industries and technology classes) are classified as unrelated to the other
activities in the region. Thus, region-specific cluster definitions may exclude complemen
tary industries that would be useful to the cluster. Furthermore, some region-specific
clusters can be ‘opportunistic’ and ad hoc without reflecting the comparative advantages
of the location. (p. 329)
Page 6 of 25
Figure 17.2 Strong IT and Analytical Instruments

Clusters in the U.S., 2011.
Notes: Economic areas (EAs) with a red star are clus

ters with dual specialization in terms of employment
and patenting (Delgado, 2016). An interactive map is
available at the U.S. Cluster Mapping Project. EAs
with high employment specialization in a cluster
meet these criteria: location quotient (LQ) of cluster
employment must be greater than the seventy-fifth
percentile (measured across all EAs with non-zero
employment in the cluster). Secondary criteria to dif
ferentiate marginal cases: LQ > 1 and share of na
tional cluster employment and establishments
greater than the twenty-fifth percentile. EAs with
high employment share in a cluster meet this criteri
on: share of national cluster employment must be
greater than the ninetieth percentile. EAs with high
employment specialization and share meet all of the
above criteria.
Complementarities between Benchmark and Region-specific

(p. 330)
Cluster Definitions
Benchmark and region-specific clusters can, however, be complementary. Using cluster

analysis, we could develop new tools for assessing and scoring region-specific clusters
against benchmark clusters. We could, for example, assess how different the region-spe
cific cluster is from the benchmark cluster, and why. Such differences may exist because
the cluster is defined based on a particular technology versus a broader set of linkages,
or because it has emerged in the intersection of various clusters. Understanding these
differences is an important area for future research.
Similarly, we should be assessing cluster organizations and other institutions for collabo
ration. The European Cluster Observatory lists thousands of cluster organizations—that
is, collective efforts by firms, public entities, and other institutions to improve the com
petitiveness of specific regional clusters (Sölvell et al., 2003). One recent example is the
proliferation of water-related cluster initiatives. They use different terminologies and ‘wa
ter cluster’ definitions: the ‘water economy’, the ‘blue economy’, the ‘ocean economy’,
‘water security’, ‘water technology’, and so on. The lack of proper methods for assessing
cluster organizations can result in terminological and policy confusion and to less effec
Page 7 of 25
tive inter-firm collaborations. A cluster organization will be successful only if it is embed

ded in an actual regional cluster (Ketels and Protsiv, 2013). Thus, it is important to define
and map clusters properly in order to be able to shape them. Future research could exam
ine what types of governance, network structures, and incentives (e.g. competitions and
prizes) in cluster organizations might be more effective in helping member firms to iden
tify innovation and collaboration opportunities (Boudreau et al., 2011; Murray et al., 2012;
Ketels and Protsiv, 2013).
Clusters and Regional Performance

Cluster theory suggests that agglomeration economies arise across related industries and
firms (Marshall, 1920; Porter, 1990, 1998). The bulk of the cluster literature uses detailed
case studies for particular regional clusters to examine this theory (see e.g. Marshall,
1920; Porter, 1990, 1998; Swann, 1992; Saxenian, 1994; Bresnahan and Gambardella,
2004).
In Delgado et al. (2014), we developed a novel empirical approach to evaluate cluster the
ory more systematically using a comprehensive set of narrowly defined industries that are
mapped into clusters for all regions. If cluster agglomerations matter, then regional in
dustries located within strong clusters will grow faster. This work moves beyond the tra
ditional dichotomy of agglomeration forces: localization (increasing returns to activities
within a single industry) and urbanization (increasing returns to diversity at the overall
regional level). Instead, we examine agglomeration economies that arise among related
industries co-located in a region.
Using Porter’s (2003) benchmark cluster definitions, we find that agglomeration

economies exist: industries participating in strong clusters (i.e. those with high relative
employment presence in related industries) grew faster in terms of employment, entre
preneurship, (p. 331) and innovation (Delgado et al., 2010, 2012, 2014). Importantly, these
positive effects are not driven by random groupings of industries (unrelated diversity),
but rather by the presence of a set of co-located and related industries.7
These cluster-driven agglomerations matter for the growth of existing industries and for
the creation of new industries, and they arise in different channels: across related indus
tries within a cluster; across related clusters (e.g. between financial services and insur
ance services); and across the same cluster in neighbouring regions. These agglomera
tion benefits are not confined to the subset of manufacturing industries or high-technolo
gy industries, which are the focus of many relevant studies (see e.g. Feldman and Au
dretsch, 1999; Glaeser and Kerr, 2009).
In more recent work, I use the newly available set of cluster definitions (BCD) to evaluate
the role of clusters in two additional dimensions of performance: resilience to economic
shocks and inclusive prosperity in cities.
Page 8 of 25
Most policy prescriptions designed to mitigate shocks stress the need for diversification
across industries to avoid that shocks propagate across related firms. However,
economies of agglomeration can arise in strong clusters, and they could be at work dur
ing a recession and alleviate the effects of shocks. Whether clusters are vulnerable or re
silient to shocks is an important empirical question (Delgado and Porter, 2015). We find
that industries participating in strong clusters with other related (upstream and down
stream) industries registered more resilient employment growth during the Great Reces
sion (2007–09); and business-to-business linkages within clusters were a relevant channel
of resilience. The economic resilience of firms and regions thus remains a fertile area for
future research. In particular, understanding resilience in innovation and entrepreneur
ship; the types of inter-firm networks that matter more for mitigating the effects of
shocks (e.g. suppliers with many buyers versus suppliers with a long-term interaction
with a single buyer); and the long-term evolution of clusters and regions (Boschma,
2015).
Finally, there is increasing concern about the uneven distribution of economic growth and
wealth within cities. More than 10 per cent of the US population lives in inner cities (i.e.
parts of the city with concentrated poverty and high unemployment rates). To examine
the role of clusters in inner city development, Delgado and Zeuli (2016) use unique data
sets from the Initiative for a Competitive Inner City and the USCMP. We map clusters into
the inner city and the surrounding city (e.g. the relative employment presence of the per
forming arts cluster inside and outside the Detroit inner city). We find that agglomeration
economies do occur in inner cities and improve job creation. These externalities arise
both within an inner city cluster and across the same cluster in the inner city and its
nearby city. Thus, inclusive prosperity could be facilitated with policies to connect inner
city businesses into city clusters. Unfortunately, how to best connect inner cities (and rur
al areas) to city clusters remains poorly understood.
What Attributes of Clusters Matter More for Performance?
Prior studies have found that various types of economies of agglomeration may arise
within clusters; these include input–output linkages, access to demand, labour occupation
linkages, and knowledge linkages (Marshall, 1920; Porter, 1990, 1998; Glaeser and Kerr,
2009; Ellison et al., 2010; Delgado et al., 2014; among others). Which types of (p. 332) ag
glomerations matter more, and the specific mechanisms involved, are important topics for
research. The answer to these questions might depend on the performance dimension un
der consideration (job growth, innovation, entrepreneurship, resilience to shocks, inclu
sive prosperity). Two locational attributes that have been the focus of an active debate
are discussed next: the co-location of innovation and production capacity and the pres
ence of suppliers.
Co-location of Innovation and Production Capacity in Clusters

Researchers, policymakers, and business leaders are increasingly concerned that the geo
graphical separation of innovation and manufacturing might limit the subsequent capaci
ty of a location to innovate, and thus increase the vulnerability of firms to shocks (e.g. im
Page 9 of 25
port competition and economic crises). This concern relates to the active debate in the
economic and strategy literature on the role of co-location of innovation and production
on the performance of regions and their firms (see e.g. Dertouzos et al., 1989; Pisano and
Shih, 2012; Ketokivi and Ali-Yrkkö, 2009; Porter and Rivkin, 2012; Berger, 2013; Delgado
et al., 2014; Delgado, 2016).
Prior studies have found that manufacturing and (especially) innovation are each geo
graphically concentrated (Feldman, 1994; Audretsch and Feldman, 1996; Audretsch,
1998; Alcacer, 2006). However, the geographically bounded complementarities between
these two activities are not well understood. Theory predicts benefits from co-locating in
novation and production in industries where the manufacturing process is not standard
ized (Vernon, 1966; Duranton and Puga, 2001). A few industry studies yield findings con
sistent with this theory (e.g. Pisano (1997) and Alcacer and Delgado (2016) for biophar
maceuticals, and Fuchs and Kirchain (2010) for optoelectronics).
In a study that uses a comprehensive set of industries (Delgado et al., 2014), we find that
industries participating in clusters with dual strength in innovation (patenting) and pro
duction (employment) grew faster in terms of innovation. This suggests that co-location of
innovation and production matters for subsequent innovation and facilitates a broad set
of linkages, including input–output linkages and knowledge spillovers. Thus, innovation in
a region is better understood in the context of co-located industries and firms that are
connected by many types of linkages (Marshall, 1920; Porter, 1998; Delgado et al., 2016).
This finding is in contrast to studies that focus on knowledge (patenting) linkages as the
only driver of innovation.
The importance of co-locating innovation and production may vary across clusters and in
dustries depending on many factors, such as their maturity (Duranton and Puga, 2001),
the modularity of the value chain (Baldwin and von Hippel, 2011), and the existence of
technologies and managerial practices that facilitate the separation of R & D, design, and
manufacturing (Fuchs and Kirchain, 2010; Fort, 2011; Tripathy and Eppinger, 2013).
In a first step towards understanding these differences, in recent work I examine what
US clusters have greater dual specialization in innovation (patenting) and production
(employment), and how these co-location patterns have changed over time (Delgado,
2016).8 Using the USCMP database, I compute the correlation between regional cluster
strength in employment and patenting across regions for many cluster categories to build
a new measure of the extent of co-location of production and innovation in clusters (re
ferred to as (p. 333) Dual Specialization Correlation (DSC)). The US clusters with high
DSC include Information Technology and Analytical Instruments; Communications Equip
ment and Services; Aerospace Vehicles and Defense; Automotive; Medical Devices; Oil
and Gas Production and Transportation; and Marketing, Design, and Publishing.
While meaningful co-location of innovation and production in regional clusters exist, and
it holds for many cluster categories, I find important changes over time in co-location pat
terns for specific clusters. One of the clusters with a large decline in dual specialization in
the 2000s is Information Technology and Analytical Instruments. This cluster category is
Page 10 of 25
the top one by number of patents in the US (more than 30% of all patents), and had one
of the largest DSC scores in 2011. The large DSC of this cluster is illustrated in Figure
17.2. For example, the top-five regional clusters by employment specialization also have
high patenting specialization (i.e. the Boise City–Nampa, ID; Seattle–Tacoma–Olympia,
WA; San Jose–San Francisco–Oakland, CA; Burlington–South Burlington, VT; and Austin–
Round Rock, TX economic areas). Although the DSC is high, it has declined greatly rela
tive to 1998, in part, because of the increase in the number of clusters with production
strength but weak patenting (e.g. Madison–Baraboo, WI, or Dayton–Springfield–
Greenville, OH). If strong clusters in terms of production fail to improve their innovation
strength in the future, they may experience low growth. Similarly, IT and Analytical In
struments clusters with single innovation strength (e.g. New York–Newark–Bridgeport,
NY–NJ–CT–PA) may find their ability to grow limited (Pisano and Shih, 2012; Delgado et
al., 2014).
We need to understand why the co-location of innovation and production can weaken over
time, and what the implications are for firm and regional performance. An optimistic an
swer is that some production and innovation linkages become less geographically bound
ed and can be implemented successfully across distant locations. A worrisome answer is
that regional clusters are losing key suppliers of high-tech inputs, reducing their produc
tion and innovation capacity. I discuss the crucial role of suppliers in clusters in the next
section.
Business-to-Business Interactions in Clusters

Suppliers can be important for agglomeration economies to arise in a location, and, in
particular, for fostering innovation and entrepreneurship (Chinitz, 1961; Pisano, 1997;
Porter, 1998; Helper et al., 2000; Glaeser and Kerr, 2009; Agrawal et al., 2014). When
suppliers are clustered together and near their buyers, they can create agglomeration
benefits through shared pools of skills, technologies, knowledge, and specialized inputs.
But, who are the suppliers? Most prior work defines suppliers as manufacturers of inter
mediate goods. Instead, Delgado and Mills (2016) offer a more appropriate definition of
suppliers that includes producers of both intermediate goods (e.g. microprocessors) and
services (e.g. software). We introduce a new categorization that separates supply-chain
industries (i.e. those that sell their goods and services primarily to other businesses or
governments) from business-to-consumer (B2C) industries (i.e. those that sell primarily to
personal consumers). For example, engineering services and biological product manufac
turing are supply-chain industries. Most of the firms operating in these industries will be
suppliers (i.e. sell mainly to other businesses or to the government).9
We find that supply chain industries compose a surprisingly large segment of the
(p. 334)
economy. Even more importantly, there are many suppliers of traded services (e.g. ac
counting, finance, marketing, design, logistics, and R & D services): four times as many
traded supplier firms in services than in manufacturing. Thus, studies of the role of sup
Page 11 of 25
pliers in regional and firm performance should take into account suppliers of both goods
and services.
There are significant differences between supply-chain industries and B2C industries in
terms of wages, labour pools, and innovative activity. Supply-chain industries pay higher
wages, have a larger relative presence of Science, Technology, Engineering, and Mathe
matics (STEM) occupations (especially suppliers of traded services), and account for most
of the patenting activity in the USA. They also benefit more than B2C industries from be
ing located in a strong cluster (Delgado and Porter, 2015). This further suggests that
proximate business-to-business interactions are a particularly important mechanism for
agglomeration benefits.
Which Firms Benefit More Within a Cluster?

To answer this question properly, we need to take into account the interaction between
firm and regional attributes. The mere existence of cluster agglomerations does not mean
that all firms within the cluster will benefit. In fact, unless firms differentiate themselves
in their competitive strategies, they will be more likely to fail in clusters (Porter, 1990,
1998; Sorenson and Audia, 2000). Clusters could facilitate the adoption of operational ef
fectiveness (i.e. dissemination of best practices in the industries) setting the productivity
bar higher and making the need for strategic positioning even more important (Porter,
1996, 1998). Some firms choose to locate and collaborate in clusters (see e.g. Saxenian,
1994; Porter, 1998; Helper et al., 2000), but others may avoid clusters to prevent their
knowledge to spill over to competitors (see e.g. Shaver and Flyer, 2000; Alcacer and
Chung, 2007).
Few papers have examined the role of external agglomerations on the performance of a
firm and its establishments systematically (e.g. Jaffe et al., 1993; Feldman, 1999; Hender
son, 2003; Moretti, 2004; Bloom et al., 2012). Many papers consider a firm as a single
unit and identify the location of its headquarters as the relevant region. This assumption
can be very limiting as many firms have multiple domestic (and global) locations and their
spatial organization is linked to their strategy and performance.
A small but growing literature in economics, international business, and strategy consid
ers how the benefits of agglomeration depend on attributes of the firm, as well as on at
tributes of their locations (Saxenian, 1994; Feldman, 1999; Mariani, 2002; Henderson,
2003; Moretti, 2004; Rosenthal and Strange, 2010; Alcacer and Chung, 2007, 2014; Alcac
er and Delgado, 2016; Lessard et al., 2016, among others). There can be key interactions
between the organization of the firm (start-up, multi-location, multinational, small or
large, specialized versus vertically integrated, corporate organization, etc.) and its ability
to extract agglomeration benefits from a location. One dimension of this work that has re
ceived more attention is the role of small firms in extracting and generating economies of
agglomeration. For example, Henderson (2003) finds that the extent of localization
Page 12 of 25
economies is larger for single-plant firms than for corporate plants, because the former
are more specialized and dependent on the external environment.
The Spatial Organization of Firms: Internal and External Ag

(p. 335)
glomerations
The location decision and performance of firms will depend on their portfolio of establish
ments and locations (see e.g. Dunne et al., 1988; Dunning, 1998; Alcacer and Delgado,
2016); therefore, multi-unit firms’ location strategies may differ from those of start-ups.
Clusters matter for the creation of start-ups because they generate externalities that re
duce barriers to new business creation (e.g. among others, Glaeser and Kerr, 2009; Delga
do et al., 2010). The attributes of the cluster (e.g. the presence of suppliers, buyers, skills,
and supporting institutions) where a start-up is born can play a particularly important
role in shaping its strategy and survival.
As firms grow and expand into new establishments, their location choices may be driven
not only by external agglomerations in clusters, but also by internal agglomerations (in
tra-firm linkages that are facilitated by proximity and improve firm performance). Firms
may choose to diversify geographically in multiple clusters to benefit from the competi
tive resources of each location (Enright, 2000; Bresnahan and Gambardella, 2004; Delga
do et al., 2010). Or, firms may choose to co-locate new establishments with existing ones
to facilitate intra-firm value-chain linkages. Examples of firm location decisions consistent
with internal agglomerations include Samsung’s co-location of R & D and manufacturing
in its Giheung Site in South Korea, Facebook’s new open-floor building in Menlo Park,
California, which holds thousands of people, and electric carmaker Tesla Motors’ plan to
build a ‘gigafactory’ in Nevada to produce all of its batteries.
As discussed earlier, a growing literature shows that geographical proximity between re
lated firms generates external agglomerations that improve performance, thus creating
incentives for co-location. However, less is known about the spatial organization of firms
and the role of same-firm geographical proximity as a driver of location choices and per
formance. The strategy literature emphasizes that links between activities in the value
chain are important for developing competitive advantage (Porter, 1996) and for innovat
ing (Cohen and Levinthal, 1990). To the extent that these interdependencies are weak
ened by distance, firms are likely to consider their existing geographical footprint as they
decide where to grow.
In Alcacer and Delgado (2016), we offer a novel framework that compares the role of in
ternal and external agglomerations in firm domestic location choices across different ac
tivities in the value chain (R & D, manufacturing, and sales). External agglomerations are
centrifugal forces that drive firms to disperse activities geographically in search of the
best clusters; and internal agglomerations are centripetal forces that drive within-firm co-
location. These two forces can complement or oppose each other depending on firms’ pri
or locations. They may work in the same direction when a firm is already located in a
strong cluster (e.g. Facebook in Silicon Valley), creating potential complementarities be
Page 13 of 25
tween internal and external agglomerations (Cohen and Levinthal, 1990). Yet, these
forces also can present firms with a trade-off: stay in a weak cluster to preserve intra-firm
links, or move some activities to a strong cluster.
We discuss five sources of internal agglomerations—geographically bounded, intra-firm

linkages that positively impact performance. Three of them are similar to those identified
by Marshall (1920) for external agglomeration economies but taking place within (p. 336)
firms: improved access to internal knowledge spillovers (Cohen and Levinthal, 1990;
Adams and Jaffe, 1996; Azoulay, 2004); specialized labour (e.g. R & D personnel that can
be shared across nearby research projects); and specialized inputs that could be accessed
more efficiently if the upstream and downstream facilities of a firm are co-located. Inter
nal agglomerations also arise because geographical proximity enhances firms’ ability to
control (Giroud, 2013; Kalnins and Lafontaine, 2013) and coordinate (Chandler, 1977;
Henderson and Ono, 2008) activities across the value chain.
These internal agglomerations may occur within activity and across-activities. For exam
ple, within-firm knowledge flows can be facilitated by same-firm R & D co-location (Van
den Bulte and Moenaert, 1998; Chacar and Lieberman, 2003) and by R & D and manufac
turing co-location (Adams and Jaffe, 1996; Pisano, 1997; Mariani, 2002). Thus, to examine
the role of internal and external agglomerations, we take into account the spatial organi
zation of all activities in the value-chain of firms. We find that both internal and external
agglomerations positively affect the US location choices of new establishments opened by
biopharmaceutical firms. Internal agglomerations vary by activity in the value chain. They
are larger for R & D and manufacturing than for sales. Same-firm co-location occurs both
within an activity (e.g. among plants) and across activities (e.g. between R & D and manu
facturing). Internal agglomerations also vary by type of firm expansion: they matter less
for the location of acquisitions than for new establishments.
Overall, the review of the literature suggests that both internal and external agglomera
tions can influence the location choices and performance of firms. Thus, firm perfor
mance models that fail to incorporate both intra-firm and inter-firm linkages in a location
can produce biased results.
Future Research to Integrate Economic Geog

raphy and Strategic Management
Porter (2000) strongly suggested that ‘geography and location must become one of the
core disciplines in management’. To date, the interaction between firm performance and
the attributes of locations has not been properly examined. Such work might help firms to
find the best strategic positioning in their locations in order to improve their comparative
advantage. This merger of economic geography and management represents a broad re
search opportunity.
Page 14 of 25
Improved Characterization of Locations and their Clusters
To help firms and regions decide how to compete and grow, one must properly character
ize locations and their clusters. While much progress has been made in defining and map
ping clusters, there are still important areas for improvement. Firstly, to better assess
why clusters matter, future work should examine the composition of firms and institutions
for collaboration within clusters (the presence of suppliers, start-ups, multi-location firms,
cluster organizations, etc.) and the nature of firm linkages (e.g. supplier–buyer links;
start-up–incumbent (p. 337) links; firm–university links; ownership links; labour flows; co-
patenting and co-publishing links). Firms’ and individuals’ socio-economic networks also
can play an important role in encouraging agglomeration economies to arise in a location
(Saxenian, 1994; Storper, 1995; Feldman et al., 2005; Dahl and Sorenson, 2012; Bell et
al., 2016). But these socio-economic links are difficult to observe, so very few studies ac
count for them.
Secondly, we need to take into account the presence in a region (and its nearby regions)
of related clusters that could foster between-cluster agglomerations (e.g. dual strength in
Information Technology and Medical Devices clusters). That would help us to better un
derstand the evolution of regions and their firms.
Thirdly, we need measures that capture innovation performance for all economic activi
ties in a region, including those with low patent intensity (e.g. many services). The per
centage of a firm’s sales owing to new product introductions captures innovativeness
(e.g. Feldman and Audretsch, 1999; Arora et al., 2014), but this indicator is not broadly
available across firms, locations, and over time. Recent studies have used attributes of
firms at birth (e.g. name, filing for a trademark, or place of incorporation) to predict the
real-time innovation potential of start-ups (Guzman and Stern, 2015). Another approach is
to use innovation inputs to proxy for the innovation potential of regions and firms. In par
ticular, the presence of STEM occupations in an industry can be used to evaluate its tech
nology intensity (Hecker, 2005). Regions specialized in clusters with higher STEM con
tent will likely be better able to innovate. More broadly, the science of innovation, which
includes the development of analytical tools for assessing the innovation potential of a lo
cation and its firms, is an important area for future research (Feldman et al., 2012; Guz
man and Stern, 2015).
The Interaction Between Location and Firm Strategy and Perfor

mance
A firm’s context includes geographically bounded intra-firm and inter-firm linkages (inter
nal and external agglomerations). Both types of linkages can play a role in firms’ location
choices and performance (Alcacer and Delgado, 2016).
The location decisions of firm activities are interrelated: for example, the location of firm
R & D may be influenced by the presence of same-firm R & D, manufacturing, sales, and
support activities. In order to help firms choose where to grow, we need comprehensive
theoretical and empirical frameworks that take into account the relationships between
Page 15 of 25
activities in the value chain, the relevance of internal and external agglomerations, and
the fact that agglomerations may vary by the type of firm expansion (growth within exist
ing establishments, opening new establishments, and acquisitions).
Research that isolates internal and external agglomeration mechanisms is another desir
able direction for future work. Shocks to firms and their locations (e.g. economic crisis,
natural disasters, or re-allocations of anchor firms) and policy changes might provide an
opportunity for researchers to identify these mechanisms.
The interaction between location and firm performance also depends on industry attribut
es. The maturity of an industry can influence firms’ ability to exploit agglomerations (e.g.
Duranton and Puga, 2001; Dumais et al., 2002). Industries also can differ in their degree
of (p. 338) modularity (Baldwin and von Hippel, 2011), and affect the extent and types of
agglomerations. Firms in industries with higher modularity (e.g. automotive) can more
easily break the value chain across locations. Future work should examine these industry
dynamics.
The life cycle of firms may influence location choices too. Firm locational needs can be
different at birth than in later growth stages (e.g. when firms diversify into new prod
ucts). The place of birth of start-ups is not random. Strong clusters are important for the
birth and growth of startups (Delgado et al., 2010). As firms get larger, the extent of in
ternal and external agglomerations may vary. Research that explores the evolution of the
spatial organization of firms since birth would improve our understanding of firm perfor
mance.
In particular, we could examine how the strategy and performance of start-ups relate to
location attributes. A start-up born in a cluster with innovation strength but lacking pro
duction strength may need to define a different strategy than a start-up born in a cluster
with dual strength (Gans et al., 2016). The successful strategy would take into account
the potential trade-offs between breaking the value chain in different locations for R & D
and production in order to exploit external agglomerations versus co-locating same-firm
value-chain activities to exploit internal agglomerations (Alcacer and Delgado, 2016).
The definition of the location of birth of a start-up is also an open research question.
Some studies identify the location where the start-up has the first paid employee (e.g.
Delgado et al., 2010). Other studies focus on earlier stages and consider the place of reg
istration of the start-up (e.g. Guzman and Stern, 2015). Recent work shows that the birth
place of entrepreneurs and inventors also can influence their subsequent choices in the
technology and geographical space (Dahl and Sorenson, 2012; Bell et al., 2016). Under
standing the life cycle of start-ups and inventors could inform policies for fostering inno
vation and entrepreneurship.
Finally, firms’ spatial organization will depend on management practices that facilitate in
tra-firm and inter-firm interactions, even with geographical separation. These include out
sourcing practices, labour mobility practices, monitoring and control practices, and infor
mation and communications technology investments (see e.g. Baldwin and von Hippel,
Page 16 of 25
2011; Fort, 2011; Tripathy and Eppinger, 2013; Lessard et al., 2016). The role of location
on performance can change as firms expand across regions and globally. Multi-location
firms are more likely to have the managerial capabilities and communication technology
to break their value chain across locations; thus, they may benefit more from participat
ing in multiple clusters. As the value chains of firms and their clusters become global, the
consequences for the performance of particular clusters and their firms are unknown,
and will depend on the complementarities or substitution among the intra-regional, inter-
regional, and transnational linkages (Chacar and Lieberman, 2003; Bathelt et al., 2004;
Ketels and Memedovic, 2008; Beugelsdijk et al., 2010). Future work should examine the
interaction among the spatial organization of firms (within and across nations), manage
ment practices, and firm performance.
Acknowledgements
Special thanks to Maryann Feldman, and to Gordon Clark, Meric Gertler, and Dariusz
Wójcik, for the invitation to contribute to the New Oxford Handbook of Economic Geogra
phy and for their great feedback. I am grateful for insightful comments by Juan Alcacer,
Rich Bryden, Christian Ketels, Myriam Mariani, Scott Stern, Michael Porter, Jane
(p. 339)
Wu, Samantha Zyontz, and participants in the The 4th Global Conference on Economic
Geography, School of Geography and the Environment and the Smith School of Enter
prise and the Environment, at the University of Oxford.
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Notes:
(1.) Many cluster definitions have been generated by researchers and practitioners based
on both approaches and using alternative economic units (industry, technology class, or
firms). See Cortright (2006) and Delgado et al. (2016) for a review.
(2.) See Rosenthal and Strange (2004), Cortright (2006), and Carlino and Kerr (2015) for
a review of economies of agglomeration studies.
(3.) A detailed explanation (and Stata codes) to derive the BCD is offered in Delgado et al.
(2016).
(4.) Some studies identify the geographic boundaries of a given cluster by examining the
spatial density of businesses for particular industries (Duranton and Overman, 2005) or
the density of patents for particular technology classes (e.g. Kerr and Kominers, 2010; Al
cacer and Zhao, 2013). The goal is to identify locations with a high density of economic
activity in a particular field that will facilitate inter-firm connections and externalities.
(5.) The USCMP is an initiative supported by the Economic Development Administration

of the U.S. Department of Commerce. The BCD, underlying data, and additional resources
can be accessed at the USCMP portal (http://clustermapping.us/).
(6.) The BCD have been mapped into European regions by the European Cluster Observa
tory (http://ec.europa.eu/growth/smes/cluster/observatory/) and into the regions in Cana
da and Mexico.
(7.) Cluster strength is conceptually similar to the notion of ‘related variety’ introduced
by Frenken et al. (2007) as strong clusters often include an array of related industries
versus specialization in a single narrowly defined industry. An important empirical differ
ence is that Frenken et al. (2007) classify industries in manufacturing and services as un
related, but clusters can include both types of industries (Porter, 2003; Delgado et al.,
2016).
(8.) As the measure of innovativeness used is patenting activity, the analysis is focused on
thirty-five US cluster categories with meaningful number of patents.
Page 24 of 25
(9.) Using the 2002 U.S. Benchmark Input–Output Account of the Bureau of Economic
Analysis, they identify as supply-chain industries those that sell less than one-third of
their output to personal consumption expenditures.
Mercedes Delgado
Mercedes Delgado ([email protected]) is a Senior Lecturer at the MIT Sloan School

of Management, and the Research Director and Research Scientist of the MIT Inno
vation ↵Initiative Lab for Innovation Science and Policy. She also serves as Senior As
sociate at the Institute for Strategy and Competitiveness at Harvard Business School.
Delgado’s research focuses on the relationship between the regional business envi
ronment and the performance of firms, regions, and countries. She examines the role
of regional clusters in job creation, innovation, entrepreneurship, and resilience. In
recent work she explores the interaction between the spatial organization of firms,
their location choices through the value chain, and firm performance. Delgado has
published articles in top economic, policy, and strategy journals. She recently served
as a lead researcher on the U.S. Cluster Mapping Project.
Page 25 of 25
The Logic of Agglomeration

Gilles Duranton and William Kerr
This chapter discusses frontier topics in economic geography as they relate to firms and
agglomeration economies. The chapter focuses on areas where empirical research is
scarce but possible. The chapter first outlines a conceptual framework for city formation
that allows us to contemplate what empiricists might study when using firm-level data to
compare the functioning of cities and industries with each other. The chapter then exam
ines a second model of the internal structure of a cluster to examine possibilities with
firm-level data for better exposing the internal operations of clusters. An overwhelming
theme of the review is the vast scope for enhancements of our picture of agglomeration
with the new data that are emerging.
Keywords: agglomeration, clusters, cities, innovation, spillovers
Introduction
A core topic in economic geography is agglomeration economies, where cities and clus
ters of activity boost the productivity of firms located within them. Conceptual rationales
date back to Marshall (1890), and theorists have done a remarkable job of formalizing
and codifying these concepts, as reviewed by Duranton and Puga (2004) and Behrens and
Robert-Nicoud (2015). The empirical literature has been slower to develop, however, es
pecially as it relates to the role of firms in agglomeration forces. Most early studies on ag
glomeration economies focused on measuring the wage premiums paid to urban workers,
which was quite natural given the ready availability of person-level data collected
through population censuses. While these data and studies could speak to the existence
of agglomeration economies, they were inadequate for identifying channel(s) through
which agglomeration economies percolate and how they shape behaviour. Said different
ly, the higher wages paid in larger cities could have descended equally from several dif
ferent forms of firm and worker interactions. This was not just a loss for our academic de
scription of the world—without knowing, for example, whether agglomeration forces are
Page 1 of 22
arising as a result of knowledge flows or better-matching externalities, practical advice

for policy and business leaders is limited.
The most important advance for empirical research on agglomeration economies over the
last two decades has been the development of firm- and establishment-level data sets of
economic activity. These data have opened up the possibility of quantifying the role of
firms in agglomeration economies and the productivity boost that large cities and clusters
provide. Moreover, they have allowed the advent of new lenses for studying these ques
tions: for example, continuous distance measures of geographical concentration (e.g. Du
ranton and Overman, 2005), estimations of productivity spillover decays within cities (e.g.
Rosenthal and Strange, 2004, Arzaghi and Henderson, 2008), firm selection mechanism
and productivity (e.g. Combes et al., 2012), and dynamic perspectives that include firm
entry and exit (e.g. Dumais et al., 2002; Klepper, 2010; Glaeser et al., 2015). Alongside
has been the (p. 348) development of complementary data sets for observing the actual in
teractions of workers and firms (e.g. employer–employee data, patents, and citations).
These data have also encouraged the measurement of the exchanges that we believe un
derlie the agglomeration economies—for example the many studies using patent citations
to measure local knowledge spillovers following Jaffe et al. (1993)—and recent efforts
have started to unite these with detailed firm location data.
This chapter reviews two conceptual frameworks and proposes some interesting ways in
which new micro-level data can advance our understanding of the models. Our first
framework, in the next section, considers the formation of cities as the equilibrium out
come of benefits to firm agglomeration in cities against the growing cost of living that
larger cities endure (e.g. land scarcity, congestion, pollution). This work pulls from Duran
ton (2008), and we use this lens to describe useful ways that firm-level data in rich and
developing economies can advance our insights into the differences across cities in these
economic forces. Our second framework, the section ‘Structures of Interactions within
Cities’ is a conceptual model of interactions within a given cluster that pulls from Kerr
and Kominers (2015). We describe through this lens the very nascent work on local inter
actions of firms and workers and how they give rise to agglomerative clusters. This is an
area where we anticipate large advances will occur over the next two decades as we
break open the black box of internal cluster dynamics and the relationships that define
agglomeration economies.
There are two large boundary conditions for this piece. Firstly, we only cover these two
topics of interest out of a sea of opportunity. For example, firm-level studies of how multi-
unit firms interact with local agglomeration economies versus internally sourced re
sources are woefully few in number (e.g. Tecu, 2012; Alcacer and Delgado, 2013). Like
wise, a better understanding of how clusters interact with each other across countries
and the role of multinational firms is critical for today’s global interconnectivity (e.g. Sax
enian et al., 2002; Alfaro and Chen, 2014). Other examples include the extensive margin
of employer–employee relationship (e.g. spinouts and entrepreneurship), the implications
of firm-level market frictions like financing constraints for agglomeration, and so on. Se
condly, our review does not contain many references, and space constraints require that
Page 2 of 22
we be equally stingy towards the classics and towards recent contributions. We focus
here just on ideas related to firms and these two frameworks. Previous and contempora
neous reviews contain much more extensive documentation (e.g. Feldman, 2000; Au
dretsch and Feldman, 2004; Duranton and Puga, 2004, 2014; Rosenthal and Strange,
2004; Feldman and Kogler, 2010; Carlino and Kerr, 2015; Combes and Gobillon, 2015).
Finally, and most importantly, while we conclude in this piece that new data and fresh
thinking have opened up many exciting research opportunities regarding agglomeration
with firm-level data, it is important to emphasize that a mountain of data is never a sub
stitute for a convincing research design. Agglomeration is a very complex process that in
volves trade-offs and equilibrium outcomes, and the best empirical progress in this field
comes when researchers identify a razor-sharp way to cut through this complexity and
identify causal relationships. We mention this upfront, so that we don’t have to endlessly
repeat the warning throughout the review! We will make the most progress when these
big opportunities are met with the right methodologies.
Differences in Agglomeration Across

(p. 349)
Economies
We begin with a framework that depicts the formation of cities as an outcome of produc
tivity benefits, cost factors, and labour supply/migration decisions. Duranton (2008, 2014)
fully develops this framework with implications and examples that we do not repeat here,
and earlier developments of this conceptual framework are contained in Combes et al.
(2005). This framework visually describes the key elements of a literature dating back to
Henderson (1974) and even earlier on the fundamental factors that influence city size and
composition.
Figure 18.1 shows the three curves that are central to this framework. In both parts of
Figure 18.1, the horizontal axis measures city size or possible labour supply as given by a
population, N. The upper part of Figure 18.1 first shows the wage/productivity curve
w(N). Models of agglomeration feature an upward-sloping wage curve where increases in
a location’s economic activity boost the productivity of firms in the city or cluster and the
wages that they pay. As noted in the ‘Introduction’ section, this relationship has been em
pirically shown in many different settings and time periods. In the original formulation of
Marshall (1890), agglomeration forces were expressed in terms of customer–supplier in
teractions, labour pooling, or knowledge exchange. Duranton and Puga (2004) provide a
more theoretically amenable framework that emphasizes the sharing, matching, and
learning processes of cities. Many classic studies have isolated features of these agglom
eration economies, such as Helsley and Strange (1990), Porter (1990), Saxenian (1994),
and Audretsch and Feldman (1996).
Underlying these collocation benefits is the ability of firms to ship and sell their products
on larger markets. An intuitive example is Hollywood. The spatial concentration of the
movie production industry allows many productivity gains—for example better matching
Page 3 of 22
of actors and actresses to specific parts, the emergence of specialized law firms that sup
port the entertainment industry, the development of schools to train employees in prima
ry and supporting roles—with all production studios ultimately serving and competing in
a global market for the best movies and largest global audiences.
The top panel also shows a cost curve, H(N). Costs are also rising with city size. This as
pect of agglomeration can be forgotten at times by academics—to the extent that they
adopt a ‘more is always better’ view of clustering—but is very evident to those living in
large cities. These costs come with higher rents and transportation costs, greater conges
tion, and perhaps environmental degradation (e.g. air pollution). Simply put, prices on
Wall Street in New York or Sand Hill Road in Silicon Valley are extraordinary. In addition,
the price of consumption goods may rise or fall with city size, depending upon the out
come of higher input prices versus potentially greater competition and diversity in large
cities. As reviewed in greater detail by Duranton (2014), the cost curve is significantly
less studied than the wage curve.
Subtracting the cost curve from the wage curve, one determines a net benefit for w(N)–
H(N), as shown in the lower half of Figure 18.1. This benefit is initially rising in city size
as the early productivity benefits from larger city size dominate cost increases. After
point B, these net benefits decline. To determine the stable size of a city, one must further
specify how (p. 350) labour supply responds to the net benefits that a city provides (taken
to be through migration to the city for simplicity). The figure presents a case where
labour responds with some elasticity to higher net benefits, but that labour is not perfect
ly mobile (which, absent amenities, would be a horizontal line at a given net benefit level
owing to the spatial equilibrium). (p. 351) The stable equilibrium that forms will be at
point C. The fact that the city is larger than what maximizes net benefits is commonly ob
served.
Page 4 of 22
Figure 18.1 Agglomeration and City Formation.
Notes: Figure represents the conceptual model of Du

ranton (2008) for the formation of cities. The horizon
tal axis measures city size as given by a population N.
The upper part shows a wage/productivity curve w(N)
that is increasing a location’s economic activity as a
result of agglomerative forces. The top panel also
shows a cost curve H(N) that is similarly growing
more acute in city size. Subtracting the cost curve
from the wage curve, one determines a net benefit
for w(N)–H(N), as shown in the lower half of the fig
ure. This benefit is initially rising in city size as the
early productivity benefits from larger city size domi
nate the cost increases. After point B, these net bene
fits decline. Through migration, labour supply in
creases to a city with rising net benefits. The stable
equilibrium that forms will be at point C.
There are many possible avenues for comparative analyses across cities using firm-level
data that we can illustrate with this model. (There are also many interesting questions
that go beyond firm-level studies, but we focus on these opportunities exclusively given
the emphasis of this review.)
As a starting point, we may investigate how the wage/productivity curves of cities are in
fluenced by micro-interactions within clusters. The framework makes a reduced-form con
nection of the upward-sloping wage curve owing to productivity benefits, which is cer
tainly observed in wage relationships. Yet we have collected very little evidence that
quantifies the different agglomerative mechanisms in the background, especially in a
comparative form across cities. Likewise, we have few studies that attempt to discern the
quantitative roles of candidate explanations and assign importance. The explosion in firm-
level data offers great promise here.
Page 5 of 22
Take, for example, the rise of employer–employee datasets that follow both workers and
firms over time. In principle, one should be able to use these datasets to describe how
well workers and firms are matched to each other. That is, controlling for the cost curve,
does one observe improvements in employer–employee matching that are commensurate
with differences in city sizes? As a second example, many studies look at knowledge flows
in local areas as an agglomerative rationale. Work in this line can turn towards tracing
out how knowledge-intensive firms accrue different benefits with larger cities that make
them more productive. Alternatively, the mobility of workers of workers may also act as a
vehicle for local spillovers (Serafinelli, 2014). What part of the wage curve slope comes
from a greater volume of ideas, more timely access to the latest ideas, the diversity of
ideas circulated, and similar features?
Taken a step further, empirical work can also assess how firm production functions
change with city size. Within the same industry, for example, some production models
have stronger dependency on the complementary matching of team members, similar to
the O-Ring model of Kremer (1993). The theory posits that the success of a group de
pends deeply of the strength of its weakest member. Such models may be more likely to
emerge in the largest cities, given that a deeper labour pool can allow for better choices
across all of a team’s needs, and thereby provide added curvature to the wage/productivi
ty relationship. Anecdotally, for example, joint recruiting of complete teams on Wall
Street across investment banks seems quite common, and Silicon Valley now talks about
‘acqui-hiring’, where start-ups are acquired mostly for their start-up teams rather than
developed technologies. In a similar spirit, multi-unit firms place their headquarters fre
quently in larger cities, which could be, in part, due to this complementarity across top
management team functions.
Greater city size can also shape the industrial organization of the cluster, perhaps giving
steepness to the wage curve. Fallick et al. (2006) describe how high-velocity labour mar
kets in clusters can facilitate a modular production structure. At the start, many small
firms compete to identify the best idea or design, and then in the second stage the win
ning firm rapidly scales by hiring employees from the losing firms. This can speed innova
tion and create design improvements, if the labour market conditions and modular pro
duction design features are evident. Fallick et al. (2006) provide some evidence for this
industrial organization in the computer industry in California, which echoes the anecdotal
accounts of Saxenian (p. 352) (1994). More systematic assessments of how city size
changes industrial organization is most warranted and feasible with firm-level records.
Greater availability of new data, including data from previously under-represented re
gions, allows us to take a wider view and examine variations in clusters worldwide. Most
empirical work on the subject considers advanced economies, but there are many firm-
level datasets for developing and emerging economies that are coming into widespread
use. Duranton (2014) reviews the higher elasticities for the wage curve in China and In
dia compared with advanced economies, and there is heterogeneity in outcomes among
advanced countries. Further refining these cross-country comparisons will help identify
how economic development gaps emerge from an agglomeration perspective. These may
Page 6 of 22
be connected, for example, to the limited scaling of productive plants in India and Mexico
compared with the USA that is identified by Hsieh and Klenow (2014).
Moreover, developing and emerging economies may provide interesting insight into the
model overall to the extent that their settings and institutions isolate some features from
others. Local infrastructure, for example, is quite deficient in many poor countries and
the subject of massive investments by national governments and international organiza
tions. Many efforts are being made to upgrade these facilities, which can allow for real-
time analysis of firm behaviour as investments are being made, so long as a suitable con
trol group can be identified. Many studies are pursuing such angles in Brazil, China, and
India, and so on for highways and railroad access (Redding and Turner, 2015). As the
bulk of these investments for the USA came before the collection of firm-level datasets,
the delayed start in other countries provides a unique advantage for ‘before and after’
views of the role of infrastructure for individual firm choices (e.g. input sourcing) and for
overall distributions of firm outcomes.
Similarly, developing economies face many challenges that are mostly absent in advanced
countries. Three examples include dual-housing markets (e.g. squatter housing without
legal property rights), inefficient migration, and city favouritism, and Duranton (2008,
2014) traces out some of the conceptual implications from these three factors. To the ex
tent that these factors isolate some features—for example, city favouritism can be
thought of as raising the wage curve of the primal city without impact on actual firm pro
ductivity—we can learn more about the function of agglomeration and city formation gen
erally in a specialized laboratory.
At the same time, this framework has applications to related areas of economic research,
including questions of interest to policymakers and business leaders. As one example, it
can help to illuminate the role that migration plays in the development of clusters.
The labour supply curve plays an important role in governing the degree of equilibrium
net benefits in cities. Many urban models feature a spatial equilibrium with full mobility
that pins down the same net benefits across all cities, described, for example, in Glaeser
(2008). Deviations from this framework can provide an interesting range of labour supply
responses. Constraints on internal migration in some countries (e.g. the Hukou system in
China) may severely limit the ability of locations to expand, or push this expansion into
non-optimal forms like secondary labour markets. The extra-legal nature of these migra
tions may place constraints on how much firms can take advantage of agglomeration
economies that would otherwise emerge. Related, progress has been made in India for
how organized sector firms tap into the unorganized sector that surrounds them through
subcontracting relationships (e.g. Mukim, 2015).
At the other end of the spectrum, many immigration systems allow firms to
(p. 353)
choose locations for workers who are legally tied to the employer. In the USA, for exam
ple, most skilled immigrants hired for employment come through the H-1B temporary visa
programme or are an intra-company transfer under the L-1 visa programme. In both cas
es, employees are effectively assigned geographical locations while they are on the visa.
Page 7 of 22
This has the interesting implication of allowing firms to overcome some of the limits im
posed by the labour-supply curve in this conceptual framework. Indeed, Kerr and Lincoln
(2010) and Ruiz et al. (2012) describe how US immigration visas are used by firms in loca
tions where they struggle to acquire labour resources, in addition to the better-known
cases of high-tech clusters. Linking firm-level data with immigrant employee traits may
afford opportunities to learn about the limits locations place on firms by evaluating the
workarounds that firms seek.
As another example, firm-level data sets have opened up new possibilities for the study of
clusters and entrepreneurship, which is often viewed as a central driver for city growth.
Recent examples of this work include Chinitz (1961), Michelacci and Silva (2007), Glaeser
et al. (2010), Delgado et al. (2010), Behrens et al. (2014), and Glaeser et al. (2015), and
yet, some big open areas remain for study.
Firstly, there are two views of entrepreneurship supply across regions. One view is that
entrepreneurs are very mobile and move across cities to opportunities. This is surely the
right perspective for very high-growth entrepreneurship like that observed in Silicon Val
ley. A second view is that entrepreneurs are very sticky and local in nature, such as the
Chinitz (1961) depiction of differences in entrepreneurial supply across US cities due to
their industrial legacies. This is most likely the right depiction for the lowest end of work,
as the ‘local bias of entrepreneurship’ studies observe. Behind these two models are some
very natural and intuitive economic forces like effective market size, the importance of lo
cal connections for business sales or financing, winner-take-all dynamics, and similar. Sili
con Valley is home to a special cluster of consumer–Internet firms given the very high ag
glomeration benefits in this industry, while cement manufacturing sits at the opposite end
of the spectrum. What we have yet to discern is the relevant ranges of industries over
which these two models operate—where do we tip from a local dynamic and sticky places
to a world of specialized clusters?
Secondly, and somewhat building on the modularity point described above, Glaeser et al.
(2015) identify how industrial dynamics differ in cities and clusters with a strong entre
preneurial base. Entrepreneurship does not yield city growth through an endless replica
tion of small firms, but instead links to local employment growth through an up-or-out
scaling process that scales up the best new entrants to become the largest employers in a
city. This line of work is very young, however, and needs much greater empirical attention
with firm-level data. This scaling relationship and the entrepreneurial supply functions
depicted earlier will have first-order implications for whether the wage/productivity curve
takes a common shape across cities or is very heterogeneous as a result of differences in
industrial structures.
A final important feature of this literature is the depiction of why industries move across
locations and the implications for the cities that house them. Duranton and Puga (2001)
describe how product and technology maturity leads industries to move out of expensive
nursery cities towards cheaper locations. In other work, Duranton (2007) formalizes a
model of city evolution that has industry movements across cities related to breakthrough
Page 8 of 22
inventions at its core, and Kerr (2010) provides some empirical evidence along the lines
(p. 354) of this model in terms of patenting behaviour. Panel datasets on firms are starting
to be of sufficient time dimension for firm-level analyses to provide additional insights

about these dynamics. Likewise, faster product cycles are allowing more rapid observa
tion of these movements.
Obviously, this section can only provide a partial list of possible topics for future re
search, as the abundance of new kinds of data has opened up countless ways to extend
this model of city formation. The view of cities as a consequence of the competing bene
fits and costs that arise from clustering behaviour has existed for decades in one form or
another, and we now have the chance to flesh it out further by illuminating some of the
underlying mechanisms or extending the model to new settings.
Structures of Interactions Within Cities

We next turn to the internal structure of agglomeration economies for cities and the im
plications for firms. For this exercise, we use the theoretical framework of Kerr and
Kominers (2015). This model and its empirical applications have roots in the observation
that most micro-level studies of how workers and firms interact (e.g. commuting patterns,
patent citations) show a much shorter geographical distance of interaction than the actu
al footprint of cities and clusters. Said differently, commuting patterns tend to twenty
miles or less, but agglomerations for labour pooling appear to stretch much farther. While
perhaps obvious, a second line of work—such as Rosenthal and Strange (2001, 2003), Du
ranton and Overman (2005, 2008), and Ellison et al. (2010)—finds that regional-based ap
proaches for measuring agglomeration forces yield seemingly quite reasonable and infor
mative depictions for how agglomeration forces influence cluster size. For example, these
studies tend to find that technology- or knowledge-based clusters appear smaller and
more tightly knit than agglomerations building upon labour pooling or customer–supplier
connections, despite examining data that are orders of magnitude larger than the under
lying forces believed to cause the cluster. This is true when using political boundaries
(e.g. counties vs. states) or continuous distance (e.g. 100 vs. 500 miles).
The Kerr and Kominers (2015) model conceptualizes how these two empirical pieces can
be reconciled through a theory of small, overlapping regions of interaction visualized in
Figure 18.2. There is a set of sites for businesses that is shown by the dots. Firms enter in
sequence and without foresight, and the set of potential sites is fixed. Sites with black
dots have already been chosen by firms, and the light dots are sites available to the next
entrant. Each firm participates in the cluster by interacting with neighbours that fall
within a maximal spillover radius, indicated by the dashed circles. The network to which
the firm is connected by its neighbours can have arbitrary amounts of benefit transmis
sion for the baseline model. The maximum spillover radius has a limited and defined
boundary due to fixed costs of interaction that exceed a decaying benefit to interaction at
some point.
Page 9 of 22
This model pictures large-area clustering that arises as a result of small, contained inter
action effects that overlap each other. Two important points follow. Firstly, the introduc
tion of fixed costs and defined effective spillover boundaries yields interesting and
testable (p. 355) predictions regarding the internal structure of clusters that we discuss
later. This framework makes clear why the short-distance interactions that we measure
with commuting flows or patent citations are different from the distances that we consid
er with region-based data. As we trace out, this model can start to identify many useful
lines of inquiry regarding firms and agglomeration going forward.
Figure 18.2 Internal Structure of Clusters.
Note: Image illustrates the Kerr and Kominers (2015)

theoretical framework for the formation of an ag
glomeration cluster due to small, contained interac
tion effects among firms that overlap each other.
Secondly, the model provides a rationale for why multiple clusters form. In our simple il
lustration, the next entrant is indifferent among available sites, including sites X, Y, and
Z, because none of the remaining sites is within reach of the populated cluster. In other
words, clusters fill up, and this marginal entrant will choose randomly among the remain
ing available sites and start a new cluster. This foundation provides a basis for compara
tive statics of spillover radius size and cluster structure. Consider, for example, a second
agglomerative force that has a longer maximal spillover radius than what is shown in Fig
ure 18.2 because the second force has a slower rate of benefit decay (or a lower fixed cost
of interaction). Such a model would increase the size of the circles in Figure 18.2 and
transform site X into the strictly preferred next location because it can participate in the
existing cluster with a longer radius. The full model formally traces out how a longer
maximal radius results in fewer, larger, and less-dense clusters. Thus, we can use the
shapes and sizes of clusters to back-out the micro-forces beneath them.
From this launching point, Kerr and Kominers (2015) test the broader model predictions
by measuring how far apart patents in thirty-six technologies tend to be from each other
when they cite each other in their patent filings, a measure of the spillover radius for
each technology. Some technologies like semiconductors use very localized networking,
while others exhibit much longer spatial horizons. Using estimates from the USA and the
Page 10 of 22
UK, they show that technologies with shorter effective interaction distances exhibit small
er and denser clusters.
Kerr and Kominers (2010) contains an extensive analysis of technology and work
(p. 356)
er flows for Silicon Valley, an iconic agglomeration that is composed of overlapping tech
spaces. We select a couple of these pieces to illustrate the model in greater depth and
provide some new research ideas about the internal structure of clusters. Walking
through a couple of detailed maps will help us visualize the concepts that follow.
Figure 18.3 describes the construction of the technology core for Silicon Valley. Looking
across the entire San Francisco Bay Area, the core of Silicon Valley includes the top-ten
zip codes in terms of patent filings and eighteen of the top twenty-five. Figure 18.3(A)
shows the three most important zip codes—for each, the zip code is indicated with the
star, and the other three points on the connected shape are the three zip codes that the
focal zip code cites the most in its patent filings (Hall et al., 2002). On average, these
three external zips contain 41 per cent of local external citations for a zip code. Figure
18.3(B) does the same for the top-ten zip codes. The primary technology sourcing zones
for these zip codes in the core are also fully contained in the core, even though we have
made no restrictions in design and these sourcing zones could have been included any
where in the San Francisco Bay Area. These zones are small, overlapping regions, and in
the next map, we represent the core as a shaded triangle whose longest side is twenty-
five miles in length.
Figure 18.4 shows the seven largest zip codes for patenting that are not contained in the
core itself (#12, 13, 17, 19, 22, 24, 25). The Silicon Valley core depicted in Figure 18.3 is
represented on this larger map as the shaded triangle. Similar to Figure 18.3, the shape
of each technology sourcing zone is determined by the three zip codes that firms in the
focal zip code cite most in their work. For visual ease, San Ramon and Santa Clara are in
dicated on the edge of the map at the location of their primary transportation route.
Downtown San Francisco and Oakland, CA, are to the north and off the map.
As observed for the core, these technology zones are characterized by small, overlapping
regions. The three zip codes that are labelled with numbers are three of the four largest
zip codes for patenting in the San Francisco Bay Area that are outside of the Silicon Val
ley core. Zone 1, which covers Menlo Park, extends deepest into the core. Zone 2, for
Redwood City, CA, shifts up and encompasses Menlo Park and Palo Alto but has less of
the core. Zone 3, which covers South San Francisco, further shifts out and brushes the
core. None of the technology sourcing zones traverses the whole core, much less the
whole cluster, and only the closest zip code (Menlo Park) even reaches far enough into
the core to include the area of Silicon Valley where the greatest number of patents are is
sued. While technology sourcing for individual firms is localized, the resulting cluster ex
tends over a larger expanse of land.
There are many possible avenues for further research that we can illustrate with this
model.
Page 11 of 22
One line of investigation addresses structural variations within a cluster. A comparison of

Figures 18.3 and 18.4 suggests that the cluster’s structure in the Silicon Valley core may
be different from what exists at the periphery. Both areas show localized interactions, but
the core exhibits great overlap among these regions in Figure 18.3 that resembles the
density around site C in the illustration in Figure 18.2. By contrast, the periphery in Fig
ure 18.4 shows overlapping zones that resemble the A–B–C structure of sites in Figure
18.2. The baseline model is mostly agnostic about these features and to whether each lo
cation only derives benefits from the locations that it directly touches versus all members
of the cluster benefiting equally. Nonetheless, stronger empirical and theoretical depic
tions of how this networking exists, how it is priced into wages and locations, and so on,
is first order. Arzaghi and Henderson (2008) provide some characterization with advertis
ing agencies in Manhattan, (p. 357) (p. 358) and Rosenthal and Strange (2003)
comparatively estimate production function decays in several industries. Kemeny et al.
(2015) further describe the central role of dealmakers and social capital in local areas.
The availability of firm-level data with detailed geographical coding provides many oppor
tunities here.
Figure 18.3 Tech Sourcing in Silicon Valley Core.
Notes: Figure describes the construction of the tech

nology core for Silicon Valley. The core includes the
top-ten zip codes in the San Francisco Bay Area for
patenting and eighteen of the top twenty-five. For
each zip code, we present a technology sourcing
zone that depicts the three zip codes that the firm in
the focal zip code cites the most in their patent fil
ings. (a) The three largest patenting zip codes and
their sourcing. (b) Top-ten zip codes. While unre
stricted in design, the primary technology sourcing
zones are all contained in the core. These zones are
small, overlapping regions that often exhibit direc
tional transmission.
On a similar note, it may also be possible to determine a relationship between the types
of interactions within clusters and the shapes of the zones that arise. Technology spillover
zones are directional in nature. Our depictions of sourcing zones are unrestricted in the
sense that the three most important zip codes could lie in any direction from the focal zip
code. In Figures 18.3 and 18.4, however, the technology sourcing zone almost always lies
within a ninety-degree arc from the focal zip code. This pattern is very strong at peripher
al locations, as there is a general flow of information or knowledge from the Silicon Valley
Page 12 of 22
core to Redwood City and Palo Alto, and then further to South San Francisco, and so on.
Even within the tightly knit core itself, the zones are remarkably lop-sided.
Figure 18.4 Tech Sourcing Around Silicon Valley.
Notes: Figure continues to characterize technology

flows for the San Francisco area. The Silicon Valley
core depicted in Figure 18.3 is represented on this
larger map as the shaded triangle. The Silicon Valley
core contains eighteen of the top twenty-five zip
codes for patenting in the San Francisco area. This
figure includes the seven largest zip codes for
patenting that are not contained in the core itself.
Similar to Figure 18.3, the shape of each technology
sourcing zone is determined by the three zip codes
that firms in the focal zip code cite most in their
work. For visual ease, San Ramon and Santa Clara
are indicated on the edge of the map at the location
of their primary transportation route. As observed
for the core, these technology zones are character
ized by small, overlapping regions that exhibit direc
tional transmission.
(p. 359) Kerr and Kominers (2015) also analyse the commuting patterns of scientists and
engineers using IPUMS data. Commuting patterns tend to be more diffuse, and as a con
sequence the zones of interaction around labour inputs into firms appear significantly
less directional. Visually, one is more likely to see workers for a firm commuting in equal
measure from all sides, compared with technology sourcing that tends to be concentrated
in one direction. These issues need to be traced out further, both in terms of how they re
flect the nature of agglomeration forces (e.g. the pooling nature of labour inputs) and
how they then affect the overall structure or operations of resulting clusters. The interac
tions between incumbents and entrants also deserve greater attention (e.g. Combes and
Duranton, 2006).
Expanding on this theme, there is a surprising gap in our knowledge about how skyscrap
ers affect the structure of interactions. Naturally, tall buildings allow greater density for a
given land area, but do they do more by adding a third dimension to local structures? This
Page 13 of 22
is unlikely to affect patenting and technology firms, which tend not to locate in the core of
urban areas, but it could be central to the functioning and organization of very high-end
financial and professional service firms like Wall Street. Observing heavy levels of ag
glomeration that occur within a single large building, versus across nearby skyscrapers,
may signal the relative importance of different types of agglomerative forces (e.g. knowl
edge sharing versus labour pooling). Many cities have imposed and later removed maxi
mum building heights, allowing models of these forms to be tested empirically with firm-
level data.
Shifting focus a bit, this model can also be extended to include the impact of physical fea
tures on clusters and their constituent firms. For example, the background to Figure 18.4
demonstrates the roles of geographical features (e.g. mountains, protected land) and
transportation routes (e.g. highways, bridges). These forces substantially govern how the
peripheral zones access the core of cluster. While not shown for visual reasons, these
same features also play an important role in the technology flows evident in the core of
Silicon Valley. These connections between local infrastructure and firm-level interactions
are quite understudied and yet important for local policy and business choices. Agrawal
et al. (2014) provide a recent contribution on roads and knowledge flows within cities
that signal this importance. Moreover, new tools now exist for measuring travel time and
associated costs that can translate spatial distances into real terms and account for con
gestion. For example, Google Maps reports that the expected lengths of time needed to
drive across the three labeled technology zones in Figure 18.4 are comparable, which
may indicate the length of the sourcing zones is determined more by interaction costs
rather than true spatial distance.
Similarly, the model has straightforward extensions that allow for fixed natural advan
tages that firms also want to access. These could be traditional natural advantages (e.g.
harbours, coal mines) or ‘manmade’ advantages like universities, military bases, or state
capitols. We have the capacity now to understand better how MIT’s location affects the
biotech community that surrounds it in Kendall Square and, in turn, the broader Cam
bridge and Boston communities.
We can also examine more closely the detailed ‘inner workings’ of clusters and the con
cerns of individual firms. An important theme throughout this work is the breaking up of
a city or cluster to recognize that all firms do not automatically participate equally in ben
efits. At one level this is obvious, but it is remarkable how little our existing work factors
in where (p. 360) in a cluster a firm is located. Moreover, recent studies emphasize the dif
ferences in locations within clusters for women-owned firms and their networking bene
fits (e.g. Rosenthal and Strange, 2012, Ghani et al., 2013), and an extensive literature de
scribes similar or worse segmentation on racial lines. This segmentation means excluded
groups receive unequal benefits from the cluster. Chatterji et al. (2014) describe policy is
sues related to this and other micro-cluster perspectives related to entrepreneurship and
innovation.
Page 14 of 22
New firm-level data also allow the study of entry and exit, with one major theme of recent
empirical work being the high degree to which we observe entry and exit coinciding with
each other in local areas. Said differently, while rapid long-term growth may favour entry
over exit in a cluster, the bigger take away from the data is that some areas are very dy
namic, with lots of entry and exit, while others are less so. These features deserve greater
attention. Moreover, entry and exit might allow more advanced statements about the at
tractiveness of places. Our simple model highlights the important information contained
in the location decisions of marginal entrants, which, in principle, could be observed
through panel data. Pricing theory emphasizes the valuable information contained at the
margin, and some of these insights could be applied to the study of clusters if researchers
fully learn how to harness firm dynamics in local areas.
On the management front, scholars can use new data to study how the location choices of
individual firms affect their performance. This is challenging, of course, given that loca
tion choices are intimately connected with business models and strategies, as reviewed in
the MBA course material of Kerr and Brownell (2011) and Kerr et al. (2011). A starting
point is to note that (i) benefits differ across firm types for each location; (ii) costs are
mostly generic as landlords tend to rent property for the rental prices regardless of
tenant’s industry; and (iii) managers have limited knowledge about all of these features.
Thus, one should find differences in performance depending upon the quality of site cho
sen for a particular business. More speculative, the presence of directional flows like the
technology zones in Figure 18.4 open up the possibility for asymmetry over short dis
tances—whether a firm locates in the path of flows from the cluster core towards an im
portant periphery point may make a meaningful difference in the frequency and quality of
interactions the firm makes, even holding fixed the distance from the core and the overall
density/prices of the area selected.
Finally, while much of this discussion in this chapter focuses on clusters formed by firms
within the same industry, a fruitful area for future investigation is the clustering behav
iour of firms in multiple industries. Recent research emphasizes the important degree to
which firms in related industries interact (e.g. Ellison et al., 2010; Faggio et al., 2014) and
theoretical constraints on the degree to which these joint location decisions are well
aligned (e.g. Helsley and Strange, 2014). There seems to be an unlimited scope for empir
ical advancement in this regard, and we note three pieces here. Firstly, Jacobs (1970) and
Duranton and Puga (2001) describe how local industrial diversity can give rise to new in
dustries, and micro-data on firms provide deep scope for advancing our understanding of
nursery cities and this cross-fertilization process. Secondly, several studies describe the
particular importance of supplier industries for entry choices following Chinitz (1961), in
cluding Helsley and Strange (2002) and Glaeser and Kerr (2009). With new data, one
should be able to follow the material flows along these lines. Finally, models of entrepre
neurship often depict founders as picking up a varied, ‘jack of all trades’ background (e.g.
Lazear, 2005), which can be studied in local areas using employer–employee data and
movements of future founders across firms.
Page 15 of 22
(p. 361) Conclusions

The advent of micro-level data is a boon to our understanding of agglomeration
economies. In the short time since data like the Census Bureau’s Longitudinal Research
Database first became available, researchers have fleshed out a much richer portrait of
economic geography. Likewise, many European countries now have tremendous data re
sources for studying these issues given the depth of personal and firm-level information
available. As a consequence, firms are no longer anonymous and in the background, but
are instead playing a central role in our modern depictions of the internal workings of
cities and the differences over locations. The future promises to be as bright with the de
velopment of new employer–employee datasets, the linking of micro-data like patents to
the establishment-level records in administrative datasets, and the known and unknown
tools that big data may shortly provide to researchers.
The two conceptual lenses that we developed in this review highlight the massive oppor
tunity for empirical research that lies ahead. We won’t repeat here the tactical ideas pro
vided within this chapter, but instead circle back to two broader themes. Firstly, agglom
eration is fundamentally an equilibrium outcome where firms and workers weigh benefits
against costs. Theoretical models in this regard are quite well developed, and there is a
valuable tradition in this field for a heavy interplay of theory with empirics. Thus, empiri
cists can and should use theory to identify interesting conceptual topics that exist but
have little empirical foundation. In some cases (e.g. matching externalities, infrastructure
impacts), new and forthcoming data are already opening up exciting research opportuni
ties. In these cases, our main hope is that researchers craft empirical work into frames
that match theory (e.g. measuring commuting time costs vs. simple distances). We also
hope that researchers make more use of powerful computing resources and estimation
procedures to shed light on higher-order and non-linear effects, beyond the standard lin
ear models. This curvature in treatment effects is central for our understanding of ag
glomeration, as Figure 18.1 shows, but poorly measured to date.
In other cases, the development of new data remains a priority and one that should be
valued by the profession. To us, three issues are paramount. Firstly, we need a better un
derstanding of how agglomeration operates in large cities that are full non-manufacturing
firms. This requires getting beyond patent data to measure knowledge spillovers, and it
demands greater attention to the economics of skyscrapers. Secondly, we need to think
harder about global interconnections and how this impacts clusters and firms in different
countries. Agglomeration fundamentally connects into trade of outputs, and this does not
stop at national borders for goods or services. In the theme of this chapter, the natural
starting point here is richer work with multinational firms and the operations of their
many establishments. Finally, the urbanization of the developing nations is one of the
biggest issues facing the world over the next decade. We are woefully behind on under
standing how agglomeration is similar or different in these places, which is a first-order
concern given that our existing insights are being used to define policies here and now!
We are very hopeful that in twenty years, we will look back on many studies that devel
oped new data for clusters outside of the developed world, harnessed real-time variation
Page 16 of 22
in the emergence and growth of these economies to garner insights that advanced
economies cannot reveal given their long-standing development, and delivered a deep
and beneficial policy impact.
Finally, we reiterate that a mountain of data does not equal insight. For insight to
(p. 362)
be realized, these new data sets must be paired with strong and convincing research de
signs. At this point, the usefulness of the clever ‘natural experiment’ to study these issues
is well understood (e.g. Bleakley and Lin, 2012), and we hope that more of these empiri
cal gems are unearthed. We also think the great research promise in many developing na
tions is to design interventions to facilitate future rigorous programme evaluation. Yet,
the real trade-off is not between unfounded correlations and the perfectly random shock.
For important topics, we need to figure out the best ways to continually raise the empiri
cal bar, recognizing the dual need to identify causal relationships and also acknowledge
the equilibrium nature of these forces makes it very hard. We also need to learn to take
better advantage of the insights that global data and research can provide. For example,
we have good data for countries at many points along the spectrum of income inequality
(e.g. very compressed Nordic structures to the USA and beyond). There appears to be a
good opportunity to learn through these global similarities and differences by embracing
more meta work across places.
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Page 21 of 22
Gilles Duranton
Gilles Duranton ([email protected]) is the Dean’s Chair in Real Estate

Professor and the Chair of the Real Estate Department at Wharton, University of
Pennsylvania. He has published several key articles on urban and transportation is
sues, and his recent work examines urban growth and the effects of transportation
infrastructure on urban development and the evaluation of local policies. His theoret
ical research concerns the distribution of city sizes, the skill composition, and sector
ial patterns of activities in the cities. He is also co-editor of the Journal of Urban Eco
nomics and the Handbook for Regional and Urban Economics, as well as an editorial
board member of several other journals.
William Kerr
William R. Kerr ([email protected]) is Professor of Entrepreneurial Management at

Harvard Business School. His research focuses on how companies and economies ex
plore new opportunities and generate growth. He has published articles, book chap
ters, and case studies on the subjects of entrepreneurship, innovation and growth,
agglomeration forces and cluster structures, and global online labour markets. His
recent project, Entrepreneurship Reading: Launching Global Ventures, offers in
sights into how young global ventures design their business models and some of the
resource constraints and opportunity costs that they face. He is the editor of the
Journal of Economic Geography and a member of the editorial board for the Journal
of Urban Economics.
Page 22 of 22
Network Geographies and Geographical Networks: Co-dependence and Co-
evolution of Multinational Enterprises and Space
Network Geographies and Geographical Networks: Co-

dependence and Co-evolution of Multinational Enter
prises and Space
Simona Iammarino and Philip McCann
The main analytical and multidisciplinary frameworks adopted for understanding the
multinational enterprise (MNE) have tended to be largely non-spatial and non-geographi
cal in nature. Although there have been some recent developments incorporating geogra
phy into the analysis of the of MNE studies the longstanding and widespread absence of
geography in MNE studies leads to analytical problems. In particular, in the investigation
of MNE operations and their interactions with different economic actors and contexts, the
use of typical dichotomies, such as home versus host, horizontal versus vertical integra
tion, and determinant versus impact, today prove to be much less effective or relevant
than might previously have been the case. More specifically, the fundamental geographi
cal and institutional re-orderings associated with modern globalization mean that nowa
days we see increasingly co-dependent and co-evolutionary corporate and geographical
networks. Understanding these is essential in order to understand the new international
division of labour.
Keywords: multinationals, geography, organization, knowledge, innovation
Introduction
THIS chapter discusses some of the dramatic changes taking place in the relationship be
tween multinational enterprises (MNEs) and geographical space, highlighting implica
tions for both theory and empirical research. Over the last few decades, geographical
specificity at the sub-national and subregional level has become increasingly important
for the strategy, organization, and performance of MNEs, and, in turn, MNEs have be
come progressively more significant for local and regional economic development (Iam
marino and McCann, 2013). Such a bilateral and mediated relationship, in principle valid
for any kind of business firm, is particularly important and effective in the case of multi
national firms. In the modern phase of globalization MNEs have experienced much faster
Page 1 of 20
and deeper transformations than other firm types (i.e. small- and medium-sized or large
multi-plant uni-national firms) owing to their bridging role across diverse geographical,
technological, and institutional systems.
The growing interdependence of geographical specificity and MNE behaviour and organi
zation has rendered problematic some of the theoretical constructs traditionally applied
in international economics and business studies of MNEs, and at the same time poses se
rious challenges for empirical investigation. In order to understand such difficulties and
to better grasp the contemporary geographical features of multinational firms, it is neces
sary both to reflect on the traditional models and to update them in the light of the cur
rent realities. This (p. 367) is the aim of this chapter, which is divided into six sections.
The next section discusses the substantial absence of geographically specific characteris
tics in the main analytical multidisciplinary framework of MNE studies. ‘The Dichotomies
Host versus Home and Determinant versus Impact’ highlights the limitations that have
arisen with respect to the use of typical dichotomies such as home versus host and deter
minant versus impact in the investigation of MNE operations and their interactions with
different economic actors and contexts. ‘The Dichotomy Horizontal versus Vertical Inte
gration’ revises the distinction between horizontal versus vertical integration of corporate
activities across geographical and institutional boundaries, and argues that different geo
graphies have emerged in relation to new types of firm integration. As a result, the di
chotomy hierarchy versus network has lost most of its contrasting power, as both are
forms of governance of production and innovation simultaneously applicable at the corpo
rate and spatial level. This is discussed in ‘The Dichotomy Hierarchies versus Networks
and the Interdependence Between MNEs and Geographical Space’, which highlights the
increasing co-dependence and co-evolution of corporate and geographical networks and
hierarchies in the international division of labour. The final section offers brief concluding
remarks.
MNEs and Space: The Theory and the Real

World
For now almost four decades the eclectic Ownership–Location–Internalization (OLI) para
digm—originally formulated by John Dunning (e.g. 1977, 1981) and subsequently updated
and adapted by Dunning himself (e.g. 2001, 2009) and a number of other scholars—has
provided a broad analytical framework for examining both the growth of multinational ac
tivity and its changing patterns over time. The OLI paradigm has had the capacity to ac
commodate and compare different major economic, business, and managerial theories
aimed at explaining ownership (O) advantages, that is, why firms become multinational;
location (L) advantages, that is, where firms go to internationalize their activities; and in
ternalization (I) advantages, that is, how firms carry out their multinational experience. In
spite of the criticisms that the OLI has encountered regarding its explanatory power, it
has consistently been demonstrated that the approach is still suitable for interpreting the
Page 2 of 20
complexity of MNE expansion, particularly in a historical perspective (e.g. Dunning 1995,
2001; Cantwell and Narula, 2001).
In contrast, the OLI paradigm’s ability to integrate effectively both micro- and macro-per
spectives of the MNE phenomenon does not translate well when we look at the issue of
geographical space. The reason for this failure does not reside only in the OLI itself, but
also in the limitations of the main theories that are subsumed into the paradigm. In ef
fect, although strongly micro-founded, both traditional economic theory, with its focus on
international production and product/market dimensions, and the international business
and management literature, which concentrates on the business firm, have mostly treated
geography at a highly stylized and unspecific macro-level. This is typically that of the
country, if not of the macro-region or in some cases even of the continent. Geography has
therefore been intended as an international geography rather than as a subnational space
(McCann and (p. 368) Mudambi, 2004) in which geographical issues are treated primarily
in terms of MNE affiliates or subsidiaries being located either in a home or parent coun
try versus being in a foreign or overseas country. Moreover, the definition of what is un
derstood as being home or foreign is largely treated as being independent of scale, such
that a foreign country could be either small or large. While some papers and some re
search programmes within international business sought to deal with these issues in a
more detailed manner and to provide more nuance on these issues than others, the basic
fact remains that the traditional notion of geographical space within economics and inter
national business studies tends to be vague and undefined, and it does not go beyond sim
ple locational definitions of being located on either one side or the other of a national bor
der.
The substantial absence of any actual geography in the international business literature
ironically parallels the criticisms made by international business scholars of both the so-
called new trade theories and the new economic geography (NEG) with respect to their
largely abstract treatment of space (see e.g. Dunning, 1998; Buckley and Ghauri, 2004;
Ietto-Gillies, 2012). Yet, one of the main merits of the basic NEG framework has been the
demonstration of the critical tensions which exist between cores and peripheries, reviving
academic interest in the atavistic contrast between central and more marginal regions,
and the role that firm location plays in these tensions. Some seminal work in economic
geography (e.g. Audretsch and Feldman, 1996; Feldman, 1996), which partly builds on
and also extends the issues raised by NEG models, addresses the crucial role of knowl
edge flows across space, and the extent to which the location of firms also shapes how
these flows are themselves subject to core and periphery patterns. These issues have sub
sequently become central themes in the research agendas of urban economics, regional
science, and economic geography, and international business has recently been striving
to make an impact on these research progresses.
Part of the explanation for the surprising delay in acknowledging the role of space in
MNE behaviour lies in the fact that most of the international economics and business em
phasis has been on either the macroeconomics of international production or on the char
acteristics of the internal processes of the firm. Prior to the advent of the modern era of
Page 3 of 20
globalization in the early 1990s, both of these lines of enquiry were motivated primarily
by historical contingency (Dunning, 2001), in the sense that the priorities of foreign in
vestment decisions made by MNEs were perceived as being far more related to national
and international differences than to regional (sub-national) heterogeneity. Even more
fundamentally, the theory of the MNE has developed along the lines of a sharp distinction
between firms, as organizations subject to centralized control, and markets, treated as
environments characterized by independent actors engaged in full arm’s length transac
tions. Although both of these lines have deeply evolved over time and remain theoretical
ly valid and useful in today’s economic analysis, they also still represent the major con
straints to the full integration of a real spatial dimension within the study of MNEs. In
deed, it is not accidental that the criticisms to the traditional organizational dichotomy
market versus hierarchy, and the elaboration of more relevant heuristic models incorpo
rating the network as the prevailing form of economic coordination in contemporary eco
nomic systems, have used geographical specificity to illustrate the power of the network
governance (e.g. Powell, 1990).
Among the first generation of scholars involved in developing the early classical model of
the MNE, both Stephen Hymer and Raymond Vernon are crucial contributors, being the
first two commentators implicitly or indirectly aware of the long-run evolution of the rela
tionships between multinational firm organization and economic geography. Vernon’s
(p. 369) notion of the product life cycle (Vernon, 1960, 1966), which has since played such
a key part in the international business literature, was originally understood as a phenom
enon operating at the sub-national level, in which core cities and regions played different
roles from peripheral regions (Vernon, 1959). Vernon understood that a close mapping
between technological and geographical structures was likely to be a natural outcome of
the investment choices that a multi-plant firm must make, and that this logic applied even
more to the MNE as a type of multi-plant firm. Meanwhile, Hymer’s (1970, 1972) vision
ary perspective was that the hierarchical geography of multinational headquarters and
knowledge activities will map closely on to the future global urban hierarchy, with higher-
order functions taking place in higher-order cities. Hymer’s long-run insight that there
must be a close mapping between organizational hierarchies and geographical hierar
chies is all the more remarkable given that, at the time of his writing, modern globaliza
tion as we understand it today seemed a distant and far-fetched notion.
These insights of Hymer and Vernon, linking technological, organizational, and geograph
ical hierarchies were largely overlooked in the international business literature during
the following three or four decades, with instead other intuitions by these two scholars
being afforded much greater significance. Given the historical context this is partly un
derstandable. Yet, even now after two decades of rethinking the role played by multina
tionals in economic geography, these key insights, and how they link to the current world
still remain largely underexplored (Iammarino and McCann, 2015).
Modern globalization, which began to emerge in the final years of the 1980s and the ear
ly 1990s, has been characterized by various key features (Iammarino and McCann, 2013).
Firstly, the share of developing and emerging economies on global foreign direct invest
Page 4 of 20
ment (FDI) inflows has grown steadily and, for the first time in history, accounted for
more than half of the world total in 2012, confirming a massive transformation in the
global geography of foreign investment (UNCTAD, 2013). Secondly, much of these flows
are characterized by cross-border mergers and acquisitions, as well as by greenfield in
vestments, and again some two-thirds of FDI inflows are in services, with the remaining
one-third involving manufacturing sectors. Thirdly, the majority of these cross-border
flows span neighbouring or even adjacent countries, rather than being genuinely global
transactions. The result is that groups of bordering economies are becoming ever more
integrated economically into what are known as global regions (Guy, 2015). Global region
alism is also characterized by a slicing up and recombination of global value chains, in
which establishments and groups of activities are unbundled (Baldwin, 2011), primarily
across groups of neighbouring economic systems. At the core of these global regions are
global cities, which house most of the power functions of large corporations (Iammarino
and McCann, 2015).
The nature and scale of modern globalization has been far beyond what anyone in the
1960s and 1970s could have imagined, but the ideas of Hymer and Vernon already
touched on the interdependence of global organizational, technological, and geographical
hierarchies in the long-run firm-geography trajectories. Much of the available real-world
evidence points to a growing importance of new types of structures and forms of econom
ic coordination which go well beyond the traditional distinction between the firm and the
market. These structures include networks, value chains, and quasi-market relationships
of various kinds that have grown exponentially in importance (Guy, 2009). Such massive,
profound, and ongoing changes have obviously affected both the nature and configura
tion of the OLI advantages and their interactions. Although the latter are very difficult to
disentangle (p. 370) bilaterally, we argue that the changes in the global institutional and
technological environment have had important repercussions for the balance of the
‘three-legged stool’ of the OLI (Dunning, 1998, 2009, p. 5), affecting, in particular, the
centrality of location and its interaction with both ownership and internalization advan
tages.
The Dichotomies Host versus Home and Deter

minant versus Impact
Ownership advantages (O-advantages) have been historically exploited largely via inter
nalization and vertical integration (I-advantages). Growing multinationality generates
new O-advantages through experience and capability accumulation, which can then be
exploited by both internal and external means (Castellani and Zanfei, 2004, 2006), giving
rise to positive cumulative causation mechanisms that reinforce such advantages. The
growing internationalization of one of the major, if not the primary, MNE O-advantages—
its technological competence and innovative capacity—has resulted in a renewed ques
tioning of the rather narrow role conferred upon MNE units (i.e. affiliates and sub
sidiaries) by Vernon’s highly influential product life cycle (PLC) model. The aim of redefin
Page 5 of 20
ing MNE units as key creators of innovation and technological knowledge was originally
suggested by Dunning (1970) and later developed by Cantwell (1989) and Fors (1998)
among others, building on the seminal work of Edith Penrose (1956, 1959). The MNE is
then defined as a bundle of productive resources and competencies—physical, human,
and technological—which are idiosyncratic to each specific enterprise and represent the
firm’s major competitive advantage.
Two of the major criticisms of the PLC explanation of international production have im
portant implications in geographical terms. Firstly, on the basis of the evolution of the
contemporary world economy, O-advantages are to be attributed to firms, rather than
countries, thus making the geographical origin of MNEs much less predetermined by the
national level. This point, seemingly captured in Vernon’s original framework, has been
highlighted by both regional economists (e.g. Taylor, 1986, 1987) and international busi
ness scholars (e.g. Cantwell, 1995), who attribute the limitations of the PLC model to an
inadequate conceptualization of both the firm and technological progress. Secondly, ob
servation suggests that agglomeration forces have attracted MNE activities—especially
high-value-added ones—to particular locations in both advanced and emerging
economies, thus making the geographical destination of MNEs progressively less depen
dent on purely cost-based and relative endowment considerations. Indeed, this latter ob
servation points precisely to the geographical specificity of knowledge O-advantages ac
quisition: capability and innovation accumulation processes are ever more reliant on
sources that are external to any single firm (however large and multinational it may be)
and are highly spatially situated (Storper, 1997, 2013).
Evolutionary views of technological change applied to MNE behaviour and strategy have
contemplated the interactions between O and L, providing grounds for some significant
advances in the field. O-advantages are increasingly dependent on the ability to explore
and select among a wide range of knowledge and innovation sources (e.g. Cantwell and
Iammarino, 1998, 2003; Cantwell and Piscitello, 1999). Mostly intangible L-advantages
are highly concentrated within specific regions, cities, and local systems, and contribute
to (p. 371) enhancing firm-specific O-advantages, which, in turn, strengthen those of the
many locations where the MNE is present. Thus, when competitive advantages are seen
through the lens of a fine-grained economic geography and perceived as simultaneously
firm-specific and place-specific, the host–home categories—mainly based on the direction
of FDI (Ietto-Gillies, 2012)—cease to be analytically useful. Instead, the sources of knowl
edge, both intra- and extra-firm, and the overall openness, or connectivity, of the firm
with its surrounding environment become far more relevant issues.
It is worthwhile to stress the difference between simple connectedness, defined in terms

of the architecture of transport and communications infrastructure, and the much broad
er concept of connectivity, which is a behavioural concept incorporating the capability of
individuals, organizations, and institutions to interact and engage across geographical
space and within networks. Connectivity emphasizes the degree of two-way (inward and
outward) openness of regions, and also of firms and actors there located, in terms of
many behavioural and organizational dimensions of knowledge connectedness. The iden
Page 6 of 20
tification of the MNE’s spatial behaviour is thus a result of complex interactions between
firm(s), industry, organizational, and knowledge characteristics. The simple nation-based
host–home dichotomy therefore becomes largely meaningless, particularly in relation to
knowledge flows. Indeed, core regions are those places where host and home actually
overlap to a great extent, and the direction of such flows is eminently bi- or multilateral.
The blurring of home/lending origin versus host/borrowing destination is even more rele
vant when looking at the economic impact of MNEs. As seen above, the major research
questions have focused on the determinants of MNE behaviour—that is, why, where, and
how firms become multinationals—and the OLI is by construction primarily a paradigm
for understanding the causes of multinationality. However, the effects of MNE operations,
although considered within the OLI, are undoubtedly not treated with the same systemat
ic approach. In the OLI framework, each particular activity performed across geographi
cal boundaries is seen as a consequence of the specific advantages of the MNE itself.
When it comes to the evaluation of the effects of MNEs, the centrality of the micro-level
as a unit of analysis is obviously less clear cut. The impact of MNE activity can operate si
multaneously at different levels: that of the firm, of the industry, of the region, of the
country and also of the global level. Trying to disentangle them has proved to be extreme
ly tricky, if not impossible. As Ietto-Gillies (2012) points out, the assessment of MNE ef
fects is intrinsically associated with the explanations of why, how, and where the multina
tional enterprise operates. The critical relevance of geographical specificity (the where
exactly?) has made it virtually impossible to separate the questions on the determinants
from those on the impacts of MNEs in relation to different actual places. For instance, the
examination of the growth effect of an MNE’s location choice on the firm itself is seen to
be a function of the number and variety of knowledge sources and accumulation that the
MNE derives from that particular region among many others. Similarly, the development
impact on the region in which an MNE locates depends on the number and variety of
knowledge exchanges between the MNE and the surrounding territory and its economic
actors, and particularly local firms (including other MNEs). Mutually reinforcing MNE–
environment knowledge exchange is to be two-way in order to foster sustained local
learning, innovation rates, externalities, and knowledge spillovers (Crescenzi et al.,
2015).
The major focus of the conceptual and empirical literature on the effects of MNEs has
been on localized externalities. The widespread difficulty of directly observing externali
ties, (p. 372) allied with a fuzzy notion of the L (e.g. Dunning, 1981, 1988; Blömstrom,
1989; Kokko, 1992; Lall, 1993), have largely limited the consideration of externalities to
one particular type and to only one direction, namely that of spillovers transmitted from
MNEs to the host location (e.g. Blomström and Persson, 1983; Blomström and Kokko,
1998; Javorcik, 2004; Javorcik and Spatareanu, 2008), disregarding the critical link that
goes from region-specific L-advantages to the growth of the MNE itself.
Recent empirical literature has suggested the need for a more comprehensive approach
in modelling the emergence of positive externalities as a two-way relationship, rather
Page 7 of 20
than as a unilateral pipeline. In this vein, a rediscovery of the role of domestic firms as
more than simply passive recipients of foreign capabilities and technologies has gained
momentum. The obvious problem arising here, which is particularly serious in empirical
research, is the inherent endogeneity of the causal relationship between MNE investment
and local firms’ innovation and growth. Some of these contributions have tried to deal
more efficiently with such concerns, either by taking advantage of the novel availability of
panel data or by controlling for the endogeneity of the regressor of interest (e.g. Ben
fratello and Sembenelli, 2006; Driffield, 2006; Haskel et al., 2007; Crespo et al., 2009;
Crescenzi et al., 2015). Conflicting results on the impact of MNEs may also stem from un
observed firm heterogeneity on both sides; however, this dimension has so far been quali
fied mainly with respect to MNE characteristics, while scant attention has been devoted
to domestic and localized firms’ features (Crescenzi et al., 2015).
Finally, the search for often unspecified spillovers in the economic literature has some
what hidden the effects of MNEs on capabilities development, particularly in developing
economies. One effective application of the OLI paradigm has been on development is
sues, through the concept of investment development path (IDP), always applied at na
tional or broader geographical scale (e.g. Dunning, 1981, 1988, 2001; Dunning and Naru
la, 1996; Narula, 1996). The main IDP tenet is that as a country develops, the configura
tion of the OLI advantages facing both MNEs and domestic firms changes, as do their in
teractions, eventually reversing the directionality of foreign investment. This is clear in
the recent impressive surge of outward FDI from developing and emerging locations.
All in all, the circularity unsolved by the traditional analytical categories—home versus
host, determinant versus impact—need to be addressed, both theoretically and empirical
ly, by future research efforts.
The Dichotomy Horizontal versus Vertical Inte

gration
What is also rather surprising is how the reciprocal interactions between internalization
and location have so far been almost entirely ignored. Instead, a major focus of theoreti
cal and empirical research has been on firm growth as a consequence of the increasing
intensity of ownership and internalization. This is particularly interesting if we take into
account the recent major transformation in corporate integration and organization.
Caves’s work (1971) was the first to introduce the groundbreaking distinction between
horizontal and vertical integration of MNE operations across national boundaries. Hori
zontal (p. 373) FDI (HFDI) implies the production of the same good or service produced at
home in a new foreign location, thus replicating identical production processes across
countries. Vertical FDI (VFDI) instead involves the shift abroad of some stages of the pro
duction process, either backward (upstream), forward (downstream), or both, thus frag
menting the MNE production process vertically across countries. Caves also allowed for
the possibility of MNEs carrying out foreign production that is neither horizontally nor
Page 8 of 20
vertically integrated, but of ‘conglomerate diversification’ (Caves, 1971, p. 3). In the case
of HFDI the ownership advantages are possessed by MNEs operating in industries char
acterized by oligopolistic structure and substantial product differentiation, and particu
larly those with the most considerable knowledge- or research-intensive activities. The
major advantages of VFDI relate to the structural features of the markets in which MNEs
are active: in particular, to where there are incentives to eliminate oligopolistic uncertain
ty for input supplies and to raise barriers to entry by vertically integrating the stages of
production across national boundaries.
The subsequent Knowledge Capital Model (KCM) (e.g. Markusen, 1984, 2002; Markusen
and Venables, 1998; Venables, 1999; Carr et al., 2001) rests on the main idea that MNEs
are intensive in the use of knowledge-based assets. The approach combines both horizon
tal integration associated with the proximity to demand, and vertical integration associat
ed with the search for lower costs, as determinants of MNE location and investment ac
tivities. Drawing extensively upon Caves’ work, although curiously seldom acknowledging
it, the KCM splits multinational firms into two types: horizontally integrated firms known
as type-h firms, and vertically integrated firms known as type-v firms (Markusen, 2002).
One of the main assumptions of the KCM model is that the firm’s knowledge assets are
basically a public good within the firm, whose costs of supply to the firm’s foreign plants
are very low.
Whether the firm decides to supply foreign and overseas markets directly via exports or
via local supply from foreign affiliates depends on the balance between domestic produc
tion economies of scale and international trade or transport costs (e.g. Markusen, 2002;
but also Caves, 1971, 1982). In general, high trade and transport costs encourage FDI as
firms seek to gain easier access to a foreign market, while low trade costs encourage do
mestic production and exporting. Similarly, high economies of scale encourage single-site
production and exporting, whereas low economies of scale encourage the establishment
of different facilities in different locations. Regarding the patterns of FDI, type-h MNEs
tend to dominate when the markets in both the origin and host locations are large and
similar in terms of their local labour skills’ endowments, whereas type-v MNEs tend to
dominate when the markets differ substantially in terms of their size and the endowment
of local labour skills.
Trade theorists have recently noted an apparent conflict between the KCM explanation of
MNE activity and the trends observed in current globalization. As Neary (2009) argues, if
transport and trade costs fall, which has, indeed, been the case in recent decades, then
according to the KCM one would expect that HFDI will decrease, as exporting from a do
mestic location should become more attractive. However, HFDI and multinationalism
have increased dramatically over recent decades, thereby producing outcomes that ap
pear to be counterintuitive to the KCM main tenet.
One way to reconcile these observations is to assume that the set-up costs of individual
foreign establishments have fallen over time. Indeed, building plants and establishing
new turnkey production facilities is becoming increasingly sophisticated, thereby point
Page 9 of 20
ing to the conclusion that set-up costs of overseas establishments are falling. However,
plant set-up costs may well also involve issues related to labour knowledge, skills, and
training, and (p. 374) there is very little evidence to suggest that these costs have de
creased. Alternatively, we could assume that the location-specific economies of scale have
actually become less important over recent years, and that their decline has been even
greater than that in transport and trade costs. Yet, there is growing evidence that the ge
ography of many production systems and input–output chains is becoming more spatially
fragmented (e.g. Parr et al., 2002; Klier and Rubenstein, 2008). In addition, the sugges
tion that location-specific economies of scale have fallen over time appears to be at odds
with the fundamental assumptions of the NEG and with the wealth of evidence on the in
creasing worldwide importance of agglomeration effects (e.g. OECD, 2006; World Bank,
2009; McKinsey Global Institute, 2013). A third attempt at reconciling theory and obser
vation is to suggest that, as transport costs fall, the potential profits of foreign acquisi
tions systematically favour the acquiring firms, thereby promoting outward FDI based on
mergers and acquisitions (Neary, 2009): this insight is, in fact, consistent with the experi
ence of the European Union.
Thus, the dichotomy horizontal versus vertical integration seems to be no longer suitable
for reflecting the main organizational forms of MNE international operations. This has
been acknowledged by KCM scholars, who recognize that MNEs follow complex integra
tion strategies rather than those in one or either category (e.g. Grossman, et al., 2003;
Yeaple, 2003; Neary, 2009). MNEs are mostly both horizontally and vertically integrated,
mixing up different strategies including that of the international diversification across
products and space firstly described by Caves (1971, 1982). In the words of Neary (2009,
p. 215) ‘the distinction between horizontal and vertical FDI is useful for pedagogic pur
poses but otherwise not very helpful’. More research efforts to better grasp the increas
ing complexity of MNE strategies are becoming urgent.
The Dichotomy Hierarchies versus Networks

and the Interdependence Between MNEs and
Geographical Space
Globalization, in the context of the creation and expansion of strategically planned world
wide networks of investment, production, sales of goods, and services underpinned by
worldwide movements of people, money, knowledge, and ideas, dates back to the fif
teenth and sixteenth centuries. More than four centuries of global expansion were inter
rupted by the two world wars, the 1930s Depression, and the Bretton Woods systems,
each of which contributed to a global retrenchment of economic activities into primarily
national or transatlantic networks of relations (Iammarino and McCann, 2013). This long
standing retrenchment was overturned again in the last decade of the twentieth century,
driven by technological, institutional, and organizational changes. The advent of the mod
ern Internet provided for a common platform on which communications, management
control, and analytical technologies could be integrated. At the same time, institutional
Page 10 of 20
transformations were leading to falls in international trade and investment barriers asso
ciated with the movement towards macro-areas of free trade and economic integration
such as the European Single Market, North American Free Trade Agreement (NAFTA),
MERCOSUR, Association of Southeast Asian Nations (ASEAN), and Closer Economic Re
lations (CER). These trends (p. 375) were overwhelmingly driven and spearheaded by
MNEs, building on both the new communications technologies and institutional changes,
that seized the new opportunities for outsourcing and offshoring in order to reconfigure
and redesign the spatial and organizational logic of their global activities.
International MNE networks have represented the strategic integration of geographically

distinct paths of both production and innovation activity (Cantwell, 1989). The stable rela
tionship between ownership and control, which has long been understood as problematic
when looked at from the divide between investor and executives, has been disturbed both
along the supply chain and within the corporation (Ietto-Gillies, 2012). In outsourcing
strategies, ownership may change, but control of value-chain activities is largely retained
by MNEs through various means of pressure on the suppliers and their competitive bid
ding (e.g. narrow transfers of technology, strict product specifications, tight supplying
schedules, etc.) (UNCTAD, 2013). Conversely, in integration and offshoring strategies,
ownership is not altered, but the distribution of control within the MNE can vary greatly.
Different degrees of autonomy of affiliates and subsidiaries can lead to intra-firm compe
tition and even to various degrees of restraint in the control of the central MNE head
quarters (e.g. Birkinshaw and Hood, 1998, 2000; Birkinshaw et al., 2005).
In these network structures, international trade, production, and knowledge creation oc
cur both within the individual MNE and also within networks, some of which are highly
spatially concentrated and some of which largely aspatial. The actual geographical and
organizational configurations depend on the specific patterns of unbundling (Baldwin,
2011) of enterprises and activities, which, in turn, depend on how the global value chains
are being sliced up, reconfigured, and recombined (Gereffi and Korzeniewicz, 1994). This
implies a revision of the role and activities played by individual establishments within the
overall MNE structure.
Indeed, the location of corporate headquarters of large MNEs has nowadays little geo
graphical connection with the location base for specific business units and operations.
Rather, different configurations are employed by different MNEs depending on their in
dustries, technologies, knowledge assets, and also the nature of the interactions they un
dertake with potential suppliers and customers. For many MNEs, the role of subsidiaries
and affiliates has transformed from the previously largely passive recipients of knowledge
and instructions from parent country-based headquarters to highly autonomous localized
centres of knowledge creation and exploitation that feed back into the global MNE knowl
edge network system. This role of knowledge generation often implies the affiliate becom
ing increasingly independent and heavily embedded in its local context by building on lo
cal human capital and knowledge networks, as well via the more traditional buyer–suppli
er pecuniary linkages.
Page 11 of 20
Such organizational changes have had major implications for the location choices and ad
vantages of MNEs, which are increasingly dependent on the balance between technologi
cal competencies and capabilities within and outside the firm, or on the integration of var
ious sources of knowledge that are both internal and external to the firm. Different geo
graphies have emerged in relation to different types of MNE integration,
(de-)centralization of firm control, unbundling of headquarters and core functions, and
smoothing of organizational structures (McCann and Mudambi, 2005; Iammarino and Mc
Cann, 2013, 2015). Such changes have highlighted the fuzziness of the notion of hierar
chy as a corporate structure versus networks as a form of spatial coordination. Increas
ingly, the empirical (p. 376) evidence points to the intersubstitutability of space and orga
nizations into the two typical forms of governance, and to the prevailing heterogeneity of
both MNEs and specific geographical contexts.
Nowadays, the multiple locations of MNEs are best understood by referring to specific
sub-national areas—such as regions, cities, or industrial clusters—where a firm locates its
main functions, including strategic decision-making, R & D, and other core production ac
tivities. Each different MNE function tends to favour different spatial characteristics, thus
pushing towards the dispersion of functions across various (sub-national) locations. Op
posing this dispersion force are linkages between different stages in the production chain
which can encourage firms to co-locate different activities in the same location (Defever,
2006). Indeed, recent evidence on the economic geography of MNEs indicates that, in the
cross-border co-location of the different stages of the value chain of MNE affiliates in the
context of the European Union, MNE headquarters do not display any pull effect over the
location of any other corporate function (Defever, 2006; Ascani et al., 2016). Goerzen et
al. (2013) have shown that ‘competence-exploiting’ and ‘competence-creating’ (Cantwell
and Mudambi, 2005) activities of MNEs follow very different spatial patterns: while the
former tend to agglomerate in global or core locations, the latter—far more valuable for
local economic development—tend to concentrate in other metropolitan (or rather less
core) regions, giving rise to geographical hierarchies based on functions rather than on
firm counts or industry. These differing patterns also suggest that the relationships be
tween MNE affiliates and the geography of knowledge networks and spillovers are likely
to be far more varied and nuanced than the simple stylized linkages popularized in the
traditional regional and urban economics and economic geography literature.
Standard arguments in urban economics assume that firms locating in larger, or global,
cities benefit the most from the learning, sharing, and matching opportunities locally
available (e.g. Duranton and Puga, 2004). However, in the light of the issues raised here,
the potential advantages for MNEs associated with learning and sharing in large cities
are not so obvious. Firstly, the MNE generates advantages via the sharing of place-specif
ic assets, knowledge, and know-how within the corporate geographical network—in the
revisited OLI this would reflect the interaction between O, L, and I. The rationale for the
MNE in leveraging these internalized assets and organizational advantages to some ex
tent precludes the potential benefits available from locating in global cities. Secondly,
while the potential knowledge inflows gained by locating in cities due to spillovers may
appear prima facie to be attractive to MNEs, the danger of experiencing knowledge out
Page 12 of 20
flows via unintended knowledge leakages outside the firm may be at least as significant
as any possible inflow benefits (McCann and Mudambi, 2005; Iammarino and McCann,
2013). The fact that MNEs place so much emphasis on knowledge internalization—even
more so in their present network structures—suggests that knowledge-related functions
will often be located somewhat away from large cities. This may be particularly relevant
where high levels of secrecy are required.
Following the same line of argument but from a different perspective, in the ‘world city
hypothesis’ (Friedmann, 1986) and much of the ‘global city network’ (GCN) literature, the
bulk of the connections between global cities or core cities in core regions—where large
MNEs are mostly headquartered—and more peripheral regions of the global economy are
argued to take place through regional articulators, or core cities in peripheral regions
(e.g. Beaverstock et al., 1999). While this may be true for some large MNEs approaching
peripheral regions from the top down and with certain market-seeking strategies, the
same may (p. 377) not necessarily apply to businesses in peripheral cities of peripheral re
gions interacting with the global economy from the bottom up. Recent research suggests
that firms in peripheral regions often bypass these regional articulators, instead seeking
to plug into business networks, either in global cities directly or in peripheral cities with
in core regions (Datu, 2014; Crescenzi et al., 2017). In other words, those firms form what
we may call inter-peripheral networks, thus bypassing the core cities within their respec
tive periphery more often than implied by the literature. This suggests that, while the
global city–regional articulator-global periphery model implied in much of the GCN litera
ture may be appropriate for the most global MNEs, other models may be required to un
derstand the behaviour of emerging MNEs or MNEs from emerging places (Datu, 2014;
Crescenzi et al., 2017), prompting new theoretical and empirical challenges for future re
search agendas.
Conclusions
As Dunning (1977) observed within the eclectic OLI framework, MNE location behaviour
—the L—has become increasingly intertwined with both ownership and internalization.
The links between technological, organizational, and geographical hierarchies first out
lined by Vernon (1959) and Hymer (1972) have often evolved into flatter networks and are
much more complex, richer, and heterogeneous than their representation in theoretical
models, which have not being able to keep up with actual changes. Corporate geographi
cal networks of functions determine spatial hierarchies, and network geographies be
tween core and peripheral locations in both core and peripheral regions influence the in
tegration patterns of MNEs, particularly from emerging economies. This implies that
when a multinational relocates or invests in new subsidiaries, this geographical choice it
self changes the internal organizational and internalization logic of the MNE. If the
(re)location involves important functions, then the additional O- and I-advantages may be
quite significant, thereby altering the relative positioning and roles of units within the
corporate network. Similarly, the location of an MNE function in a locality, by definition,
re-shapes both the technological and connectivity features of the region. O, I, and L ought
Page 13 of 20
all to be seen as interacting at every stage of the MNE location decision, and hierarchies
and networks across space are to be seen as being continually reshaped along with the
technological and organizational changes within corporations.
As such, while many aspects of the traditional location theory toolkit have proved to be
still relevant for analysing the spatial dimension of MNEs, there are additional crucial is
sues which need to be considered that draw from literatures other than economic geogra
phy or urban economics. We are still some way off from a comprehensive and integrated
spatial theory framework for the modern MNE, and tackling the analytical and empirical
challenges associated with specific geography remains the main arena in which progress
ought to be made. This is important because, while concepts such as pipelines—or, as
seen in another chapter of this Handbook, highways—are currently popular in geography,
the overwhelming majority of international movements of tangible and intangible re
sources are undertaken within MNEs and their internal and external networks, implying a
multi-lateral directionality of flows. Economic geography, international business and man
agement, and regional and urban economics need to make far more joint progress in un
derstanding the co-dependence (p. 378) and co-evolution of MNEs and geographical space
in order to develop a more sophisticated narrative of modern globalization.
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Simona Iammarino
Simona Iammarino ([email protected]) is Professor of Economic Geography and

Head (2014–17) of the Department of Geography and Environment at the London
School of Economics and Political Science. She is also an affiliate of the Spatial Eco
nomics Research Centre. Previous tenured positions include: Science and Technology
Policy Research, University of Sussex; University of Rome, ‘La Sapienza’; and Italian
National Institute of Statistics. Her main research interests lie in the following areas:
multinational corporations; location and innovation strategies; local economic devel
opment; geography of innovation and technological change; regional systems of inno
Page 19 of 20
vation; and regional and local economic development and policy. She has published
extensively in top-refereed journals in the field, and has extensive experience in both
externally funded international research projects and consultancy for various govern
ment agencies and international organizations such as the European Commission,
the Organisation for Economic Co-operation and Development, and the United Na
tions Economic Commission for Latin America and the Caribbean.
Philip McCann
Philip McCann ([email protected]) holds the Endowed Chair in Economic Geography

at the University of Groningen in the Netherlands. He studied at and gained his PhD
(1993) from the University of Cambridge; prior to moving to Groningen he worked at
the University of Pennsylvania in the USA (1993–5), the University of Reading (UK)
(1995–2005), and the University of Waikato in New Zealand (2005–9). He has also
been a Visiting Professor in the USA, Japan, Thailand, Spain, and Italy. Professor
McCann’s research covers a wide range of economic geography topics and his re
search has received awards in various countries. He has also acted as an advisor and
consultant to the European Commission, the Organisation for Economic Co-operation
and Development, the European Investment Bank, and government departments and
research institutions in several different countries.
Page 20 of 20
The Logic of Production Networks

Henry Wai‐chung Yeung
This chapter highlights and evaluates the most significant economic–geographical re
search that examines the logic and role of production networks in facilitating global–local
economic integration. It first explains how the global production network (GPN) approach
describes and explains the logic of this global–local economic integration. Advocating a
network understanding of the economic–geographical process of value transformation in
a global mosaic of local and regional economies, this approach has deployed or developed
three central concepts—power relations, network and territorial embeddedness, and
strategic coupling. The chapter then considers the significance of this GPN literature, its
key controversies, and the prospects and future directions for research in, what might be
termed, GPN 2.0 research in economic geography in the next ten to fifteen years.
Keywords: production networks, global production network approach, strategic coupling, key controversies,
prospects for future research, GPN 2.0
Introduction
IN its World Investment Report 2013, UNCTAD (2013) estimated that some 80 per cent of
international trade was organized through global production networks (GPNs) coordinat
ed by lead firms investing in cross-border productive assets and trading inputs and out
puts with partners, suppliers, and customers worldwide. Empirically, there is no doubt
that GPN and global value chains (GVCs) are the most critical organizational platforms
through which production in primary, manufacturing, and service sectors is coordinated
and organized on a global basis. A 2010 World Bank report on the post-2008 world econo
my claims that ‘given that production processes in many industries have been fragmented
and moved around on a global scale, GVCs have become the world economy’s backbone
and central nervous system’ (Cattaneo et al., 2010a, p. 7). To analysts in many interna
tional organizations, GPNs are now recognized as the new long-term structural feature of
today’s global economy. These production networks are invariably the de facto organiza
tional mechanism through which local economies at the local, regional, and national
scales are integrated into the ever-more interdependent global economy (see OECD,
Page 1 of 31
2011; WTO and IDE-JETRO, 2011; Elms and Low, 2013; OECD–WTO–UNCTAD, 2013;
UNCTAD, 2013; World Bank, 2013).
Over fifteen years ago, Peter Dicken (2000, p. 274) opened his chapter for the Oxford
Handbook of Economic Geography with a compelling statement that ‘Without doubt, one
of the most significant economic–geographical developments of the twentieth century was
the growth and spread of international direct investment, and of other forms of interna
tional economic involvement (such as collaborative ventures between firms), through the
medium of the transnational corporation (TNC)’. Into the second decade of the new mil
lennium, this ‘overwhelming and indisputable’ spread of international economic activity
has become much better understood as a complex geographical phenomenon involving
powerful transnational corporations coordinating their production networks on a world
wide basis (Dicken, 2015). While some of these networks operate through intra-firm trade
among subsidiaries and affiliates within each transnational corporation, a large (p. 383)
proportion of these cross-border production networks involve inter-firm and extra-firm re
lations.
In this chapter, I highlight and evaluate the most significant economic–geographical re
search that examines the logic and role of production networks in facilitating global–local
economic integration. In particular, theoretical advancement and empirical studies of GP
Ns have emerged since the late 2000s as one of the most influential research foci in eco
nomic geography. This literature draws upon the earlier theoretical debates on business
and industrial networks in economic geography during the 1990s (Dicken and Thrift,
1992; Cooke and Morgan, 1993; Grabher, 1993; Yeung, 1994, 2000, 2008). At the same
time, it also develops close connections with the initial conceptual advancement on global
commodity chains and GPNs in the cognate social science fields of economic sociology,
development studies, and regional studies (Gereffi, 1994, 1999, 2014; Humphrey, 1995;
Ernst and Kim, 2002; Humphrey and Schmitz, 2002; Sturgeon, 2002), and their manifes
tations in economic geography (Leslie and Reimer, 1999; Hughes, 2001; Smith et al.,
2002; Hughes and Reimer, 2003).1 Emerging in the early 2000s, the Manchester school of
GPN studies in economic geography—first named as such in Bathelt’s (2006, p. 225) re
view of geographies of production—is primarily defined in relation to several program
matic publications on GPNs (Dicken et al., 2001; Henderson et al., 2002; Coe et al., 2004,
2008a; Hess, 2004; Yeung, 2005a, 2009). Moving beyond the influential analysis of gover
nance structures in the GVC literature associated with sociologist Gary Gereffi (1994,
1999; Gereffi et al., 2005), these studies in economic geography focus on relational net
work configurations and the strategic coupling of local and regional economies with GP
Ns (see reviews in Hess and Yeung, 2006a; Bair, 2008, 2009; Gibbon et al., 2008; Coe et
al., 2008b; Coe, 2012; Parrilli et al., 2013; Neilson et al., 2014; 2015; Coe and Yeung,
2015; Smith, 2015).2
As a synopsis of what’s to come in the chapter, the GPN literature in economic geography
is primarily concerned with two main analytical issues. Firstly, it addresses the critical
question of geographical specialization in value activity, a common phenomenon in
today’s global industries, rather than in finished goods or services as in conventional eco
Page 2 of 31
nomic analysis. Grounded in sophisticated conceptual frameworks and empirical studies,

this literature accounts better for the spatial (re)organization of production and value dis
tribution on a global scale. It contributes to the academic and policy debates on why we
should move from a ‘Made in X’ conception of economic activity to a ‘Made by the World’
notion of global production. Be it the USA, Germany, or China, ‘X’ here is often miscon
strued conceptually as a national economy in conventional trade theory, and mismeasured
statistically as the container of all value-added (e.g. in trade data). Secondly, the GPN lit
erature tackles one central problem in geographical analysis—how are economic activi
ties at different spatial scales integrated that, in turn, (re)produce uneven geographical
political economy? This global–local tension has been a longstanding concern in economic
geography (Swyngedouw, 1992, 1997; Dicken, 1994; Peck and Tickell, 1994; Tickell and
Peck, 1995; Yeung, 1998, 2002). The GPN approach unpacks critically the organizational
mechanisms underlying the ruthless globalization of production and accentuates con
comitantly the fundamental importance of local articulation into these GPN for economic
development. The following sections first explain how the approach describes and ex
plains the logic of this global–local economic integration. It then considers the signifi
cance of this GPN literature, its key controversies, and the prospects and future direc
tions for research in what might be termed GPN 2.0 research in economic geography.
Production Networks and Global–Local

(p. 384)
Economic Integration
By definition, a production network necessarily involves more than one actor. These ac
tors can be capitalist firms of different sizes, ownership structures, industrial specializa
tion, national origins, and so on; they can also be non-firm entities, such as the state, in
ternational organizations, labour groups, consumers, civil society organizations, and so
on. As a significant economic actor in contemporary capitalism, the firm is responsible for
the creation of economic value through production, a process of transforming material
and intangible inputs into outputs such as intermediate or finished goods and services.
Production is therefore a value-transformative process incorporating all economic sec
tors, from extractive industries in the primary sector to manufacturing activities in the
secondary sector and service industries in the tertiary sector. OECD-WTO-UNCTAD
(2013, p. 16) estimated that as intermediate inputs to global production, services con
tributes directly and indirectly to over 30 per cent of the total value added in manufac
tured goods. In turn, several of these service activities are themselves organized and de
livered through GPNs, as evident, for example, in finance, advertising, logistics, or retail
ing.
In its linear form, this process of transformation is commonly understood as taking place
through the value chain. If a firm internalizes much of this value-chain activity through
vertical integration, value transformation is deemed intra-firm in nature. If a firm en
gages with other firms in the production of value through outsourcing, subcontracting, or
strategic alliances, inter-firm organizational relations are developed. Much of the current
Page 3 of 31
GVC literature focuses on the key actors, particularly the lead firms, who govern through
inter-firm relations this complex process of value transformation and capture (Gereffi et
al., 2005; Bair, 2009; Ponte and Sturgeon, 2014). This (global) value-chain approach to in
ter-firm production relations, however, suffers from two major problems: (i) its linear in
terpretations of how production systems operate and how value is generated and distrib
uted; and (ii) its narrow focus on lead firms in inter-firm governance at the expense of
other non-firm actors and the wider institutional contexts.
Building on and going beyond this chain-based conception of global–local production, the
GPN approach advocates a network understanding of the economic–geographical process
of value transformation in a global mosaic of local and regional economies (Coe and Ye
ung, 2015, Chapter 2). In this approach, value transformation is conceptualized as taking
place not just through the horizontal or inter-firm movement of materials and/or intangi
bles along the value chain in a particular industry, but it can also occur through the simul
taneously vertical or extra-firm relationships between firms in interconnected production
processes and non-firm actors. In inter-firm relations, a lead firm can engage horizontally
with a variety of other firms, such as strategic partners, specialized suppliers, and gener
ic suppliers, in its value transformation. While a lead firm takes charge of product or mar
ket definition based on its firm-specific competitive advantage and capabilities, its net
work members provide the partial or complete material supplies (e.g. the manufacture of
intermediate or finished goods) and business solutions (e.g. the provision of critical or ad
vanced services). In each segment of these horizontal inter-firm organizational relations
(e.g. lead firm–supplier or strategic partner–supplier), a firm can be subject to vertical in
fluences from ‘above’ (p. 385) (e.g. the state and the wider regulatory or industry context)
and from ‘below’ (e.g. labour unions or customer pressures). In this network organiza
tional form, coordinating production is conceptually much more than the existing GVC fo
cus on the inter-firm governance of value transformation—often only in manufacturing in
dustries. Production networks inevitably bring together both firms and non-firm actors
and create economic value through a combination of intra-, inter-, and extra-firm rela
tions.
To conceptualize these different configurations of network relations, the GPN approach

has deployed or developed three central concepts—power relations, embeddedness, and
strategic coupling. Power relations refer to the dynamic processes through which key ac
tors in these production networks can compel or influence others to act in these actors’
interest. Embeddedness is a state of mutual dependency between actors in the same net
work. Strategic coupling takes place when actors in different networks work together to
produce a common strategic outcome. Whereas power relations and embeddedness were,
respectively, developed in Dicken et al. (2001) and Henderson et al. (2002), the last of
these was original to the analytical framework first developed in Coe et al. (2004) and fur
ther refined and extended in Yeung (2009, 2015, 2016). A GPN is characterized by the
central role of a globally significant lead firm in its coordination, control, and organiza
tional involvement of a large number of intra-firm affiliates, strategic partners, key cus
tomers, and non-firm institutions. These complex interrelationships between the lead firm
and other firms and non-firm actors should be conceptualized as both structural and rela
Page 4 of 31
tional in nature. A relational view of GPNs requires us to go beyond just a structural

analysis of the global economy. It is also insufficient to focus exclusively on domestic or
ganizations and institutions in order to understand global economic change. Such a rela
tional analysis of GPNs focuses on the existence of differential power relations within a
network (Dicken et al., 2001; Henderson et al., 2002; Yeung, 2005a; Yeung and Coe,
2015).
A GPN reflects relational processes and structures in which, and through which, corpo
rate power is exercised. As noted by Coe et al. (2008a, p. 272), production networks ‘re
flect the fundamental structural and relational nature of how production, distribution and
consumption of goods and services are—indeed always have been—organised. Although
they have undoubtedly become far more complex organisationally, as well as far more ex
tensive geographically, production networks are a generic form of economic organisa
tion’. Powerful lead firms are those that drive GPNs and make things happen. Their abili
ty to do so depends on their control of key resources (physical, political, economic, social,
and technological). The GPN approach views power as the capacity to exercise that can
only be realized through the process of exercising. The control of resources does not in
advertently imply that an actor is powerful until that power is exercised—such control is
only a necessary, but not sufficient, condition for the allocation of power to any actor. In
other words, power should be conceived as a relational practice rather than a structural
position within a network.
With this broader understanding of the logic of (global) production networks and power
relations, we can now explore their operationalization at the global and the local spatial
scales and their crucial role in spatial economic integration. To begin, many production
networks are local in nature because of territorial dynamics well explored in the leading
economic-geographical literature on agglomeration economies, clusters, and industrial
districts. As a firm starts its initial operation in value transformation, it is more likely to
develop localized linkages with other firms and actors in the same locality or region
through territorialized economies such as traded and untraded interdependencies (Storp
er, 1997, (p. 386) 2013). Defined as ‘locally serving partially or non-tradable goods and
services’ in Storper (2000, p. 160), this localized dimension of production networks is well
known in economic geography and will not be repeated much further here. Suffice to say
that the value transformation in these local production networks is strongly influenced by
their territorial embeddedness, which refers to the significant role played by places and
regions in shaping the unique characteristics of economic actors, such as firms and insti
tutions, in these networks.
This territorially based influence reflects the institutional structuring of firms in different
business systems and industrial structures (e.g. Silicon Valley, Third Italy, and Baden-
Württemberg). Institutional structures are defined as enduring and organized sets of rela
tions among ‘prevailing institutions dealing with the constitution and control of key re
sources such as skills, capital, and legitimacy’ (Whitley, 1999, p. 5). These institutional
structures form established systems of economic coordination and control in specific cap
italist economies. They inherently shape the logics governing economic decision-making,
Page 5 of 31
actions, and the market processes through establishing and enforcing conventions, val
ues, views, norms, practices, and the so-called rules of the game. While this shaping is
not structurally deterministic, it does leave visible imprints on the nature and organiza
tion of firms and their local production networks (e.g. cooperative vs. adversarial rela
tions). Once embedded territorially in these localized institutional structures, firms
should be better able to mobilize these endowments to enhance their firm-specific corpo
rate power and value transformation.
More significantly in a world of GPNs, we need to explore how and why these local pro
duction relations become globalized over time. In the existing GPN approach, network
embeddedness is the main conduit through which local firms and institutions become ar
ticulated into GPNs. This network embeddedness can take place through outward or in
ward flows of direct investment and international trade in any of the following four forms:
1. The internationalization of a local firm to other localities or regions outside its

home economy: this inside-out process of foreign direct investment enables a local
firm to embed into GPNs coordinated by lead firms based elsewhere, or to develop
into a global lead firm in itself by incorporating other firms and non-firm actors into
its expanding production network.
2. The export of intermediate goods or services by a local firm to other firms outside
its home economy: this inside-out form of international trade in industrial supplies al
lows a local firm to remain in situ geographically and yet participate in GPNs coordi
nated by lead firms based elsewhere.
3. The inward investment of foreign firms in the locality or the home region of a local
firm: this outside-in process by either lead firms or suppliers based elsewhere facili
tates the localized development of global linkages mediated through these foreign
firms. With the participation of these foreign firms, local production networks be
come progressively globalized over time through outsourcing arrangements with the
local subsidiaries of global lead firms and/or global suppliers.
4. The import of intermediate goods or services by a local firm from dedicated suppli
ers outside its home economy: this outside-in mode of network embeddedness takes
place when foreign suppliers become articulated into the globalizing production net
work governed by a locally bounded lead firm.
Through their embedding in GPNs, firms and non-firm actors from a particular lo
(p. 387)
cal or regional economy are connected with other network members irrespective of their
geographical origin or local anchoring in particular places. As argued in Henderson et al.
(2002, p. 453), ‘It is most notably the “architecture”, durability and stability of these rela
tions, both formal and informal, which determines the agents’ individual network embed
dedness (actor–network embeddedness) as well as the structure and evolution of the GPN
as a whole’ (see also Hess, 2004). Economic actors and their embedded relations with
other actors in the same network are therefore crucial in determining their collective
power and the precise configuration and coordination of GPNs. In this dynamic configura
tion, these actors draw upon divergent forms of power in order to take on an advanta
geous position in GPNs that favours their creation, retention, and capture of value. Those
Page 6 of 31
economic actors occupying a leading role in their GPNs tend to benefit disproportionately
from the value processes associated with the market success of their products and ser
vices. Other non-local partners incorporated into the same network can also benefit from
enhanced opportunities to upgrade their operations and to improve their collective re
turns.
In the GPN literature, strategic coupling is arguably the most widely known concept com
monly deployed to explain this global–local articulation of production networks (see Coe
et al., 2004; Yeung, 2009, 2015, 2016; Coe and Hess, 2011). In its essence, strategic cou
pling with GPNs refers to the intentional convergence and articulation of actors in both
local economies and GPNs for mutual gains and benefits. It should not be viewed as a sta
tic concept resulting in an end-state articulation of a local economy into GPNs. The very
strategic nature of this local–global articulation, mediated through different actors such
as firms and non-firm institutions, necessitates continual interactions among these actors
at different spatial scales. Instead of inherently localized assets and advantages, these in
teractive effects are the raison d’être of local and regional development in an era of eco
nomic globalization (Coe et al., 2004, p. 469). These effects necessitate a dynamic con
ception of the strategic coupling of local economies with GPNs. In this sense, the
concept’s critics have unfortunately misunderstood its changing and multidimensional na
ture, and misattributed to it a one-way flow of articulation (i.e. coupling does not allow
for decoupling or recoupling).
The concept allows us to connect and bridge two critical and yet relatively independent
sets of economic dynamics—territorial dynamics at the local scale and network dynamics
at the global scale. By local dynamics, I mean the pre-existing political and social institu
tions and economically productive assets that give rise to the unique character and com
position of a local economy. As illustrated in the right-hand side of Figure 20.1, these lo
cal institutions and assets are historically and geographically specific such that they can
not be easily reproduced and transformed within a relative short period of time. In other
words, we expect a certain degree of mutual path dependency in this unique combination
of local institutions and assets that define, albeit not determine, local and regional devel
opment trajectories. Meanwhile, network dynamics are much less governed by pre-exist
ing institutions at the local or even the national level. Instead, they are primarily consti
tuted by economic actors, such as global lead firms, strategic partners, specialized suppli
ers, industrial and final customers, and so on. Some of these are large transnational cor
porations, whereas others are national or local firms. While embedded in specific national
or regional economies, these economic actors are mostly driven by the competitive logics
of seeking cost efficiency, market access and development, financialization and capital
gain, and risk minimization through configuring their GPNs (Yeung and Coe, 2015). These
GPN logics are therefore (p. 388) firm- and industry-specific, and do not necessarily align
with those in their home origin of local or national economies. In short, GPN dynamics
are qualitatively different from localized territorial dynamics.
Page 7 of 31
Figure 20.1 Strategic Coupling and Global–Local

Economic Integration Through Production Networks.
Source: Adapted from Coe et al. (2004, Figure 1, p.

470).
Operating on its own in today’s global economy, each of these two sets of economic dy
namics—territorial and network—does not produce sufficient thrust to propel local
growth and regional change. While local dynamics are necessary for territorialized devel
opment to take place, their cumulative effects on local and regional economies can be
greatly enhanced and sustained if they interact positively with broader network dynamics
at the global scale. In this sense, a theoretical approach focusing on either set of dynam
ics is inadequate in explaining local growth and developmental change in an interdepen
dent global economy. Most importantly, the positive outcome of these twin motors for lo
cal and regional development hinges on their mutual complementarity and dynamic artic
ulation. This is where the concept of strategic coupling provides the most useful analyti
cal purchase by bringing together both dynamics in accounting for local and regional de
velopment (see the case of East Asian development in Yeung, 2016). For a local economy
to benefit from evolving network dynamics in different global industries, its localized as
sets must be integrated into complementary GPNs through the dynamic process of strate
gic coupling. In Figure 20.1, territorialized assets are embodied in local firms and tech
nology institutes that cooperate with global lead firms and their partners and suppliers in
different GPNs. This mutual articulation provides the underlying strategic platform for lo
cal and regional growth to occur. Strategic coupling is therefore a mutually dependent
and constitutive process involving shared interests and cooperation between two or more
groups of actors who (p. 389) otherwise might not act in tandem for a common strategic
objective. It is a dynamic process through which actors in regional economies coordinate,
mediate, and arbitrage strategic interests between local actors and their counterparts in
GPNs. These trans-local processes involve both material flows in transactional terms (e.g.
equity investment and movement of intermediate or final goods) and non-material flows
(e.g. information, intelligence, and practices).
Page 8 of 31
By now, it should be clear that strategic coupling is not a static equilibrium concept, as is
sometimes misunderstood by its critics (Bair and Werner, 2011; MacKinnon, 2012; Bair et
al., 2013; Horner, 2014). As argued in Coe et al. (2004), strategic coupling process is nei
ther automatic nor always successful; it needs to be unpacked and analysed because it
changes over time, and its modus operandi varies in different geographical contexts. Ac
cess to the enabling mechanisms and technologies for this coupling may also be highly
uneven geographically. In local and regional development, the concept certainly includes
analytical possibilities for coupling/articulation, decoupling/disarticulation, and recou
pling/re-articulation (MacKinnon, 2012). The dynamics of the strategic coupling process
depend critically on the bargaining and cooperation relationships between local institu
tions and key actors in GPNs, and on the continual success of local institutions in trans
forming territorialized assets favourable for sustaining ongoing developmental trajecto
ries. In Table 20.1, I have summarized three major modes of strategic coupling that en
able localities and regions in diverse East Asian economies to articulate into GPNs (see
Yeung, 2010, 2016; and also Pickles et al., 2015 on East and Central Europe). These devel
opment trajectories are fairly variegated, ranging from Japan’s active pursuit of regional
equality policies during post-war development to the strong focus in South Korea and Tai
wan on building up national institutional capacity between the 1970s and the 1990s, the
growth pole strategy pursued by Malaysia and Thailand since the early 1980s, and the
more recent experimentation of China with regional devolution since the late 1980s. Each
of these economies has experimented with one or more modes of strategic coupling in
GPNs. Their developmental outcomes are defined by the aggregation of their network po
sitions and value trajectories of local firms and foreign firms in different global industries.
Significance, Controversies, and Prospects for

Future Research
As a heuristic conceptual framework, the initial GPN approach developed by the Man
chester school of economic geographers since the early 2000s has certainly advanced the
debate on local and regional development in an era of economic globalization. Building on
the earlier conceptions of business networks and commodity chains, this approach has
stimulated substantial empirical studies of local and regional development in different na
tional economies and global industries. It has also built significant theoretical bridges
with other major research topics in economic geography (e.g. clusters and innovation,
and local and regional development) and the wider social sciences (e.g. industrial upgrad
ing, capital–labour relations, and developmental trajectories). Still, the GPN approach is
inadvertently an unfinished attempt towards developing a truly explanatory theory—it is
more a conceptual apparatus than a coherent theory of the causal mechanisms of global–
local economic (p. 390) (p. 391) change. This section evaluates the significance and legacy
of this initial GPN approach—dubbed GPN 1.0—delves into some of its major controver
sies, and assesses its prospects and directions for future research. These reflections and
Page 9 of 31
discussion should provide a manifesto for the further development of this substantial
genre of research in economic geography in the next ten to fifteen years.
Table 20.1 Strategic Coupling, Global Production Networks, and Local Development
Trajectories
Page 10 of 31
Modes of strategic
coupling
International part Indigenous inno Production plat

nership (function vation (organic) forms (structural)
al)
Dynamics of global production networks
• Spatial Cost-capability effi Public subsidies Lower production

fix ciency costs
• Organiza Vertical specializa New competition International out

tional fix tion and the rise of new sourcing and subcon
lead firms tracting
• Techno Faster time to mar New product and Enabling transport

logical fix ket process technologies technologies
Coupling mechanisms
• Transna Transactional links, Reverse ‘brain drain’ Managerial compe

tional com business intelli and technological re tence and intermedi
munities gence, and market turnees aries
knowledge
• Industrial Rise of strategic Rise of national SMEs and new indus

organiza partners and global champions and new trial spaces
tion localization of TNCs lead firms
• States Explicit role and pol Implicit and explicit Explicit role but limit
and institu icy-led: upgrading of role: strategic indus ed influence through
tions labour, technology, trial policies fiscal and financial in
and infrastructure centives
Local tra Distinctive local as Distinctive local as Generic local assets
jectories sets and some local sets and strong au and external depen
autonomy tonomy dency
Likelihood Medium Low High

of decou
pling
Page 11 of 31
East Asian Singapore and Seoul Metropolitan Penang and Selangor

examples Taipei-Hsinchu (Tai Area (South Korea), (Malaysia), Greater
wan) Taipei-Hsinchu (Tai Bangkok (Thailand),
wan), Singapore, and Yangtze and
and Yangtze and Pearl River Deltas
Pearl River Deltas (China)
(China)
Relevant Electronics, petro Electronics, automo Electronics, automo

sectors chemicals, finance, biles, transport, and biles, apparel, and
transport, and logis communications toys
tics
TNC, transnational corporation; SME, small- and medium-sized enterprise
Sources: Adapted from Yeung (2009, Table 2, p. 338), MacKinnon (2012, Table 1, p.
240), and Horner (2014, Table 1).
Significance of GPN 1.0
When the GPN approach was first proposed in the early 2000s (Dicken et al., 2001; Hen
derson et al., 2002; Coe et al., 2004), economic geography was dominated primarily by
the post-Fordism debate in understanding urban and regional development (Peck, 2000;
Scott, 2000) and what was then termed the cultural turn (Thrift and Olds, 1996; Lee and
Wills, 1997; Thrift, 2000). At that time, most conceptions of production networks in eco
nomic geography were pitched at the local scale, as the flexible organizational response
to the dismantling of vertically integrated Fordist production systems in what Scott (2000,
p. 29) called ‘a world of regions’. This highly territorialized conception of production net
works was clearly visible in Clark et al.’s (2000, p. 11) introductory chapter to the Oxford
Handbook: ‘Notions such as clusters, networks, enclaves, and localised chains of value
began with geographers, being a new vocabulary for describing the economic geography
of post-Fordism and flexible accumulation. Whether deliberately or not, these notions
have become incorporated into national policy-making (witness the recent competitive
ness manifesto announced by the UK government) and the development objectives of sub-
national regions’. Meanwhile, most conceptions of business networks under the guise of
the cultural turn paid overwhelming analytical attention to their social and cultural deter
mination in places and localities, ignoring the wider power relations and structural condi
tions underpinning these networks (Yeung, 2003; 2005a).
After over a decade of conceptual work and empirical studies under the broad umbrella of
GPN 1.0, a significant legacy of the GPN approach can be established in relation to the
abovementioned two dominant frontiers of economic–geographical research. First and
foremost, the significance of the GPN literature is predicated on its analytical capacity to
connect the geographical dots—places and regions—in a world mosaic of capitalist
Page 12 of 31
economies. Production networks are no longer conceptualized merely as place-dependent

territorial ensembles; they are now viewed as the key organizational platform bringing to
gether the developmental trajectories of firms and non-firm actors in different places and
regions across the world economy. This approach not only provides an analytical window
for economic geographers to examine GPNs as the core backbone of today’s interconnect
ed world economy, but also eschews the narrow and, perhaps, excessive focus on endo
geneity and intra-territorial dynamics in much of the literature on local and regional de
velopment. In today’s world of regions, this GPN approach helps reconcile the analytical
tension between globalization tendencies and localization economies in leading economic
geography research. The conception of globalizing local and regional development
through strategic coupling with GPNs (Coe et al., 2004; Yeung, 2009, 2015, 2016; MacK
innon, 2012), for example, offers a concrete approach to studying how such global–local
(dis)articulation can take place. It contributes much to the debate on local and regional
development that remains enduring and significant in economic geography through to the
2010s (Pike et al., 2011; Scott, 2012; Storper, 2013; Dixon, 2014).
(p. 392) Secondly, the GPN framework advances an actor-specific approach to understand
ing the organizational dynamics and geographical impacts of production networks. While
it does not specifically offer a theory of the firm, GPN 1.0 and its associated literature
have eschewed the neoclassical conception of the representative firm often adopted in
earlier generations of economic-geographical research prior to the 2000s (see Taylor and
Asheim, 2001; Yeung, 2005b). The firm—be it a lead firm, a strategic partner, or a suppli
er—is never conceived as a blackbox transforming factor inputs into economic outputs. As
a critical actor constituting and coordinating GPNs through asymmetrical power and em
beddedness, the firm in these studies is a relational construct engaging in value activity
under the influence and/or co-determination of other firms and non-firm actors (e.g. state
institutions, labour unions, standards organizations). These inter-firm and extra-firm rela
tions can be cooperative and relational on the one hand, and competitive and captive on
the other. Differing quite substantially from the cultural turn in economic geography, this
agency of the firm in GPN thinking takes into better account both firm-specific considera
tions (e.g. resources and capabilities, corporate decision-making, and organizational prac
tices and locational strategies) and broader institutional and territorial influences (e.g. fi
nancial systems, industrial relations, regulatory constraints, and so on). This relational
understanding of firms and their value activity in GPNs represents a more nuanced ap
preciation of the industrial and economic dynamics embodied in and transmitted through
these production networks.
Thirdly, GPN research is significant in economic geography because of its integration of

several other key research issues, such as the state, labour, finance, regulation, and the
environment, that have now populated the subdiscipline. While the initial GPN 1.0 frame
work already emphasized non-firm actors in the constitution of production networks, it
has taken almost a decade for scholars to integrate these non-firm actors and institutions
more centrally into the diverse analyses of production networks and their geographical
repercussions. In the original conceptions of Henderson et al. (2002) and Coe et al.
(2004), non-firm actors such as state institutions, labour organizations, and financial sys
Page 13 of 31
tems were featured, but their empirical research and substantiation was relatively under
developed until more recent years. These recent studies of GPNs focus on state and struc
tural inequalities (Yeung, 2014, 2016; Selwyn, 2015; Smith, 2015), labour (Coe and Jord
hus-Lier, 2011; Rainnie et al., 2011; Selwyn, 2012; Coe and Hess, 2013; Herod et al.,
2014), finance (Coe et al., 2014; Dörry, 2015), market (Murphy and Schindler, 2011; Mur
phy, 2012; Ouma, 2015), and the environment (Gregson et al., 2012; Herod et al., 2014;
Lepawsky, 2015). This expansive integration of key geographical issues into the GPN ap
proach validates its analytical robustness in tackling the three world referencing issues
identified in this New Oxford Handbook: globalization, financial crisis, and the environ
ment. GPNs and its economic–geographical analysis represent one of the most fruitful av
enues for understanding the complex interrelationships between lead firm-coordinated
production activity and global inequalities, financial integration, and environmental
change.
Controversies
While the legacy of GPN 1.0 is likely to present an enduring and productive theme for fu
ture research in economic geography, there are certainly major challenges and (p. 393)
unresolved tensions confronting this genre of research. The most critical challenge has
been the relative absence of a coherent theory of GPNs. Because of its initial grounding
partially in the cultural turn of economic geography (e.g. embeddedness and actor–net
work theory), the original GPN thinking and framework developed in Dicken et al. (2001),
Henderson et al. (2002), and Coe et al. (2004) did not place explanatory causality square
ly in the centre of its conceptualization. In doing so, GPN 1.0 in many ways remains an in
adequately developed theory of GPNs. Although the initial framework has specified three
interrelated conceptual categories of value, embeddedness, and power, it has not explicit
ly developed and specified the causal mechanisms linking these elements to the dynamic
configurations of GPNs. This state of inadequate theory development in GPN theorization
has led Hudson (2008), Sunley (2008), and Starosta (2010) to argue critically that existing
conceptual approaches are not explanatory and causal enough to provide a coherent the
ory of GPNs. These epistemological challenges are grounded respectively in their per
spectives of cultural political economy, institutionalism, and Marxism. To Sunley (2008, p.
8), ‘Networks are defined in such an elastic manner that they can include virtually any
thing. One cannot escape the conclusion that such a loose and ubiquitous idea explains
everything and nothing’. Such an all-embracing approach, he adds, is dangerous because
‘The end result is a push toward an economic geography that is immersed in managerial
networks and uncritical descriptions of business elites and omniscient firms’ (Sunley,
2008, p. 10). Other economic geographers sympathetic to the GPN approach also point to
its relative neglect of the state as a regulator and driver (Smith, 2015; see also Yeung,
2016), and labour as a key condition for the social reproduction of these production net
works (Kelly, 2009, 2013; Selwyn, 2012).
With hindsight, I believe this critique of weak analytical causality in GPN 1.0 is quite
valid. Indeed, the Manchester school of GPN studies was not originally conceived as a
school of thought in an epistemological or Kuhnian sense. The initial framework (Dicken
Page 14 of 31
et al., 2001; Henderson et al., 2002) or perspective (Coe et al., 2004) was developed as a
heuristic device to broaden the then analysis of economic integration in the world econo
my by such approaches as the global commodity chains (subsequently morphed into
GVCs) within and outside economic geography. Its subsequent uptake and noteworthy in
fluence in economic geography and the adjacent social sciences was entirely unexpected
by its key proponents. In short, the early conceptualization efforts in developing GPN 1.0
were not intended to be a coherent and comprehensive theory of global economic change.
The intended aims of GPN 1.0 to ‘propose a relational view of’ (Dicken et al., 2001, p. 91),
to ‘outline an analytic framework … to understand’ (Henderson et al., 2002, p. 438), and
to ‘conceptualise the connections between’ (Coe et al., 2004, p. 468) key network
processes at the local and the global scales were rather symptomatic of the prevailing
cultural turn in thinking in economic geography that was committed to avoiding the ad
vancement of ‘a totalising framework capable of grasping the myriad complexities of eco
nomic globalisation’ (Henderson et al., 2002, p. 438). In fact, this domain of theory devel
opment has been captured by the massively growing influence of the GVC framework
since Gereffi et al.’s (2005) theory of GVC governance. In their desire for a parsimonious
GVC theory ‘to be useful to policymakers’, Gereffi et al. (2005, p. 82) prefer to ‘to create
the simplest framework that generates results relevant to real-world outcomes’. In doing
so, they have knowingly and invariably underplayed the role of ‘history, institutions, geo
graphical and social contexts, the evolving rules of the game, and path dependence mat
ter; and many factors [that] (p. 394) will influence how firms and groups of firms are
linked in the global economy’. Causality and theory development, in this simplest and par
simonious form, have invariably been achieved at the expense of the critical connections
and interrelationships of key economic–geographical issues discussed in the previous sub
section. In the international economics literature, this quest for parsimonious models is
even more pronounced. These economic models attempt to modify or extend the conven
tional trade-in-finished-goods theory in international economics. Their explanatory em
phasis is generally placed on decreasing communications and transport costs and trade-
related transaction costs that, in turn, facilitate the trading of tasks across borders
through international production fragmentation and outsourcing arrangements.
In addition to this major controversy over causality and explanation, GPN 1.0 faces anoth
er significant challenge from within the GPN and the GVC community, which is related to
the core idea of strategic coupling in the GPN framework. This concern comes from what
Bair and Marion (2011) call a disarticulations perspective that follows on from Bair’s
(2008, 2009) earlier world systems-inspired work on global commodity chains. This criti
cal perspective on commodity chain studies (Bair et al., 2013) argues that research
should focus as much on periods when links between GPNs and local economies are bro
ken and remade, and the actors and events shaping such transitions, as on periods when
the links are positive and productive. In particular, proponents of this disarticulations per
spective are critical of ‘the tendency of researchers to pursue the newest production fron
tier of a particular commodity in order to analyse how a region becomes linked into a
chain and how this incorporation impacts local actors’ (Bair and Marion, 2011, p. 989). To
them, this inclusionary bias has led to the significant downplay of moments of exclusion
Page 15 of 31
in these processes of global–local economic integration, such as production volatility, pre

cipitous booms and busts, and historical patterns of dis/investment and dispossession,
that are crucial to understanding global inequalities and uneven development (see also
MacKinnon, 2012; Horner, 2014).
In my view, however, while this internal challenge has some validity, it does not differ fun
damentally from the original conception of strategic coupling in GPN 1.0. As clearly ar
gued in Coe et al. (2004) and Yeung (2009, 2015), the strategic coupling of local actors
(firms and institutions) with lead firms in GPNs should not be construed as a functionalist
argument because this coupling process is never automatic and always successful. Pre-
existing patterns of local development and their coupling dynamics may conceal impor
tant power asymmetries in the bargaining and cooperation relationships between local in
stitutions and actors in GPNs. These asymmetries may lead to significant negative conse
quences for regional economies, termed variously as the dark side of strategic coupling.
As argued by Coe and Hess (2011, p. 134), ‘the embedding of GPNs into regional
economies is of course no guarantee of positive developmental outcomes, even if it re
sults in new or enhanced opportunities for value capture at the local level … In other
words, although the articulation of regions in GPNs can produce significant economic
gains on an aggregate level, in many cases it also causes intra-regional disarticulations,
for instance, through uneven resource allocation and the breakup of existing cultural, so
cial and economic networks and systems’. In this more dynamic form of the GPN ap
proach, local and regional development can be fruitfully thought of in evolutionary terms
as being shaped by periods of strategic coupling in sequence with phases of decoupling
and subsequent recoupling.
(p. 395) Towards GPN 2.0: Prospects and Future Directions
It should be clear by now that the GPN approach in economic geography has produced a
significant stream of fruitful and exciting research for the last fifteen years. But the initial
GPN 1.0 is facing some serious and valid challenges that render it increasingly obsolete.
The prospect of this arena of economic–geographical research can only be positive and
strong if a new version in the form of GPN 2.0 can be developed. This section outlines
some current efforts at building such a new direction in GPN research. An overall assess
ment is that the GPN 2.0 approach in economic geography is likely to advance theoretical
development and empirical richness much more significantly than in the earlier phase.
The future prospects of such an analytical approach are bright and productive in four
critical dimensions: theory, methodology, empirical research, and policy influence.
In terms of theory, GPN 2.0 will represent a major leap in conceptual robustness and ad
vancement over the initial analytical frameworks discussed in this chapter. Such theory
development work has now been underway. In particular, Coe and Yeung (2015) have de
voted an entire monograph to developing such a coherent theory of GPNs, and Yeung
(2016) has put in practice its empirical analysis of East Asian industrial transformation. In
this theory, the primary objective is to explain uneven economic development, the ulti
mate dependent variable, in an interconnected global economy. It provides robust an
Page 16 of 31
swers to a fundamental research question: how does development take place in different
national and regional economies through their participation in value activity organized on
the basis of GPNs? These answers can also offer new theoretical insights into why the or
ganization and coordination of GPNs varies significantly across different industries, sec
tors, and economies, and their implications for economic development.
In principle, the GPN theory focuses on the organization, dynamics, and strategies of GP
Ns and their causal relations with economic development. Specifically, Coe and Yeung
(2015) conceptualize the organization of GPNs in terms of their delimitation, origins, in
termediation, and territoriality. The key competitive drivers of GPN dynamics, such as op
timizing cost-capability ratios, sustaining market access and development, working with
financial discipline, and managing risks, are theorized as the causal dynamics of empiri
cal outcomes. These capitalist dynamics are critical independent variables that explain
the different strategies adopted by actors in GPNs. Theorizing these actor-specific strate
gies is an indispensable part of the theory because these strategies translate the causal
power of the four competitive dynamics into differential value activities that, in turn, pro
duce diverse developmental outcomes. While the theorization of competitive dynamics
provides answers to the question of why GPNs form, the conceptual exposition on actor-
level strategies offers answers to the question of how these networks work and operate in
different organizational fields and industrial sectors. In a theoretical sense, competitive
dynamics in the global economy provide the structural properties of causality and emer
gence, whereas actor-specific strategies serve as the corresponding mechanisms for orga
nizing these networks. Taken together in the GPN theory, these dynamics and strategies
co-constitute the causal mechanisms of GPNs, explaining empirical outcomes in terms of
economic development, for example firm growth, technological acquisition and innova
tion, industrial upgrading and sectoral transformation, local and regional development,
and so on.
This theory development is a timely response both to the call for more causal and
(p. 396)
explanatory conceptualization of GPNs in economic geography and the theoretical deficit

in the related literature on GVCs. In this latter literature, despite two well-known edited
volumes explicating global commodity chains (Gereffi and Korzeniewicz, 1994; Bair,
2009), none of its key proponents has advanced further theory development in a single
book-length publication. Indeed, in the GVC literature more broadly, the leading concep
tual frameworks have been developed through several book chapters (e.g. Gereffi, 1994,
2005) and journal articles (e.g. Humphrey and Schmitz, 2002; Gereffi et al., 2005). In Ger
effi et al. (2005, pp. 84–88), arguably the most influential theory paper, theory develop
ment actually takes up no more than five pages. The rest of the paper is devoted to sever
al antecedents of their GVC theory (e.g. global commodity chain work and transaction
cost theory of industrial organization) and four sectorial case studies (i.e. bicycles, appar
el, fresh vegetables, and electronics). Meanwhile, recent book-length monographs on
GVCs and GPNs have a strong empirical component (Gibbon and Ponte, 2005; Lane and
Probert, 2009; Neilson and Pritchard, 2009; Posthuma and Nathan, 2011; Milberg and
Page 17 of 31
Winkler, 2013; Murphy and Carmody, 2015; Ouma, 2015; Pickles et al., 2015). But they do
not have theory development as the central goal.
Methodologically, GPN research must and will go beyond individual case studies and
qualitative analysis. While it is true that a vast number of qualitative studies on GPNs
have been conducted in economic geography during the last fifteen years, the future
genre of such studies is likely to be both qualitative and quantitative. On the one hand, in
ternational organizations such as the Organisation for Economic Co-operation and Devel
opment (OECD), World Trade Organization (WTO), and United Nations Conference on
Trade and Development (UNCTAD), and Eurostat have compiled more sophisticated
quantitative data on value-added trade and investment. In May 2013, OECD–WTO re
leased for the first time its Trade in Value Added (TiVA) database.3 At around the same
time, UNCTAD launched its UNCTAD–Eora GVC database (1990–2010). These quantita
tive databases will provide very exciting opportunities for breakthrough research into the
central role and impact of GPNs in organizing the world economy. While for decades eco
nomic geographers have been quite content using empirical data from qualitative inter
views and corporate case studies (Schoenberger, 1991; Clark, 1998; Yeung, 2003; Tokatli,
2015), the availability of these quantitative databases is likely to engender the parallel
development of more sophisticated techniques for the spatial analysis of GPNs. However,
this is not a blanket advocacy for returning to the heydays of the quantitative revolution
in economic geography (see Scott, 2000; Barnes, 2001). Rather, this chapter envisages a
more purpose-specific deployment of both quantitative and qualitative methods, in combi
nation with relevant geographical information systems techniques, to illustrate and ex
plain the complex patterns of these production networks and their effects on the global
mosaic of regions and places. This recombination of geographical methods will not only
bridge the quantitative–qualitative divide in economic geography, but also build on and
further advance the already strong foundation of GPN research grounded in qualitative
case studies (see also Hess and Yeung, 2006b; Coe et al., 2010).
Empirically, this emerging GPN 2.0 has identified three particular areas in which signifi
cant new contributions to the existing empirical knowledge base can be made (Coe and
Yeung, 2015). Firstly, more focused empirical studies can be conducted on the organiza
tional dynamics of GPNs and industries. Avoiding the tendency to characterize GVC con
figurations (p. 397) at the industry level, there is a need to understand individual GPNs as
lead firm-based configurations. While they will exhibit industry traits, at the same time
there will be considerable variation between GPNs even in the same industry or product
category, depending on the nature of the lead firm in terms of its ownership mode, nation
ality, corporate culture, and strategic disposition. In turn, industries need to be under
stood as aggregations of these variable GPNs that intersect with each other through over
lapping lead firms or key partners/suppliers.
More empirical work is also needed to connect GPNs with their end users and markets,
broadly defined. Many empirical studies tend to identify a lead firm and then work back
wards or upstream to explore inter-firm relationships. Future research should give as
much, if not more, consideration to forward or downstream linkages, to reveal the net
Page 18 of 31
works of distributors, resellers, retailers, and so on, that connect lead firms to their mar
kets, and to enable consideration of the important recent literature highlighting recycling
and the post-consumption after-lives of products and services. Equally, more empirical
work is needed to examine the intersections of GPNs in different industries (e.g. the role
of finance and logistics firms in the electronics industry or the role of information and
communications technology products and services in automobiles, aviation, and banking).
These cross-cutting connections are not peripheral to the operation of GPNs, but rather
are fundamental to the value creation, enhancement, and capture dynamics within all of
the interconnecting industries.
Secondly, the wider political economy of GPNs remains under-theorized and the empirical
research is inadequate (see Yeung, 2016). Yet GPNs are as much political formations as
they are economic entities in the countries in which they operate. They necessarily in
volve control of and struggles over power, resources, and value on an ongoing basis.
More empirical work should seek to understand better the extra-firm or institutional di
mensions to GPNs. This will involve detailed consideration of the relationships between
the firm and non-firm actors enrolled into, and/or shaping from the outside, GPNs in both
home and host contexts. In addition to the multi-level state (e.g. international organiza
tions and local authorities), the other key categories of non-firm actor are labour, civil-so
ciety organizations, industry associations, consumers, and standards-setting agencies
(the latter may overlap with some or all of the former categories). By foregrounding no
tions of control, power, struggle, rivalry, and contestation over value and its distribution,
future empirical studies will endeavour to take seriously the constitutive role of such ac
tors in GPNs and also move towards more rigorous theorization of domains which are
currently all-too-often simply bracketed off as institutional context.
Thirdly, many empirical studies in the existing literature have taken for granted the initial
origin and formation of GPNs, preferring to investigate their internal dynamics only in the
post-establishment phase. There is significant analytical merit in developing a truly evolu
tionary approach to GPNs that foregrounds the factors underpinning their initial forma
tion and their subsequent reconfigurations (both dimensions will vary considerably across
firms, sectors, geographies, and time periods). The empirical aim is to chart the shifting
intersections of or episodic shifts in the dynamics of technological change, market devel
opment, financialization, and risk mitigation in shaping the formation and development of
GPNs. Some of these dynamics will be economy-wide, some will be sector specific, and
some will be distinctive to particular GPNs; untangling these complexities remains an im
portant empirical challenge.
(p. 398) Finally, the bright prospects of future GPN research are underscored by the
tremendous interests in public policies at all levels—from the international policy commu
nity to the national and local organizations—to plug into and benefit from GPNs. The dy
namics of global production have recently received very significant policy attention in ma
jor international organizations, such as UNCTAD, OECD, WTO, International Labor Orga
nization, World Bank, Eurostat, and so on. Each of these has produced a range of widely
circulated official reports between 2011 and 2014.4 These organizations are primarily in
Page 19 of 31
terested in the impact of GPNs on such critically important topics as economic develop
ment, technological innovation, economic and social upgrading, national competitiveness,
industrial and corporate change, entrepreneurship and business strategy, investment pat
terns, global governance, shifting consumption patterns, global environmental change,
and so on. For example, UNCTAD’s (2013, pp. 175–176) World Investment Report 2013
contains the most comprehensive set of policy frameworks for promoting strategic cou
pling with GPNs (but not using that exact terminology, of course). In particular, it has
identified the following key policy challenges for economic development in an intercon
nected world economy organized through the extensive presence of GPNs:
1. How to gain access and connect local firms to GPNs.

2. How to maximize the development benefits from participation in GPNs.
3. How to ensure that opportunities to industrial and social upgrading in GPNs are
realized.
4. How to mitigate the risks involved in participation in GPNs.
5. How to align and synergize trade and investment policies in a world in which the
two are inextricably intertwined.
As one might imagine, these fairly major policy challenges are presented mostly at the na
tional level as if the entire country can be plugged into GPNs, and the existing develop
ment policies can be reworked to stimulate such strategic coupling. To this policy effect,
UNCTAD (2013, p. 175) recommends that ‘active promotion of GVCs and GVC-led devel
opment strategies imply the encouragement and provision of support to economic activi
ties aimed at generating exports in fragmented and geographically dispersed industry
value chains, based on a narrower set of endowments and competitive advantages. And
they imply active policies to encourage learning from GVC activities in which a country is
present, to support the process of upgrading towards higher value-added activities and
diversifying into higher value added chains’. In principle, all of these policy issues can be
explained and understood from the perspective of GPN 2.0. As economic geographers, we
can and should engage critically with the policy recommendations by various internation
al organizations in relation to increasing participation in GPNs. As a critique of this
favourable policy uptake at the international level, Fernández (2015, p. 212) argues that
‘Capitalising on the loss of prestige of the neoliberal tools and policies inspired by the WC
[Washington Consensus] dogma, the GVC approach has gained increasing presence in the
supranational agenda, providing new theoretical inputs for many assistance programs, fi
nancial projects, institutional advisers, and institutional workshops that a few years ago
were outstandingly committed to self-regulative market theory’. Such a critical view of
the mobilization of GVC studies by international organizations and national governments
is also found in recent work by geographers, such as Starosta (2010), Glassman (2011),
and Neilson (2014).
Page 20 of 31
(p. 399) Conclusion

Taking an embedded chronological approach, this chapter has outlined and assessed the
evolving trajectory of GPN research in economic geography over the last fifteen years.
While GPN 1.0 represents a significant epistemological shift towards a relational view of
production networks and global–local economic change, this shift is not yet paradigmatic
in the Kuhnian sense owing to insufficient micro-foundation and theory development.
Nevertheless, the field has matured and evolved into an exciting arena for future re
search. It is well poised to develop new and innovative theory, richer empirical analysis,
and higher policy relevance in the next decade or so. Indeed, we can now witness the ear
ly success in its business model of exporting to outside geography as a discipline. Avoid
ing intra-disciplinary navel-gazing and always looking out for inter-disciplinary possibili
ties, GPN 1.0 in economic geography has already developed emerging integration and
cross-fertilization with other social science disciplines, such as economic and develop
ment sociology, development studies, international political economy, regional studies, in
ternational business studies, and international economics. Looking forward, the next gen
eration of GPN 2.0 research will likely capitalize on the unexpected success of its prede
cessor and set an ambitious agenda for economic geography to tackle the key challenges
in a deeply interconnected world economy.
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Yeung, H.W.-c. (2005a). ‘Rethinking relational economic geography’. Transactions of the

Institute of British Geographers 30: 37–51.
Yeung, H.W.-c. (2005b). ‘The firm as social networks: an organizational perspective’.

Growth and Change 36: 307–328.
Yeung, H.W.-c. (2008). ‘Perspectives on Inter-organizational Relations in Economic Geog

raphy’ in S. Cropper, M. Ebers, C. Huxham, and P. Smith Ring (eds) The Oxford Handbook
of Inter-Organizational Relations, pp. 473–501 (Oxford: Oxford University Press).
Yeung, H. W.-c. (2009). ‘Regional development and the competitive dynamics of global
production networks: an East Asian perspective’. Regional Studies 43: 325–351.
Yeung, H. W.-c. (ed.) (2010). Globalizing Regional Development in East Asia: Production
Networks, Clusters, and Entrepreneurship (London: Routledge).
(p. 406) Yeung, H.W.-c. (2014). ‘Governing the market in a globalizing era: developmental
states, global production networks, and inter-firm dynamics in East Asia’. Review of Inter
national Political Economy 21: 70–101.
Yeung, H.W.-c. (2015). ‘Regional development in the global economy: a dynamic perspec
tive of strategic coupling in global production networks’. Regional Science Policy & Prac
tice 7: 1–23.
Page 29 of 31
Yeung, H.W.-c. (2016). ‘Strategic coupling: East Asian industrial transformation in the
new global economy’, Cornell Studies in Political Economy Series (Ithaca, NY: Cornell
University Press).
Yeung, H.W.-c. and Coe, N.M. (2015). ‘Toward a dynamic theory of global production net
works’. Economic Geography 91: 29–58.
Notes:
(1.) There is another important strand of literature in international economics that exam
ines production fragmentation, outsourcing and offshoring, and trading tasks in tradable
goods (Feenstra, 1998; Arndt and Kierzkowski, 2001; Antràs and Helpman, 2004; Gross
man and Rossi-Hansberg, 2008; Antràs and Chor, 2013; Baldwin and Venables, 2013; Mil
berg and Winkler, 2013; Koopman et al., 2014). But given my emphasis here on the GPN
literature in economic geography, I will not attempt to engage with this body of work in
international economics. Such an engagement can be found in Coe and Yeung (2015,
Chapter 6).
(2.) Interestingly, some of the key topics in these statements on GPNs were mentioned in
several chapters in the first edition of the Oxford Handbook—inter-firm business net
works and firm-place relationships (Dicken, 2000), clusters, and new inter-organizational
forms (Audretsch, 2000; Porter, 2000), and global commodity chains (Storper, 2000) and
global innovation networks (Hotz-Hart, 2000). But they are not developed in-depth in any
of these chapters.
(3.) http://stats.oecd.org (last accessed 5 July 2017).
(4.) For a selection of these policy documents, see Cattaneo et al. (2010b), OECD (2011),
WTO and IDE-JETRO (2011), Elms and Low (2013), UNCTAD (2013), and Gereffi and Luo
(2014). In this policy discussion, I also draw upon personal experience in conducting con
ceptual training in global production networks and capacity-building sessions for govern
ment policymakers and regulatory practitioners from a large range of developing
economies in East, South, and South East Asia. These seminars and workshops were or
ganized under the auspices of macro-regional development organizations (e.g. the Asian
Development Bank, ASEAN Secretariat, World Free Zones Organization, or Pacific Eco
nomic Cooperation Council) or national governments (e.g. the Malaysian Institute for
Economic Research).
Henry Wai‐chung Yeung
Henry Wai-chung Yeung ([email protected]) is Professor of Economic Geogra

phy at the National University of Singapore. Previously, he has held visiting professor
positions at the University of Sydney, University of Manchester, University of Hong
Kong, and University of Washington at Seattle. His research interests broadly cover
theories and the geography of transnational corporations, global production net
works and global value chains, East Asian firms, and developmental states in the
Page 30 of 31
global economy. Author of five monographs, his latest books are Strategic Coupling:
East Asian Industrial Transformation in the New Global Economy (Cornell Studies in
Political Economy Series, Cornell University Press, Ithaca, May 2016) and Global Pro
duction Networks: Theorizing Economic Development in an Interconnected World
(with Neil Coe, Oxford University Press, April 2015). He has also published over 90
journal papers and 45 book chapters, and edited and co-edited 7 books on Asian busi
ness, globalization, and emerging economies. Since 2001, he has served as an editor
at Environment and Planning A, Economic Geography, and Review of International
Political Economy (2004–13).
Page 31 of 31
Global Sourcing of Business Processes: History, Effects, and Future Trends
Global Sourcing of Business Processes: History, Ef

fects, and Future Trends
Stephan Manning, Marcus Møller Larsen, and Chacko George Kannothra
The chapter reviews key drivers, trends, and consequences of global sourcing of business
processes—the sourcing of administrative and more knowledge-intensive processes from
globally dispersed locations. It is argued that global sourcing, which is also associated
with ‘offshoring’ and ‘offshore outsourcing’, has co-evolved over the last three decades
with the advancement of information and communication technology, a growing pool of
low-cost, yet-often-qualified labour and expertise in developing countries, and increasing
client-side global sourcing experience. It is shown how this dynamic has led firms to de
velop new global capabilities, governance and business models, changed the geographi
cal distribution of work and expertise, and promoted the emergence of new geographical
knowledge services clusters. Further, three new trends are introduced—the emergence of
global delivery models, information technology-enabled service automation, and impact
sourcing—and discuss future directions for research.
Keywords: outsourcing, offshoring, business processes, geographical clusters, new business models, information
and communication technology
Introduction
THE disintermediation and global sourcing of both administrative and more knowledge-
intensive business processes—a trend also referred to as ‘offshoring’ (Manning et al.,
2008)—has been one of the most significant trends across industries and countries in the
last few decades (UNCTAD, 2005; Kenney et al., 2009). It has not only changed the
boundaries of the firm and the way firms perform their corporate functions (Sako, 2006)
and organize innovation (Massini and Miozzo, 2012), but also how productive capabilities
are distributed across geographies (Manning, 2013). It has brought about a new industry
—global business services—and various new business models (Manning et al., 2015). It
has led to fears of massive job losses in advanced economies (Blinder, 2006) and hopes
for boosts of employment and development in emerging economies (Dossani and Kenney,
Page 1 of 25
2007). Finally, it has inspired a rich stream of research across disciplines (Kenney et al.,
2009).
In the following, we provide a selective overview of the current debates and trends in
global sourcing of business processes. We draw on research from multiple domains—in
ternational business, management, information systems, and economic geography—to
match the complexity and cross-disciplinary importance of the phenomenon. While we ap
ply a number of relevant theoretical angles, such as interdependency theory, transaction
cost economics, and co-evolutionary and institutional views, we stay close to the empiri
cal phenomenon itself. Eventually, we invite readers to further explore the various de
bates and perspectives introduced here. The final section elaborates on future research
questions which we regard important in moving research on global sourcing forward.
(p. 408) Empirical Scope

Many agree that global sourcing of business processes has become a mainstream prac
tice. Business processes are typically defined as ‘structured, measured set[s] of activities
designed to produce a specific output for a particular customer or market’ (Davenport,
1993, p. 5). While some processes may be specific to particular products, many are part
of corporate functions supporting organizations across product lines (Sako, 2006). In par
ticular large firms, but increasingly also small and mid-size firms, mostly from advanced
economies, engage in sourcing business processes from abroad in support of domestic or
global operations (Manning et al., 2008). Such processes include information technology
(IT) processes, such as server farm management and IT infrastructure, administrative hu
man resource and legal processes, call centres, finance and accounting, product develop
ment functions, such as engineering support and software development, and analytical
services (Lewin and Peeters, 2006; Manning et al., 2008).
The global sourcing trend has grown rapidly in recent years. Whereas in 2000, only 10
per cent of US firms engaged in global sourcing, by 2007 the number had risen to 50 per
cent (Lewin and Couto, 2007). Western European firms followed more recently, and today
firms from Australia, Asia, Latin America, and even Africa engage in sourcing business
processes globally (Manning et al., 2017). Firms source business processes mostly from
developing countries. US firms have offshored mainly to India (50% of projects), Latin
America (11%), China (9%), and other Asian countries (11%), notably Philippines (Man
ning, 2013). In India, around three million people work in the IT and business process
outsourcing (BPO) sector (Sharma, 2015). The Philippines counts around 1.2 million BPO
workers (Magkilat, 2015). Many firms from continental Europe initially focused on East
ern European locations, but, facing saturated labour markets, they have also gradually
started sourcing from Asian locations.
Whereas in the past most client firms would set up wholly owned captive centres for
sourcing projects, today a large share is taken up by specialized external service
providers, many of whom are based in the US or India, such as Accenture, Wipro, Infosys,
and IBM Global Services (Couto et al., 2008). According to recent estimates by the Indian
Page 2 of 25
outsourcing association NASSCOM (2015), the total market size for outsourcing IT and
business processes has grown rapidly to US$150 billion. Providers have not only learned
to offer a variety of services (Athreye, 2005; Ethiraj et al., 2005), but also to set up deliv
ery centres and tap into talent pools in locations across the world (Manning et al., 2015).
Thus, firms’ choice of sourcing location is increasingly affected by the availability of
providers in these locations. Therefore, clients not only outsource processes, but also del
egate location decisions and associated risks to providers.
Drivers and Historical Development

The trend of global sourcing of business processes has been driven by several technologi
cal, economic, and organizational factors. One key technological driver has been the
(p. 409) advancement of information and communication technology (ICT) (Mithas &
Whitaker, 2007). On the one hand, the installment of high-speed transatlantic fibre-optic
cables (Metters and Verma, 2008) along with improved telecommunication infrastructure
in developing countries, such as India (Dossani and Kenney, 2007), has rapidly reduced
the cost and increased the capacity of long-distance communication. On the other hand,
advanced ICT has facilitated the digitization of processes and tasks, especially those
whose ‘information intensity’ is high (Apte and Mason, 1995). This has led many scholars
to argue that those tasks whose information intensity is high and whose performance
needs neither physical presence nor personal face-to-face interaction with clients can, in
principle, be disaggregated and sourced from separate locations (Apte and Mason, 1995;
Blinder, 2006). Interestingly, this is particularly true for ‘knowledge work’, which is tradi
tionally performed by skilled professionals (Sinha and Van de Ven, 2005). Not surprising
ly, early offshoring experiments focused on IT, engineering, and software services, later
followed by analytical work and product design.
Beside these technological factors, one key economic driver has been the perceived
labour cost advantages of sourcing from developing countries (Lewin and Peeters, 2006).
This includes the increasing availability of qualified and potentially lower-cost science
and engineering graduates (Manning et al., 2008; Lewin et al., 2009). As the relative
number of available young professionals in developing versus developed countries has
been increasing rapidly in recent years (Freeman, 2006), sourcing high-skilled work from
India, China, and other emerging economies has become increasingly attractive—even
beyond initial cost advantages. Also, specialized service providers have become increas
ingly available and are able to take on numerous tasks and generate not only cost advan
tages, but also speed up processes for clients (Couto et al., 2008; Manning et al., 2015).
One key facilitating factor has been the ability of service providers to ‘commoditize’
processes, that is, to make processes less firm-, product-, and industry-specific (Daven
port, 2005) and thus generate specialization advantages vis-à-vis client firms (Athreye,
2005; Ethiraj et al., 2005). Finally, aside from exploiting cost and specialization advan
tages, many client firms generate co-location advantages, for example by bundling
Page 3 of 25
processes from across divisions in single locations, and creating synergies with expand
ing into new markets, for example by setting up regional headquarters.
Finally, there have been important organizational factors partially explaining the trend of
global sourcing in recent years. In particular, growing firm-level experiences with global
sourcing have accelerated recent sourcing decisions (Jensen, 2009; Gospel and Sako,
2010). For example, the 2006 decision of Cisco Systems to establish their second head
quarters and global innovation centre in Bangalore, India, arguably built on a history of
offshoring experiences in India prior to that investment (Cisco, 2016). Likewise, research
suggests that, quite independent of the growing service provider industry, many firms
have accumulated global sourcing experience and capabilities through experimenting
with setting up global captive centres (Manning et al., 2008). These experiments have
triggered investments into organizational capabilities, such as communicating between
remote locations, that have facilitated future sourcing decisions and led to the develop
ment of global operational capacities (Jensen, 2009; Manning, 2014).
Relatedly, prior studies suggest that early experiences of lead firms, such as Microsoft
and Motorola, in India and other offshoring destinations have generated trust among fol
lowers in setting up their own operations in the same locations (Reddy, 1997; Patibandla
and (p. 410) Petersen, 2002). As a result, enclaves of foreign firms have established in par
ticular offshore locations, such as German engineering firms that followed industry lead
ers in offshoring engineering work to Eastern Europe to tap into the growing pool of engi
neering graduates in these countries (Manning et al., 2012). Subsequent waves of foreign
direct investment in particular locations have co-evolved with the emergence of talent
pools and provider capabilities which, in conjunction, have led to the emergence of
‘knowledge services clusters’ (Manning, 2013), which continue to attract global sourcing
projects today.
These drivers have taken effect over the course of around three decades. Arguably, the
foundation for today’s global sourcing trend was laid in the early 1980s when a number of
(mostly) US client firms began experimenting with offshore sourcing. One such experi
ment was Caribbean Data Services—a captive offshoring unit created by American Air
lines in Barbados in 1983 in order to collect revenue data from used airline tickets and,
later, to handle insurance paperwork (Metters and Verma, 2008). Both used to be flown to
Barbados, and data entry results were sent back electronically via satellite. The main dri
ver for this experiment was labour cost savings of 50 per cent compared with doing the
same work in the US (Tulsa, OK). Another parallel experiment was the setting up of cap
tive centres by US insurance companies in Ireland to process health insurance claims. A
number of US lead firms, such as Microsoft, General Electric (GE), Hewlett Packard, and
Texas Instruments, further explored opportunities of setting up shared services centres
and joint-venture contracts for software development and other services in India in the
mid-1980s, thereby pushing the development of standards, graduate training pro
grammes, and telecommunication infrastructure in that country (Patibandla and Pe
tersen, 2002). By the mid-1990s, US firms had created offshore jobs for up to 10,000
Page 4 of 25
workers in the Caribbean, 3000 workers in Ireland, and 20,000 workers in Asia, mostly
India (Wilson, 1995).
From the mid-1990s to the late 2000s, global sourcing experienced rapid growth
stimulated by successful experiments of lead firms, supportive export promotion, and in
frastructure policies of host governments, in particular India, and the emergence of spe
cialized service providers, especially in India, such as Wipro, TCS, and Infosys. The latter
would gain experience through contracts with lead firms coming to India, such as GE
(Metters and Verma, 2008), as well as on-site low-level software service work, including
coding, testing, and support, at US client firms in the early 1990s. This also allowed
providers to gradually develop transferable client-serving capabilities (Ethiraj et al.,
2005). With an improving telecommunication infrastructure in India, growing trust of
client firms in offshore resources, and an increasing capacity of service providers, more
and more projects would be located and performed offshore. The growth trend was fur
ther promoted by two events: firstly, many client firms needed a massive number of IT
professionals in 1999 to fix the Y2K bug, benefitting mainly Indian firms (Metters and
Verma, 2008). Secondly, the stagnating number of Science and Engineering graduates in
the US combined with an unexpected cut in H1B visas in 2003 created a temporary short
age of science and engineering professionals, which arguably led many US firms to
search for personnel offshore (Lewin et al., 2009). As a result, client firms gained off
shore experience and developed capabilities allowing them to expand offshore operations.
Since the late 2000s, we have been experiencing a consolidation and transformation of
the global sourcing trend. The increasing commoditization of processes has, on the one
hand, led to a rapid expansion of the outsourcing business, but, on the other hand, in
creased (p. 411) pressure on margins for service providers (Couto et al., 2008; Manning et
al., 2015). Clients have gained experience with global sourcing, and expectations of ser
vice quality have increased. This has led to increasing investment of providers into new
business models and service innovation. Firstly, providers have started to increasingly ex
pand service operations and set up service delivery units across the world to better meet
client demands. Secondly, providers are experimenting with using applied artificial intelli
gence to process client data more efficiently and make their services more attractive.
Thirdly, new market niches have emerged, most notably so-called ‘impact sourcing’,
which serves the growing interest of clients in combining outsourcing decisions with cor
porate social responsibility considerations. We discuss these trends further below.
Management of Global Sourcing Relationships

While many firms took initial global sourcing decisions for opportunistic reasons, such as
saving costs, many have expanded both internal and external sourcing relationships, fol
lowing the well-known mantra ‘went for price, stayed for quality’ (Dossani and Kenney,
2007). Yet, managing global sourcing relations is not a straightforward task and may turn
out more difficult than originally anticipated. For example, not only may global sourcing
provoke internal resistance in the domestic organization, but it may also impede produc
Page 5 of 25
tivity due to lack of trust, status differences between domestic and foreign units, and poor
communication and interaction in business process delivery (e.g. Levina and Vaast, 2008;
Vlaar et al., 2008). Employees with cultural and language differences at geographically
dispersed locations, whether offshored or outsourced, are refrained from informal face-to-
face coordination, and are required to rely on inferior technology-based coordination
mechanisms (Storper and Venables, 2004; Manning et al., 2013). Also, Larsen et al.
(2013) find that growing complexity of global sourcing—both with respect to the organi
zational configuration and the tasks being sourced—produces ‘hidden costs’ as it under
mines decision makers’ ability to estimate accurately the costs of sourcing activities
abroad.
As such, the complexities and uncertainties resulting from the relocation of processes
may affect the ability of firms to reintegrate and perform processes effectively across lo
cations, thus affecting their ability to achieve anticipated performance outcomes (Larsen
et al., 2013). Managing the increased complexity of operations across locations may re
quire larger investments into coordination, and firms must thus engage in the coordina
tion of international operational networks across geographies, cultures, and different in
stitutional systems (Niederman et al. 2006; Kumar et al., 2009; Srikanth and Puranam,
2011). As business processes, to various extents, interdepend with other processes and
activities, research has stressed that firms need to devise appropriate mechanisms of
communication and knowledge transfer—ranging from often cost-intensive personnel ro
tation and other informal practices, to implementing enhanced videoconferencing and
other technologies. In a similar vein, Srikanth and Puranam (2011) argue that firms need
to make additional investments in (p. 412) new communication channels, shared training,
coaching, and other ‘tacit forms of coordination’, to manage the interdependencies across
locations.
In managing global sourcing relationships, two decisions are particularly important:

choice of governance mode and sourcing location. On the one hand, prior research indi
cates that choice of governance mode and supplier can be critical for clients in managing
global sourcing complexity. Using transaction cost-economics logic, Griffith et al. (2009)
find that the asset specificity and uncertainty of the transaction has a direct impact on
whether the business process is implemented internally or through an outsourcing
arrangement. However, aside from transaction uncertainty, strategic and operational dri
vers play a similarly important role, including the ability of providers to drive down costs,
provide access to talent and expertise, and speed up service delivery (see e.g. Manning et
al., 2015). Also, research suggests that client–provider relationships tend to sustain over
time (Manning et al., 2011), even though switches in suppliers and governance modes
may also happen (Petersen et al., 2010). On the other hand, selecting the right sourcing
location is a key concern of firms as they build up globally dispersed operations. For ex
ample, firms have been found to choose locations with favourable wage differentials,
knowledge infrastructure, availability of qualified personnel, and preferable country risks
relative to the home country (Bunyaratavej et al., 2008; Doh et al., 2009). Also, firms are
more likely to choose locations where they have previous experience (Demirbag and
Glaister, 2010) or ethnic ties (Zaheer et al., 2009). Increasingly, however, client firms del
Page 6 of 25
egate location choices to international providers who operate global networks of delivery
centres on behalf of clients (Manning et al., 2015).
Another important concern is the ability of firms to build up and exchange, but also pro
tect knowledge in global sourcing relations. For example, what kind of knowledge is nec
essary to ‘transfer’ to an outsourcing partner to facilitate an efficient process delivery?
Can the communication channels be standardized and formalized without jeopardizing
knowledge content (see e.g. Manning et al., 2013)? In this respect, while global sourcing
is often portrayed as a learning-by-doing and opportunistic process (Maskell et al., 2007;
Jensen, 2009; Asmussen et al., 2016), research shows that firms with previous sourcing
experience generally display better performance in new sourcing ventures than firms
with no or little experience. For example, Hutzschenreuter et al. (2007) argue that firms’
past sourcing experience may influence the range of issues and possibilities that man
agers consider when making global sourcing decisions. Equally, in a recent simulation
study, Asmussen et al. (2016) find that when firms aim to source functions from geograph
ically distant locations, pursuing a strategy based on prior experience is more effective,
as it reduces the risk of being overwhelmed by coordination costs after the implementa
tion.
Finally, much literature has focused on performance implications of different global

sourcing decisions and designs. For example, Larsen (2016) finds that a modular task de
sign reduces hidden costs, whereas ongoing communication has a negative impact. Be
side hidden costs (Larsen et al., 2013), research has looked into numerous other perfor
mance implications, including corporate financial performance (Mol et al., 2005), cost
savings (Lewin and Peeters, 2006), export performance (Bertrand, 2011), and sales
growth (Murray et al., 1995)—and non-financial performance measures, such as learning
and organizational transformation (Maskell et al., 2007; Jensen, 2009; Asmussen et al.,
2016) and innovation performance (Nieto and Rodríguez, 2011).
(p. 413) Emergence of Knowledge Services Clusters

The recent global sourcing trend has had profound implications for the geographical dis
tribution of work. Many scholars have wondered whether global sourcing, along with the
digitization and commoditization of work, has made the world more ‘flat’, where location
advantages become less important (Friedman, 2005; Mithas and Whitaker, 2007), or
whether the world remains ‘spiky’ (Florida, 2005; Ghemawat, 2011). This question seems
particularly relevant for the global distribution of so-called knowledge work, including en
gineering, software development, product design, R & D, and analytical services. We ar
gue that while a larger number of cities and regions participate in providing such work
for global clients, the geography of knowledge production is rather ‘spiky’ and dominated
by so-called ‘knowledge services clusters’ (KSCs).
Specifically, KSCs can be defined as geographical concentrations of lower-cost technical

and analytical skills serving a rising global demand for commoditized knowledge services
(Manning, 2013). Examples for KSCs include Bangalore, Chennai, and Pune for software
Page 7 of 25
services (Zaheer et al., 2009; Sonderegger and Taeube, 2010), and Beijing, Sao Paolo,
Moscow, and Bucharest for R & D services (e.g. GlobalServices, 2008). Similar to other
clusters, KSCs feature geographical agglomerations of firms, labour pools, and institu
tions that are more or less specialized and interconnected, and that belong to a particular
domain (e.g. Giuliani, 2005; Iammarino and McCann, 2006).
KSCs also have two specific features (Manning, 2013). Firstly, they develop around busi
ness services, such as software development, testing, and computer-aided design, rather
than technologies or products. Secondly, they serve global clients, who are spread across
rather than within particular industries. This is because knowledge services are increas
ingly decoupled from end products and market or industry specifics, that is, they are in
creasingly commoditized, which generates productivity gains for specialized service
providers (Sako, 2006). To some extent, KSCs combine features of both high-tech clusters
(e.g. Silicon Valley, or Route 128 in the US), and low-cost manufacturing clusters in
emerging economies. Like high-tech clusters, they rely on specialized providers and high-
skilled workers, as well as university programmes that produce such skills. Yet, like low-
cost manufacturing clusters, their existence also relies on significant labour cost advan
tages, which is why KSCs are mainly found in emerging, rather than advanced economies.
Because of this dual nature, KSCs are subject to the ‘ambivalent effect’ of service com
moditization (Manning, 2013, see Figure 21.1). On the one hand, increasing commoditiza
tion, for example of software and engineering support services, may increase client de
mand for such services across industries, which, in turn, helps expand markets and gen
erate scale and scope economies for providers in KSCs. This may also explain how a
growing number of locations have been able to provide business services to global
clients. However, with increasing commoditization, location switching costs decrease for
clients as well, as other KSCs may provide similar services and skills, which, in turn, in
creases competitive pressure on any particular location.
In trying to reduce competitive pressure, KSCs may benefit only to some degree from
building specificity. Unlike in the case of high-tech clusters, whose skill sets serve highly
specific client demands which allows them to develop a distinct competitive advantage
owing to high imitation barriers, in the case of KSCs, high specificity of knowledge ser
vices (p. 414) involves considerable disadvantages. Most importantly, high product or
client specificity may lower the applicability of local service capabilities. Unlike high-tech
clusters whose success depends on highly specific expertise in technologies for end users
in particular industries, KSCs are selected by clients because they provide more generic,
often low-value adding knowledge services, for example engineering tests, which feed in
to globally dispersed R & D client operations.
Page 8 of 25
Figure 21.1 Ambivalent Effect of Service Commoditi

zation on Geographical Cluster Growth.
Source: Manning (2013).
Therefore, KSCs are more likely to grow and continuously attract client projects within a
global competitive space if the level of service commoditization is ‘medium’. This allows
for a sufficiently high volume of transactions and projects, while also generating some
distinctiveness to lower the threat of imitation and to increase relocation costs for busi
nesses operating in these clusters. One example of ‘medium’ commoditization is the pro
vision of tech support to clients in the same time zone. While tech support can be highly
commoditized, time zone proximity allows more immediate service and narrows down lo
cation options for clients demanding such service. Another example is high levels of ser
vice capability within a recognized standard system, such as the capability maturity mod
el for software development, which meets standards requirements of clients, yet helps
differentiate from locations with lower standards levels (e.g. Arora et al., 2001; Ethiraj et
al., 2005).
In the emergence of KSCs, linkages to advanced economies have been an important dri
ver (Lorenzen and Mudambi, 2013). Many KSCs initially benefited from foreign direct in
vestment of Western multinational enterprises (Patibandla and Petersen, 2002; Manning
et al., 2010). Lead foreign firms often ‘customize’ local business conditions, for example
by promoting process standards, building infrastructure, and sponsoring university pro
grammes to produce the talent they need (see e.g. Manning et al., 2012). This has en
abled KSCs to develop a strong global orientation, but has also limited their aspirations of
becoming a new ‘Silicon Valley’. For example, Manning et al. (2012) describe how a Ger
man engineering firm (p. 415) has transformed a local university in Romania into a
provider of qualified engineering graduates, which has attracted numerous client firms
interested in offshoring engineering work since then. At the same time, this firm has pre
vented the local university from launching more sophisticated R & D projects, which
might compete with university alliances back in Germany. In other words, the engage
ment of multinationals often helps build and embed KSCs in global production networks
Page 9 of 25
(see also Humphrey and Schmitz, 2002), but it may also limit or slow down further up
grading aspirations.
In addition, diaspora communities and returnee entrepreneurs have played a significant

role in building KSCs (Kenney et al., 2013). Oftentimes, diaspora effects kick in after an
emerging cluster already provides favourable conditions for employment and entrepre
neurship, for example through supportive governmental policies and the arrival of lead
multinationals (Kenney et al., 2013). The case of Bangalore is a good example (Lorenzen
and Mudambi, 2013). Up to the early 1990s, many Indian science and engineering stu
dents and young professionals moved to Silicon Valley; when US visa policies got more re
strictive, and conditions in cities like Bangalore became more attractive, many returned
home, often to start their own business to serve US clients with whom they had already
established relationships. These diaspora entrepreneurs have helped further ‘embed’
KSCs into global production networks (Saxenian, 2005)—by transferring business models
and practices from environments that are familiar to global clients and by adapting busi
ness models to specific local context conditions, such as lower cost labour.
Recent studies suggest that new diaspora waves, for example of Indians into Africa, and
the internationalization of global service providers, have promoted the emergence of new
service hubs (PwC, 2011; Manning et al., 2017). Manning (2013) suggests that KSCs are
more likely to attract client projects continuously if both globally operating MNCs (clients
and/or providers) and local entrepreneurial providers are located in that cluster. Domi
nance of either global or local players will lower the attractiveness of a KSC. However,
the properties and importance of KSCs will also depend on at least two trends we discuss
further in the next section: strategies of internationalization of service providers, and
cloud and other technologies affecting the dependence of clients and providers on any
one location.
New Trends in Global Sourcing

Internationalization of Service Providers and Global Delivery Models
One of the most important recent trends in the global outsourcing industry is the interna
tionalization of service providers. For a long time, service providers mainly operated out
of one location and occasionally sent on-site teams to client locations. As services have
become more commoditized and competition for global client projects has increased, es
pecially larger providers have begun to establish more permanent delivery centres all
over the world (Manning et al., 2015). Accenture, Infosys, and other major providers to
day have numerous delivery centres globally. In fact, Offshoring Research Network data
suggests that over (p. 416) 50 per cent of US providers have built up delivery centres in
India, and over 50 per cent of Indian providers have established delivery centres in the
US (see e.g. PwC, 2011).
Page 10 of 25
Figure 21.2 Global Delivery Model.
Source: Manning et al. (2015).
The way in which service providers have set up delivery centres not only resembles his
torical trends in manufacturing, but also shows some unique features. In manufacturing,
such as automotive production, location choices of suppliers have to a large extent been
explained by so-called ‘follow-the-client’ strategies, in which suppliers typically follow
their major clients in their international expansion in order to meet the expectations of
clients to develop and maintain highly integrated relationships with their main suppliers
(Erramilli and Rao, 1990). Co-location can lower coordination and transportation costs
and also enable better control of supplier performance (Yeung et al., 2006). Also it helps
suppliers better match co-location advantages of their foreign rivals (Martin et al., 1998).
This may partly explain the rationale of many Indian service providers, such as Infosys, to
set up consulting units in the US that allow them to better initiate and manage deals with
US clients.
However, the recent study by Manning et al. (2015) suggests that another major driver
for setting up global delivery hubs is the ability to better manage time zone differences
and set up what many have called ‘global delivery models’ (GDMs) (Carmel, 2006; Ang
and Inkpen, 2008). These enable a ‘service provider to deliver seamless services from an
optimized delivery structure that involves resourcing skills and resources’ (Ang and
Inkpen, 2008, p. 339). Unlike sales offices, GDMs constitute a globally integrated service
delivery system which typically involves multiple centres at globally dispersed locations
that contribute to the delivery of particular client services, for example IT system mainte
nance, call-centre operations, or software development.
GDMs thereby encapsulate two locational components (see Figure 21.2). Firstly, in order
to establish GDMs, service providers set up international units that establish time zone
proximity to core clients so that timely and efficient coordination and negotiation of or
ders and tasks can be carried out. While this does not exclude physical proximity with
clients, it is not a necessity. Anecdotal evidence suggests that the reason why US or Indi
an providers have expanded into Central and South America (e.g. Costa Rica in the case
of Infosys) or South Africa (in the case of Accenture) is a combination of resource access,
language abilities, and time zone proximity to major US or European clients.
At the same time, providers set up or maintain units that allow for time zone spread of op
erations to access various resources and to operate 24/7. When asked about their new de
livery centre in Brno, Czech Republic, Infosys CFO Mohandas Pai describes the approach
of his company in the following way: ‘The Brno centre is part of our strategy to build
nearshore centres in various parts of the globe. This, along with our large offshore
Page 11 of 25
centres in India and the centre in China, gives us an expanded global network, al
(p. 417)
lowing proximity to our clients and seamless flow of work on a 24 × 7 basis’ (Infosys,
2007 cited in Manning et al., 2015). Advanced ICT has thus enabled a new form of inter
national expansion and coordination of business service delivery, in which location deci
sions need to be seen as part of configurations of interrelated client-serving and back-of
fice units across time zones.
This type of business model innovation may be the onset of a new rationale for interna
tionalizing operations in other sectors as well. For example, whereas production facilities
may continue to benefit from co-location with client sites (Majkgard and Sharma, 1998;
Yeung et al., 2006), supporting digitized service operations may follow different global
distribution patterns where positioning in particular time zones may become a more im
portant driver of resource allocation. At the same time, the increasing ability of global
service providers to obtain relational quasi-rents by bundling services and building hub-
and-spoke operations targeting various clients (see also Sako, 2006) may help them take
‘service intermediary’ functions in other business-to-business industries as well.
New Technologies and Service Automation
As ICT keeps advancing, global sourcing practices keep changing as well. A recent study
by the World Economic Forum suggests that around five million administrative and office
jobs across major economies will be made redundant by 2020 through advanced technolo
gy (World Economic Forum, 2016a). The study emphasizes, in particular, the driving force
of mobile Internet applications and cloud technology, big data processing applications,
and the ‘Internet of Things’—the increasing remote accessibility and interconnectedness
of physical objects and infrastructure, including transportation, energy supply, buildings,
and mobile technology (World Economic Forum 2016b). In addition, artificial intelligence
will be increasingly employed to process large amounts of data to operate such systems.
This ongoing process is often associated with the ‘Fourth Industrial Revolution’, which
marks the ‘fourth’ major technological transition—from the introduction of water and
steam power (first), electric power (second), digitization and automation (third)—to com
bining and automating the use of artificial intelligence with the Internet of things and ser
vices.
Davenport and Iyer (2015) suggest that the trend of service automation will radically im
pact global sourcing practices. They suggest that ‘automation, which uses algorithms and
artificial intelligence to do tasks now done by humans, could reshape the entire IT ser
vices and business process outsourcing (BPO) landscape’ because, once set up, automat
ed services may drastically reduce labour costs. This can already be observed in many
ITO and BPO domains. For example, whereas twenty years ago many firms ran their own
call centres in house, they then started gradually to outsource call centre operations to
providers in developing countries thereby benefiting from labour cost arbitrage. Today,
however, many firms are transitioning to automated response services based on pre-
recorded scripts for incoming calls (Tufekci, 2015). Similarly, researching for court cases
has transitioned from law firms internally processing masses of legal documents by hand
Page 12 of 25
to an industry where documents are increasingly analysed by data processing software

semi-automatically (Markoff, 2011).
These trends are predicted to have a significant impact on global employment dy
(p. 418)
namics. On the one hand, as predicted by the World Economic Forum (2016a) report, new
service automation technology is likely, at least temporarily, to make human service jobs
redundant. Observers predict, in particular, a reduction of jobs in developing countries
(Treanor, 2016), specifically those that were previously created to cut costs—at a time
when replacing them with automated services was still too costly. By comparison, in the
near future automation may undercut human labour cost. One obvious example is the pro
cessing of inbound calls using improved speech recognition and basic algorithms to direct
callers to pre-scripted standard answers.
On the other hand, service automation may create new, semi-skilled jobs to assist the
‘functioning’ of technology. This process has been historically observed whenever new
digital and automation technology was introduced into the workplace, such as computer
ized numerical control machines in the 1970s and 1980s. Critical scholars, in the Marxist
tradition, referred to this event as a threat to the profession of machinists. Francis (1986)
describes how human labour was ‘reduced’ to monitoring automatic control systems and
to trouble-shooting in case computerized numerical control machines malfunction—an ef
fect sometimes referred to as ‘deskilling’, as it either replaces or reduces professions to
technology ‘assistance’. Similarly, it can be predicted that semi-automated service tech
nology may continue to create more or less skilled human work to ‘assist’ new systems.
For example, new software systems need to be installed, upgraded, and tested, and staff
needs to be trained on new systems; new systems will continue to produce errors that
need to be fixed and monitored; data processing software will always have restrictions in
terms of what data can be processed, which requires ‘pre-cleaning’ and manual input of
‘dirty data’; automated systems are unlikely to cover the entire workflow, which requires
human labour to ‘connect workflows’; and client demands will continue to be negotiated
and clarified—a task left to ‘human labour’.
Inclusive Sourcing Practices: Rural Sourcing and Impact Sourcing
The third trend we emphasize here relates to the increasing concern about employment
and development effects in global sourcing. In particular, countries around the world
have tried to develop an outsourcing industry as a way to promote economic development
(Manning, 2013). However, these efforts have typically focused on a certain segment of
urban, highly trained professionals, while neglecting less privileged—for example, rural,
unskilled, disadvantaged—parts of the population.
Recently, two related trends have emerged that may promote more inclusive employment
and development through global outsourcing jobs. One trend that is mainly driven by the
potential to further cut labour costs is so-called ‘rural sourcing’—the creation of outsourc
ing jobs in suburban and rural areas (Lacity et al., 2012). As service providers in urban
centres (e.g. Bangalore) experienced rising infrastructure costs and wages, combined
Page 13 of 25
with client pressure to further reduce cost, they started exploring the option of moving to
smaller cities and rural areas. Moving to rural locations helps lower local competition for
talent and reduces operating costs. This has created job opportunities for college gradu
ates and young people outside the main IT clusters like Bangalore (e.g. Kannothra and
Manning, 2016).
In parallel, another trend has emerged many refer to as ‘impact sourcing’ (IS),
(p. 419)
which partly includes, but also extends beyond, ‘rural sourcing’. Unlike the latter, IS has
been mainly driven by development initiatives and concerns for more inclusive employ
ment. In particular, the Rockefeller Foundation has been instrumental in promoting IS—a
new model of global service outsourcing that focuses on providing employment opportu
nities to disadvantaged groups in society. This includes people in slums and minorities,
whose access to education and income is limited, which prevents them from pursuing de
cent livelihoods and employment opportunities. It also includes people with physical dis
abilities (e.g. impaired hearing) whose access to regular jobs and careers is severely con
strained (Hockerts, 2015).
The Rockefeller Foundation (2013) first experimented with IS by sponsoring pilot pro
grammes under the label ‘Digital Jobs Africa’ in Kenya, Ghana, South Africa, Nigeria,
Egypt, and Morocco in 2013. The idea was to promote and fund so-called ‘impact sourc
ing service providers’ (ISSP) that are profitable while achieving community impact by hir
ing and training staff from disadvantaged groups. IS service providers thus represent a
new form of hybrid business model—or ‘social entrepreneurship’—in combining business
and social objectives (Battilana and Dorado, 2011; Haigh and Hoffman, 2012). At the
same time, it was anticipated that major clients would take an interest in IS as it helps
better link outsourcing to corporate social responsibility initiatives (International Associa
tion of Outsourcing Professionals, 2012). However, it was equally expected that clients
will continue to care mostly about cost and quality, which would pose a challenge to de
veloping IS into a niche market (Bulloch and Long, 2012). Yet, IS has already developed
into a successful new outsourcing business model, in particular in sub-Saharan Africa, but
also in India and to some extent in the US (Kannothra et al., 2017; Manning et al., 2017).
According to the Avasant Group (2012), the market for IS is expected to grow rapidly and
account for around 17 per cent of the global outsourcing industry thereby employing
around three million people worldwide by 2020.
Directions for Future Research

Following our review, we make some selective recommendations for future research. We
focus, in particular, on questions of governance of global sourcing relationships, and geo
graphical location and distribution of sourcing activities. Recommendations are equally
driven by changing research agendas and the dynamics of the global sourcing trend itself.
Firstly, we encourage future research to pay attention to the emergence of new interme
diaries in global outsourcing. In particular, the advancement of ICT and the emergence of
new sourcing models may generate incentives for new businesses to develop and offer
Page 14 of 25
new, specialized capabilities to both global clients and conventional providers. As busi
ness model innovation has become a growing domain of management research in recent
years (Chesbrough, 2010), we argue that the global outsourcing industry may be an ex
cellent example of an industry with frequent cycles of business model innovation, driven
by the rapid advancement of ICT, global competitive pressure, and growing process com
moditization. For example, the rise of Internet-based sourcing platforms, such as e-lance
and Innocentive, suggest that the global sourcing space is gradually merging with crowd
sourcing, open innovation and other Internet-based sourcing practices (Baldwin and von
Hippel, 2011; Fjeldstad et al., 2012; Bayus, 2013). Internet market platforms take inter
mediary roles (p. 420) in managing and translating client requests for particular services
or solutions into marketable transactions. More than conventional service providers, In
ternet market platforms are able to access globally dispersed pools of providers and prob
lem solvers beyond established geographical clusters. However, this emerging space is al
so populated by innovation agents, such as Gen3, that specialize in building networks of
freelancers they mobilize for particular client projects. In this regard, it will be also inter
esting to research to what extent regular service providers make extensive use of crowd
sourcing and open innovation on behalf of their own global clients.
Secondly, as the global outsourcing industry is further professionalizing, another impor

tant, yet under-researched topic is the penetration and effects of standards on business
models, governance, and location choices. Standards have become a pervasive part of or
ganizational life. They are typically defines as ‘rules(s) for common and voluntary
use’ (Brunsson et al., 2012, p. 616). As mentioned earlier, one growing concern in the
global sourcing literature is the role of process standards, such as Capability Maturity
Model Integration (CMMI), for attracting global clients (Athreye, 2005; Niosi and
Tschang, 2009). A recent study by Larsen and Manning (2015) suggests that the level of
adoption of CMMI in a global sourcing destination may lower the otherwise negative ef
fect of institutional distance between home and host country in affecting location choices.
Yet, it can be expected that other types of standards are on the rise. For example, with
the advent of impact sourcing, it can be predicted that labour and social standards may
become an increasingly important consideration for both clients and suppliers, similar to
other sectors, such as textiles manufacturing (Reinecke and Donaghey, 2015) and coffee
production (Reinecke et al., 2012). A better understanding of social standards in the con
text of global sourcing of processes may refine our understanding of labour governance in
global supply chains (Donaghey et al., 2013).
Thirdly, another interesting future research field is the integration of globally dispersed
processes. Whereas prior studies have focused a lot on the rationale for process disinter
mediation and relocation (Mithas and Whitaker, 2007), companies increasingly face the
challenge of re-integrating globally distributed tasks (see e.g. Luo et al., 2012). Again, the
service provider industry has been at the forefront of this process, by moving from the
provision of independent services to integrated solution. Integration capabilities become
important not least because service providers increasingly subcontract various services
to specialized providers themselves (see also PwC, 2011). Learning more about process
integration across geographical distances may advance long-lasting research on systems
Page 15 of 25
integration and systems integrators, in terms of agents that ‘lead and coordinate from a
technological and organizational viewpoint the work of suppliers involved in the net
work’ (Brusoni et al., 2001, p. 613; see also Hobday et al., 2005). In an organizational sys
tem consisting of a number of distributed components and entities, systems integrators
thus become the architects that integrate and coordinate the different capabilities and re
sources of the different actors into a final output.
Finally, we suggest future research to pay attention to global sourcing flexibility in terms
of the ability of firms to adapt governance and location choices to changing environmen
tal conditions. For example, recent studies suggest that firms increasingly move opera
tions within their global networks in response to changing economic and political condi
tions in any one location (Manning, 2014; Jensen et al., 2015). This has important implica
tions for both firms and regions. On the one hand, firms develop the capacity to flexibly
shift operations (p. 421) from one location to another. On the other hand, regions adapt to
a reality where, owing to increasing commoditization of processes and standardization of
skill sets needed to perform those processes (Davenport, 2005; Manning, 2013), firms ad
just local investments and capacities to changing demands in their global network.
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Stephan Manning
Stephan Manning ([email protected]) is Associate Professor of Manage

ment and co-founder of the Organizations and Social Change Research Group at the
College of Management, University of Massachusetts Boston. His research mainly
covers three areas: sustainability standards, global services sourcing, and project-
based organizing. He has done field research in various countries, including China,
Germany, Guatemala, Kenya, Romania, South Africa, and the USA. His research has
been published in numerous academic journals, such as Strategic Management Jour
nal, Journal of International Business Studies, Journal of Management Studies, Orga
nization Studies, and Research Policy. He serves as Senior Editor of Management and
Organization Review. He is also founding co-editor and author of the Organizations
and Social Change Blog, and has written for The Conversation, The Broker, and other
blog platforms.
Marcus Møller Larsen
Marcus M. Larsen ([email protected]) is Associate Professor at the Department of

Strategic Management and Globalization, Copenhagen Business School, and Adjunct
Associate Professor at BI Norwegian Business School. He received a PhD degree
from Copenhagen Business School on the topic of Offshoring and Globalization. His
dissertation won the Peter J. Buckley and Mark Casson Dissertation Award and the
Barry M. Richman Best Dissertation Award in 2014. His research focuses on the or
ganizational design of offshoring and outsourcing and emerging economy multina
tionals. He has published widely on hidden costs of offshoring, strategies, and inno
vation in the wind-turbine industry. He is also a co-editor of two books on strategic
design and innovation in offshoring, and on strategies in emerging markets.
Chacko George Kannothra
Page 24 of 25
Chacko G. Kannothra ([email protected]) is a doctoral candidate at the Or

ganizations and Social Change Program at the College of Management, University of
Massachusetts Boston. His research interests include social entrepreneurship and
hybrid business models, global outsourcing, and inclusive employment and develop
ment. His dissertation focuses on entrepreneurial foundations, growth strategies,
and managerial challenges of hybrid organizations in global outsourcing, so-called
impact-sourcing service providers. Before entering academia, he worked with Accen
ture as a Business Analyst for their Global Compensation and Benefits Administration
programme, as well as a Consultant for the Ministry of Science and Technology, Gov
ernment of India.
Page 25 of 25
Towards New Economic Geographies of Retail Globalization
Towards New Economic Geographies of Retail Global

ization
Neil M. Coe and Neil Wrigley
Since the mid-to-late 1990s, retail globalization has intensified, and a growing multidisci
plinary literature profiles these dynamics. This chapter provides a snapshot of current
levels of retail globalization, before briefly reviewing the literature on the drivers and dy
namics of retail globalization from the late 1990s onwards. The analysis then advances
current understandings in two ways. Firstly, the evidence on the impacts of globalization
is reviewed to highlight that, far from being an inevitable process of rapid retail transna
tional corporation-led modernization, the outcomes have been highly variable and un
even, with profound variations across different national contexts. Secondly, focusing on
the period since the global economic crisis of 2007–08, a new era of globalized distribu
tion is characterized in which economic crisis and profound Internet-induced structural
shifts have changed the dynamics of the process. To conclude, an economic geographical
research agenda that builds upon these two dimensions is mapped out.Chapter keywords
Keywords: retailing, globalization, emerging markets, regulation, competition, supply networks, consumers, e-
commerce
Introduction
By the end of the twentieth century, large retailers had replaced large manufac
turers as the key organizers of the world economy … the retail revolution should
be understood as a … fundamental transformation in the organization of the over
all global economy, the transformation that continues to change not only the world
of retailing, or even the relative power of retailers and their suppliers, but also the
shape of international trade, economic development, product worlds, and con
sumption practices (Hamilton and Petrovic, 2011, p. 3).
WRITING in the first edition of this Handbook in 2000, one of us highlighted the ‘myopic
neglect of distribution systems and industries’ in the burgeoning literature on economic
globalization (Wrigley, 2000, p. 294). In the subsequent fifteen years, understanding of
Page 1 of 32
the significance of retailers within the global economy has been transformed. As Hamil
ton et al.’s The Market Makers makes clear, there is now widespread recognition across
the social sciences of the transformative power of retail capital.
This ‘retail revolution’ has two interrelated aspects. On the one hand, the globalization of
sourcing by large and powerful retailers has transformed a wide range of agricultural and
manufacturing sectors, especially in the domains of agro-food and consumer goods. In the
process, this has facilitated not only new forms of south–north trade flows but also, and
very significantly, south–south trade. On the other hand, the international expansion of
the store networks of leading transnational retailers has played a key role in transforming
retail structures, local supply networks, regulatory frameworks, and consumption pat
terns across a broad range of host economies. These two dimensions have important
functional interconnections. Transnational retailers may seek to develop store operations
in countries where (p. 428) they have established sourcing hubs. Conversely, the develop
ment of local supply capacity driven by investment in store networks may, in turn, gener
ate regional or global sourcing relationships with other parts of the retailer’s operations
—in particular with the retailer’s home market (the Organisation for Economic Co-opera
tion and Development (OECD) study by Nordås (2008) demonstrating that the stimulation
of imports into those markets was likely to be substantial). Taken together, therefore, the
intertwined globalization of stores and sourcing underpin the pivotal role played by large
retailers in the contemporary global economy.
Given that these globalization processes are inherently geographical in nature, what has
been the role of economic geographers in studying these dynamics? At the time of writing
in the first edition, having already by that time conducted a series of studies on the initial
efforts of European food retailers to penetrate the US market (e.g. Wrigley, 1997a,
1997b), Wrigley was essentially a lone geographical voice in a literature on international
retailing that was otherwise dominated by scholars from business and management stud
ies. That chapter, however, successfully diagnosed a new phase of retail globalization
from the late-1990s onwards—incorporating the emerging markets of Latin America, Cen
tral and Eastern Europe, and South East and East Asia—and the research imperatives
therein (Wrigley, 2000). This call to arms attracted other economic geographers, and was
integral to the subsequent development of an increasingly rich corpus of work encom
passing management/business scholars, economic geographers, agricultural economists
and sociologists, among others (see, for overviews, Coe and Wrigley, 2007, 2009). Today’s
multidisciplinary literature on retail globalization extends far beyond the traditional focus
of international retailing research on firm structures and strategies, and considers the
wide range of contested processes of societal and political change that the globalization
process entails. Economic geographers have made significant theoretical contributions to
this work (Alexander and Doherty, 2010), largely from a relational/production network
perspective, that have helped to frame both the distinctive characteristics of the retail
transnational corporation (TNC) and the multifaceted and embedded nature of retail glob
alization dynamics (e.g. Wrigley et al., 2005).
Page 2 of 32
This chapter seeks to do five things against the backdrop of these intertwined real-world
and intellectual trends. We open by providing a quick snapshot of current levels of retail
globalization (reflecting store as opposed to sourcing networks, as there is far more pub
licly available information on the former), highlighting the retailers that have been at the
heart of these processes over the last two decades, before briefly reprising the received
wisdom concerning the drivers and dynamics of retail globalization from the late 1990s
onwards. We then seek to advance current understandings in two ways. Firstly, we review
the available evidence on the impacts of recent globalization to highlight that, far from
being an inevitable process of rapid retail-TNC-led modernization, the outcomes have, in
fact, been highly variable and uneven, with profound variations across different national
contexts. Secondly, and focusing, in particular, on the period since the global economic
crisis of 2007–08, we characterize a new era of globalized distribution in which economic
crisis and profound Internet-induced structural shifts in retail industries have changed
the dynamics of the process. To conclude, we briefly map out an economic geographical
research agenda that reflects these two dimensions.
The State of Retail Globalization: A Con

(p. 429)
temporary Snapshot
In aggregate sales terms, retail globalization has been dominated by a handful of grocery
and general merchandisers that sell a broad assortment of goods; food and drink, non-
food groceries, such as health and beauty products, and non-groceries such as electrical
goods and houseware. With some notable exceptions (e.g. IKEA), the many international
ized specialty and clothing retailers (e.g. H&M) have overall revenues that are dwarfed
by the grocery and general merchandise retailers, despite producing those revenues from
what are frequently much larger store networks. And it was not until 2015 that the
world’s first global pharmacy chain (Walgreens Boots Alliance) emerged, combining an
extensive store network—13,200 stores in eleven countries, with very significant rev
enues of over US$20 billion per year.
Table 22.1 illustrates these points by capturing the top-twenty transnational retailers in
2013. It should be noted that this is the best-available listing of this class of retailers.
That is to say, a ranking of the largest twenty in 2013 by strictly international revenues,
not a ranking by overall revenue, a measure that may simply reflect the scale of the
retailer’s domestic market (e.g. the USA). It can be seen that twelve of the top twenty in
that year were food and general merchandise retailers—including the top seven—and a
further three were involved in convenience stores/general merchandise retailing. Of the
fifteen food/general merchandise/convenience store retailers in the top twenty, only
three, including the exceptional case of Walmart, were from the USA, demonstrating that
contrary to some perceptions, it has been Western European retailers that have largely
driven processes of retail globalization. While the individual firms in the table had shifted
rankings during the preceding decade—for example Ahold had slipped down, while Ama
zon had progressively risen—in large part the constitution of the top twenty remained
Page 3 of 32
fairly stable, with the small cohort of Walmart, Carrefour, Metro, Schwarz, Aldi, Tesco,
and Auchan being permanent fixtures at the top of the listing, until a sudden retrench
ment of Tesco began in 2013.
After some fifteen years of ongoing globalization activity, the scale and scope of transna
tional retailing had become substantial (see Table 22.1). With only three exceptions, the
leading transnational retailers had experienced a rise in their international sales as a per
centage of total sales since the late 1990s (one exception being Ahold following its finan
cial scandal of 2003). Many had seen substantial rises in the proportion of international
sales of over thirty percentage points, with the net result being that twelve of the top
twenty accrued over half their total sales from international markets, compared with just
four in 1999. In terms of scale, all of the top twenty were deriving annual revenues of
over US$10 billion from international markets, with the top fourteen notching over
US$20 billion. In terms of scope, the average number of countries of operation of the top
twenty was twenty-seven, continuing a steady increase since 2000 (in 2000 the top twen
ty average was 15.4 countries, in 2005 it was 17.4, and in 2010 it was 23.6). The 2013 av
erage, however, is lifted somewhat by the extensive networks of clothing, luxury good,
and furniture retailers such as H&M and IKEA; the average number of countries of opera
tion of the fifteen food, general merchandise, and convenience store retailers was 18.5.
While these figures are short of the degree of internationalization which characterizes
certain manufacturing sectors, the activities of these retailers (p. 430) (p. 431) have long
since put an end to the assertion that retailing is essentially a domestic activity, inherent
ly resistant to transnational expansion.
Page 4 of 32
Table 22.1 Leading Transnational Retailers, Ranked by International Revenue in 2013
Rank Name of Country Type of Interna Interna Interna Change in No. of

company of origin retailer tional rev tional rev tional rev % 1999– countries
enue enue, enue, 2013 of opera
(USD, mil 1999 (% 2013 (% tion
lions) of total) of total)
1 Walmart USA Food and 135,201 14 29 +15 28

general
merchan
dise
2 Carrefour France Food and 53,329 38 54 +16 31

general
merchan
dise
3 Metro Germany Food and 52,787 40 62 +22 32

general
merchan
dise
4 Schwarz Germany Food and 48,401 20 56 +36 26

general
merchan
dise
Page 5 of 32
5 Aldi Germany Food and 38,312 33 54 +21 17

general
merchan
dise
6 Tesco UK Food and 34,431 10 34 +24 13

general
merchan
dise
7 Auchan France Food and 33,653 19 57 +38 13

general
merchan
dise
8 IKEA Sweden Furniture 33,490 92 95 +3 41
9 LVMH France Luxury 32,455 48 89 +41 76

goods
10 Casino France Food and 32,025 21 60 +39 26

general
merchan
dise
11 Ahold Nether Food and 28,002 76 66 –10 12

lands general
Page 6 of 32
merchan
dise
12 Costco USA Food and 27,758 19 28 +9 9

general
merchan
dise
13 Amazon USA General 25,185 22 43 +21 11

merchan
dise
14 Delhaize Belgium Food and 22,926 83 78 –5 11

general
merchan
dise
15 H&M Sweden Clothing 16,999 84 96 +8 49
16 Inditex Spain Clothing 16,242 48 79 +31 88
17 Seven & I Japan Conve 15,982 30 27 –3 18

nience
stores
18 Couche- Canada Conve 14,889 0 45 +45 19

Tard nience
stores
Page 7 of 32
19 Rewe Com Germany Food and 13,813 20 28 +8 11

bine general
merchan
dise
20 The Home USA Home im 11,961 4 16 +12 5

Depot provement
Sources: Deloitte (2015), the companies’ annual reports, and Euromonitor (GMID Passport Database).
Page 8 of 32
Using Deloitte’s annual ‘Global Powers of Retailing’ surveys, we can extend our view be
yond the top-twenty cadre to the world’s largest 250 retailers, with the important caveat
that their top 250 is defined in terms of overall, as opposed to international, sales. Again,
there are strong globalization trends. Whereas in 2005, international sales accounted for
only 14.4 per cent of the total sales of Deloitte’s top 250 retailers, it increased to 22.9 per
cent by 2008, and in 2013 it reached 24.2 per cent. Moreover, the average number of
countries of operation of these firms increased from 5.9 in 2005 to 10.2 in 2013.
Just as ‘grocery’ retailers dominate the listing of leading retail TNCs in Table 22.1, so
likewise they dominate Deloitte’s top 250 retailers, accounting for 132 of the top 250 in
2013. What Deloitte call ‘hardline and leisure’ retailers (IKEA, Home Depot, Amazon,
Kingfisher, etc.) constituted the next largest group with fifty-two of the top 250. On aver
age, retailers in this sector operated in more countries than the ‘grocery’ retailers—an
average of 8.7 versus 4.9 in 2013. However, the difference in the percentage of the com
panies’ total sales, which are derived from international operations, was much narrower
at 25.2 per cent versus 23.2 per cent. ‘Fashion goods’ retailers formed the third largest
grouping in Deloitte’s top 250, contributing forty-four of the top 250. Despite being the
group with the highest number of both international market operations and international
sales per company—an average of 27.3 countries of operation and 31.6 per cent of sales—
only three had accrued sufficiently large annual international sales to appear in Table
22.1 (LVMH, Inditex, and H&M). Supporting evidence of these subsectoral variations in
globalization levels drawn from a study of 323 leading retailers conducted by property
company CB Richard Ellis is shown in Table 22.2.
Geographical interrogation of these data (see Table 22.3) reiterates the argument that
European retailers are the most globalized in terms of both revenues and number of
countries: European retailers are shown to gain an average of 38.6 per cent of their rev
enue from 16.2 non-domestic markets, while US retailers derive an average of 15.4 per
cent of revenues (p. 432) from 8.5 markets. Japanese retailers are the least globalized, op
erating in an average of four countries and generating just 9.4 per cent of retail revenue
in foreign markets.
Page 9 of 32
Table 22.2 Differences in Level of Globalization by Retail Sector, 2010–13
Retail sector (num Average number of Average number of % change in number % of firms with on
ber of sample firms, countries in 2010a countries in 2013 of countries, 2010– line offering, 2012
2013) 13
Value and denim (24) 25.8 25.1 –2.7 45
Luxury and business 24.2 24.4 0.8 36

fashion (54)
Coffee and restaurants 21.8 22.3 2.2 11

(19)
Specialist clothing (48) 19.4 19.3 –0.5 29
Mid-range fashion (70) 18.9 18.5 –2.1 30
Other (books, music, 16.9 17.5 3.5 31

pets, etc.) (34)
Consumer electronics 16.6 14.6 –12.0 35

(16)
Supermarkets (21) 10.8 10.5 –2.8 7
Page 10 of 32
Home and department 8.0 8.2 2.5 20

stores (48)
aAs the sample shifted from 323 retailers across seventy-three countries (2010) to 334 retailers across sixty-one countries (2013),
the data from the two years are not, strictly speaking, directly comparable.
Source: CBRE (2011, 2014).
Page 11 of 32
Intense Globalization, mid-1990s–mid-2000s

The extensive geographies of today’s leading retail TNCs have largely been constructed
in the period since the mid-1990s. While retail globalization has a long history dating
back to the late nineteenth century (see Alexander, 1997, for a periodization), the late
1990s undoubtedly saw the initiation of a period of international expansion that was pre
viously unparalleled in terms of scale, scope, and speed (Coe, 2004). The preconditions
for the expansion were established in the home markets of these retailers during the
1980s and 1990s with the growing concentration—albeit at variable rates across different
advanced economies—of retail capital, which saw market structures shift from those dom
inated by small businesses to ones which accounted for some of the largest firms in the
national economy. This growing concentration of capital underpinned a broader shift from
‘supply push’ to ‘demand pull’ distribution systems in which retailers emerged as lead
firms across a wide range of supply chains. They were able to use their increasing scale
and market power to generate competition among suppliers and thereby counteract the
power of large manufacturers, and also to develop their own private-label brands in di
rect competition with supplier brands (Wrigley (p. 433) and Lowe, 2002). Growing concen
tration and retailer power intersected with the rise of so-called ‘lean retailing’ practices
(Abernathy et al., 2000) in which integrated logistics and supply-chain management
methods were mobilized to reduce retailer inventories through just-in-time delivery sys
tems that harnessed information and communications technologies to connect electronic
point-of-scale information with the tracking of orders.
Table 22.3 Level of Globalization of Top 250 Global Retailers by Region/Country, 2013a
% retail revenue from Average number % single-coun

foreign operations of countries try operators
Top 250 24.4 10.2 34.8
Africa/Mid 25.1 12.1 0.0

dle East
Asia/Pacific 14.0 5.4 43.6
Japan 9.4 3.9 45.2
Other Asia/ 18.9 7.4 41.7

Pacific
Europe 38.6 16.2 22.2
Page 12 of 32
France 43.6 28.6 7.1
Germany 45.4 15.4 5.9
UK 21.5 16.1 21.4
Latin 22.9 2.3 40.0

America
North 14.7 7.8 44.3

America
USA 15.4 8.5 40.5
a
Results reflect top 250 retailers headquartered in each region/country.
Source: Deloitte (2015).
By the mid-1990s, these home-market factors saw leading retailers accruing significant
profits, in turn leading to pressure from financial markets to sustain the impressive earn
ings growth (and therefore equity valuations) of the preceding decade. Many had already
established global sourcing strategies at this stage, but international store expansion re
mained a relatively untapped route. During the late 1990s, however, investment opportu
nities arose across a range of so-called ‘emerging markets’—providing those retailers
with the promise of being able to maintain revenue growth in the medium- to long-term
through expanded store networks. The emerging markets offered several important op
portunities in this respect: potentially rapid economic development and rising levels of af
fluence, consumer spending, and retail sales, in combination with low levels of penetra
tion of Western forms of large store retailing and associated distribution systems. Prior to
investment, the majority of retail sales in these markets were usually in the hands of
small independent retailers or informal retail channels. Leading international retailers
were able to use their (p. 434) scale, lower costs of capital, and advanced distribution and
logistics systems to obtain rapid revenue growth and high returns on their investment.
Strong organic growth was possible in contexts where licences to develop were relatively
easy to obtain, the costs of site acquisition and store construction were low, and existing
local retailers were often relatively inefficient and uncompetitive.
Initial entry was facilitated by the opening of emerging markets to retail foreign direct in
vestment (FDI) through full or partial market access liberalization. Sometimes the open
ing of those markets was gradual and incremental, reflecting the inclusion of retail FDI
liberalization in bilateral/multilateral trade agreements and structural adjustment pro
grammes throughout the 1990s. Sometimes, however, in regions where indigenous retail
coalitions had been able to slow liberalization moves, a sudden exogenous shock, such as
the Asian economic crisis of 1997–98, was necessary to spur governments to undertake
Page 13 of 32
rapid liberalization of their retail sectors. In Thailand, for instance, the International
Monetary Fund-inspired Foreign Business Act of 1999 increased the access of foreign
TNCs to the retail and distribution sector. The net result of these intersecting home and
host market trajectories was that by the early-to-mid 2000s international retail invest
ment flows encompassed, to a significant level, a wide variety of emerging markets in
Latin and Central America (especially Argentina, Brazil, and Chile), East Asia (especially
China, Malaysia, South Korea, Taiwan, and Thailand), and Eastern Europe (most notably
the Czech Republic, Hungary, Poland, and Slovakia).
A strong strand of the literature that formed in parallel with these developments has pro
vided corporate case studies of firms as they have engaged in this international expan
sion process. Collectively, these studies have allowed some broad conclusions about what
retailers did well and what they did poorly during this wave of expansion (Wrigley and
Lowe, 2014). In order to succeed, retailers had to ‘learn to be local’: responding to local
tastes and consumer dynamics in the host markets they entered, using local managerial
talent, and successfully integrating with local supply chains and planning and property
systems (Coe and Lee, 2013). However, at the same time, many underestimated the local
competition and the abilities of domestic retailers to imitate and respond to new retail
practices within their territory (da Rocha and Dib, 2002). In financial terms, retailers un
derstood that they had to invest consistently and substantially to achieve the scale re
quired to succeed in the markets entered, but that in making those levels of investment,
they must, above all, maintain the confidence of the capital markets (Wood et al., 2017).
The flipside was that sometimes they allowed international investment to drain capital ex
penditure in core domestic markets, and, more frequently than might be imagined, they
lost managerial control of the large dispersed organizations they had become (Wrigley
and Currah, 2003). The most successful of these firms were often those that developed
hybrid organizational cultures that were able to bridge home and host contexts (Coe and
Lee, 2006), although they did not always comprehend the time and resource commit
ments for the organizational change that accompanied effective globalization. Generally,
they were able to exploit their superior sourcing, distribution, and logistics systems
(Reardon et al., 2007), but frequently were not able to demonstrate the wider potential
and value of these systems in driving up local standards (e.g. food safety and quality).
That is to say, while retail TNCs were able to use their scale to drive a wide range of
changes in host economies, they were not always able to convince local consumers, sup
pliers, and regulators of the broader (‘scale for good’) benefits of their presence—for ex
ample, acting as ‘export gateways’ for suppliers to access international markets. Finally,
although (p. 435) some learned the art of disinvestment and judiciously exiting markets in
which they were not making headway (Alexander et al., 2005), for others this proved to
be an extremely painful lesson.
The case study research over the last fifteen years has also assisted development of theo
rizations of the retail TNC that are both grounded in wider literatures in economic geog
raphy and alive to the distinctive nature of retailing as an economic activity. There are
three important dimensions to this conceptual work. Firstly, building upon global produc
tion network thinking (Henderson et al., 2002), there has been recognition of how retail
Page 14 of 32
TNCs are necessarily embedded and essentially networked (Wrigley et al., 2005). This fo
cuses attention on the necessarily high levels of territorial embeddedness—in local cul
tures of consumption, real-estate and land-use planning systems, and supply networks—
which retail TNCs must achieve in order to achieve organizational legitimacy within host
markets. In turn, it leads to an appreciation of the mutual transformation of host
economies by the retail TNCs and, reciprocally, of the retail TNCs themselves as they be
come more complex organizations through operating large dispersed store and sourcing
networks across multiple national contexts. Secondly, research has enabled theorization
of how retail TNCs act as learning organizations and generate/transfer forms of knowl
edge through their management structures (Currah and Wrigley, 2004). Transnational re
tailers have established sophisticated ‘top-down’ knowledge management structures—
consisting of both IT networks and schemes for social interaction—in an attempt to cap
ture ‘bottom-up’ forms of learning in an industry where each store is a potential source of
innovation. Thirdly, the importance of the corporate culture of individual retail TNCs has
been highlighted (Shackleton, 1998). The globalization strategies of retailers are highly
variable across space and time, and, in important ways, are company-specific. Corporate
culture should thus be viewed as heavily influencing the nature of strategic localization
and the success (or not) of the globalization process at the firm level.
Uneven Outcomes: The Mosaic of National Re

tail Markets
A significant body of knowledge has thus emerged on the globalization strategies of retail
TNCs and their varying levels of success. There may be a tendency, however, in such stud
ies—and indeed in interpreting the aggregate data presented earlier in this chapter—to
over-generalize across host economies regarding the level and nature of the impacts of
retail globalization. Moving from case studies of individual firms to market-wide studies
of processes of retail change reveals a much more complex picture. Rather than homoge
nous processes of change, the reality is a highly variegated map of different national re
tail dynamics.
What is perhaps more appropriate to say is that the retail structures in developing/emerg
ing economies across the world have been transformed by the twin processes of formal
ization and consolidation. The former relates to the growth of Western/modern retail for
mats such as supermarkets, hypermarkets, and convenience stores alongside ‘traditional’
formats such as fresh/wet markets and small family-run businesses. The latter describes
the accumulation of retail capital among owners of multi-site modern formats with the
outcome that (p. 436) retail structures become less fragmented over time. Reardon et al.
(2007) have described in detail the ‘waves’ of retail transformation across emerging mar
kets, tracing four phases from the early 1990s to the late 2000s. The second (mid-to-late
1990s) and third (early 2000s) phases were, in particular, driven by the uplift in retail FDI
described earlier, while the most recent phase (late 2000s onwards) has involved the ini
tial transformation of retail structures in poorer countries in South Asia, South East Asia
Page 15 of 32
and sub-Saharan Africa. Within the countries affected by such waves, the diffusion of
modern retail formats has been well charted, spreading progressively from their original
niches in major cities serving the rich and the middle classes, to smaller cities and rural
towns where they serve the lower middle classes and working poor. At the same time,
these spatial and socio-economic diffusions are often accompanied by an expansion in the
products provided by modern retail, from processed food and non-food to semi-processed
products to fresh produce.
This general account has been invaluable in highlighting the macro-trends and generaliz
ing across the myriad different markets in which such processes are occurring. There is a
danger, however, that it obscures what are actually very uneven processes in terms of in
tensity and impacts. As Humphrey (2007, p. 434) cautions, ‘the depth and implications of
retail transformation in developing countries is still unclear. A transformation is certainly
taking place. The literature on the supermarket revolution captures this and highlights its
potential implications. However, when a significant new trend is first isolated, it is quite
common for the pioneering analyses to over-generalise both its reach and its impact’.
While the formalization and consolidation of retail have, indeed, become ubiquitous
processes across most markets, the processes vary significantly along at least three axes.
Firstly, speeds of transition have varied significantly across different markets. Secondly,
the nature of the transformation process has often been markedly different. And, finally,
the role played by foreign capital in the transformation process has shown important vari
ation.
Two brief examples of the unevenness of these processes are sufficient to illustrate. First
ly, while formalization may be occurring simultaneously across different markets, alterna
tive explanations are required to understand why, among the formal formats, hypermar
kets do best in some markets (e.g. Thailand), supermarkets in others (e.g. the Philip
pines), and convenience stores in yet others (e.g. Indonesia). Secondly, while in many
markets retail TNCs have undeniably driven wider processes of change (e.g. Poland), in
some they have essentially contributed in combination with significant local retailers (e.g.
South Korea), and in others they have made little or no headway in markets either domi
nated by local capital (e.g. the Philippines) or in which there are still significant regulato
ry barriers to entry and operation (e.g. India).
As Endo (2013, p. 2) suggests, such uneven outcomes draw attention to the continued im
portance of local contextual factors: ‘that the results of the same TNC differ depending on
the host country it enters clearly suggests that success comes from not only the
company’s management strategies but also from the host country’s particular circum
stances; in other words the local context surrounding the retail industry in the host coun
try’. While there are well-established frameworks in the literature for understanding the
range of different impacts of retail FDI (e.g. Dawson, 2003; Coe, 2004; Coe and Wrigley
2007), by definition they focus on the central role of the TNC. While a useful starting
point, this may lead to overestimation of the importance of foreign capital in certain con
texts. The ongoing transitions involve not just retailers, both foreign and domestic, but al
so huge numbers of consumers and farmers/suppliers, as well as a wide variety of govern
Page 16 of 32
ment institutions. The relationships (p. 437) between retailer strategies, political condi
tions, regulatory frameworks, consumer cultures, and supply network structures serve to
construct differentiated national retail markets that, while exhibiting a general tendency
towards formalization and consolidation, also show highly significant differences in terms
of the pace and nature of change. Hence, it is crucial to understand ‘the complex inter
sections of processes of retail globalization with evolving national retail and supply net
work structures, and institutional, regulatory and cultural formations’ (Coe and Bok,
2014, p. 493).
In this context, it is now instructive to consider the four main interconnected domains of
‘resistance’ to retail transformation in order to understand more how these differentiated
national markets are produced. We draw, in particular, on the various markets of South
East Asia for empirical illustration but note related research in Latin America, in particu
lar on Chile (e.g. Bianchi and Ostale, 2006; Bianchi, 2009).
The first highly significant domain relates to processes of deregulation and re-regulation.
As noted earlier, retail globalization processes were, in part, driven in the late 1990s by
deregulation of retail FDI across a range of emerging markets, allowing for significantly
increased investment and ownership by foreign capital in the retail sector. In the period
since, however, it has become clear that the initial removal of trade barriers has been su
perseded by new sets of regulatory barriers specifically designed to manage changing re
tail environments and protect domestic retailers. Nguyen et al. (2014, p. 378) use the
term ‘re-regulation’ to denote these subsequent developments, and highlight the ways in
which they ‘differentially impact on the operational costs of the multinational retailers
and therefore become restrictive in terms of trade and investment’. Re-regulation is usu
ally driven by controversy over the desirability of retail TNC-driven change, the perceived
impacts on local small retailers, and retailer–supplier tensions as supply systems are radi
cally and quickly transformed by inward investors.
Regulations affecting retailers can be divided into those governing initial entry versus
those affecting subsequent operation and those that affect all inward FDI versus those
that specifically target transnational retailers. In Vietnam, Nguyen et al. (2014) show how,
despite World Trade Organization accession and related deregulation moves, market en
try remains very difficult for retail TNCs owing to the opaque Economic Needs Test with
which they must comply. This serves to protect local retailers and pushes retail TNCs
down the local partner route. More generally across South East Asia, there has been a
shift in host economies towards forms of re-regulation that have sought to target specifi
cally transnational retailers in the post-entry phase. Such measures can include equity
thresholds, capital requirements, environmental and community/business impact study
requirements, zoning restrictions, building and outlet-size codes, and store opening re
strictions. However, within such trends, considerable country-to-country variation can be
observed. Mutebi (2007) for example, profiled the different combinations of such mea
sures that were used across Indonesia, Malaysia, and Thailand, with Malaysia being seen
to be the most successful at restricting retail TNC growth, in particular through its use of
zoning rules and outlet size codes. It is clear from these studies that the precise nature of
Page 17 of 32
re-regulation is shaped by a range of contextual factors, including national politics (e.g.

see Brillo, 2014, on the Philippines) and the level and effectiveness of lobbying from do
mestic retailer and supplier groups.
Many studies have now shown how processes of re-regulation intersect with a second di
mension—namely the variable resistance of two distinctive parts of the existing retail
(p. 438) structure. In the modern formal sector, indigenous retailers have rapidly and suc
cessfully been able to imitate the organizational innovations and best practices of retail
TNCs, while at the same time mobilizing local institutional knowledge and social/political
networks to erode the competitive advantage of retail TNCs. In many cases, this market
strength was established before the entry of retail TNCs, such as in Chile, where large in
digenous chains were able to fend off the competition of global players, including Ahold
and Carrefour (Bianchi and Ostale, 2006).
Some of these indigenous retailers have been strong enough to establish themselves as
regional players through international expansion, as seen, for example, in the case of
Chile’s Falabella (Bianchi, 2009) or South Africa’s Shoprite (Dakora et al., 2010). Even in
2012, Deloitte was still reporting that ‘one obstacle that foreign retailers often underesti
mate when assessing the opportunity in emerging markets is the growing power and so
phistication of the local competition, which is often stronger than it may
appear’ (Deloitte, 2012, p. 2). Similarly, in the pre-existing informal retail channels, the
persistent demand for food sourced from fresh/wet markets in cultural contexts where
‘freshness’ is paramount for consumers, combined with the accessibility, low cost, and
personalized shopping experience that such markets provide for low-income consumers
(Humphrey, 2007) provides a strong basis for diluting the supposedly irresistible competi
tive advantages of the retail TNCs. Resistance of indigenous retailers is thus a hugely im
portant dynamic but is again a highly variable one from country to country, depending on
a range of factors such as the strength of local retailers at the point of TNC entry, the ef
fectiveness of re-regulation in protecting local retailers (or not) in the post-entry context,
and how income levels and structures influence the demand for traditional retail chan
nels.
The third dimension similarly relates to the resistance of local supply systems to changes
initiated by retail TNCs and/or modernization of the retail system more generally. The
highly influential oeuvre of work by Reardon and colleagues (e.g. Reardon et al., 2007)
has served to highlight the generic processes of change associated with retail moderniza
tion, relating, most centrally, to the establishment of distribution centres and centralized
procurement, use of advanced logistics techniques, shortening of supply networks and
use of new forms of intermediaries, and the enforcement of private quality and safety
standards. And for certain suppliers, successful enrolment in the procurement systems of
retail TNCs can, in turn, lead to export opportunities to other parts of the retailer’s net
work. However, there is considerable unevenness in how these practices play out in reali
ty. In part, this relates to the specifics of the individual commodities concerned (see e.g.
Natwidjaja et al., 2014, on mangoes in Indonesia). More widely, the persistence of tradi
tional retail channels such as wet/fresh markets may also serve to sustain the ‘traditional’
Page 18 of 32
supply networks on which they depend. At the same time, pre-existing supply structures
may be more durable than expected, even when supplying to the modern retail sector. In
a comprehensive study of Thailand’s entire distribution system, for instance, Endo (2013)
argues that the influence of retail TNCs on supply network restructuring has been exag
gerated, and that traditional intermediaries such as wholesalers have proven to be re
markably resilient and adaptive in the face of wider changes. Again, then, supply network
dynamics are shaped by contextual factors in particular countries; in the case of Thai
land, focusing on the whole ‘mosaic structure’ of income groups and consumers provides
a different picture than just considering the urban middle classes.
These three dimensions in turn interact with the fourth—consumer dynamics. In relation
to the issues already introduced, consumers in particular contexts may show loyalty
(p. 439) to local stores/brands, or may prefer to continue shopping in traditional markets
and small stores. More broadly, however, it is well established that consumer preferences
and practices vary considerably both across and within different societal contexts. Two
brief examples will suffice here. Firstly, the expansion of retailer private-label or own-
brand products—an established way for retailers to exert supply network control and
build relationships with consumers—has been slower in some contexts than others. In
general, in the markets of South East Asia, where a high precedence is placed on brands
and brand loyalty, the expansion of private labels has been slow (see Shannon, 2014, for a
discussion of how this relates to the cultural traits of Thai consumers). Secondly, as men
tioned earlier, different formal retail formats have had varying levels of success across
different markets. The preference for convenience stores in Indonesia, for instance, can
partly be explained by the nature of regulatory controls, but also strongly reflects the cul
tural preferences for convenience and local shopping of large swathes of Indonesian con
sumers.
Overall, it is clear that the four dimensions discussed here—regulation, local retailers,
supply networks, and consumers—all vary significantly between different country con
texts. Most importantly, the intersections of the domains serve to create highly differenti
ated national retail systems. The forces of retail globalization, although strong, are dri
ving change across host economies in highly uneven and contingent ways rather than in
the inexorable way that some narratives suggest.
The Next Phase? Emerging Tendencies in Re

tail Globalization
While it is easy, then, to infer from aggregate data of the type presented earlier in the
chapter that retail globalization over the last fifteen years or more has unfolded as a ho
mogenous and consistent process, the previous section has demonstrated that has been
far from the case. What we now consider is how the nature of the globalization process
has changed in response to developments in the wider competitive landscape. We high
Page 19 of 32
light three phases and dimensions of that changing nature of the process of retail global
ization.
Firstly, a shift from expansionary dynamics to a period of retrenchment. In this context,

by the mid-2000s, it had become apparent that the intense phase of rapid expansion into
new markets was tapering off, shifting instead to a period of competitive ‘shake out’ as
retail TNCs struggled with the task of achieving the market scale necessary to justify
their investments in emerging economies. As Burt et al. (2008, p. 91) note in their study
of Ahold, Carrefour, and Delhaize: ‘since 2002 there are signs of a consolidation process
underway, with focus upon “strong” markets and a rigorous review of activities in “weak
er” markets leading to divestment in several instances’. As initial retail FDI into those
markets started to mature, achieving market scale and sustainable advantage became in
creasingly vital issues. Leading retail TNCs became less able to justify what has been
termed ‘flag-planting’ investment and focused on achieving and securing market leader
ship, if necessary within a smaller number and narrower range of markets—a rationale
driven, in part, by the demands of home-country financial markets (Wood et al., 2017).
This led to increased incidence of strategic market divestment, as seen for instance in the
market exits of Walmart and Carrefour from (p. 440) South Korea in 2006, leaving Tesco
as the only significant retail TNC in the market until it, in turn, sold its operations in late
2015. Asset swaps provided another strategic means of firms re-rationalizing their store
portfolios—one well known example in 2005 saw Carrefour exchange fifteen stores in the
Czech Republic and Slovakia for six Tesco stores and two development sites in Taiwan. As
Table 22.1 demonstrates, while overall proportions of foreign sales continued to grow
among leading retail TNCs, albeit at a slower pace from the mid-2000s onwards than in
the late 1990s and early 2000s, concealed within the aggregate trends was an important
reshuffling of assets and priorities as firms sought to concentrate on key markets.
Secondly, a fundamental reassessment of the logic and practice of retail globalization con
sequent on global financial and economic crisis. With the onset of the global financial cri
sis in 2007–08, however, the retail industries of most countries entered a period of pro
found and disruptive change that had important implications for globalization dynamics.
Leading retail TNCs were faced with collapsing consumer confidence and increasingly
difficult competitive conditions in their home markets. In this context, for many of those
firms international expansion and development became a lower priority as, under the
watchful gaze of the financial markets, they wrestled with these domestic challenges.
Thirdly, a reassessment of the strategic possibility of e-commerce-based retail globaliza

tion. Back in 2000, one of us wrote that the ‘potential threat of the growth of e-commerce
and the emerging non-store electronic retailers to the elite group of retail TNCs is likely,
therefore, to be rather muted’ (Wrigley, 2000, p. 311). For a remarkably long period that
prediction held true. More recently, however, after a decade and a half of progressively
increasing e-retail sales in domestic markets, there are signs that Internet retailing is fi
nally emerging as a viable internationalization strategy. In many domestic markets, there
is good evidence of the way online shopping has gradually become ‘normalized’. In the
UK, for example, Internet sales as a percentage of total retail sales increased significantly
Page 20 of 32
from 3.0 per cent in 2007 to 11.0 per cent in 2014. That growth has been unevenly dis
tributed across different retail sectors, with online penetration varying from 80.1 per cent
in music and video and 52.9 per cent in books to 5.5 per cent in food and groceries, and
the same level in health and beauty. Importantly, however, the Internet is also changing
how people interact with ‘bricks and mortar’ stores, with customers increasingly doing
extensive online research and price comparisons before making purchases. Overall, it ap
pears that incumbent market leaders (with significant legacy costs) are being increasing
ly challenged by firms whose market presence was established with a much lower cost
base as a result of Internet and mobile technologies.
Two recent pieces of industry research allow us to gain more insight into this developing
phenomenon. Firstly, Deloitte’s ‘Global Powers of Retailing’ reports have, since 2014, of
fered an assessment of the ‘e-50’, the top fifty global retailers according to online busi
ness-to-consumer sales—the top fifteen of which, as measured by 2013 revenues, are
shown in Table 22.4. While the list is undoubtedly tentative and there remain real prob
lems in terms of defining and isolating online sales data, it is nonetheless revealing. The
first key point to emerge is that three-quarters of e-50 (thirty-seven firms) are also mem
bers of the overall top 250 global retailers, including all of the top fifteen in Table 22.4.
Five firms—Amazon, Walmart, Tesco, Casino, and Home Depot—appear both in Tables
22.1 and 22.4. The second point that emerges is that the majority of the e-50 retailers
(thirty-nine firms) are multichannel retailers, that is, they have both physical stores and
online operations—with only eleven being online-only retailers (one of these, Amazon, is a
huge and exceptional case with online (p. 441) sales of over six times that of the second-
place firm). These observations also confirm that the penetration of non-store retailers
has been relatively limited in terms of aggregate sales at the global level.
Page 21 of 32
Table 22.4 Top Fifteen e-Retailers, Ranked by Online Sales, 2013
Page 22 of 32
Rank Top 250 sales Name of compa Country of origin FY13 e-com B2C e-commerce
rank FY13 ny merce sales % of total retail
(USD, millions) revenue
1 15 Amazon.com Inc. USA 60,903 100.0
2 92 JD.com Inc. China 10,827 100.0
3 1 Wal-Mart Stores, USA 10,000 2.1

Inc.
4 46 Apple Inc. USA 9000 30.8
5 70 Otto (GmbH & Co Germany 8189 61.3

KG)
6 5 Tesco plc UK 5251 5.3
7 99 Liberty Interactive USA 4884 47.4

Corporation
8 13 Casino Guichard France 3953 6.2

Perrachon S.A.
9 59 Suning Commerce China 3536 21.3

Group Co. Ltd.
Page 23 of 32
10 34 Macy’s, Inc. USA 3100 11.1
11 2 Costco Wholesale USA 3086 2.9

Corporation
12 25 Best Buy Co., Inc. USA 3044 7.2
13 117 Home Retail UK 2907 32.6

Group plc
14 150 Lojas Americanas Brazil 2838 45.4

S.A.
15 9 The Home Depot, USA 2750 3.5

Inc.
FY, financial year; B2C, business to consumer.
Source: Deloitte (2015).
Page 24 of 32
In terms of domestic market origins of the leading online retailers, half (twenty-five firms)
are US based, a further nineteen are based in Europe, particularly in the UK and France,
and only five are from ‘emerging’ markets (four from China, one from Brazil). However,
the latter conclusion is clouded by definitional issues. According to Deloitte (2014, p. 27),
while ‘Asia has a number of large and rapidly growing e-commerce companies, online
marketplaces tend to serve as the primary e-commerce model in this region. Companies
like Alibaba Group, operator of Taobao (China’s most popular consumer-to-consumer mar
ketplace) and Tmall (an open business-to-consumer platform), as well as Japan’s Rakuten
derive the majority of their revenue as facilitators, not as retailers’ and are therefore ex
cluded from the e-50 listing. The online sales of the e-50 expanded rapidly in 2013, aver
aging growth of 26.6 per cent, and the overall contribution to total sales varied hugely
from a level of 2 to 4 (p. 442) per cent for food and general merchandise retailers and 8 to
16 per cent for department stores and specialty apparel retailers, through to more than
20 per cent in the case of consumer electronics retailers. The 323-firm CBRE sample pro
filed in Table 22.2 also corroborates this variability, with only 7 per cent of supermarkets
having an online operation compared with 45 per cent in the area of value and discount
clothing.
Figure 22.1 Levels of Cross-border Online Purchas

es.
Source: Adapted from Polder (2015).
The second piece of evidence we can consider derives from research agency Conlumino.
Based on interviews with sixty leading multichannel retailers in the UK drawn from a
sample that covered all retail sectors and included retailers accounting for 71 per cent of
UK retail sales, the key findings were as follows. Firstly, the global economic crisis ap
peared to not have dampened the desire to internationalize as much as many commenta
tors had suggested. No less than 74 per cent of the sample were already trading interna
tionally, with only 10 per cent determined to remain resolutely focused on just their do
mestic market. Secondly, a large majority (79%) believed that online retail had become
far more important to international growth than having stores on the ground. Thirdly, on
line-based expansion was seen as being much lower risk and more controllable than phys
ical store expansion. Projecting forwards five years, online expansion was seen by mem
bers of the sample as likely to be three times as important as any other mode of interna
tional growth (stores, franchising, wholesaling, joint ventures, and licensing), with e-re
tail being viewed as a low-cost and low-risk method of ‘trying out’ international markets
and circumventing host economy regulatory requirements relating to the establishment
of physical store networks. Significantly, the surveyed firms expressed a clear preference
Page 25 of 32
for operating overseas online businesses themselves rather than through a partnership
with a local operator and/or a franchise arrangement—a sentiment that contrasts with
previous research on store based expansion in which a capable local partner was often re
garded as key to successful market entry and expansion in emerging economies (e.g. on
Tesco in Asia, see Wood et al., 2016).
However, there remain important caveats to be considered before any over-hasty judge
ment is advanced regarding e-commerce-based international expansion. OECD analysis,
for example, has consistently shown that despite the ‘normalization’ of online shopping
over the last decade, consumers remain notably reluctant to make ‘cross-border’ online
purchases.
In the case of UK and Dutch consumers, for example, Figure 22.1 shows that despite 93
and 95 per cent, respectively, of them claiming that they ordered online from national
sellers, (p. 443) and despite the prevailing ‘trading nation’ traditions of their economies,
simultaneously less than 20 per cent of those consumers claimed to have ordered online
from cross-border providers—that is to say from sellers outside the domestic market. The
lack of confidence and trust this implies is clearly a significant but little discussed con
straint on the strategic possibility of an emerging era of e-commerce based retail global
ization. Of course, Amazon has demonstrated that it is possible, in part, to ease this con
straint by establishing and investing in strong separate ‘country’ identities and ‘fulfil
ment’ regimes. But the Amazon model is not necessarily the low-cost method of ‘trying
out’ international markets and circumventing host economy regulatory requirements,
which advocates of e-commerce-based international expansion have in mind.
Conclusion: A Developing Research Agenda

Although great strides have been taken over the last fifteen years, research on retailing
in economic geography still only accounts for a very small proportion of what we know is
a sprawling and pluralistic sub-discipline. Work on economic globalization still tends to
prioritize manufacturing and advanced business services sectors. This is unfortunate, for
retail globalization offers a powerful window into several essential characteristics of the
evolving global economy: the continuing rise of ‘big buyers’ and demand pull supply net
works; shifting patterns of global demand reflecting the rapid expansion of middle-class
consumers outside the Global North; complex mosaics of national-level regulation, dereg
ulation, and re-regulation, and their effects on corporate strategy; and highly uneven pat
terns of international corporate expansion and their equally variable developmental im
pacts. Analytically, as key intermediaries between suppliers/manufacturers and final con
sumers, retail globalization offers a bridge between research that prioritizes global pro
duction networks, and studies—which tend to be more local or national in nature—that
explore shifting consumption patterns. Transnational retailers are key sourcing and sell
ing agents connecting what can at times seem like separate domains—that is, globaliza
tion trends in both production and consumption—and their continued growth and influ
ence serves to reinforce this point.
Page 26 of 32
There are myriad ways in which economic geographers can engage with these dynamics.
Building upon the shifting nature of retail globalization profiled in the preceding two sec
tions, however, we close by highlighting four specific high priority research areas.
Firstly, while research over the last fifteen years has provided a reasonable window into
the activities of the food and general merchandise retailers towards the top of Table 22.1,
and one or two other distinctive cases such as IKEA and Seven & I, the retailers towards
the bottom end of the table and below are less well understood. There are two angles
here. On the one hand, the dynamics of other types of transnational retailing, notably
fashion/clothing, but also furniture, home improvement, consumer electronics, and phar
macies, undoubtedly merit further study. It is very likely, for example, that sourcing dy
namics and geographies will be very different in such non-food segments. On the other
hand, in the context of a literature still dominated by studies of US and European retail
ers, it is important to discover more about the strategies of second-tier and regional re
tailers, such as Aeon (Japan), Lotte (South Korea), Shoprite (South Africa), and Dairy
Farm (Hong Kong). Broadening the (p. 444) range of sectors and origins of retailers will
allow the development of more nuanced interpretations of the influence of retail type and
home market on shaping globalization strategies and their consequent impacts.
Secondly, more work is needed on how distinctive national retail markets are being pro
duced on an ongoing basis. That is to say, not just through the globalization activities of
different kinds of retailers from different home-market contexts, but through the interac
tion of transnational retailers, where present, with local retailers, consumers, regulators,
and suppliers. As Endo (2013) has argued so persuasively in the case of Thailand, the cen
tral focus in much of the literature on transnational retailers and their strategies may
serve to exaggerate their impacts on host economy retail systems and may underestimate
the resistance of pre-existing structures to change. ‘Studies on the retail internationaliza
tion process … do not necessarily pay sufficient attention to specific particulars, such as
the structure of consumer markets on the host countries; their traditional and changing
distribution systems; the commercial practices and actions of local companies and busi
nesses; governmental laws and regulations; and so on’ (Endo, 2013, p. 4). Further studies
that focus on particular national markets, and the variable influence of transnational re
tail therein, will help reveal the context specific interactions of the multiple actors that
shape retail development in particular territories.
Thirdly, and as introduced above, there is an urgent need for research that considers how
the increasingly rapid development of online retailing might be changing the dynamics of
the retail globalization process. Up until relatively recently, online services were general
ly thought to follow the establishment of store operations in host economies. This fol
lowed the logic from home markets in that the most successful online operators were
those that successfully added online operations to their existing distribution and retail in
frastructure. However, recent evidence suggests that in the challenging home-market
context of the post-global economic crisis period, retailers may be turning to online ex
pansion as the most cost-efficient and risk-free way of entering foreign markets. This rais
es questions about the extent to which such strategies vary across retailers of different
Page 27 of 32
size and different market segments, and also whether retailers from particular markets
are more successful, or not, in operationalizing this strategy. Importantly, it also alters
the regulatory landscape in relation to retail globalization. That is to say, it raises issues
relating to the extent to which different kinds of regulations come into play with respect
to online retailing, as opposed to the relatively well studied regulatory processes sur
rounding international store expansion?
Fourthly, within the wider literature on retail globalization, it is perhaps the consumer di
mension that is still most poorly understood. More specifically, the recursive relationships
in host economies between retail change and shifting consumer preferences require
much further study and elucidation. To what extent, for example, do localized consumer
cultures present resistance to certain forms of retailing, and, conversely, in what ways
does the availability of new forms of retailing drive processes of consumption change and
feed into wider dynamics, such as new middle-class formation? And what is the relative
role of transnational retail capital, vis-à-vis domestic retailers, in driving such dynamics?
Two related questions concern the time frames over which changes are occurring—initial
evidence seems to suggest much faster shifts than took place historically in the home
markets of leading transnational retailers—and urban/rural variations in shifting con
sumption practices. Are, as the supermarketization model suggests, formal retail prac
tices ‘rolling out’ from cities into rural areas, or, in reality, are differences actually grow
ing between the consumption practices (p. 445) of the burgeoning urban middle classes
and rural residents? Local and national consumption dynamics are clearly being reshaped
by retail globalization processes—both directly through foreign investment, and indirectly
as domestic retailers imitate the business practices of leading global players. But the
ways in which that is occurring are only starting to be understood. Ultimately, however, it
is the position of retailers at the interface of production and consumption dynamics that
makes the study of their globalization such a compelling topic for economic geographers.
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Neil M. Coe
Page 31 of 32
Neil M. Coe ([email protected]) is Professor of Economic Geography at the Na

tional University of Singapore, where he is also co-director of the Global Production
Networks Research Centre. His research interests are in the areas of global produc
tion networks and local economic development; the geographies of local and transna
tional labour markets; the geographies of innovation; and institutional and network
approaches to economic development. He has published over seventy-five articles
and book chapters on these topics, and is a co-author or co-editor of six books. He is
currently an editor of the Journal of Economic Geography, and on the editorial board
of European Urban and Regional Studies.
Neil Wrigley
Neil Wrigley ([email protected]) is Professor of Human Geography, University of

Southampton, and was previously Head, School of City and Regional Planning, Uni
versity of Wales, Cardiff. Founding Editor of the Journal of Economic Geography
(2001–14), he has held ESRC, Leverhulme, and Erskine Research Fellowships, and
was Senior Research Fellow, St Peter’s College, Oxford. His contributions to econom
ic geography research have a distinctive focus on retail and consumption and are re
flected in his 160 journal papers and agenda-setting books. They have provided pio
neering interpretations of the role retailers play as key organisers of the global econ
omy, of the regulatory challenges posed by emerging competitive landscapes of retail
power, and insight into the disruptive consequences of online retail and the digital
economy. Recognition of his work includes the Royal Geographical Society’s Murchi
son Award (2008), ESRC’s Outstanding Impact in Business Prize (2014), election as
Academician of the Academy of Social Sciences (2003), and the distinguished Fellow
ship of the British Academy (2012).
Page 32 of 32
Corporate Social Responsibility and Standards

Alexandra Hughes
This chapter charts the contribution of economic geography to the field of research con
cerned with corporate social responsibility (CSR) and standards. Following explanation of
the historical and political–economic context of CSR and the rise of codes and standards
as tools in the private regulation of the global economy, it places the critical spotlight on
studies of ethical and labour standards in global supply chains. Within this area, the dif
ferent critical insights into CSR and standards offered by the global value chains and
global production networks frameworks, as well as postcolonial critique, theories of gov
ernmentality, and sociologies of standards and marketization, are summarized and debat
ed. Finally, the chapter discusses some of the recent economic, geographical, and regula
tory challenges to the ways in which CSR and standards are operating and transforming
in practice, from the global economic downturn to the influence of ‘rising powers’ and
emerging economies.
Keywords: corporate social responsibility, standards, private regulation, global value chains, global production
networks, assemblages, rising powers
Introduction
OVER the last two decades, there has been growing acknowledgement that corporations
have responsibilities extending beyond the core capitalist objectives associated with the
financial bottom line and epitomized by the arguments of the free-market economist, Mil
ton Friedman (1962). It is now a mainstream view, both within and outside the corpora
tion, that business is also responsible for aspects of society and the environment affected
by its operations. Terms such as corporate citizenship, corporate social responsibility, and
sustainable business are now commonplace in the lexicon of what can, overall, be recog
nized as a corporate responsibility movement. And while there are many competing defin
itions of corporate responsibility, the groups and spaces most prominently regarded as
being responsibilities of corporations are customers, employees, communities (broadly
conceived), and natural environments, as well as shareholders (Blowfield, 2005; Blowfield
and Frynas, 2005). The economics, politics, and development implications of this corpo
Page 1 of 17
rate responsibility movement have been of significant interest to social scientists, includ
ing economic geographers, often in connection with broader projects of understanding
and theorizing neo-liberalization, of which current articulations of corporate responsibili
ty are viewed to be an integral part (Guthman, 2007; Sadler and Lloyd, 2009).
This chapter sets out to capture why the field of corporate responsibility and standards
has become important, what kinds of empirical and conceptual contributions have been
made by economic geography, and how new research directions reflect both political–eco
nomic transformations and evolving intellectual projects. To do this, the chapter first
presents a synopsis of the historical and political–economic context of corporate responsi
bility and the rise of codes and standards as tools in the private regulation of the econo
my. While the corporate responsibility movement clearly spans both social and environ
mental fields, the emphasis of this chapter is on the social dimensions associated with
corporate (p. 449) social responsibility (CSR). The chapter then proceeds to place the criti
cal spotlight on a particular field of CSR—ethical and labour standards in global supply
chains—receiving significant attention in the social sciences, including within economic
geography. Within this area, the different critical insights into CSR and standards offered
by the global value chain (GVC) and global production network (GPN) frameworks, as
well as postcolonial critique, theories of governmentality, and sociologies of standards
and marketization, are summarized and debated. Finally, the chapter discusses some of
the recent economic, geographical, and regulatory challenges to the ways in which CSR
and standards are operating and transforming in practice, from the global economic
downturn to the influence of ‘Rising Powers’ and emerging economies.
Corporate Social Responsibility and Standards:

Political–Economic Context and Organizational
Geographies
Blowfield and Frynas (2005) explain that the ethics of business have been a subject ad
dressed for centuries, dating as far back as the first century BC. However, current devel
opments in corporate responsibility are argued by these authors to have their roots in
late-nineteenth-century regulation to check the development of the corporation, as well
as food boycotts during the same time period. The influence of late-nineteenth- and twen
tieth-century corporate philanthropy associated with family-run businesses, such as Cad
bury and Rowntree in the UK, is also acknowledged. However, corporate responsibility in
its current form appeared to develop from the early 1990s, with a distinct incorporation
of issues associated with development, human rights, and environmental protection on a
more global scale (Blowfield and Dolan, 2014). Corporate responsibilities until this time
tended to refer either to legal obligations to society or to philanthropic acts, including
charitable giving and strategies of caring for employees and local communities. It now in
volves a greater integration of responsibility towards workers, customers, communities,
and natural environments into core business strategies involving, for example, the forms
Page 2 of 17
of corporate compliance with labour and environmental codes of practice that have been
so widely researched in the social sciences, including in economic geography.
A range of processes has been argued to fuel the emergence of current developments in
voluntary forms of corporate responsibility, including: (i) the globalization of corporations
and their supply networks, and the associated political–economic context of trade liberal
ization and deregulation since the 1980s (Blowfield, 2005); (ii) anti-corporate activism
(Bair and Palpacuer, 2012); (iii) the rise in the power of corporate brands and reputation,
which makes large companies vulnerable to negative publicity (Hughes et al., 2008); (iv)
an increase in public awareness of corporate activity and its impacts via improvements in
global communications (Micheletti, 2006; Lyon and Montgomery, 2013); (v) the growing
importance to the investment community of ethical performance on the part of public
companies (Clark and Hebb, 2005); and (vi) the emergence of a strong business case for
corporate responsibility in which economic performance in terms of profitability and so
cial/environmental responsibility are intertwined (Goger, 2013).
The context of globalization and the liberalization of trade and investment from
(p. 450)
the 1980s set the scene for voluntary corporate initiatives in the field of social (and envi
ronmental) responsibility as it engendered a decline in the regulation of corporate activi
ty by traditional governmental institutions (Jenkins et al., 2002). The power of corporate
capital encouraged by this climate of deregulation was increasingly called into question
by campaigners, the critical media, and consumer groups during the 1990s. Campaigns
concerning the contribution of corporate activity to environmental degradation and poor
working conditions, for example, have been conducted by a host of campaigning groups,
including non-governmental organizations (NGOs) and trade unions, as well as college
students and critical journalists (Johns and Vural, 2000; Littler, 2005; Sadler and Lloyd,
2009; Bair and Palpacuer, 2012). Many campaigns have involved alliances between these
different groups, frequently originating in the Global North, but also, and increasingly, ex
tending to the Global South. Most commonly, the object of anti-corporate campaigning
has been high-profile, often transnational, brand-name companies such as Shell (in the
extractive industries), McDonalds (in the fast-food retail sector), and Nike and Gap Inc.
(in the apparel sector). Such corporate names have become synonymous with global capi
talism, and the adverse impacts they have sometimes had on the environment and worker
welfare have been widely criticized. However, such prominent corporations, in part as a
result of campaigning, have developed extensive programmes of work around corporate
responsibility (Hughes et al., 2008). Added to the influence of anti-corporate campaigning
and critical journalism, institutional investors such as pension funds are ever more con
cerned with corporate social and environmental performance, with indicators of ethical
responsibility increasingly influencing their investment decisions. Such indicators include
the FTSE4Good Index Series.
The corporate response to these political–economic forces, in particular from transnation

al corporations and those at the leading edges of their industries, has been to introduce
corporate responsibility programmes, which address the impacts of their business on so
cial groups (often referred to as stakeholders) and the environment. The values of corpo
Page 3 of 17
rate responsibility are commonly crystallized into specific standards or codes set by insti
tutions working at and across various local, national, regional, or global scales. Standards
are broadly defined by Nadvi (2008, p. 325) as:
commonly accepted benchmarks that transmit information to customers and end-

users about a product’s technical specifications, its compliance with health and
safety criteria or the processes by which it has been produced and sourced … In
addition, standards can extend to customers and end users a basis for attaching
credence, or value, to particular claims made about a product’s characteristics
and specification or the ways in which it has been produced.
Examples of standards specifically for CSR set by international organizations are the
SA8000 workplace standard set by the US multi-stakeholder organization Social Account
ability International, the global International Organization for Standardization ISO 26000
standard for social responsibility, and international standards for the production of Fair
trade goods set by Fairtrade International (formerly Fairtrade Labelling Organizations In
ternational). The participation of companies is almost always voluntary. Some businesses
choose to work with such formalized standards and labelling initiatives, while others
work with their own or other organizational codes of conduct. Voluntary codes are guide
lines drawn up by companies, sometimes aided by stakeholder groups, and serve to speci
fy issues of business responsibility by constructing a set of minimum standards and pro
cedures for companies to follow (p. 451) in their routine business. Some codes incorporate
conventions of international organizations such as the United Nations (UN) and the Inter
national Labour Organization (ILO). Such codes can apply to procedures covering all
kinds of aspects of corporate activity, for example customer care, human resources, waste
management, and the management of supply chains. Standards and codes have therefore
become an accepted tool used in the management of corporate responsibility.
Procedures for monitoring, reporting, and verifying the implementation of these stan
dards and codes are equally important in order to ensure transparency and accountabili
ty. Tools and techniques of social and environmental auditing have therefore developed,
influenced by traditional procedures of financial auditing. What auditing provides is a
process of checking, monitoring and reporting evidence of corporate performance against
the standards encapsulated in codes. Such voluntary codes and auditing procedures rep
resent private-interest forms of social regulation that appear to replace traditional, state-
led forms of regulation through political–economic processes of neo-liberalization (Guth
man, 2007; Blowfield and Dolan, 2008).
Against this backdrop, research has attended to various aspects of CSR’s institutional ge
ographies, drivers, and outcomes in particular places. While case studies include the
healthcare sector (Brando et al., 2013) and tourism (Sandve et al., 2014; Sin, 2014), the
fields receiving the most significant attention by economic geographers are the extractive
sector (Haalboom, 2012; Mayes et al., 2014; Billo, 2015) and global supply chains. The re
maining sections of the chapter focus on the key dimensions of debate in the evolving
Page 4 of 17
field of research into CSR and standards in global supply chains, offering an assessment
of the value of economic–geographical perspectives in particular.

in Global Supply Chains: Geographical Perspec
tives
Perspectives of economic geography have been an important part of what has now be
come an established, extensive, and highly influential literature on global supply chains
and standards. This interdisciplinary literature has sought in various ways to capture and
theorize the processes through which CSR standards are set in international, national,
and localized contexts, the part they play in supply-chain governance (how power and au
thority is exercised through rules, norms, and values) and their localized outcomes for
producers and communities. A geographical voice has been so crucial to this academic
project because, as Riisgaard (2009, p. 328) argues, ‘standards are … not simply neutral
market-based instruments. When elaborated and implemented, they unavoidably play into
complex international and local power politics’.
The GVC framework established by Gereffi et al. (2005) and associated with economic so
ciology and development economics has arguably been the most dominant social science
approach explaining the governance of global supply chains, and it has done so through a
typology of five forms of governance—hierarchy, captive, relational, modular, and market.
The first of these types, ‘hierarchy’, describes a form of control through (p. 452) the verti
cal integration of activities on the part of a firm. The last involves governance by ‘the in
visible hand’ of the market. The three categories in between represent different network-
based forms of coordination lying along the continuum from hierarchies to markets. Re
search using this framework to understand CSR and standards has highlighted how ethi
cal and labour standards tend to be implemented through relational (inter-firm coordina
tion) and modular (more arms-length and codified) modes of governance (Dolan and
Humphrey, 2004; Nadvi, 2008). Gibbon and Ponte (2005) have also combined GVC analy
sis with French conventions theory to explain the role played by particular civic, as well
as industrial, conventions and values in shaping the governance of socially responsible
GVCs.
With GVC perspectives critiqued for their narrowly firm-centred explanations (driven, in
part, by transactions cost economics) and their tendency to marginalize geographical and
institutional context (Bair, 2005); however, the GPN framework associated with economic
geographers has gained significance in the literature. Acknowledging not only how cross-
border trade is driven by lead firms, but also recognizing the embeddedness of supply-
chain dynamics in different places and the importance of trans-scalar spaces of gover
nance, the GPN approach attends to the interaction of power, value, and embeddedness
in the governance of global networks of supply (Coe et al., 2004). The approach is there
fore more attentive to questions of spatiality and territory.
Page 5 of 17
GPN perspectives have shaped understandings of how CSR standards are embedded in
various institutional contexts of retail and consumption, policymaking, and production.
With respect to the embeddedness of CSR and labour standards in spaces of retail and
consumption, the influences of corporate retail strategy, ethical consumption, and cam
paigning have been highlighted. Christopherson and Lillie (2005), for example, demon
strate the embeddedness of retail-led global labour standards strategies in the particular
national–institutional contexts of retailers’ home economies, using the contrasting cases
of Swedish-based IKEA and US-based Walmart. Similarly Hughes et al. (2008) illuminate
how UK–US contrasts in retailers’ ethical codes and standards are shaped by different na
tional–institutional contexts of campaigning, as well as corporate retail structures. This
resonates with the arguments of Bair and Palpacuer (2012) that national institutions and
political cultures shape the particular articulations of anti-sweatshop campaigns and cor
porate responses to them.
Social science research, including economic geography influenced by GPN approaches,

has also focused on the development of the Fairtrade standard represented by the global
certification scheme of Fairtrade International (formerly known as Fairtrade Labelling Or
ganizations International). In similar ways to the case of ethical trade and minimum
labour standards referred to above, Fairtrade standard-setting has been acknowledged to
be driven by institutions in the Global North. The civic principles of partnership, dia
logue, transparency, and empowerment are noted continually to drive Fairtrade, incorpo
rating objectives of eliminating exploitative supply-chain intermediaries, guaranteeing
stable prices and fostering community development (the latter through a social premium
paid to producer groups on top of the price paid for goods) (Raynolds et al., 2007). Al
though Fairtrade has been more developmental than minimum corporate labour stan
dards and is rooted in the social values of civil society organizations, the progressive neo-
liberalization and mainstreaming of Fairtrade through northern spaces of retail and con
sumption are now widely critiqued (Blowfield and Dolan 2008; Neilson and Pritchard,
2009; Besky, 2010).
Both GVC and GPN perspectives have also been taken to evaluate the impacts and
(p. 453)
outcomes of ethical labour codes and Fairtrade standards on communities and spaces of
production. Barrientos and Smith’s (2007) impact assessment of the UK’s Ethical Trading
Initiative’s base code of conduct (built around core ILO conventions) used a GVC ap
proach to trace GVCs in textiles, agriculture, and horticulture to sites of production in In
dia, Vietnam, South Africa, Costa Rica, China, and the UK, and found that while workers
were benefitting from labour codes in areas such as health and safety, less progress was
being made in freedom of association and practices to tackle discrimination issues. GVC
and GPN perspectives have similarly been used to understand the interconnections be
tween global CSR standards and local governance in the football manufacturing indus
tries of South Asia (Lund-Thomsen and Nadvi, 2010; Lund-Thomsen, 2013). Lund-Thom
sen (2013), for example, points to the constraints on labour agency shaped by a combina
tion of global supply-chain dynamics, national–institutional environment and local socio-
economic context in Sialkot, Pakistan (see also Lund-Thomsen and Coe, 2015). And GVC/
GPN frameworks have been coupled with an institutional perspective in the work of Neil
Page 6 of 17
son and Pritchard (2009), who advance a geographical approach to understanding the
outcomes of CSR and standards in South Indian tea and coffee plantation districts. Simi
larly, Franz (2012) uses the GPN framework to understand the role of civil-society organi
zations and trade unions in resisting and thereby influencing the operations, including
supply chains, of Metro Cash & Carry in Bangalore.
GVC/GPN approaches also have been taken to assess Fairtrade’s outcomes at sites of pro
duction. For example, GPN sensitivity to the territorial embeddedness of standards in par
ticular localized institutional contexts has been used to appreciate some of the limita
tions, as well as gains, of Fairtrade for raisin producers in the Northern Cape of South
Africa (Hughes et al., 2014) and tea-producing communities in South India (Neilson and
Pritchard, 2009). And Mutersbaugh (2005) draws on GVC perspectives, in particular val
ue-chain rent theory, to show how the costs of standards compliance (including Fairtrade
and organics standards) can serve to disadvantage producers.
To further understand the politics of governance executed through social standards and
their links to neo-liberalization, scholars have also looked beyond the more economic and
firm-centred frameworks of GVC/GPN and applied the concept of governmentality in or
der to ‘recognize the diversity of authorities that have the capacity to govern different
spaces according to different objectives’ (Hughes, 2001; Mutersbaugh, 2005; Gibbon and
Ponte, 2008; Loconto, 2015, p. 3). The Foucauldian notion of governmentality refers to
‘how we think about governing others and ourselves in a wide variety of contexts’ (Dean,
1999, p. 209). While studies using the concept have concentrated on the changing ways
in which the modern liberal state governs the economy and society (see e.g. MacKinnon,
2000), it can be applied to the field of CSR and standards in order to capture the prac
tices of standard-setting and implementation as part of private regulation ‘undertaken by
a multiplicity of authorities and agencies’ (Dean, 1999, p. 11; Hughes, 2001).
A focus on the politics and practices of CSR standards is also a key dimension of cultural
and anthropological studies, contrasting the abstract standard of Fairtrade with the ‘lived
experiences’ of Fairtrade producers (Getz and Shreck, 2006, p. 490). Studies of producer
groups reveal cases where the benefits of Fairtrade make only a modest material differ
ence, or quite commonly do not reach all members of the community in equal measure
(Dolan, 2010). Such uneven participation in Fairtrade cooperatives can result in widen
ing, rather (p. 454) than narrowing, cleavages between different socio-economic and cul
tural groups in producer contexts (Arce, 2009), which points to the challenges posed by
complex and divided, or ‘fractured’, producer communities.
Work by economic anthropologists is particularly illuminating in this regard, but the need
to engage with lived experiences also has been argued by geographers (see e.g. Herman,
2010). Through ethnographic research with Costa Rican coffee growers, Luetchford
(2008, p. 144) helpfully problematizes the monolithic model of the smallholder communi
ty, which effectively forms a ‘culturally appealing morality tale’ sold to consumers of Fair
trade in the North. By revealing the differences and tensions between landed farmers and
landless migrant labourers at the site of production, he shows that, in practice, ‘synthetic
Page 7 of 17
categories break down and imagined communities of independent family producers melt
into air’ (Luetchford, 2008, p. 165).
A postcolonial lens has also been used by some scholars to capture the politics of CSR
and standards. Both ethical labour codes and Fairtrade are based on standards frequently
devised in the global North, which are often assumed to be universal and exportable to
the global South. Ethical interventions are often seen to be driven by Northern ethical
concerns with minimal consideration of socio-economic realities in the South (Dolan,
2010), although more proactive roles in ethical trade are increasingly being played by
Southern actors (Hughes et al., 2013). Studies have addressed how the discourses and
legacies of colonialism influence export production. This is particularly evident in cultur
ally inflected analyses of ethical standards for global supply chains (Freidberg, 2003;
Dolan, 2005; Neilson and Pritchard, 2009). Colonial imaginaries and moralities, apparent
both in the sphere of consumption and through corporate ethical codes applied to suppli
ers in the Global South, are significant themes through which ‘the colonial’ is acknowl
edged in research concerning global supply chains (Cook and Harrison, 2003). Alongside
this, some research into global commodity chains takes a more historical perspective sen
sitive to the role of colonial pasts and cultural politics (Besky, 2010; Bair and Werner,
2011; Hough, 2011; Hughes et al., 2015).
Another recent advancement of the theorization of CSR and standards in global supply
chains comes via perspectives associated with the sociology of standards (Busch, 2011)
and performative theories of markets, which have their roots in actor network theory
(Callon, 2007; Berndt and Boeckler, 2009). Arising from a dissatisfaction with the top-
down understanding of governance prevailing in GVC/GPN accounts that ascribe agency
predominantly to ‘lead firms’, Loconto (2015) in sociology and Ouma (2015) in geography,
for example, prefer to capture the networked and performative dynamics of standards in
the Tanzanian Fairtrade tea sector and the Ghanaian export horticulture industry, respec
tively. For Loconto (2015, p. 3):
[V]oluntary standards are mechanisms that facilitate the emergence of agence

ments, which are the collectives of human beings, technical devices, scientific
tests, and written standards that are embedded in institutions, conventions, per
sonal relationships and groups.
Ouma (2015) prefers to use the term ‘assemblage’ more commonly adopted in geography
(Allen, 2011) to understand the (re)making of export markets in frontier regions of north
ern and southern Ghana in a similar way (see also Wanvik, 2014). What we gain from such
perspectives is the prioritization of standard-setting and governing practices through hy
bridized networks of ‘multiple material and discursive relationships’ (Loconto, 2015, p.
30) in an (p. 455) analysis of how global and often abstract standards work through and in
fluence particular localized spaces.
Page 8 of 17
The Changing Landscape for Corporate Social

Responsibility and Standards: Economic, Regu
latory, and Geographical Challenges
Until very recently, most of the literature on CSR and standards, including within eco
nomic geography, has focused on the politics and outcomes of various voluntary initia
tives and standards. These standards have largely been implemented in the Global South
but constructed by institutions in the Global North and often in the context of relative
economic prosperity from the early 1990s onwards. Over the last few years, the CSR
movement has faced challenges and has transformed in the context of a range of politi
cal–economic pressures and transitions, two of which are discussed here—economic re
cession in the Global North; and the influence of rising powers and emerging economies.
Research in economic geography has contributed to understandings of how the CSR

movement has responded at times of financial crisis, economic recession, and subsequent
austerity, in particular since the global financial crisis of 2008, addressing the question of
whether and how corporate responsibility is resilient in times of financial hardship. In
line with the wider corporate responsibility movement, UK retailers’ ethical trading pro
grammes for their global supply chains were shown to continue as integral dimensions of
corporate reputational risk management. However, the prominence of ‘value’, low-cost re
tailing, a potentially weakening voice of NGOs within multi-stakeholder ethical trading
initiatives, declining workplace conditions for many migrant labourers, and ethical trad
ing programmes more tightly linked to strategies of corporate efficiency were found to
present a changing set of challenges for actors confronting the economics and politics of
the post-recessionary ethical trading landscape (Hughes, 2012). A sharper focus of retail
ers on price during the global economic downturn of 2008–10 affected export producers
by squeezing their orders and profit margins. Ruwanpura and Wrigley’s (2011) study of
Sri Lankan garment producers showed retailers had a tendency to source more of their
textiles from lower-cost countries such as Bangladesh during that period, as pressures
were placed on producers to cut working hours and wages in order for their businesses to
survive.
Against the backdrop of a CSR field that has been seen both in theory and practice to
emerge and develop largely from institutional and corporate contexts of the Global North,
the last few years have witnessed far more active roles played by firms and organizations
in the Global South. Whereas ethical and fair-trade standards were seen to be actively de
veloped in the Global North and applied to sites of production in the Global South, a re
cent body of literature now demonstrates ways in which national policy frameworks, civil-
society organizations, domestic businesses, and a globalizing middle class are more ac
tively influencing CSR standards and their implementation, in particular in the ‘rising
power’ economies of Brazil, India, China, and South Africa. Knorringa and Nadvi (2016)
point to the growing role played by the national policy frameworks of Brazil, In
(p. 456)
dia, and China to influence social compliance and regulatory labour standards in localized
clusters of small- and medium-sized firms. They note a particularly strong regulation and
Page 9 of 17
enforcement of labour standards in Brazil, influenced, in part, by a tight relationship be

tween Brazilian business and state institutions and an active engagement with interna
tional programmes such as the UN Global Compact, the Global Reporting Initiative, and
the International Organization for Standardization. A more complex picture emerges in
China, but one that has been influenced, nonetheless, by an evolving legal framework for
labour standards. In addition to local-government initiatives to raise minimum wages, the
central government has passed a set of laws, including three in 2007—the Employment
Promotion Law, the Labour Dispute Mediation and Arbitration Law, and the Labour Con
tract Law—and the Social Insurance Law in 2010, which Chan and Nadvi (2014, p. 522)
argue:
could suggest an end to the era of cheap labour in China and a relatively more op
timistic future for Chinese workers, marked by increasing real wages, better so
cial protection and pension benefits, and improved labour rights.
This growing influence of the national-policy context in emerging economies and ‘rising
powers’ is seen by commentators to contrast with the ‘soft regulation’ of voluntary corpo
rate codes and to promise a kind of ‘ “regulatory renaissance”, highlighting the potential
role that the State can play in the formulation and enforcement of labour standards and
labour rights’ (Piore and Schrank, 2008; Pires, 2008; Chan and Nadvi, 2014, p. 517; see
also Alford, 2015).
A parallel body of work observes the effects of the globalizing middle classes on the
growth of domestic markets for consumer goods in emerging economies and ‘rising pow
ers’, upon which sustainability and ethical issues have a small but nonetheless growing
influence (Belk et al., 2005; Guarin and Knorringa, 2014). Civil-society organizations and
business, rather than the state, are the key actors in the shaping of social compliance
through new domestic ethical markets and are visible in the rapid growth of Fairtrade
markets in emerging economies and ‘rising powers’ (Dombos, 2008; Doherty et al.,2015).
In the wider context of increasing South–South trade, emerging markets and growing
middle classes in the Global South, Fairtrade International (2013) reports rising Fairtrade
sales in emerging market economies in addition to growth in established markets of West
ern Europe, North America, Australia, and New Zealand. For example, South Africa’s
Fairtrade sales increased by 220 per cent in 2012 alone. This was partially due to institu
tional support developing these markets, such as the work of organizations like Fairtrade
South Africa. In attempts to match the success in South Africa, Fairtrade Eastern Africa
was launched in 2013 to develop markets in Kenya focusing, in particular, on forging val
ue chains between elite Kenyan consumers in cities like Nairobi and the country’s high-
profile Fairtrade producers in rural areas. A new Fairtrade marketing organization has al
so been established in Brazil and similar initiatives are being discussed in Argentina, In
dia, Lebanon, and the Philippines (Fairtrade International, 2013). In all of these coun
tries, there is an already strong and well-known Fairtrade supply base, implying that a
key part of this new trend is a connection made between ethical consumers and produc
ers within local and national economies of the Global South.
Page 10 of 17
(p. 457) Conclusions

CSR and accompanying codes and standards have developed over the past two to three
decades as part of the private regulation of the global economy associated, at least in
part, with neo-liberalization. Critical studies in the social sciences have engaged with
their political–economic contexts, the politics of their organizational energies, and their
outcomes for firms, workers, and communities. As the chapter has shown, a wide range of
conceptual tools have been used in this field, from GVC and GPN frameworks to postcolo
nial perspectives. The analytical contribution from economic geography has been wide
ranging and often linked to interdisciplinary projects and academic endeavours.
Arguably the most notable contribution of economic geography has been the application
of a GPN approach to understanding the embeddedness of CSR and standards in particu
lar institutional contexts of consumption and production. Most recently, Ouma’s (2015)
networked and performative perspective on the construction of the Ghanaian export hor
ticulture industry promises to advance economic–geographical approaches by de-centring
lead firms per se in terms of locating agency in geographies of CSR and instead viewing
standards as hybridized and networked assemblages. With the landscape of CSR and
standards continually transforming, not least in terms of the recent acceleration in the in
fluence of ‘rising powers’ and emerging economies through both a ‘regulatory renais
sance’ and Southern-based voluntary initiatives, there is scope to employ and develop
such perspectives to grasp and challenge some of these new geographical articulations of
responsibility and regulation.
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Alexandra Hughes
Alex Hughes ([email protected]) is a Professor of Economic Geography in

the School of Geography, Politics and Sociology at Newcastle University. Since 2014
she has been the Research Director for the School. She was Chair of the Economic
Geography Research Group of the Royal Geographical Society (2012–15). Currently,
she is a member of the Editorial Board of the RGS-IBG Book Series published by Wi
ley-Blackwell. She is also a member of the ESRC Peer Review College. Her wide-
ranging research interests in economic geography include cultural political economy;
postcolonial economies; global value chains and production networks; knowledge and
economy; rethinking economy; transnational retailers and corporate responsibility;
retailer–supplier relationships in the UK and USA; ethical trade and labour in Kenya,
South Africa, and Pakistan; regulation and governance; corporate social responsibili
Page 16 of 17
ty and sustainability; the audit economy; learning networks; ethical public procure
ment; and ethical consumption in the Global South.
Page 17 of 17
Pluralizing Labour Geography

Jamie Peck
The chapter presents a sympathetic overview of labour geography in its various and
evolving forms. This has mapped the shifting politics of production, together with old and
new forms of labour organization; it has problematized the workplace, as a site of strug
gle and as an arena for the performance of social identities; it has tracked the restructur
ing of labour markets, as spaces of socio-institutional stress and regulatory transforma
tion; and it has deployed labour as a diagnostic for understanding different (local) vari
eties of capitalism, economies of care and reproduction, and alternative modes of socio-
economic organization. The field has consequently been shaped by an accumulating array
of concerns with (industrial) restructuring, (labour) regulation, (union) reorganization,
and (social) reproduction.
Keywords: labour geography, industrial restructuring, social regulation, labour unions, social reproduction, geo
graphical political economy
Introduction: Constructions of Labour Geogra

phy
THERE are few issues that illustrate the differences between the generally heterodox
field of economic geography and the more orthodox world of geographical economics
than the treatment of labour. In orthodox terms, labour principally appears as an abstrac
tion, traded on labour markets at a price (the wage), which in turn, is taken as a measure
of human-capital endowments and the balance of supply and demand. In contrast, after
economic geographers had opened up the black box of the production function, starting
in the late 1970s—venturing into workplaces as fieldwork sites and engaging directly
with workers as research subjects and sometimes as collaborators—labour would no
longer be seen as a disembodied ‘factor’ of production. Having begun to pose the ‘labour
question’, economic geographers soon found themselves on the terrain of class and gen
der relations; they were dealing with politics and institutions, with industrial disputes and
Page 1 of 24
union campaigns, and more. These were some of the origins of ‘labour geography’, the
non-linear trajectories and shifting concerns of which are the focus of this chapter.
Necessarily selective, the chapter cuts a path through a variegated and evolving body of
work that, among other things, has mapped the shifting politics of production, together
with old and new forms of labour organization; that has problematized the workplace, as
a site of struggle and as a place for the performance and (re)production of social identi
ties; that has tracked the restructuring of labour markets, as spaces of socio-institutional
stress and regulatory transformation; and that has utilized labour (and labour relations)
as a diagnostic, as the key to understanding different (local) varieties of capitalism,
economies of care and reproduction, and alternative modes of socio-economic organiza
tion. In as far as it is possible to generalize, these inherently more social, more political,
and more cultural treatments of employment, labour, and work do not equate labour pow
er (the socially shaped and institutionally regulated capacity to work) with a commodity,
but instead recognize and grapple with labour’s pseudo-commodity forum, as Polanyi
called it (Peck, 1996). They (p. 466) understand labour to be different because production
and reproduction entail social relations, and because labour itself is a social process, per
formed in many ways and in many sites, some waged and some not. But if this has been
the ‘take’, broadly speaking, of labour geography, the field has always been tracking mov
ing objects … and subjects; its projects are always in motion.
While an Anglo-American labour geography got its start in the late 1970s, not until al
most two decades later did ‘Labour Geography’ take shape as a distinctive (and named)
project, one that embraced as its central problematic the active roles of workers and
workers’ organizations in remaking the landscapes of capitalism (see Herod, 1997). This
line of work has been especially productive in opening up issues around the politics of
(re)organizing labour movements and organizations, and around the causes and conse
quences of workplace-cum-community struggles. But what is sometimes styled as Labour
Geography ‘proper’ has also been but a particular moment in a broad and multifaceted
engagement with issues of work, employment, and labour in the subdiscipline of econom
ic geography. Foundational for these efforts was work on the political economy of restruc
turing, which spawned concepts like the spatial divisions of labour (see Bluestone and
Harrison, 1982; Storper and Walker, 1983; Massey, 1984; Clark et al., 1986; Scott and
Storper, 1986). Subsequent lines of enquiry would delve into the gendered character of
industrial restructuring and service-sector growth, ‘locality effects’, and local cultures of
employment, moving on to explore the uneven advance of ‘post-Fordist’ economies, and
the formation of new industrial districts. Some of these concerns would later coalesce
around the problematic of labour regulation, including the production of new workplace
and employment norms, class and gender orders at work, and the social and institutional
(re)organization of labour markets (see Storper and Scott, 1992; Hanson and Pratt, 1995;
Peck, 1996; Storper, 1997).
If the (industrial) restructuring rubric of the 1980s had morphed into concern with ques
tions of social regulation by the 1990s, the arrival of Labour Geography proper at the end
of that decade was associated with a sharper focus on activism and resistance, respond
Page 2 of 24
ing to what were seen as the limitations of ‘capital logic’ (and, by extension, ‘regulatory
logic’) accounts by sampling purposefully in favour of labour’s agency (see Herod, 1998,
2001; Wills, 1998, 2001; Rutherford and Gertler, 2002). A crucial contribution of this work
has been to analyse, in real time, the historic reorganization of the labour movement,
rarely with any ambiguity as to which side it is on. After a decade of intensive case-study
work, the project has entered a phase of reflection and re-evaluation (see Castree, 2007;
Tufts and Savage, 2009; Rutherford, 2010; Coe and Jordhus-Lier, 2011). Meanwhile, new
rounds of small-l labour geography have been appearing, variously complementing and
supplementing these long-standing concerns with restructuring, regulation, and reorgani
zation. Especially notable among these has been the growing concern with the reproduc
tion of work (and the work of reproduction), including care economies, contingent em
ployment, and the dynamics of contracted-out capitalism (see Wills et al., 2010; Green
and Lawson, 2011; Doussard, 2013; McDowell, 2014; Winders and Smith, 2015).
Framed in these terms, this chapter offers a sympathetic rereading of what might be
called pluralist labour geography in its various and evolving forms. Echoing one of eco
nomic geography’s most cherished metaphors, that of sedimented layers (or ‘rounds’) of
investment, each marked by its own priorities and practices but at the same time inter
acting with what went before (see Massey, 1984; Scott, 2000), the roughly successive
rounds of research on restructuring, regulation, reorganization, and reproduction are
presented here not as (p. 467) competing efforts, contrary projects, or independent initia
tives, but as moments in a cumulatively assembled palimpsest of analytical sensibilities
and practices. Contemporary labour geographies are not (and cannot be) all of these
things simultaneously. But they invariably do bear the imprint of what has been a produc
tive series of past endeavours, shaping how the heterodox field of labour geography en
gages with the ‘restructuring now’. There is also both a need and an opportunity, as the
chapter’s conclusion emphasizes, for consciously and reflexively ‘recombinant’ labour ge
ographies to address, in new and creative ways, some of the most vexing contemporary
challenges relating to work, employment, and livelihoods—not least those concerned with
the entrenched processes of inequality, insecurity, and informalization.
Restructuring
The emergence of labour geography—in substance and in spirit if not in name—can be
traced to the crisis-driven restructuring of the manufacturing economies of North Ameri
ca and Western Europe during the 1970s, the advent of de-industrialization in what had
complacently been labelled the advanced capitalist countries, and the (regionalized)
waves of job losses and plant closures that followed in its wake. ‘Restructuring’, in this
context, initially represented a concrete object of inquiry, although it would later spawn a
distinctive analytical method. In the USA, Bluestone and Harrison (1982) had shown that
blue-collar job losses across what would subsequently be known as the ‘rustbelt’ could
not be attributed to some sudden collapse of labour productivity or enterprise viability,
but instead were the result of deliberate and planned corporate strategies for profit
restoration by way of relocation (or its effective threat), fuelled by a determination to
Page 3 of 24
rewrite, or withdraw unilaterally from, the postwar social contract with organized labour.
These were uniquely testing times for Bluestone and Harrison’s allies in the labour move
ment, as ‘runaway shops’ were seen to be heading for anti-union enclaves, notably the
‘right to work’ states of the American south, and to yet-lower-cost production sites in
Latin America and Asia. And while Bluestone and Harrison remained focused on opportu
nities for progressive reform (involving industrial retention efforts, workforce investment
measures, fortified employment rights, and strategies for re-industrialization), there were
clear indications, in these early Reagan years, that some kind of ruptural transformation
was under way—if not the beginning of the end for the New Deal labour settlement (Peck,
2002). Not surprisingly, this was a time when ‘[e]conomic geography, and the questions of
industrial location and labour markets in particular, took on a new political
salience’ (Lovering, 1989, p. 216).
Across the Atlantic, Massey and Meegan (1982) had been likewise convinced of the need
to dig beneath the statistics on redundancies and factory closures to identify the drivers
of employment change in their work on the industrial transformation of the UK. The fram
ing of their analysis was clearly more Marxist in inspiration, but hardly of the convention
al sort. Abstract tendencies like the deskilling of labour through workplace automation,
or downward pressure on the rate of profit, were not finding singular or consistent ex
pression in concrete outcomes, but were shown to be sectorally and geographically spe
cific. These general tendencies were mediated and even transformed by an array of con
junctural, contextual, and contingent circumstances—hence the need to bring to light
what Massey and (p. 468) Meegan called the ‘anatomy of job loss’. Tracing the (differenti
ated) dynamics of investment, productivity, and employment across dozens of industrial
sectors, they concluded that the ostensibly amorphous category of ‘job loss’ was, in fact,
an outcome of the operation of three analytically distinct mechanisms, understood as a
‘repertoire’ of restructuring strategies: the productivity-enhancing intensification of exist
ing production systems; various forms of investment-driven technical change, involving
the reorganization of these systems; and the rationalization of employment and produc
tive capacity. These were the intermediate steps, reformulated as mid-level concepts or
‘mechanisms’, through which the abstract categories of Marxian political economy were
rendered tractable and meaningful at the level of workplace restructuring.
To borrow the language later used in Massey and Meegan’s (1985) influential compendi
um of research practices in industrial geography (as the field was still known), there
would be implications for both politics and method. On the politics side, the Greater Lon
don Council and a network of other municipal–socialist councils across the UK were ac
tively engaged at the time in developing local economic strategies under the slogan ‘re
structuring for labour’. On a collision course with the neoliberal programme of the
Thatcher government, which would ultimately prove fatal for this suggestive cluster of
left-progressive innovations and demonstration projects, restructuring for labour involved
the development of detailed strategies for the full span of (local) economic activities, from
domestic labour and cultural work to more conventional industrial sectors like electron
ics, textiles, and defence (see Boddy and Fudge, 1984; Cochrane, 1986; Lovering, 1988).
Understood as a method, however, ‘restructuring’ implied a non-reductionist mode of
Page 4 of 24
analysis oriented to the creative and somewhat open-ended exploration of the local politi
cal economies of employment change, corporate transformation, and strategic interven
tion. Informed by critical realism in the UK and by the tradition of progressive pragma
tism in the USA, the restructuring approach was simultaneously skeptical of the positivist
proclivity to infer causality from empirically observed patterns and of those styles of
Marxian abstraction reliant on reductionist readings of capital logics and transformation
al tendencies. Instead, after having broken ‘into the chain of causation at the level of the
[capitalist] system as a whole’ (Massey and Meegan, 1985, p. 6), the favoured approach
was to identify and then intervene in local arenas of restructuring—understood in ground
ed and granular terms, as a socially shaped and politically contestable spaces. Counter to
the view that these manifestly turbulent and disruptive economic geographies (under
stood as shifts in the ‘spatial structures’ of production) were trending towards long-run
equilibrium or that they were the result of ‘natural’ evolution (as orthodox accounts had
it), or, for that matter, that they were governed by relatively immutable and mechanical
forces like workplace deskilling and the falling rate of profit (as more conventional
Marxisms would have it), in restructuring studies they were seen to be both inherently
plastic and unpredictably political. These geographies were ‘established, reinforced, com
batted and changed through political and economic strategies and battles on the part of
managers, workers and political representatives’ (Massey, 1984, p. 85).
Understandably, this did not lend itself to parsimonious or singular accounts of economic–
geographical transformation, but rather to up-close analyses of the construction, contin
gency, and contestability of restructuring pathways and regional-adjustment models, to
gether with explorations of (potential and actual) strategies for labour and for the local
state (Storper and Walker, 1983; Clark et al., 1986; Lovering, 1989). As such, the restruc
turing approach was not associated with direct or deterministic theory claims, while its
method was more about (p. 469) exploratory practice than formal procedure, its propo
nents insisting that it was no less potent or productive as a result. Likewise, the master
concept of the spatial division of labour was often evoked in an almost metaphorical way
(see Sayer, 1985; Warde, 1985), in the form of a methodological heuristic or political–eco
nomic imaginary. Its central motif was the deepening separation between conception and
execution, always expressed in social and spatial terms—between disaggregated and de
tached elements of the labour process, like assembly work and R & D; between the
branches and divisions of ‘stretched out’ corporate hierarchies and supply chains; and be
tween peripheralized regions and centres of concentrated control.
Crucially, the resulting economic geographies and reorganized power relations were to be
understood together, in relational terms. Operationally, the spatial division of labour ap
proach facilitated explorations of restructuring dynamics at the level of specific indus
tries, or around new ‘rounds of (dis)investment’; and it enabled investigations of the di
verse outcomes, mediations, and responses to these restructuring processes at the local
scale, within ‘localities’. As a sensibility, this approach directed attention, then, towards
the particularities of restructuring forms and dynamics; to non-repeating patterns across
usually local or regional cases; to the always-distinctive positionality of these cases within
Page 5 of 24
wider divisions of labour, as uniquely nodal sites of restructuring; and to the fundamental
character of restructuring as a contestable social and political process.
The heyday of restructuring studies, as John Lovering (1989) later reflected, was a rela
tively brief one. The original remit may have been focused on a series of tightly bounded
questions concerning the nexus of accelerating industrial transformation and workplace
changes in technology and labour utilization, but this tight focus on the capitalist labour
process had soon expanded to encompass shifts in household organization, gender rela
tions, local politics and culture, and a range of other ‘locality effects’. Even if these wider
concerns were licenced (and in some respects necessitated) by the foundational concept
of restructuring—which problematized qualitative transformations in the organization of
the capitalist economy, including its (social) reproduction—they implied a research agen
da that was by its nature dissipative. A less than sympathetic charge was that the restruc
turing approach, and the locality studies that it would later inspire, represented an ‘em
pirical turn’, away from abstraction and towards local detail (Harvey, 1987; Smith, 1987).
This critique may have been overdrawn, but it coincided with an apparent loss of theoreti
cal edge and programmatic momentum. The project that in so many ways had been a
product of the turbulent politics of the 1980s—the ascendancy of Thatcherism and
Reaganomics, and singular events like the year-long coal miners’ strike and the abolition
of the Labour Party-controlled metropolitan councils in the UK—did not survive that
decade intact.
Regulation
Axiomatic for the restructuring approach was the claim that employment relations, work
place transformations, and the ‘labour factor’ were diagnostically significant, both for
shifts in the socio-spatial organization of capitalism and for the moving terrain of politics.
‘Restructuring’, after all, was never simply about cyclical change or incremental adjust
ment. And although the language at the time had been more about Ford Motor Company
than the Fordist regime of accumulation, as the coming wave of regulation–theoretic
treatments (p. 470) would have it, the earlier intuition that some kind of macro-scale rup
ture was occurring seemed to have been confirmed. In the USA, de-industrialization
threatened the long-run viability of once-prosperous working-class communities, to be su
perseded by a neoliberalized mode of growth rooted in and realized through widening in
equalities (Bluestone and Harrison, 1982; Harrison and Bluestone, 1988; Peck, 2002). In
the UK, there was a parallel sense of historical dislocation, accentuated by the polarizing
stridency of the Thatcher government, its break with the postwar consensus on corpo
ratist industrial relations, welfare-statist interventions, and Keynesian macroeconomic
policy. Out went the commitments to full employment, regional policies, and public-sector
investment, which had reached their apogee with the social-democratic modernization
projects of the 1960s. In their place, after the turbulent decade of the 1970s, came the
neoliberal doctrine of monetarism, along with the prioritization of entrepreneurship, fi
nance, and the market.
Page 6 of 24
[T]he terms of the debate of the ‘modernisation’ period of the sixties were now re
versed. This was not just in the most obvious senses, from Welfare State and pub
lic sector to cutback and privatisation. The attack on State expenditure and on
public intervention was partly enabled by reworking the distinction between ‘pro
ductive’ and ‘non-productive’ parts of the economy. In the sixties the productive
sector was pre-eminently manufacturing; services were relegated to second place
… A decade later the distinction had come to mean something completely differ
ent; it was the market (private) sector which was productive, the public which was
the parasitic dead-weight … The periods of modernisation and monetarism were
not just different because the wider economic situation had changed so dramati
cally, because ‘the requirements of accumulation’ were different; they were also
dramatically contrasting in the dominant political interpretations of what those re
quirements were (Massey, 1984, pp. 265–266).
By the early 1990s, a decade after these words were written, the political trajectory de
scribed by Massey had been consolidated, and the dominant concerns of transatlantic
economic geography had shifted, too. The restructuring moment of the 1980s had trans
formed the field in at least one fundamental way: the concerns of economic geographers
would from now on move, in more or less real time, with the constantly shifting economy
itself. This would carry with it not only the virtues of social relevance and grounded en
gagement, but also certain risks associated with what is often a ‘presentist’ disposition,
including a preoccupation with (presumed) historical novelty over evolutionary continuity,
and ‘turns’ to new frameworks rather than the adaption or elaboration of existing tools
(see Scott, 2000; Barnes et al., 2007; Sheppard et al., 2012). Allen Scott (2000) portrayed
economic geography in terms of an uneven process of sedimentation, in which traces of
previous concerns and practices invariably linger, in non-systematic patterns of accumu
lation and habituated modes of analysis, while others are overwritten or forgotten. This
culture of selective retention and open innovation would be revealed as the locus of con
cern began to shift from restructuring to regulation.
The restructuring approach had assigned analytical priority to the (contested) workplace,
positioned within transforming industries, framed in the first instance in national terms
(as in Bluestone and Harrison’s concern with the US steel industry, or Massey’s work on
British coal mining) in relation to ‘foreign’ competition, ‘overseas’ investment, or the ‘in
ternationalization’ of production systems. The regulation optic, while in some senses in
ternalizing many of these same concerns, tended to frame them in macroinstitutional and
more explicitly historical terms. The analytical routines of regulation theory, especially in
the Parisian (p. 471) variant that was most influential in economic geography, had been
forged through studies of the eclipse of the Fordist–Keynesian mode of growth, which in
North America and Western Europe had entered its protracted crisis in the 1970s (Agliet
ta, 1979; Lipietz, 1986). This body of work had been concerned with the structural cou
pling of ‘regimes of accumulation’, patterned on the mass-production methods of the
Fordist factory and the norms of mass consumption and gendered reproduction on which
they were predicated, and ‘modes of social regulation’, a co-evolving complex of social,
cultural, and political institutions indexed on varieties of the Keynesian welfare state
Page 7 of 24
(Tickell and Peck, 1992; Peck, 2000). While there was some engagement with the atten
dant ‘big geographies’ of macroeconomic and macroinstitutional transformation, the most
sustained and consequential of these efforts took the transition from Fordism as a contex
tual frame, moving on to describe and debate a range of distinctively post-Fordist dynam
ics at the regional and local scales (see Scott, 1988; Storper and Scott, 1992; cf. Gertler,
1988, 1992). The new motif was that of flexibility—and flexibly specialized production sys
tems, flexible firms, flexible labour markets, and flexible accumulation.
If economic geography had experienced a moment of political relevance and interdiscipli

nary salience during the earlier moment of restructuring studies (Lovering, 1989), in
some ways it would repeat the feat, albeit under very different circumstances, a decade
later. In the ensuing post-Fordism debate, the focus of attention moved from the bleeding
to the leading edges of capitalist transformation, and to the upsides of restructuring
through growth, in the high-technology industries, in advanced business services and fi
nance, and in resurgent forms of craft production. This was also the occasion of an onto
logical shift, from a firms-within-industries approach to a nodes-and-networks orientation
(see Amin and Thrift, 1992), in part as a reflection of the redundancy of the old, ‘stan
dard’ industrial classifications, which looked increasingly archaic in a world of business-
to-business subcontracting, vertical disintegration, and service-sector growth, and in part
as a recognition that a historically distinctive set of ordering principles seemed to be at
work across the frontiers of a ‘new’ economy (Barnes et al., 2007; Sheppard et al., 2012),
shaped by a quite different nexus of industries, institutions, and ideologies—from finan
cialized growth to flexible subcontracting, from cluster initiatives to collaborative produc
tion, from neoliberal deregulation to net-based commerce.
The concern was less with industrial sectors, like engineering or car manufacturing, in
the throes of restructuring, and more about new logics of growth and development, real
ized through multifunctional clusters and heterogeneous networks. About this time, there
was something of a tonal transition, too. The target of restructuring studies had most of
ten been big firms getting bigger and badder, and the pursuit of defensive or countervail
ing strategies on the part of organized labour and its allies. The fast-growing industrial
districts, however, were just as likely to be celebrated for their productive efficiency,
adaptive capacity, and institutional superiority; stories from the flexible workplace were
about responsibly autonomous work teams, cooperative upskilling, and the management
of segmented workforces, rather than class conflict and industrial-relations strife; and in
place of the earlier emphasis on corporate hierarchies, running from the centres of coor
dination and control out to the peripheral branch plants and ‘runaway shops’, there came
a rather more benign analysis of the potential of globalizing networks. Characteristically,
there was continuing debate around these issues, although it is revealing that critical cor
rectives called upon some of the old (p. 472) restructuring studies’ reflexes in emphasizing
the ‘limits’ of the post-Fordist vision and the ‘dark side’ of flexible production (see Gertler,
1988; Harrison, 1992, 1994).
Page 8 of 24
But the various sides of the post-Fordism debate, even as they embraced questions of so
cial and institutional transformation, still tended to be rather productivist at their ex
planatory core. Moving to enlarge the field of the analytically visible, Linda McDowell
was among the first to call attention to the gender orders within which these ‘old’ and
‘new’ systems of production were embedded, raising questions of work, labour, and em
ployment beyond the immediate confines of the restructured or flexibilized workplace,
and indeed beyond the sphere of waged labour (McDowell, 1991, 2014). In a similar spir
it, Hanson and Pratt (1995) made and demonstrated the case for exploring what they
called ‘dynamic dependencies’ between households, (waged) workplaces, and local com
munities, reaching across the labour market as a space of analysis and intervention. As
women had, in important respects, always been ‘flexible’ workers, and as they continued
to shoulder most of the burden of unpaid domestic labour, transition models predicated
on shifts in waged employment told only part of the story.
Furthermore, the ongoing feminization of the labour market clearly spoke to more than
the secular growth of the service sector (and in so-called part-time jobs), and also to mu
tually conditioning shifts in employment and gender norms. These processes, as Hanson
and Pratt (1995, p. 1) revealed, are often intricately geographical in form and function:
‘social and economic geographies’, they argued, ‘are the media through which the segre
gation of large numbers of women into poorly paid jobs is produced and reproduced’. The
supply of labour—its quantity and quality—is not mechanically determined by market de
mand; it is socially produced and regulated, as the complex outcome of cultural norms,
state policies and programmes, household structures, gender relations, educational so
cialization, racial coding and discrimination, and much more. It follows that the labour
market is a social institution, an irreducibly complex outcome of a host of relatively au
tonomous and often conflicting social forces, (but) one dimension of which is the produc
tion and reproduction of waged employment; beyond the factory gates and the office car
park, the labour market, too, was recognized as a site of political struggle, social negotia
tion, and institutionalized compromise (Peck, 1996).
If socio-economic formations like labour markets are not unilaterally structured accord
ing to the needs of capital, and neither do they meaningfully resemble an idealized com
modity market, then a wide array of demanding questions are raised concerning process
es, practices, and patterns of regulation, governance, and institutional inclusion/exclu
sion. These were questions that regulation theories had explored, in characteristically
‘macro’ terms, through a reading of Atlantic Fordist capitalism(s) anchored in the wage–
labour nexus, although it would later be suggested that the crux of this crisis-prone sys
tem was migrating to the sphere of financialization, with significant consequences for so
cial inequality, growth patterns, and employment security (Boyer, 2000). Labour geogra
phers, for their part, have been rather less concerned with these big geographies, and in
stead have explored transformations in regulation and governance, often at the local and
regional scale, in dialogue with mid-level conceptions of contingent work, labour control,
workfare, and forced labour (see e.g. Jonas, 1996; Peck, 2001; Kelly, 2002; Peck and
Theodore, 2001, 2008; Strauss, 2012). Much of this work has been concerned with active
moments of regulatory transformation, particularly at points of social stress in the job
Page 9 of 24
market, where the drivers of change are often traced to disciplinary state policies or ex
ploitative business practices, and their neoliberalized combinations (p. 473) (Peck and
Theodore, 2010). These incursions are often resisted—sometimes defensively and some
times more proactively—but, in general, this line of work has been more inclined to ‘sam
ple’ on moments of regulatory transformation than on moments of resistance per se. The
latter has been the domain of Labour Geography ‘proper’.
Reorganization
Labour geography found its name, and in a sense also its voice, in the late 1990s. In a de
cisive intervention, Andrew Herod (1997, p. 3) drew a distinction between ‘geographies of
labour’, those neoclassical and Marxist analyses that in different ways conceived of the
landscape of work, workers, and employment as secondary to enterprise decision-making
and the calculus of capital, and ‘labour geographies’, signifying a concern with the active
roles, visions, and strategies of workers and workers’ organizations as the would-be mak
ers of worlds ‘in their own image’. What would become the self-identifying project of
Labour Geography was consequently defined in an orthogonal (and to some degree oppo
sitional) relationship to those capital-centric economic geographies that had gone before.
While practically and normatively a project of the left, and therefore more sympathetic in
its critiques of different currents in Marxian and neo-Marxian economic geography than
in what amounted to an affirmation of the earlier rejection of neoclassical market reduc
tionism, it is nevertheless revealing that in the inverted optic of proper-noun Labour Ge
ography approaches as varied as those of August Lösch, Walter Isard, David Harvey, and
Doreen Massey were marked by a shared failing, that of capital centricity, with its prioriti
zation of corporate rationalities, dynamics, and decision-making processes. Articulated
against this composite foil, a self-consciously labour-centric Labour Geography would
take as its licence and its problematic the question of how workers ‘actively produce eco
nomic spaces and scales in particular ways … as they implement in the landscape their
own spatial fixes’, an endeavour understood as a ‘corrective to accounts that present
workers as … inherently powerless and condemned only to follow the dictates of (global)
capital’ (Herod, 2001, p. 46, original emphasis).
This call would resonate strongly with a rising generation of activist scholars in and
around the discipline of economic geography, and it would do so in the context of yet an
other moment of political salience. In the wake of the ‘Battle in Seattle’ and the millennial
wave of protests against the institutions of the Washington Consensus, new energies were
being channelled through various movements for global justice, many of which also gelled
with a rising tide of locally based and/or networked initiatives, including those for mi
grant-worker rights and living-wage ordinances, along with experiments in service-sector
organizing, community unionism, social-justice campaigning, migrant-worker advocacy,
and alternative economic development. On the ‘inside’, too, the project of Labour Geogra
phy would find itself embedded in a changed and still-changing discipline.
Page 10 of 24
Economic geography was continuing to move with the churning political–economic land
scapes that for decades had been established its principal objects of study. Intellectually
and sociologically, the field was also becoming more diverse and decentred than ever be
fore. In contrast to the restructuring-and-regulation phase, which was marked by domi
nant and somewhat enduring centres of analytical gravity, engaged with a broadly shared
methodological toolkit, the new orientation tended towards a diversity of parallel projects
and (p. 474) proliferating sources of theoretical inspiration (see Chapter 8, and also Peck,
2005, 2012). From the mid-1990s, the often taken-for-granted centrality of some of the
old concerns—its industrial–productivist gaze, focused on leading sectors and related
forms of waged work—was increasingly being questioned (and, indeed, transcended)
from several quarters, including from feminist geographers, through post-structuralist in
terventions, and from those engaged in various cultural, institutional, and relational turns
(see Gibson-Graham, 1996; Lee and Wills, 1997). By definition, the resulting intellectual
milieu is not associated with a dominant analytical locus or singular direction of change.
A ‘largely unplanned’ and somewhat spontaneous development, the emergence of Labour
Geography reflected these environmental conditions (Castree, 2007, p. 854; Rutherford,
2010). As economic geography has cut its rather zigzagging course, so the palimpsest of
ingrained habits and emergent practices has been repeatedly remade.
It was in this context that, from the late 1990s, Labour Geography that exhibited on the
character of a ‘project’, and with a unity of purpose that exhibited a simultaneously nor
mative and analytical form. Normatively, this was reflected in an alignment with progres
sive currents within a (re)organizing labour movement, favouring (community) organizing
and political mobilization models over more traditional (workplace) membership and rep
resentation-based approaches, and reaching out to those groups that by virtue of race,
ethnicity, gender, generation, or occupation had been marginalized (or excluded) from
blue-collar industrial unionism. Analytically, allegiance to the shared project of Labour
Geography established lines of connection between what amounted to a series of quite
disparate case studies of politically promising organizing campaigns and hard-won bat
tles. These combined acute analyses of (often local) disputes and campaigns with assess
ments of their potential as labour-movement demonstration projects (see Walsh, 2000;
Savage, 2006). The fact that these victories were being registered, as it were, against the
grain of history—on the heels of long-established patterns of union-membership decline
across the most densely organized countries, an ideologically entrenched anti-union (or
‘post-union’) posture on the part of many functionally neoliberalized governments of the
right and centre left, and some devastating strategic defeats for labour—certainly added
to their symbolic resonance if not (necessarily) their predictive significance. Neverthe
less, a proclivity for sampling on positively realized expressions of workers’ agency, or
what have been portrayed as ‘success stories’ (see Lopez, 2004; Coe et al., 2008; Tufts,
2009), tended to result in somewhat circular affirmations of Labour Geography’s found
ing charge.
As the project of Labour Geography proper entered its second decade, it would become
animated less by this original charter, or by propulsive, catalysing case studies, and more
by reflective essays and stocktaking exercises. A recurrent theme here has been reflec
Page 11 of 24
tions on the changing position and prospects of a reorganized labour movement in the
face, materially, of unrelenting systemic pressures on unions and, analytically, the chal
lenge of situating labour’s agency (see Castree, 2007; Herod, 2010; Coe and Jordhus-Lier,
2011). To be sure, the imperative of recovering labour’s agency was never conceived in
naively unilateral terms, but its recovery as an antidote to capital centricity nevertheless
produced a tendency to abstract from the wider political economy of corporate restruc
turing and regulatory transformation. Furthermore, while an atmosphere of (sometimes
inescapably grim) realism pervaded the restructuring studies—not only ontologically, but
also politically—there has been more than a whiff of idealism in the embrace of Labour
Geography’s mission. ‘Many studies of labour union renewal’, as Tufts (2009, p. 981)
pointed out, have been ‘largely prescriptive and (p. 475) often “idealize” labour transfor
mation as an antithesis to the stagnant and defensive actions of retrenched business
unionism’. The combination of an agency-oriented ontology with a best-practices selec
tion strategy was never intended to yield a ‘representative’ reading of the actually exist
ing state of the labour movement, but it has also produced a certain proclivity for affirma
tive sampling. This is more than a matter of pessimism of the intellect. The localized mo
bilization of labour’s agency, as Sweeney and Holmes (2013) have shown, may in some
cases be detrimental to the wider strategic interests of the labour movement, or may un
dermine bargaining positions in other locations.
As Labour Geography entered a more reflective and autocritical phase, recognition of the
need to situate, contextualize, or ‘re-embed’ labour’s agency has prompted calls for the
simultaneous analysis of the strategies pursued by (fractions of) restructuring capital and
(branches of) the (re)regulatory state, indeed for a recovered appreciation of structural
constraints and contradictions of different kinds. To be sure, ‘integral’ modes of analysis
conducted at the nexus productive and regulatory restructuring on the one hand, and the
strategies of (re)organized labour on the other, have been a recurrent theme in the field
(see Herod, 2000; Holmes, 2004; Peck, 2016), even if they have not defined its central
tendency. Instead, this has more typically been focused on moments of labour activism,
broadly defined. This galvanized the previously diffuse field of lower-case labour geogra
phy, endowing the project with a strong sense of political and analytical purpose, while
opening up new lines of dialogue with cognate fields like labour history, industrial rela
tions, and working-class studies. The capital-L project can also be credited with progres
sively broadening, once again, the field of the analytically visible. Even if, ‘[i]n the early
days, labour geographers had their eyes fixed firmly on paid employment and production
issues’, particularly in the Global North (Castree, 2007, p. 855), more recent rounds of re
search have begun to reach beyond this, both socially and spatially (see Bergene et al.,
2010; McGrath-Champ et al., 2010; Kelly, 2012; Coe, 2013). Like its predecessors, this too
has become an expansive project.
Page 12 of 24
Reproduction
Issues of (social) reproduction have been a recurring presence across all stripes of labour
geography, although often at the edges of the field of vision. Beyond the utilitarian con
struction of labour as ‘variable capital, an aspect of capital itself’ (Harvey, 1982, p. 381,
original emphasis), there has been a recognition that, unlike other factors of production,
labour returns home at night (Harvey, 1989), although there has been rather less empha
sis on the household, at least until recently, as a place of work, as a space of politics, or,
indeed, as a theory-making site (cf. McDowell and Massey, 1984; McDowell, 2014). Spa
tial divisions of labour was one of the first sustained efforts to explore the implications of
the gendering of the ‘reserve army of labour’ for the geographies of industrial restructur
ing, albeit in rudimentary terms: in Cornwall, for example, ‘A married woman … was less
likely to be “just” a wife and housekeeper to a “breadwinner” [than in the coalfields] and
more likely to be involved some form of non-domestic labour; keeping a bed-and-break
fast boarding house, maybe, or doing (paid or unpaid) work on the “family”
farm’ (Massey, 1984, p. 225). The female workforces that were being targeted, at the
time, by branch-plant manufacturing firms seeking ‘green’ (p. 476) (compliant and non-
unionized) labour exhibited pronounced geographies of their own, which, in turn, reflect
ed spatially differentiated histories of patriarchal relations and gendered divisions of
labour, waged and unwaged. These geographies of labour supply (again, which were not
just matters of skills and wages, but involved structures of social reproduction and em
bedded patterns of socialization) have been shown to establish (pre)conditions for the
creation and maintenance of different labour processes—just one of the ways in which lo
calized social geographies and racialized migration flows shape the form and spatiality of
labour demand (Peck, 1996; McDowell, 2008; Samers, 2011).
A principal concern for Hanson and Pratt (1995, pp. 122, 155) was with the ‘remarkable
rootedness of many people’s (and especially women’s) lives’, along with its consequences
for ‘limit[ing] women’s employment chances and [for the reproduction of] sex-based occu
pational segregation’. This was an impetus for studies of suburban ‘pink-collar ghettos’,
for conceptions of the household as a ‘boundary institution’ of the labour market, and for
explorations of the role of the sphere of social reproduction as a site of socialization and
segmentation (England, 1993; Peck, 1996). As the commodification of labour is a neces
sarily incomplete process, labour’s ‘pseudo-commodity’ form is inescapably social, and a
joint product of the interaction and mutual conditioning of the waged economy and the
domain of social reproduction. Social reproduction must therefore be understood as ‘a set
of structured practices that unfold in dialectical relation with production, with which it is
mutually constitutive and in tension’, Katz (2001, p. 711) has explained; by the same to
ken, the abstraction that is the sphere of social reproduction also refers to the ‘fleshy,
messy, and indeterminate stuff of everyday life’.
An analytical vision that embraces what Mitchell et al. (2003, p. 429) have called ‘life’s
work’ necessarily includes a host of activities (and social relations) that might be conven
tionally labelled as ‘non-work’, from caring to learning, while also ‘blurring’ the bound
aries between production and reproduction, paid and unpaid labour, and ‘work’ and its
Page 13 of 24
others. Against the accusation that this amounts to an all-inclusive, catch-all warrant for
the study, as it were, of everything but the kitchen sink, there is the countercharge that to
do otherwise is to ‘desocialize’ labour, to strip it of its inescapably human character, while
also detaching the analysis of waged labour and (commodity) production from the circum
stances of their existence and the circuits of their reproduction. The conditions under
which labour is reproduced, on a daily and intergenerational basis, actually do include
the kitchen sink, and properly so.
At least since the ‘domestic labour’ debates of the 1970s, the household has been recog
nized not only as a hidden abode of reproductive work and unmeasured labour, but also
as an alternate site of value creation (see Molyneux, 1979; Humphries and Rubery, 1984;
Folbre, 2001). Beyond arguments around the ‘separate spheres’ of masculinized wage
labour and feminized domestic work, and then their asymmetrical interaction, ‘the bound
aries of and between the domestic and the economic, home and work [have since been
recognized to be] more mobile, more porous, and contested, even if those boundaries did
not melt away’ (Winders and Smith, 2015, pp. 11–12). If the domains of domestic labour
and household reproduction were once considered discrete, discreet, and ‘local’ matters,
no longer is this the case: the work of social reproduction and the connections made by
so-called ‘care chains’ both exhibit an increasingly global reach. Feminist labour geogra
phers, who led the drive to expand and rethink the definition of work, have since been at
the forefront of a recent wave of work on (globalizing) care economies, many of which are
simultaneously feminized, (p. 477) racialized, privatized, and (re)marginalized (see Mc
Dowell, 2004, 2008; Lawson, 2007; Massey, 2007; Wills et al., 2010; Pratt, 2012).
Unhiding the economies (and geographies) of care reveals the social and institutional pre
conditions for the functioning of normalized economic subjectivities, like the rationally
calculating, atomized, individual of neoclassical theory (‘economic man’). It demands an
answer to the question, how is rational economic man reproduced? The answers invari
ably involve a great deal of female labour, and work that is (consequently) constructed as
peripheral, secondary, and marginal, and as a result both undervalued and underpaid.
The often-invisible labour of social reproduction, in turn, is a prerequisite for the high-
performance, high-pressure, and individualized workplace that is so often celebrated in
these after-Fordist, neoliberalized times (see Henry and Massey, 1995; Ross, 2009; Brown,
2015). ‘Marginalizing care’, Victoria Lawson (2007, p. 5) writes, ‘furthers the myth that
our successes are achieved as autonomous individuals and, as such, we have no responsi
bility to share the fruits of our success with others’.
Questions of social reproduction therefore problematize political and normative construc

tions of (productive) work, as well as the gendered and institutionalized ‘boundaries’ that
are conventionally established around workplaces, labour markets, households, and
economies, with all their implications for socially differentiated processes of valuation, re
muneration, and inclusion/exclusion. In turn, these processes shape the measurement
and meaning of ‘economy’ itself, from the calculation of national accounts (which exclude
unpaid domestic work) to the production of un/employment statistics (which exclude
those not actively seeking waged employment), just as they frame and distort orthodox
Page 14 of 24
understandings of phenomena like labour-market change or globalization. Social repro

duction, it has been observed, is the ‘missing figure’ in globalization debates, as well as
the marginalized Other of the ideologically and materially privileged market economy,
while feminized care workers are among its missing subjects (Katz, 2001; Nagar et al.,
2002; Winders and Smith, 2015). ‘Globalized capitalism has changed the face of social re
production worldwide over the past three decades’, Cindi Katz has argued, ‘enabling in
tensification of capital accumulation and exacerbating differences in wealth and poverty’.
The demise of the social contract as a result of neoliberalism, privatization, and

the fraying of the welfare state is a crucial aspect of this shift … The flip side of the
withdrawal of public and corporate support for the social wage is a reliance on
private means of securing and sustaining social reproduction—not just the uncom
pensated caring work of families, most commonly women, but also a shunting of
responsibility, often geographically, that has clear class, race, and national compo
nents. For instance, the social reproduction of a migrant workforce is carried out
in its members’ countries of origin. When they are employed elsewhere, this rep
resents a direct transfer of wealth from generally poorer to richer countries. Vari
able capital produced in one site and tapped in another is no less a capital trans
fer than the extraction of raw materials, debt servicing, and the like. Yet this
transfer seems to be of no moment to most theorists of globalization (Katz, 2001,
p. 710).
The postwar social contract that prevailed across the Fordist–Keynesian countries—and
which institutionalized a ‘social wage’ of non-wage benefits, services, and supports, yield
ing mutual adjustments in the organization of households, enterprises, and the public sec
tor—has been variously deconstructed and disaggregated through several decades of ne
oliberal transformation. Tasks of social reproduction have been privatized, contracted
out, and devolved (back) to households, to faith-based, non-governmental to ‘shadow-
state’ (p. 478) institutions, and to an array of for-profit organizations. This, in turn, has
been associated with a significant transformation of the labour market, as women work
ers have been on the front lines not only of the rollback, restructuring, and privatization
of public services, including health care, education, and childcare, but also the secular ex
pansion of private-consumer services—now itself one of the largest employers, economy-
wide (see Bowman et al., 2014; McDowell, 2014). All of this has pushed new costs, risks,
and stresses onto households, and onto the shoulders of women in particular. In the con
text of real-wage stagnation, growing precarity, and the normalization of ‘flexible’ work
norms (including multiple job holding), women have often been confronted by double or
triple burdens in ‘feminizing’ wage–labour markets. ‘The need for multiple wage-earners
in a household’, Linda McDowell (2004, p. 150) has written, ‘means that all the work of
social reproduction must be squeezed into a shorter and shorter time or redistributed
among other networks’. In the process, under a particular configuration of historical and
geographical circumstances, employment and gender norms are being transformed—
along with the boundaries (and patterned relationships) between enterprises and fami
lies, households and states, public and private, and production and reproduction.
Page 15 of 24
Conclusion: For Recombinant Labour Geogra

phies
This chapter has highlighted the plurality of approaches to questions of labour, work, and
employment in post-1970s Anglo-American economic geography—before, during, and per
haps ‘after’ the moment of Labour Geography proper as an explicit and named project.
The relationship between what have been rather distinctive currents in a pluralized and
palimpsest-like labour geography—from restructuring through regulation and reorganiza
tion to reproduction—has not been one of competition or simple succession, however.
There has always been a degree of reciprocal learning and cross-fertilization. Yet while
these (and other) strands and projects of labour geography have existed for the most part
in a state of comradely cohabitation and intermittent communication, they have also dis
played some of the characteristics of self-referential ‘cells’ of activity, latterly with closer
relationships to extra-disciplinary than to subdisciplinary communities (see Coe and Jord
hus-Lier, 2011; Peck, 2012). Furthermore, they have been arrayed more-or-less sequen
tially across the recent history of (critical) economic geography, and as such reflect a se
ries of context-specific (if also somewhat cumulative) encounters with various forms of
Marxism, feminism, institutionalism, post-structuralism, and so on. But for all of econom
ic geography’s ‘turns’, and for all its theoretical promiscuity and magpie-like eclecticism,
traces of these earlier encounters invariably remain, in some form another, in the diversi
ty of contemporary practice.
In these circumstances, it may not be too fanciful to anticipate that some of the next
moves for a pluralized labour geography might be integrative and intersectional, as op
posed to additive or alternative ‘turns’ in different directions. There is still-to-be-realized
potential for dialogic deepening across the beyond these various modalities of small-l
labour geography, excavating the combinational potential of which would amount to much
more than turning inward or turning back. After all, even if they have not always been in
deep dialogue, (p. 479) the various strands of actually existing labour geography have gen
erally not been advanced through scorched-earth critiques of their respective precursors
and alternatives. None can claim a monopoly: each has yielded a distinctive analytical op
tic, along with characteristic principles of theoretical pertinence and methodological pri
ority.
The restructuring approach sought to connect the dynamics of capitalist restructuring

with the particularities of workplace change and local social relations at a time of objec
tive macroeconomic dislocation, with an emphasis on class and gender. Regulationist
studies built from similar foundations, but were more explicitly oriented to the macro-pat
terning of institutional transformations, extending (down) to considerations of localized
governance and projects of reregulation. The advent of Labour Geography proper was
marked by a defining concern with labour as a collective political actor, with its own ratio
nales of action and organization, extending beyond the workplace and into local commu
nities and transnational arenas. And explorations of the realm of social reproduction have
sought to broaden both the field of vision and prevailing definitions of ‘work’, decon
Page 16 of 24
structing the boundaries between the capitalist labour process and the household econo
my, between waged and unwaged work, and between production and reproduction. Ar
guably, the last of these moments has been the most encompassing, although none is fully
a substitute for the others.
Like the rudely heterodox field of economic geography more generally, labour geography
seems in its very nature to be restlessly proliferative—leading, predictably, to an under
current of concern about disciplinary fragmentation and amnesia. The promise of a reflex
ively ‘recombinant’ labour geography, in contrast, is not only to be cognizant of diverse
contributions and perspectives over what has been a distinctively ‘layered’ intellectual
history, but also to confront in bold and creative ways the structural challenges of the re
structuring present. Foremost among these contemporary challenges is a knot of ques
tions relating to the reproduction of decent work, fair employment, and sustainable liveli
hoods in global terms, not least those relating to inequality, insecurity, and informaliza
tion—the scale and scope of which exceeds the capacity of siloed or sectional approaches,
calling instead for more integral, intersectional, and integrative modes of analysis. In a
post-Kuznets curve world in which increased economic growth and accelerated develop
ment tend to produce more, rather than less, socio-spatial inequality, endemic inequality
has been established as something akin to a globalizing condition. Yet the diverse geogra
phies of inequality in work and welfare, along with their causes and consequences, have
yet to be interrogated in systematic or sustained ways by economic geographers—one
area where creative collaborations are surely called for, particularly between those
trained in quantitative and qualitative methods. Furthermore, if insecurity was once re
garded, at least in Fordist labour markets, as an affliction of marginal or ‘secondary’
workers, the widespread diffusion of contingent work and ‘precarity’, the fracturing and
truncation of career paths, the privatization of education and training, and the erosion of
employment protections threatens to confer normative status on employment and job in
security, often under the euphemistic guise of ‘flexibility’. Similarly, the informalization
and ‘deregulation’ of labour markets, long recognized as a structural feature of the
economies of the Global South, have become entrenched phenomena, although hardly ho
mogenously so. More expansively global labour geographies will need to trace these dy
namics across cases and conjunctures, while continuing to unpack the meaning of con
cepts hitherto defined in little more than provisional and negative terms, according what
they are lacking or not (as informal or deregulated labour markets).
(p. 480) In the three decades that have passed since the publication of Doreen Massey’s
Spatial divisions of labour, the terrain of labour geography has been mapped and
remapped—perhaps not exhaustively but in a cumulative sense quite comprehensively. As
economic geography has proved itself to be an almost spontaneously proliferative field,
there is little doubt that productive boundary work will continue, not least through exten
sions of the social and spatial reach of various permutations of labour geography. The
projects of labour geography began by reaching into the contested terrain of the industri
al workplace before reaching out, more or less successively, into local communities and
into post-industrial workplaces, into the (de)regulatory folds of the state, into the collec
tive institutions of the labour movement, and into the domains and circuits of reproduc
Page 17 of 24
tion. After three decades of development, there is reason for the diverse community of
labour geographers to work across as well as out, and to enrich what ought to be mutual
ly adaptive conversations. Pluralized labour geography has acquired a wide reach; maybe
the next challenge should be to consolidate its intersectional grasp?
Acknowledgements
The support of the Social Science and Humanities Research Council is gratefully acknowl
edged. I thank Kendra Strauss, Tod Rutherford, Nik Theodore, and the editors for com
ments on an earlier draft of this chapter, even as the responsibility for any remaining er
rors of omission and commission remains mine.
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nealogy of spatial relations’. Mimeo, Department of Geography, Syracuse University.
Jamie Peck
Jamie Peck ([email protected]) is Canada Research Chair in Urban and Regional Po
litical Economy, Distinguished University Scholar, and Professor of Geography at the
University of British Columbia. With long-term research interests in urban restruc
turing, geographical political economy, labour studies, the politics of policy formation
and mobility, and economic geography, his recent books include Offshore: Exploring
the Worlds of Global Outsourcing, Fast Policy: Experimental Statecraft at the Thresh
olds of Neoliberalism (with Nik Theodore), Constructions of Neoliberal Reason, and
The Wiley-Blackwell Companion to Economic Geography (with Trevor Barnes and Er
ic Sheppard). A Fellow of the Royal Society of Canada, and previously the holder of
Guggenheim and Harkness fellowships, Peck is the Editor-in-Chief of the Environ
ment and Planning series of journals.
Page 24 of 24
Precarious Work and Winner-Take-all Economies

Kendra Strauss
This chapter examines the concept of precariousness in work in relation to income and
labour market polarization. Although there is growing interest in the separate but related
notion of precarity in human geography, economic and labour geographers have engaged
less with the literature on precarious work and the decline of the standard employment
relation. This chapter provides a brief overview of how precarious employment is under
stood, before turning to focus on two particular dimensions: the role of labour market in
termediaries, and the challenges of regulation in an era of flexible work.
Keywords: precarious work, standard employment relation, labour market intermediaries, regulation
Introduction
IT is 2 January 2015 and the first working day of the New Year dawns in the city of Lon
don. John Li, an Internet security consultant, has just stepped off of a red-eye flight from
Singapore. While waiting to clear customs, he calls home; Ana, his family’s Filipino nan
ny, answers and tells him sleepily that his wife and children are in bed. John has time to
use a smartphone application to order a private car, and with no luggage to pick up, he is
able to meet his driver, Ted, within ten minutes. On the way to Canary Wharf, Ted tells
John that he has been driving for the ride-share company for three months, ever since the
security firm he used to work for decided he was ‘redundant’. John arrives at the office
half an hour before his first meeting, so he asks the woman at the reception desk where
he can get coffee. Alicia explains that she is a temp and does not know the area well, but
thinks there is a café around the corner. John finds an outlet of a large sandwich chain,
which, at 6:30 a.m., is still quiet; waiting for his coffee, he chats with the barista, who is
from an area of Spain where John once went on holiday.
The five workers in this scenario have at least one thing in common: they perform wage
labour but are not in a standard employment relationship (SER). John is a contract work
er from Hong Kong, living in Singapore for ten months while completing a project for
HSBC Bank. Friends of John in Singapore originally hired Ana through an agency; he and
Page 1 of 22
his wife employed her informally when the other family left the city because Ana had
reached the end of her two-year foreign domestic worker permit. The company Ted drives
for pays him for each client he successfully transports, but considers him an independent
contractor rather than an employee of the company. Alicia, who was born in London to
Nigerian parents, has been temping for Manpower for two years since finishing a degree
in marketing. She has not been able to find a permanent job. The barista, who worked as
a municipal planner in his (p. 486) hometown in Southern Spain but was laid off following
the 2008 financial crisis, is on a flexible contract that usually fails to deliver the full-time
hours he was promised.
The notion that these are ‘non-standard’ workers, whose situations deviate from a norm
of full-time, permanent, direct employment with a single employer or firm, has been both
highlighted and challenged by the documented rise of precarious employment or ‘precari
ousness in work’ (Vosko, 2010). Highlighted by a large and evolving body of theoretical
and empirical work on the changing political economy of labour markets and their regula
tion, which has drawn attention to the decline of the SER (McDowell and Christopherson,
2009; Kalleberg, 2011; Arthurs and Stone, 2013); challenged, in the sense of pointing out
that the SER’s force, even in the Anglo-European heartlands of Fordism, was for many
women, immigrant, and racialized workers more normative than descriptive (Vosko, 2000;
Strauss and Fudge, 2014). These developments not only signal the importance of chang
ing employment norms, but also challenge a dichotomous conceptualization of standard
and non-standard employment, suggesting instead the need for a more nuanced calibra
tion of (in)security in work.
The recalibration of the notion of ‘non-standard’ work has happened for at least three
reasons. Firstly, precarious work has increasingly become the standard for some groups
in the labour markets of ‘advanced economies’, reinforcing and exacerbating segmenta
tion and polarization between primary and secondary labour markets. Secondly, such po
larization has not been the straightforward outcome of capital and the state producing
precariousness through the deregulation of labour and employment regimes. Precarious
employment is related to strategies of flexibilization which, as Peck (1996) has highlight
ed, involve the active re-regulation of labour markets. Finally, polarization among work
ers in groups traditionally identified as disadvantaged—including women, immigrant, and
migrant workers—signals the need to understand axes of differentiation as evolving and
contested, rather than static and immutable categories. For Alicia, the temp receptionist
in our scenario, being a young worker of colour increases the likelihood of being in tem
porary, precarious employment (Forde and Slater, 2005) more than being a woman, de
spite the association of the growth of precariousness with the feminization of work
(Vosko, 2000).
Precariousness as insecurity means that political economic accounts of precarious work

overlap with ontological explorations of precarity as both universal and as socially and
politically constructed (Butler, 2004; Ettlinger, 2007; see Strauss, 2017, for a discussion).
There is a growing interest in the concept of precarity among political and development
geographers and migration scholars in the field (see, e.g., Waite, 2009; Woon, 2011; Hark
Page 2 of 22
er, 2012; Lewis et al., 2014; Waite et al., 2014). But excepting excellent work on London’s
‘migrant division of labor’ (Wills et al., 2009; Dyer et al., 2011), and on the creative indus
tries (Donald et al., 2013; Watson, 2013; Warren, 2014), there has been relatively little en
gagement among economic and labour geographers with the work on precarious employ
ment that has emerged in the last two decades in political economy, sociology, and labour
law.
My point in this chapter is not to castigate economic geographers for this lack of atten
tion. Instead, I want to examine the relevance of the concepts of precarious employment
and precariousness in work in light of the polarization that increasingly characterizes
‘winner-take-all’ economies. Following Coe (2013, p. 276), who argues that ‘the role of
agencies and other intermediaries … merits urgent further attention’, I examine the utili
ty of these concepts to economic and labour geographers for theorizing and analysing re
cent trends in intermediated work. In particular, I am interested in the growing salience
of intermediated self-employment (p. 487) in the ‘sharing economy’, the evolving nature of
intermediation itself, and the implications of changing patterns of employment for labour
market regulation beyond the SER.
The chapter is in three parts. I first provide a brief overview of how the concept of precar
ious employment has developed outside of the discipline of geography and reflect on its
relationship with empirical trends in employment and income distribution. The second
section looks at the relationship between intermediation and precariousness, arguing that
geographical literatures on employment agencies and labour intermediaries need to be
augmented with an expanded conceptualization of intermediation. The final part of the
chapter, drawing on recent research on attitudes to labour market regulation in the UK,
offers some thoughts on the implications of these developments for workers’ struggles
against precarious employment.
Precarious Employment, Polarized Labour Mar

kets, and Income Inequality
As economic geographers have noted, precariousness is a complex concept that has
emerged at the intersection of two political and intellectual traditions: Marxist and neo-
Marxist theoretical work and activism, related to the Bourdieu’s concept of precarité and
to the autonomist-inspired San Precario movement in Italy; and more institutional ap
proaches to the study of labour markets in labour studies, labour law, and sociology (Mc
Dowell and Christopherson 2009; Strauss, 2017). Both currents emphasize insecurity in
employment, as well as the implications for more generalized forms of insecurity beyond
the sphere of paid work (at the scale of the individual, the community, and the nation
state). Research by the International Labour Organization in the 1980s was instrumental
in defining precarious work in this broader sense: ‘precarious work goes beyond the form
of employment to look at the range of factors that contribute to whether a particular form
Page 3 of 22
of employment exposes the worker to employment instability, a lack of legal and union
protection, and social and economic vulnerability’ (Rodgers, 1989, p. 1, emphasis added).
In practice, however, the Anglo-North American literature on precarious work evolved

more narrowly in relation to the aspects of precarious employment identified by Rodgers
(1989). These included uncertainty around continuation of employment (temporary or
contract work), the ability to exercise control in the labour process over such aspects as
working conditions and the pace of work (linked to the presence or absence of collective
representation), the presence and degree of regulatory protections, and sufficiency of in
come (Strauss and Fudge, 2014, p. 11). More recently, emerging concerns about increas
es in involuntary part time work and ‘zero-hours contracts’ (the problem for our fictional
barista in the UK) have illustrated the evolving nature of precarious employment rela
tions.1
Feminist political economists and labour lawyers, building on critiques of the limitations
models of labour market segmentation (Peck, 1996) and integrating concepts of the male
breadwinner model of employment and gender regimes (Fudge, 2005), sought to re-focus
attention on the question of the relationship between the feminization of work, social lo
cation, and precarious employment (Vosko, 2000; Cranford and Vosko, 2005). This ap
proach integrated categories of social difference relating to gender, race and racializa
tion, and (p. 488) occupational context, and in many cases included implicit and explicit
critiques of the SER itself. In Western Europe and North America, the approach also
translated into significant empirical projects for mapping increasing female labour mar
ket participation, the rise of precarious forms of employment, and precariousness in
work. These overlapped with the increasing interest in geography in intermediated em
ployment and the expansion of temporary employment agencies (Peck and Theodore,
2007; Coe et al., 2011). The uneven acceleration of economic migration, including within
an expanded internal European Union (EU) labour market, and the imposition of regimes
favouring temporary, circular forms of migration in a diverse range of countries, includ
ing Canada, China, and Israel, made legal status (related to citizenship, employment, and
settlement rights) an increasingly salient and pressing consideration in frameworks for
theorizing social location in relation to precarious employment (Goldring et al., 2009; An
derson, 2010).
Like research on intermediated employment, these different literatures have had to grap
ple with questions of the role of choice and new cultures of work versus structural differ
ences in worker power and voice. To what extent do workers in ‘the knowledge econo
my’—like John Li, our fictional consultant—actively embrace risk? Do they seek out vari
ety and new opportunities, eschewing traditional forms of security and collective voice for
more lucrative, and individualized, forms of opportunity? Critical approaches to the study
of flexible employment point out that highly skilled mobile workers may benefit from such
arrangements, but that such benefits accrue disproportionately to well-paid workers in
primary labour markets with high levels of human and social capital, and thus high levels
of bargaining power (Kim, 2013; for a nuanced picture of flexibility and insecurity in the
high-tech sector, see Benner 2002). These relations are thus gendered, classed, and
Page 4 of 22
racialized (Whitson, 2010). One of the key debates about precariousness versus flexibility
addresses the degree to which forms of non-standard work such as part-time, contract, or
temporary work are actively favoured by those seeking to achieve work–life balance, in
particular in relation to caring responsibilities—and thus the gendered implications of
flexible working (Brandth and Kvande, 2001; James, 2011; Smith et al., 2011). Euro-cen
tric approaches that are attentive to the different ways in which ‘choice’ is exercised by
gendered, classed, and racialized workers have nevertheless also been critiqued for tak
ing particular kinds of labour markets as given, for example in the lack of attention to the
‘informal’ sector (Williams and Round, 2007).
Recent careful empirical work on the post-recession UK labour market, characterized by

relatively low levels of temporary work (6.2% in 2013 vs an EU 28 average of 13.8%) (Eu
rostat, 2014) and relatively high levels of part-time work (24.5% in 2013 vs an EU 28 av
erage of 17.8%) (OECD, 2015a), suggests that what Green and Livanos (2014, p. 8) call
‘involuntary non-standard work’ (INE) is a particular issue for ‘so-called “vulnerable
groups,” such as women, young workers and workers of non-white ethnic background’.
Their findings echo the warnings of scholars of precarious employment—insecurity and a
lack of power in the labour market (related to broader dimensions of social subordina
tion) should not be confused with flexibility. But Green and Livanos also note that place
matters: in their analysis, workers in the south-west of England, and in Northern Ireland,
Scotland, and Wales are most likely to be in INE. As these findings are not analysed in
great detail, they provide a fruitful direction for future research by geographers, especial
ly given that spatial difference in the literatures on precarious employment is generally
approached by way of quantitative regional comparisons. (p. 489)
Page 5 of 22
Table 25.1 Full-time, Part-time, and Temporary Employment in the European Union, percentages, 2003, 2007, and 2014
Page 6 of 22
2003 2007 2014
EMPa PTb TEMPc EMP PT TEMP EMP PT TEMP
EU 27 62.6 16.5 12.7 65.3 18.2 14.6 64.9 20.5 14.0
Denmark 75.1 21.3 9.3 77.0 23.7 9.1 72.8 25.5 8.5
Germany 65.0 21.7 12.2 69.0 26.1 14.6 73.8 27.6 13.0
France 64.0 16.8 13.4 64.3 17.3 15.1 64.3 18.9 15.8
Greece 58.5 4.3 11.2 60.9 5.7 11.0 49.4 9.5 11.7
Ireland 65.5 16.9 5.2 69.2 17.9 8.5 61.7 23.5 9.3
Italy 56.1 8.5 9.9 58.6 13.6 13.2 55.7 18.4 13.6
Nether 73.6 45.0 14.5 76.0 46.8 18.1 73.1 50.5 21.5
lands
Poland 51.2 10.5 19.4 57.0 9.2 28.2 61.7 7.8 28.4
Slovenia 62.6 6.2 13.7 67.8 9.3 18.5 63.9 11.2 16.7
Spain 60.2 8.1 31.9 65.8 11.6 31.6 56.0 15.9 24.0
Page 7 of 22
UK 71.5 25.6 6.1 71.5 25.1 5.8 71.9 26.8 6.4
Notes.aEMP indicates the employment rate (15–64 years), annual averages. bPT indicates part-time workers in per cent of total em
ployment. cTEMP indicates percentage of employees with temporary contracts.
Source: Eurostat (2014), employment (main characteristics and rates).
Page 8 of 22
If precarious work is defined against a normative model of standard employment that as
sumes full-time, continuous, direct employment with access to both collective representa
tion and occupational benefits, and paying an adequate wage, it begs the question of the
utility of a dichotomous approach (in which precarious and secure employment are under
stood as distinct categories) relative to a more continuous and fluid understanding of pre
cariousness in work. This is because of the decline of, or polarization in, levels of incomes
and benefits within so-called standard forms of employment in some places, and also be
cause precariousness is not a static attribute of occupations, forms of employment, or
labour markets: trends may move in different and contradictory directions, and may af
fect different dimensions of employment. Table 25.1 illustrates, for example, different lev
els of limited-duration contract employment (often considered a prototypical type of pre
carious work) relative to overall levels of employment and unemployment in selected Eu
ropean countries against the EU 27 average, in the years 2003, 2007, and 2013. Although
there is a general trend towards increasing part-time and temporary work, there is also
considerable variation between countries and over time. While Ireland, Italy, and Greece
saw small increases in temporary employment after the 2008 financial crisis, the propor
tion of temporary workers in Spain fell—possibly because temporary workers have ful
filled the ‘shock absorbing and risk-absorbing’ functions identified by Theodore and Peck
(2014, p. 28) in their study of the temporary staffing industry in the USA, in the context of
a Spanish economy still mired in recession.
At the same time other measures related to precariousness, like access to occupa
(p. 490)
tional pensions, prevalence of low pay, and union density, affect countries where the SER
would otherwise seem to retain some of its dominance (in the UK, e.g., where part-time
employment—mostly among women—is high, but temporary employment is relatively
low). In 2013 low pay (defined as the share of workers earning less than two-thirds of me
dian earnings) affected 20.5 per cent of British workers (OECD, 2016), whereas only thir
ty per cent were covered by an employer-provided occupational pension (OECD, 2015b).
Conversely, countries with growing levels of temporary work may nevertheless score rela
tively well in terms of relative adequacy of pay or pension coverage, whereas others with
higher levels of permanent work may also have high levels of part-time work or low levels
of occupational benefits.
One further, relatively consistent trend among richer nations is increasing income in
equality—in only four Organisation for Economic Co-operation and Development (OECD)
countries (Belgium, the Netherlands, France, and Greece) did the Gini measure of income
inequality show no measurable increase between the mid-1980s and 2013, and only in
Turkey did it fall during that period (Keeley, 2015, p. 34). As levels of income and wealth
polarization increase, the complex interrelationship of these processes with rising precar
ity in ‘winner-take-all’ economies—where fractions of capital, especially financial capital,
are seen as the unambiguous winners—is becoming apparent.2
There has been considerable debate in geography about the relationship between neo-lib
eralization and labour market change, including in relation to the ‘austerity turn’ in poli
tics (Featherstone et al., 2012; Torres et al., 2013a), whereas in the social sciences more
Page 9 of 22
broadly the research agenda on precarious employment has expanded and developed
alongside political debates about flexicurity, immigration policy and migrant workers’
rights, and labour market re-regulation favouring employers (Arthurs and Stone, 2013).
Intermediated employment spans these agendas. What is evident, moreover, is that new
and evolving forms of intermediation—like the work situation of Ted, our fictional driver—
are developing concomitantly with the uneven and contested spread of ‘non-standard’
work.
Self-employment and the Technology Revolu

tion: The New Choice Dilemma
The link between precarious work and intermediation arises because, in legal and regula
tory regimes that attach rights and benefits to the employment relationship, the existence
and nature of such a relationship is difficult to establish where intermediation occurs. On
the positive side, intermediation is understood as a functional role that emerges because
of labour market inefficiencies and asymmetries: some agents (usually workers) lack per
fect information to inform a job search, others (employers) lack perfect information about
the size and composition of the pool of job candidates. Furthermore, employers can in
crease efficiency by outsourcing a function (recruitment) that they do not wish to perform
in house. But the increase in intermediated employment is also associated with the trans
feral of risks from firms to workers, the shedding of ‘core’ workforces and the erosion of
occupational benefits, and the dismantling of internal labour markets (Theodore and
Peck, 2014, for a general discussion, see Strauss and Fudge, 2014, pp. 5–7).
Typically, research on intermediaries has focused on their roles in regional and

(p. 491)
sectoral space-economies, and on temporary employment agencies and labour brokers.

The assumption in much of this research is that the intermediary adds complexity to what
is nevertheless a ‘triangular’ employment relationship (Vallee, 1999; Peck and Theodore,
2002): the intermediary connects the worker with a firm requiring labour power, and
even if acting as the de facto employer, the intermediary is an agent that directly medi
ates between these labour market actors. Although challenged to an extent by the theo
rization of complexity in commodity chains, production networks, and their regulation
(Yang and Coe, 2009; Jackson, 2002), this model also tends to inform the strategies of
workers, unions, and labour lawyers seeking to assign responsibility for upholding labour
rights to an identifiable employer. Such strategies often, although not always, focus on
national legal regimes (the EU being an exception).
Yet recent data suggest that increases in temp employment are slowing relative to a dif
ferent kind of non-standard arrangement. What has attracted less attention in debates
about precarious work is the rise of self-employment, including in national labour mar
kets otherwise characterized by relatively low levels of temporary and contract work (in
particular the UK, the USA, and Canada—see, e.g., Hatfield, 2015, on rising self-employ
ment in the UK relative to the rest of Europe). In Canada, increases in self-employment of
those without paid help (own-account self-employed) followed recessions in the 1980s and
Page 10 of 22
1990s, and occurred amid significant losses in paid employment of all types during the
post-2008 economic downturn (LaRochelle-Côté, 2010). Moreover, LaRochelle- Côté
(2010) found that increases in self-employment between 2008 and 2009 were within
groups not normally associated with the highest levels of self-employment, including
women, those over the age of forty-five, and those living alone or with a spouse not in
work. The UK Institute for Public Policy Research noted an even more marked trend in
the UK, where forty per cent of the rise in UK jobs since 2010 have been in self-employ
ment, and earnings among the self-employed are falling relative to employed workers.
The UK had the third-largest increase in self-employed workers in Europe between 2010
and 2014 (after Luxembourg and Estonia), whereas Germany, Poland, Sweden, and Nor
way recorded reductions in self-employment; the UK also recorded the lowest number of
self-employed workers with employees (Hatfield, 2015). In both Canada and the UK, there
is an ongoing debate about the degree to which this increase in self-employment is direct
ly linked to the decline of the SER and the rise of precarious employment—and the de
gree to which self-employment is precarious employment for many.
There is also a question to be asked about how much of this is ‘disguised’ or ‘false’ self-
employment, in which firms (including temp agencies and labour brokers) require work
ers to set up as self-employed even if they have only one, ongoing ‘client’. In 2013 the UK
government was concerned enough to consider strengthening laws governing onshore
employment intermediaries and false self-employment, and there has been attention at
the EU level to the connections between false self-employment and precarious work in
particular sectors like construction. The issue here is that employers are reacting to
unions’ and workers’ attempts to embed employment protections within a triangular em
ployment relationship in which an agency mediates between the worker and the firm re
quiring labour. Requiring workers to contract as self-employed with an intermediary
avoids those employment protections that do exist for agency workers, including the re
quirement to make social security, national insurance, or pension contributions on their
behalf.
Although similar issues are also evident in the USA in industries like construction
(p. 492)
(Torres et al., 2013), attention there is being paid to new models of intermediated work
beyond the employment agency. The knowledge economy broadly, and the heralded rise
of the ‘sharing economy’ in particular, has produced business models and related applica
tions that are grounded in concepts of intermediation: the firm owns rights over the ‘digi
tal intermediary’ (usually an app or platform like Uber, Airbnb, TaskRabbit, or Amazon’s
Mechanical Turk) that connects workers or owners with clients or customers, and takes
some proportion of the fee paid for the service. In the case of the latter platforms, their
services have also been called ‘micro-outsourcing’. Much of the focus has been on ser
vices like Airbnb, Uber, and their competitors. These companies have been celebrated by
commentators like Jeremy Rifkin (in part for their association with the shift to a ‘zero
marginal cost society’) and Arun Sundararajan (for their role in ‘the emerging peer-to-
peer, collaborative ‘sharing economy’ ”).
Page 11 of 22
The implications drawn from analyses of these shifts often highlight the benefits to con
sumers and ‘sharers’; much of the rhetoric explicitly avoids talking about workers. Yet the
concerns of workers have been at the heart of some of the challenges to companies like
Uber, which has found its model of intermediated self-employment challenged in the US
courts. As Malhotra and Van Alstyne (2014, p. 25) write, ‘Micro-outsourcing that pays for
only the task at hand can shed overhead but mortgage the future by covering only mar
ginal costs and leaving nothing for new skills, health care, or retirement. If information
goods are an indicator, marginal costs approach zero, so even covering them might not
pay much’. Moreover, the parent firm generally owns the data associated with the myriad
transactions its application facilitates. These data represent additional value, generated
by workers and their clients/customers, which is captured (and potentially monetized) by
the owners of the digital intermediary.
On the one hand, these changes could be seen to break down the normative and episte
mological barriers between developed and developing economies vis-à-vis formal and in
formal labour markets—with the decentring of the idea of ‘non-standard’ employment, we
are all portfolio workers with at least an element of informality to our ‘personal work rela
tions’ (Freedland and Kountouris, 2011). Yet the firms themselves are increasingly at the
centre, not the margins, of the economy, and are darlings of Wall Street and the City of
London. Moreover, the shift towards new forms of digital intermediation co-exist with di
minished but still significant expectations centred on the welfare state, which developed
in tandem with the SER. The arena of technologically mediated labour is thus a key one in
which the tensions between flexibility, individual choice, and insecurity are playing out in
relation to the challenges of regulating precarious work.
Conclusion: Regulating for Security in Precari

ous Labour Markets
A key challenge for labour movements, therefore, as well as for broader political forces
seeking to counter precarity, is to articulate what kinds of labour rights and what forms of
regulation can be mobilized to this end. The barriers are formidable, and are spatial as
well as (p. 493) political-economic and ideological. If triangular employment and other
forms of precarious work make traditional strategies for organization and collective ac
tion difficult, a workforce made up of self-employed contractors, connected only by their
relationship with a digital intermediary, presents an even tougher proposition. Indeed,
and given the anti-union animus of figures like Amazon’s Jeff Bezos, this is, in part, the
point. Thus, despite the increased use of social media and other technologies by unions
and social movements, the challenge to established models of organizing and collective
bargaining is significant.
This challenge is compounded by the apparent success of anti-red tape rhetoric in rela
tion to the de- and re-regulation of labour markets, including not only attacks on labour
law relating to unions and collective bargaining, but also minimum employment stan
dards that protect non-unionized workers (on the UK, e.g., see Pollert, 2007; Jameson,
Page 12 of 22
2012). Despite mobilizations against precarity in Europe and against assaults on workers’
rights in the USA, governments in Europe, North America, and, most recently, India have
come to power on the back of promises to reduce the burdens on business and liberate
entrepreneurial energies from constricting regulations.3 Where does this leave the strug
gles of workers and their representatives who are seeking more security and less precari
ousness?
I want to conclude by reflecting on research on attitudes to workers’ rights, red tape, and
employment regulation in the UK. An Internet survey carried out in 2013, on a represen
tative sample of UK workers, included questions on attitudes to workers’ rights and regu
lation, as well as about their current working arrangements and conditions.4 Firstly, the
survey found that seventy-two per cent of respondents identified as permanent, direct
employees, whereas nine per cent identified as self-employed and seven per cent as di
rectly employed on temporary contracts. Only one per cent stated that they were em
ployed through a temp agency. Workers aged 18–24 years had the lowest levels of perma
nent work (55%), and the highest levels of temp contract work (27%). Of all workers, half
(52%) indicated that they were entirely happy with the organization of their employment,
although the group of workers under twenty-four had the highest proportion wanting per
manent jobs (17%). More than thirty per cent of all workers stated that they would prefer
to work the same number of hours but more flexibly (at home, or non-standard hours),
and this proportion was roughly the same for both men and women. Five per cent of re
spondents indicated that they did not have a permanent job but wanted one (the same
proportion for both men and women). More than thirty per cent of those surveyed indicat
ed that their workload had increased in the last few years (since 2011), that they and
their colleagues were doing more work with fewer people, and that they were under pres
sure to do more work for the same salary.5
These responses seem to suggest that workers in the UK have experienced increased pro
ductivity pressures at work since the ‘recovery’ and that there is an unmet desire among
a significant minority of workers for more flexible—and for a much smaller group, more
secure—employment. How the employment relation should be regulated was addressed
in four non-sequential questions with different framing. Table 25.2, which summarizes re
sponses, presents a mixed picture. Generally, most workers agreed that they have enough
rights, and there was not support for more rules and regulations on businesses. Yet forty-
five per cent also indicated that they think the government should do more to protect em
ployment rights, and this was fairly consistent across age groups and between men and
women.
Although this is only one piece of research, it is interesting to note that in what is the
most ‘flexible’ labour market in Europe, there is both a desire for more flexible working
arrangements (without a reduction or increase in hours) among men and women, and
some (p. 494) ambivalence about regulation. I want to set these findings against a back
drop of an also ambivalent, and geographically uneven, set of conditions faced by nation
al and international labour movements. Trade union density, for example, has been stable
or falling in most OECD countries in the last fifteen years; Italy and Spain, however,
Page 13 of 22
which have faced severe structural adjustment policies following the 2008 financial crisis,
are interesting exceptions (OECD 2015c). Yet social movements, for example in the USA,
relating to minimum and living wages and the right to organize among low-wage workers
(often in food services and hospitality), represent significant worker mobilizations against
precarious employment. Anti-austerity protests in Southern Europe, demonstrations in
support of public higher (p. 495) education in the UK, Chile, and the Canadian province of
Quebec, and large-scale climate marches with a strong union presence all suggest a shift
ing but significant set of progressive alliances protesting multidimensional precarious
ness.
Page 14 of 22
Table 25.2 Survey Results (Selected), UK Employees, 2013
Strongly agree Agree Disagree Strongly disagree
To what extent do you 11% 38% 19% 8%

agree or disagree with
the following state
ment? Overall, em
ployed workers in
Britain today have
enough rights in terms
of legal rights, employ
ment rights and
salaries.a
Do you think govern Do more Are doing right amount Do less Don’t know
ment should do more
or less to protect the 45% 41% 6% 8%
employment rights of
British workers (e.g.
minimum wage legisla
tion, maximum number
of working hours in a
day, etc.), or do you
think they are already
doing the right
amount?
Page 15 of 22
When thinking about 33% 42% 11% 15%

human resources poli
cies in businesses in
Britain (e.g. hiring and
firing), do you think the
government should do
more or less to make it
easier for businesses to
operate, or do you
think they are already
doing the right
amount?
Do you think that there Too many About right Too few Don’t know
are too many or too
few employment rules 34% 37% 14% 14%
and regulations for
businesses in Britain,
or is it about right?
Notes.aResults exclude ‘Neither agree nor disagree’ (19%) and ‘Don’t know’ (4%), which is why they don’t add up to 100%.
Page 16 of 22
There is, nevertheless, rather scant evidence of the emergence of a class consciousness
among what Guy Standing (2011) calls the precariat, which unites diverse workers like
John, Ana, Alicia, and Ted in a common struggle against employment-related insecurity.
Nevertheless, demands for a ‘floor’ of basic rights and entitlements for all workers (re
gardless of their employment status)—including to a living wage—contra the vagaries of
insecure, low-paid, work and increasing levels of income polarization, is echoed across di
verse labour and social struggles. These demands could be reflected in the more positive
responses of those surveyed in the UK to the question of whether the government should
do more to protect workers’ rights.
One could argue that precarious employment—and economic inequality—are defining,

rather than anomalous, conditions of capitalism, and in this sense the post-World War II
heyday of the SER is the anomaly. This suggests that the transformation of our socio-eco
nomic system is the only way to address and stem the growth of precariousness in work,
because there is no going back, even if we wanted to. Nevertheless, current socio-eco
nomic, political, and legal trends, especially those that encompass and give primacy to
developments beyond the Anglo-American and European labour markets (not addressed
in this chapter), suggest much more diverse and contingent responses. This evolving
landscape presents a fertile area of future research for economic geographers.
Acknowledgements
Funding for the research discussed in this chapter was made possible by a Regional Stud
ies Association (RSA) Early Career Grant. The author thanks the RSA for their generous
support.
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Notes:
(1.) Zero-hours contracts are employment contracts that do not stipulate or guarantee a
minimum number of working hours. This also means no minimum or guaranteed income;
in the UK, zero-hours contracts are thus associated with low pay and insecurity (Mon
aghan, 2014).
Page 21 of 22
(2.) There is a vigorous debate about how to measure income and wealth polarization,
and its significance (Palma, 2014; Piketty and Saez, 2014). The attention garnered by the
work of Thomas Picketty and his collaborator, Emmanuel Saez, points to concern even
among many orthodox economists about distributional imbalances.
(3.) There are parallels here with tax policy. Despite seeming widespread dissatisfaction
with income and wealth inequality (Hayes, 2014), this does not necessarily translate into
policy action (nor the election of parties that promise to raise taxes on the rich).
(4.) The survey was commissioned by the author and was carried out by YouGov on behalf
of Progressive Partnership. Total sample size was 2031 adults. Fieldwork was undertaken
between 3 and 7 May 2013. The figures have been weighted and are representative of all
UK adults (aged 18+).
(5.) Respondents could tick all statements that applied in this question.
Kendra Strauss
Kendra Strauss ([email protected]) is an Associate Professor of Labour Studies in the

Department of Sociology and Anthropology, Simon Fraser University. A geographer
by training, her work focuses on occupational pensions; precarious work, migration
and unfree labour; and on theorizing the relationships between production and social
reproduction in contemporary capitalist economies. She is also interested in how cat
egories of social difference like gender, race, and class shape the wage relation and
unpaid work. Her recent research has looked at non-standard work in the UK, em
ployment agencies, and unfree labour, and the evolution of legal approaches to
forced labour and trafficking. Her latest book, co-edited with Dr Katie Meehan, is en
titled Precarious Worlds: Contested Geographies of Social Reproduction (UGA Press,
2015).
Page 22 of 22
Talent, Skills, and Urban Economies

Richard Florida and Charlotta Mellander
From industrial location theory and Alfred Marshall’s concern for agglomeration to more
recent research on industrial clusters and districts, firms and industries have been the
dominant unit of analysis in urban economics and economic geography. But the last
decade or two have seen a shift in urban and regional research toward talent, human cap
ital, and skills. This includes studies of human capital, occupations, the creative class and
specific types of skills, and also on the characteristics of cities and regions that enable
them to attract talent, and the role of talent and human capital and skills in urban and re
gional development. This chapter summarizes the key lines of research on talent, skills,
and urban economies.
Keywords: talent, skills, human capital, occupations, education, creative class, urban economies, cities
Introduction
A large and influential body of research on the role of talent and skills, or what econo
mists refer to as human capital, has emerged in urban economics and economic geogra
phy over the last couple of decades, greatly expanding our understanding of the factors
and forces that drive urban and regional development. This is a fairly dramatic shift, as
the core unit in urban and regional research has long been the firm. Marshall (1890) long
ago noted the tendency of firms to cluster or agglomerate around each other. Classical lo
cation theory (e.g. Weber, 1909; Christaller, 1933; von Thünen, 1966) emphasized trans
portation costs and the trade-offs made by large industrial firms. This analysis focuses on
the firm carried over into modern research on industrial clusters and districts. During the
1980s, economic geographers noted the rise of industrial districts (Porter, 1990) and flex
ibly specialized industrial networks (Piore and Sabel, 1984; Christopherson and Storper,
1986; Saxenian, 1994; Scott, 2000).
The shift to human capital and talent coincides with the shift from industrial to knowl
edge-based capitalism. And while it is true that talent has become a more important and
obvious factor of production in knowledge-based capitalism, interest in talent, skills, and
Page 1 of 24
human capital as economic factors dates a long way back. In his classic work The Wealth
of Nations (1776), Adam Smith identified the ‘acquired and useful abilities of all the in
habitants or members of the society’ as essentially the ‘fourth factor of production’ (e.g.
Samuelson and Nordhaus, 2005) operating alongside land, labour, and production. ‘The
greatest improvement in the productive powers of labour, and the greater part of the
skill, dexterity, and judgment with which it is anywhere directed, or applied’, Smith
wrote, ‘seem to have been the effects of the division of labour’(Smith, 1776, book 1, p. 7).
Interest in human capital was rekindled by Gary Becker’s path-breaking research (1962,
1964, 1993) and a large body of empirical research grew up examining the association
between human capital and the economic growth of nations (Barro, 1991, 1997; Mankiw
et al., 1992).
Jane Jacobs (1961, 1969) later argued that what distinguished cities and propelled their
economic growth and development was not firms, but the clustering of talented and cre
ative (p. 500) people. By the mid-1980s, Wilbur Thompson (1986) noted that occupations
and occupational analysis offered perhaps a more powerful way to understand cities and
regional analysis than just looking at firms and industries. Building explicitly on Jacobs,
Lucas (1988) suggested that knowledge is embodied in human beings rather than firms,
and that the human capital externalities that stem from concentrations of highly educated
individuals provide the key motivating force in economic growth and development. Over
the past decade or so, a growing body of research has noted a growing divergence in the
geographical location and concentration of talent and human capital and their increasing
importance to regional innovation, productivity, and growth (Glaeser and Maré, 2001;
Florida, 2002; Glaeser and Saiz, 2003). This has occurred alongside and has been spurred
on by a broader shift from industrial to knowledge-based capitalism. As a result, the locus
of competitive advantage has shifted from firms to talent and cities and urban agglomera
tions have come to replace large firms and the nation state as the central social and eco
nomic organizing units of our time.
This chapter reviews the rise of talent, human capital, and skills as key analytic cate
gories and of the city as the central organizing unit for the knowledge- and talent-driven
economy. It begins by reviewing the historic firm and industry focus in urban economics
and economic geography. The following section outlines the rise of talent, human capital,
and skills alongside the rise of the knowledge economy. After that we turn to the ongoing
and productive debate over how best to operationalize talent or human capital. We first
review the literature that measures human capital in terms of educational attainment. Af
ter that we turn to the growing body of studies that examine talent in terms of occupa
tions, including research on the rise of the creative class and creative occupations. We
then discuss more recent studies that examine human capital in terms of underlying occu
pational skills, such as physical, cognitive, and social skills. The second part of this chap
ter discusses the connection between talent and cities, outlining the increasingly impor
tant role played by cities as the key social and economic organizing unit of knowledge-
based capitalism. This section examines the role of cities in both the location and cluster
ing of talent, as well as the factors that are argued to attract talent to cities, including the
labour market, amenities, universities, and knowledge-based institutions, diversity, toler
Page 2 of 24
ance, and quality of place. The penultimate section examines the growing literature on
the downside and externalities produced by talent clustering, including increased in
equality and socio-economic segregation. The conclusion briefly summarizes the broad
thrusts of this research on talent, skills, and urban economies.
The Firm and Industry Focus in Urban Econom

ics and Economic Geography
Historically, urban economists and economic geographers have focused on the firm as the
principal unit of analysis (e.g. Weber, 1909; Christaller, 1933; Ohlin, 1933; Hoover, 1937,
1948; Lösch, 1954; von Thünen, 1966). This stems from foundational work by Marshall
(1890), who argued that firms cluster to achieve the advantages of collocation, such as
shared labour markets, shared inputs, risk minimization, and knowledge spillovers.
Hotelling (1929) showed how firms producing similar types of products that do not com
pete based on price have incentives to collocate next to one another.
This focus on the firm developed as the industrial revolution was reaching full ma
(p. 501)
turity and large vertically organized industrial firms were coming to the forefront. Trans
portation costs were high and location decisions were heavily influenced by proximity to
natural resources. As production became less place dependent, Vernon (1963) advanced a
simple model of industrial location based on the product cycle—firms would decentralize
production through branch plants once production processes became standardized. Oth
ers focused on the growing international spatial division of labour informed by the loca
tion decisions and global reach of multinational firms (Froebel et al., 1979; Massey,
1984). Labour, when it was considered at all, was mostly seen as a cost to minimize.
But by the 1980s, as researchers began paying closer attention to the ways that clusters,
industrial districts, and flexibly specialized networks were allowing smaller firms to
achieve economies of scale (Piore and Sabel, 1984; Christopherson and Storper, 1986;
Scott, 2000), labour began to be seen in a different light. One stream of research focused
on a rising trend in Japanese factories, in which the knowledge and intelligence of factory
workers was tapped to form new systems of industrial production (Florida and Kenney,
1991, 1993; Florida, 1995).
These new, post-Fordist production processes were much less standardized than they had
been in the past. Workers were forced to adopt a wider range of expertise, which led to a
continuous process of learning (Piore and Sabel, 1984; Storper and Christopherson,
1987). Social factors, including trust and social capital, became important elements of in
dustrial clusters (Saxenian, 1994).
Page 3 of 24
The Rise of Talent, Skills, and Human Capital

The role of skills and talent had not been overlooked entirely; rather they were under
stood strictly in relation to the interests of firms. Writing in the Grundrisse, Karl Marx
(Marx and Nicolaus, 1993), pointed to the rise of knowledge, human capital, and science
as increasingly important forces of production. He also noted that workers’ individual in
vestments in knowledge and skills overwhelmingly benefit capital in the form of firms,
which sees gains in overall productivity and thus profit (Marx and Nicolaus, 1993). Pigou
(1920) distinguished investments in human capital that combine consumption and invest
ment from investments in physical or material capital. Becker (1964, 1993) developed the
micro-economic foundations for understanding human capital and human capital invest
ment as key drivers of economic advancement.
But skills, talent, and human capital took on a new dimension as the shift from the indus
trial to the post-industrial economy began. Machlup (1962) and Drucker (1969; 1993) de
scribed the rise of ‘knowledge workers’ alongside a ‘knowledge economy’. Bell (1973)
identified the shift to a ‘post-industrial society’, with a new class structure based on sci
entists, managers, administrators, and engineers. Romer’s (1990) theory of endogenous
growth formalized the role of human knowledge and talent in overall economic growth.
Introducing the concept of creativity to regional analysis, Andersson (1985) found that
major creative city regions have historically had six fundamental conditions in common:
flexible financial capital; deep knowledge and competence; an unbalance between experi
enced needs and actual resources; environmental diversity; well-functioning transporta
tion and communication; and structural instability or a genuine insecurity. Landry (p. 502)
(2008) advanced the construct of the ‘creative city’ and Howkins (2001) introduced the
notion of the ‘creative economy’, spanning the technology and culture industries.
Figure 26.1 The Growth of the Creative Economy

Share (Florida, 2012, p. 45).
Page 4 of 24
Florida (2002) tracked the rise of the creative class of knowledge workers alongside the
decline of the traditional working class. Up until 1960, creative-class workers (people
who work with their minds) accounted for just 12 to 16 per cent of the US workforce. By
1970 their share was 19 per cent; it rose to 24 per cent by 1980; and it is about 33 per
cent today. The industrial working class accounted for some 40 per cent of the workforce
in the 1970s. Since then, its share has been halved (see Figure 26.1).
With the rise of this post-industrial knowledge economy, talent and skills became a more
important factor of production, if not the predominant factor. A detailed study by Glaeser
(1999) found the clustering of talent to be a more important driver of urban and regional
performance than that of firms.
While the increasingly important role of talent and skills has been recognized by a large
and growing group of scholars in economics, urban economics, and economic geography,
there is still considerable debate about how best to measure, operationalize, and define
human capital.
Talent as Education
The great bulk of the empirical work on human capital and economic growth explicitly de
fines human capital in terms of educational attainment.
A large literature documents the role of educational attainment in economic

(p. 503)
growth at the national level (Barro, 1991, 1997; Mankiw et al., 1992; de la Fuente and
Domenech, 2006; Cohen and Soto, 2007). While these studies are important, they do not
account for regional spillovers or interdependencies. The political boundaries between
nations and other large jurisdictions can be arbitrarily drawn; metropolitan regions tend
to make up more economically delimited units (Duranton, 2007). Other researchers have
shown that the metropolitan is a more appropriate context within which to evaluate the
effects of human capital than nations (Mathur, 1999; Glaeser, 1998, 1999; Glaeser and
Saiz, 2003; Glaeser et al., 2004). Utilizing spatial econometrics, Fischer (2011) examined
the connections between knowledge diffusion and growth across regions in a study in
volving twenty-two European countries.
The relationship between educational attainment and regional development has been ac
knowledged by economists since at least 1958, when Ullman first wrote about the signifi
cance of education to regional economic growth. A considerable body of research has
built off Ullman’s initial work to uncover significant relationships between educational
levels and wages within and across urban regions (Ullman, 1958). Simply put, this re
search has found that cities with higher levels of educational attainment are more pro
ductive. An increase by one year in education has been found to increase productivity in a
region by 3 per cent (Rauch, 1993).
Simon (1998) found a large positive relationship between educational attainment and em
ployment growth in metropolitan regions between the years 1940 to 1986. He not only
Page 5 of 24
found spillover effects between cities within the same metropolitan region, but also noted
that cities with higher levels of human capital grew faster than other cities within the
same metropolitan region, which suggests that human capital effects are partly localized
to the city itself. Simon and Nardinelli (1996) conducted a similar analysis but for a longer
time period and reached similar conclusions. Places with larger shares of educationally
measured human capital, they found, have also been more resistant to external shocks
over time.
More recent research suggests a growing divergence in talent and human capital over
time (Berry and Glaeser, 2005). This is an endogenous process, in which places with ini
tially high educational attainment values have increased their human capital levels more
over time than places that started out with lower values.
Stolarick et al. (2010) explored intra-regional relations between education and economic
performance to find out if it matters where within metropolitan regions educated people
cluster. They found strong connections between high levels of human capital and incomes
in the suburbs of small- or medium-sized metropolitan areas. However in metropolitan re
gions with populations of one million or more, they found that city-centre human capital
is relatively stronger in relation to economic performance.
Talent as Occupation
Educational attainment, while a useful operational measure, captures only a part of what
economists mean by skill or human capital. Mincer’s classic study (1974) of the returns
on human capital used census data from the 1950s and 1960s to show that income in
creased by 5 to 10 per cent for every additional year of schooling. But he also found that
skills and age had a significant impact on earnings. Thompson long ago suggested the
need to utilize (p. 504) occupational analysis in regional development research (Thomp
son, 1965; Thompson and Thompson, 1987).
Figure 26.2 Creative Class Shares in US Metropoli

tan Regions.
Page 6 of 24
Florida (2002) used occupations to divide the workforce into three main occupational
classes—the creative class, the working class, and the service class. His approach focuses
on creativity as opposed to education as a proxy for skill. Research in psychology has
shown that creativity is a fundamental and intrinsic human capability. Where Marx and
Engels (1848) and other classical economists looked at physical labour—in other words,
the ability of humans to transform nature, create farms, and build manufactured products
as the definitive human trait—in reality it is our underlying creativity that differentiates
us from other species and it is what entrepreneurs, chief executive officers, artists, and
technologists have in common. As Sternberg and Lubart note (1999, p. 3), ‘If one wanted
to select the best novelist, artist, entrepreneur, or even chief executive officer, one would
most likely want someone who is creative’ (Figure 26.2).
Using data on occupations to define the creative class, which includes workers in science
and technology, arts, design, media, and entertainment; business and management; law
and health care. Florida identified three mutually dependent and self-reinforcing types of
creativity as key to economic activity: (1) technological creativity or innovation; (2) eco
nomic creativity or entrepreneurship; and (3) artistic or cultural creativity.
While there is some overlap between educational attainment and creative occupations,
they are not the same. By focusing on the actual skill content of specific occupations—
what people actually do—it is possible to analyse talent clusters in much finer detail than
if we (p. 505) simply use education as a broad proxy for talent. Bill Gates, for example,
who dropped out of Harvard, would not be counted under the human-capital approach.
In the USA for example, nearly three-quarters of adults with college degrees are mem
bers of the creative class. But less than 60 per cent of the people whose occupations qual
ify them as members of the creative class have college degrees (Stolarick and Currid-
Halkett, 2013). In other words, four in ten members of the creative class would not be
counted as high human-capital individuals under the educational attainment measure. In
Sweden, 37 per cent of the population holds a creative-class job, but only one-quarter of
those have a university degree. However, about 90 per cent of the highly educated hold a
creative-class job (Mellander, 2009).
A significant body of research shows that the occupation-based creative-class measure

operates in addition to and through other channels than the standard education-based hu
man capital variable. Independent research by Gabe (2009) shows that the creative class
continues to have a substantial effect on regional economic growth, even when control
ling for the effects of education and other factors. Having a creative-class job brings eco
nomic benefits that extend beyond those of going to college. A college graduate working
in the same occupation as a non-college graduate earns approximately 50 per cent higher
wages. But having a creative-class job adds another 16 per cent, about the same as anoth
er 1.5 years of additional education, according to Gabe’s (2009) research.
McGranahan and Wojan (2007) used sophisticated statistical techniques to gauge the ef
fects of the creative class versus human capital on regional growth. To do so, they used
systems of simultaneous equations rather than the conventional simple regression models
Page 7 of 24
to control for the endogeneity of population and employment growth, as well as influ
ences from a range of other local conditions and attributes. Their key findings over
whelmingly confirm the ‘strong independent influence on employment growth from both
the initial share employed in the recast creative class occupations and its growth over the
decade. By contrast, the statistical association with human capital variables is quite
weak’. And they add: ‘the econometric test of the creative class thesis provides strong
support for the notion that creativity has an effect on growth independent of the endow
ment of human capital’ (McGranahan and Wojan, 2007, p. 213).
A detailed study of regional growth in the Netherlands found that the creative-class mea
sure considerably outperformed the standard education-based human capital measure in
accounting for employment growth. This led its authors to conclude that the creative-
class measure sets a ‘new standard’ for measuring skill and talent, especially when con
sidering regional labour productivity (Marlet and van Woerkens, 2004). ‘With our Dutch
data set we do find evidence that Florida’s creative class is a better predictor of city
growth than traditional education standards’, they wrote. ‘Therefore we conclude that
Florida’s major contribution is his successful attempt to create a population category that
is a better indicator for levels of human capital than average education levels or amounts
of highly educated people. The point is, as Florida stated, not which or how much educa
tion people can boast of, but what they really do in working life’ (Marlet and van Wo
erkens, 2004, p. 2620). A 2012 study used advanced statistical models to compare the ef
fects of the creative class and human capital across the 257 European Union regions.
‘Our results’, it concluded, ‘indicate that highly educated people working in creative oc
cupations are the most relevant component in explaining production efficiency’ (Marrocu
and Paci, 2012, p. 369).
Florida et al. (2008) used structural-equation models and path analysis to examine
(p. 506)
the effects of educational versus occupational measures on regional income and wages,
and also to isolate the effects of tolerance, consumer service amenities, and universities
on their distribution. Educationally derived human capital and the creative class both ef
fect regional development, they found, but through different channels. The creative class
outperforms conventional educational attainment measures in accounting for regional
labour productivity measured as wages, while conventional human capital better ac
counts for regional income or wealth. Educational levels may reflect richer places, but it
seems that the creative class actually makes a place more productive.
Talent as Underlying Skill

An important wave of recent studies has zeroed in on the specific skills that occupations
require. This research uses new data from the U.S. Bureau of Labor Statistics O*NET
database, which collects detailed information on the actual skill content of work for more
than 800 individual occupations.
Page 8 of 24
Bacolod and Blum (2005) examined the association between four key skills—physical, mo
tor, cognitive, and social skills—and found that cognitive and social skills have the highest
returns. Another study by Glaeser and Ressenger (2009) observed a geographical connec
tion between skill types, finding social and cognitive skills to be associated with larger
cities and metros. ‘Urban density’, they noted, ‘is important because proximity spreads
knowledge, which either makes workers more skilled or entrepreneurs more productive.
Bigger cities certainly attract more skilled workers, and there is some evidence suggest
ing that human capital accumulates more quickly in urban areas’ (Glaeser and Ressenger,
2009, p. 1). Motor skills and physical strength were less rewarded in cities. In a follow-up
study, Bacolod et al. (2009, p. 1) write that, ‘Urbanisation thus enhances thinking and so
cial interaction rather than physical abilities’.
Feser (2003) identified the general knowledge requirements across occupations and the
economic returns they generate. Gabe (2009) differentiated between skill requirements
and the returns they offer in private and public sectors, showing how spillover effects en
hance earnings in metropolitan regions with higher shares of high-knowledge occupa
tions. Scott (2009) examined the connection between skills and regional employment,
finding the largest increases in regional employment to be associated with cognitive-in
tensive occupations, with substantial employment declines for occupations that depend
on physical skills.
Using data from 1999 and 2008, Florida et al. (2012) distilled three broad categories of
skills—analytical, social intelligence, and physical—from 87 occupations (Figure 26.3).
Utilizing cluster analysis, they found that analytical and social intelligence skills have a
significant positive effect on regional wages, while physical skills have a negative effect.
Analytical skills, they found, are also somewhat more closely associated with regional
wages than social intelligence skills, after controlling for education, industry, immigra
tion, and regional size. Furthermore, wage returns to analytical and social intelligence
skills have increased over time, and the return to physical skills has declined significantly.
They also (p. 507) (p. 508) showed that larger cities reward analytical and social intelli
gence skills to a higher degree, whereas smaller cities rely more on physical skills.
Page 9 of 24
Figure 26.3 (a) Social, (b) Analytical; and (c) Physi

cal Skills in US Metropolitan Regions.
Figure 26.3 (continued).
The Organizing Role of Cities and Urban

Economies
Because of their central role in organizing, harnessing, attracting, and retaining talent,
cities have emerged as the central social and economic organizing unit of global, knowl
Page 10 of 24
edge-based capitalism. If industrial production was organized in and around firms, knowl
edge-based or creative production is organized in and around cities.
Globalization has been widely associated with the ‘the end of geography’. In Friedman’s
(2005) famous catchphrase, ‘the world is flat’. But Friedman missed the key role played
by the clustering of economic activity in cities, or what Porter (2006) called the ‘location
paradox’. ‘Location still matters’, he said. ‘The more things are mobile, the more decisive
location becomes. This point has tripped up a lot of really smart people’ (Porter, 2006,).
Florida (2005) argues that instead of being flat, the world is spiky, organized around
cities, metropolitan areas, and mega-regions.
The importance of talent to cities and vice versa was recognized early on by scholars who
paid attention to the geographical concentration of human capital (Ullman, 1958). In a
1969 (p. 509) critique of Adam Smith’s paradigmatic pin factory, Jacobs argued that if the
division of labour improves productivity and profitability for firms, cities enable the con
stant combining and recombining of the key inputs—including talented people—that are
the real drivers of economic growth (Jacobs, 1969). If firms improve efficiency, cities give
rise to new products, new enterprises, and whole new industries.
Inspired by Jacobs, Lucas (1988) showed how collocations of skilled, talented, ambitious,
and entrepreneurial people lead to the so-called ‘human capital externalities’ that are the
basic underlying mechanism of economic development. Urban density reduces the cost of
knowledge transfer and speeds the transmission of ideas. Workers are at their most pro
ductive when they are located around other workers at similar levels of education or
skills, who can challenge them and push their own work further (Eaton and Eckstein,
1997; Black et al., 2000).
The clustering of talent is even more important in creative industries. Caves (2000)
showed how creative industries are more likely to be organized as geographical clusters
of creative individuals as opposed to vertically integrated firms. Creative industries have
higher levels of uncertainty and production challenges due to multiplicative production
functions, in which every input is non-substitutable and therefore must be present in or
der to produce. Further, shorter life cycles and a constant need for reinvention demands a
closer interaction between consumers and producers, as well as new skill combinations
for the faster generation of ideas.
Talented, highly skilled individuals exercise wide choices about where they can live (Min
cer, 1974; Graves, 1979; Graves and Linneman, 1979; Becker, 1993; Pandit, 1997; Edlund,
2005). The role that amenities play in their location choices is the subject of a growing
body of empirical research (see Rosen, 1979; Roback, 1982; Gottlieb, 1995; Glaeser, 2001;
Florida, 2002).
Glaeser and Maré (2001) also examined the factors that attract skilled labour to cities
and found that higher-amenity cities attract more skilled labour and consequently grow
faster. Clark et al. (2002) argued that successful talent-attracting cities maximize individ
uals’ overall utilities, especially their quality-of-life preferences, not just their incomes. A
Page 11 of 24
German study of the economic effects of Baroque opera houses (Falck et al., 2011) found
that ‘proximity to a baroque opera house significantly affects the spatial equilibrium
share of high-human-capital employees’, even though those opera houses were built hun
dreds of years before the high skill jobs were ever thought of. Albouy (2009) showed that
both natural and built amenities are strongly associated with economic productivity, in
both US and Canadian cities. A detailed study by Shapiro (2006, p. 1) found that ‘roughly
60% of the employment growth effect of college graduates is due to enhanced productivi
ty growth, the rest being caused by growth in quality of life. This finding contrasts with
the common argument that human capital generates employment growth in urban areas
solely through changes in productivity’.
Tolerance and openness is another factor that has been shown to affect the distribution
and location choices of talent. Simonton, a leading student of creativity, identified four
key characteristics of places that generate substantial creative activity: domain activity,
receptiveness to different intellectual modes, ethnic or cultural diversity, and an openness
to political views (Simonton, 2000). Florida captured these attributes in his theory of the
3Ts of economic development—technology, talent, and tolerance, in which each alone is a
necessary but insufficient condition for talent attraction and creative economic
(p. 510)
development. Technology and talent are better understood as flows rather than stocks.
The most competitive regions draw in the broadest range of talent by age, ethnicity, mari
tal status, and so on. Tolerance encourages diversity, and diversity, particularly in the
form of immigration, has been shown to increase regional productivity by introducing dif
ferent but complementary skills to an area (Ottaviano and Peri, 2005). Highly innovative
places like Silicon Valley have higher rates of immigration. Studies by Wadhwa et al.
(2007, 2008) found that immigrants are among the founding teams of between a third and
a half of high-tech Silicon Valley start-ups.
Tolerant attitudes to the gay and lesbian community have also been found to be associat
ed both with higher levels of innovation and high-tech industry at the metropolitan level
(Florida and Gates, 2002) and with better economic outcomes across nations (Noland,
2005). This is not because gays and lesbians are more likely to be directly involved in in
novative activity, but because their presence reflects an open-minded and tolerant social
and economic ecosystem. Page (2008), for example, shows that cognitive diversity results
in greater idea generation, creativity, and innovation, and notes that cognitive diversity is,
in turn, associated with demographic diversity. Tolerance is not just an advantage for at
tracting talent; it increases the probability that new ideas can be turned into economic
value.
Becker (1957) shows how discrimination can lead to decrease in productivity when em
ployers choose people who may not be the most appropriate for the job due to racial or
sex discrimination. Research by Inglehart and his collaborators found associations be
tween openness and economic growth in studies covering more than sixty countries over
four decades (Inglehart, 1989, 1997; Inglehart and Baker, 2000; Inglehart, et al., 2000; In
glehart and Norris, 2003). Inglehart argues that the best indicator of national tolerance is
openness to gay and lesbian people. Florida (2002) used gay friendliness as a proxy for re
Page 12 of 24
gional openness in the USA (Florida et al., 2008) and found a strong correlation with the
distribution of both the highly educated and the creative class across metropolitan areas.
Talent and the people who hold it are more likely to flow to places that have lower barri
ers of entry (Florida and Gates, 2002).
Florida (2002; Florida et al., 2012) advanced the construct of quality of place to identify
the varied ways that places attract and harness talent. Ultimately, quality of place can be
understood in terms of Maslow’s (1943) famous hierarchy of needs, which is often repre
sented as a pyramid with physiological needs at its base, ascending through security,
love, self-esteem, and, ultimately, self-actualization. Quality of place encompasses five ma
jor needs: physical and economic security (public safety, jobs); basic services (schools,
health care, housing, transportation); leadership (political and business); openness
(tolerance for diversity); and aesthetics (physical beauty, culture, amenities).
A large-scale Gallup–Knight survey found that aesthetic values, along with a welcoming
attitude and the ability to meet other people, were key factors in attracting and retaining
talent (Carlino and Saiz, 2008; Florida, 2008; Florida et al., 2011; Mellander et al., 2011).
Mellander et al. (2011) illustrated how place-specific characteristics, such as the ability to
meet and make friends, high-quality public schools, and ease of getting from one place to
another without too much traffic, are significantly more related to community satisfaction
and the likelihood of staying in a place, than such economic variables such as the likeli
hood of getting a job.
(p. 511) Talent Clustering and Spatial Inequality

It has been widely argued that the knowledge economy rose at the expense of the indus
trial economy; that as manufacturing jobs have been eliminated, the labour market has
cleaved into high-paying knowledge and creative jobs and lower-paying, more contingent
service sector jobs. Florida et al. (2012) estimate that as much as two-thirds of the poten
tial workforce of the USA is either under- or unemployed. Thomas Piketty (2014), among
others, has argued that we are entering a new age of ‘patrimonial capitalism’, in which a
handful of fortunate families control greater and greater shares of wealth.
While a large body of research pins the cause of rising inequality on so-called skill-biased
technical change (Autor et al., 1998, 2003, 2006), a main factor, if not the main factor it
self, is clustering. Clustering not only powers innovation and economic growth, but it also
leads to greater geographical sorting of people and places by skill, talent, and ability.
The geographical clustering of talent gives rise to both increasing inequality and an even
more vexing problem of geographical segregation. As the incomes and purchasing power
of the middle class declines, so does the diversity that fuels creativity and innovation. The
very clustering that makes growth possible may also bring it to an end (Florida, 2017).
A growing number of studies document the increasing divergence of talent and human
capital across cities and metropolitan areas (Berry and Glaeser, 2005; Florida, 2006). This
Page 13 of 24
affects not just economic growth, but also related economic factors like housing values
(Gyourko et al., 2006; Shapiro, 2006).
Inequality has been found to be closely associated with city or metropolitan size. Size ac
counted for roughly 25 to 35 per cent of the total increase in economic inequality over
and above the effects of skills, human capital, industry composition, and other factors, an
important 2011 study found. This effect is more pronounced among lower-wage earners.
City size explains 50 per cent more of the increase in inequality for the lower half of the
wage distribution than for the upper half (Baum-Snow and Pavan, 2012).
Florida and Mellander (2014) found that wage inequality explains just 15 per cent of the
variation of income inequality across regions. Furthermore, while wage inequality is asso
ciated with skill-biased technical change, income inequality is more associated with the
enduring legacy of race and poverty at the bottom of the socio-economic order, as well as
the unraveling of the postwar social compact between capital and labour.
We have already touched on some of the underlying reasons for growing spatial inequali
ties and geographical segregation. Places with existing concentrations of talent tend to
attract more talent, compounding their advantages. The cognitive and especially social
skills that drive economic growth tend to be concentrated in larger cities and metros (Ba
colod et al., 2009). The result is growing class divisions within, as well as between, cities
and metropolitan areas (Florida et al., 2014).
The location choices and clustering of the higher skilled and more affluent also affect and
structure the location choices and geography of less advantaged groups. The more afflu
ent and skilled members of the creative class are drawn to central neighbourhoods,
around transit and knowledge institutions, and near natural amenities. Rising housing
costs exacerbate the ensuing class segregation and division as lower-paid service work
ers are forced to live further out. Diamond (2012) shows how this sorting process involves
migrations away from, (p. 512) as well as to, knowledge-based metros. ‘[T]he combination
of desirable wage and amenity growth for all workers causes large amounts of in-migra
tion, as college workers are particularly attracted by desirable amenities, while low skill
workers are particularly attracted by desirable wages’, she notes. But this leads directly
to higher housing costs, which ‘disproportionately discourage low skill workers from liv
ing in these high wage, high amenity cities’ (Diamond, 2012, p. 5). This creates an addi
tional level of inequality—inequality of well-being—in which more skilled workers not only
take home more money, but also benefit from better neighbourhoods, superior amenities,
and better schools. This well-being inequality, Diamond explains, is an additional 20 per
cent higher than can be explained by the simple wage gap between college and high-
school graduates.
The effects of neighbourhood poverty and disadvantage are long lasting and persistent
(Sampson, 1995; Sharkey, 2013). The result is a divided city and metropolis increasingly
defined by areas of concentrated advantage juxtaposed against areas of concentrated dis
advantage.
Page 14 of 24
For these reasons, strategies to cope with geographical inequality and spatial segregation
have implications that go beyond social welfare; they are critical components of local
competitiveness strategies. Some policies that are called for are coordinated efforts to
upgrade service jobs by developing strategies to tap the cognitive and social skills of
workers, increasing density to provide more housing, and expanding access to transit in
outlying neighbourhoods.
Conclusion
The long sweep of urban economics, regional science, and economic geography has fo
cused on the firm and industry as the key units of analysis. But the last couple of decades
have seen an increasing interest in talent, skills, and human capital. The rise of talent, hu
man capital, and skills in urban and regional research is rooted in the larger shift from an
old industrial economy to a newer one based upon knowledge, innovation, and skill.
Broadly speaking, talent has become the key input in economic growth and development
in global, knowledge-based capitalism.
Cities have emerged as the central economic organizing unit of talent and economic de
velopment. Size and density matter, but so, too, does the ability to deliver quality of place
broadly, made up of services and amenities, openness to diversity, and lower barriers to
entry for talent.
But if clustering powers economic development and competitiveness it also generates in
creasing divides. Inequality has grown; economic segmentation and segregation have in
creased within cities. This threatens to undermine the neighbourhood-level diversity,
which functions as a basic mechanism for urban and regional economic growth in the
first place.
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Richard Florida
Richard Florida ([email protected]) is University Professor and Director of

Cities at the Martin Prosperity Institute at the Rotman School of Management, Uni
versity of Toronto, and Distinguished Fellow at New York University Schack Institute
of Real Estate. He is also the co-founder and editor-at-large of CityLab, and a senior
editor at The Atlantic. His research focuses on the role of creativity, innovation, and
talent in urban economic development and economic geography. His books include
The Rise of the Creative Class, The Flight of the Creative Class, Who’s Your City?,
The Great Reset, and The New Urban Crisis, and numerous journal articles on cre
ativity, innovation, and urban and economic geography.
Charlotta Mellander
Page 23 of 24
Charlotta Mellander ([email protected]) is Professor of Economics at the

Jönköping International Business School. She is also affiliated with the Martin Pros
perity Institute at the Rotman School of Management, University of Toronto. She
studies location patterns of creative individuals and firms to determine how they
shape regional development and has published numerous journal articles on this top
ic. She has delivered more than 200 invited, external speeches, both nationally and
internationally, including the European Union and the United Nations, and compa
nies like IBM.
Page 24 of 24
Immigration and the Politics of Skill

Natasha Iskander and Nichola Lowe
Skill has played a central role in immigration scholarship, most notably in a protracted
debate over whether ‘unskilled’ immigrants threaten job security for less or moderately
educated native-born workers. In recent years, scholars have re-examined whether immi
grant workers, particularly those with limited formal education, are unskilled. Extending
this further, the chapter argues that immigrants are not simply individuals that possess,
acquire, and apply their skill. Immigrants are also contributors to collective learning
processes through which industry skills are developed, replenished, and recombined
overtime. But immigrants are especially vulnerable to skill misclassification because they
lack access to institutions that can protect and defend spaces for collective learning. Con
sidering immigrant skill reproduction in the absence of institutional protections allows us
to reflect on the role those institutions play in shaping the politics of skill—a role that can
be strengthened as part of a growing movement in support of low-wage workers more
generally.
Keywords: immigration, skill, construction, low-wage work, labour market incorporation
Introduction
SKILL has played a central role in immigration scholarship, most notably in a protracted
debate over whether ‘unskilled’ immigrants threaten job security for less or moderately
educated native-born workers. That is, are immigrants to blame for job losses experi
enced by their unskilled native counterparts? Economists especially have kept this discus
sion alive over several decades, introducing new and innovative methodological tech
niques to study the effects of immigration on native-worker job displacement and wage
compression in Europe and the USA. Through their careful analysis, they have tipped the
debate in favour of immigrants, indicating they create minimal labour market disruption
and even complement the domestic workforce.
Page 1 of 21
In recent years, a new and important twist has been added to this debate that questions
the logic that immigrant workers, particularly those with limited formal education, are
unskilled. Recent research, including our own, has helped to reveal the skills of less edu
cated immigrant workers, including transferable knowledge and expertise developed ini
tially through work experience in communities of origin (Iskander and Lowe, 2010, 2013;
Lowe et al., 2010; Hagan et al., 2015). Revealing sources of ‘hidden’ skill allows immigra
tion scholars and advocates to ask the ever-important question of why immigrant skills go
unrecognized and justifies claims that immigrant workers deserve greater recognition
and reward for their skill contribution, which includes extending legal protections that
are granted on the basis of that skill.
Still, while reclassifying less educated immigrants as skilled is a useful starting place, in
isolation it misses a related contribution that immigrant workers make to skill-develop
ment processes. Immigrants are not simply individuals that possess, acquire, and apply
their skill. They are also contributors to collective learning processes through which in
dustry skills are developed, replenished, and recombined overtime. What is defined as in
dividual skill is actually a time-stamped artefact of ongoing, collective, often tacit learn
ing processes—a by-product that might be easier to measure in time and place and by us
ing (p. 520) individual-level proxies, but ultimately needs to be contextualized in social re
lations of work in order to understand fully why and when skill changes, and how and un
der what conditions those changes benefit and gain recognition from employers. While
methodologically more challenging, making this connection opens opportunities for immi
gration and labour scholarship.
Less educated immigrants are not the only ones that suffer skills misclassification. Many
workers that toil in low-wage, high-turnover labour markets, including native-born work
ers, are undervalued and underpaid for skill development and training services they pro
vide to the businesses and industries that employ them. Like immigrants, they, too, carry
a disproportionate share of the cost and risk associated with industry training and up
skilling, thus calling into question traditional economistic models of human capital, which
presume low wages are paid to workers because they are low-skilled, or as a means to
offset investments in training by employers. Beyond an example of labour-market failure,
this disconnect presents an opportunity to explore the underlying political and institution
al factors that obscure worker contributions to skill development and make it especially
difficult for workers in low-wage segments of the labour market to leverage their collec
tive contribution for economic gain.
If this skills oversight affects non-immigrant workers as well, why should we focus much
of this chapter on less-educated immigrant workers as a special skills case? Immigrants
are especially vulnerable to skill misclassification because they lack access to institutions
that can protect and defend spaces for, and contributions to, collective learning. Focusing
on immigrant contribution to industry skill reproduction in the absence of institutional
protections allows us to reflect on the role those institutions play in shaping and reshap
ing the politics of skill. As we will illustrate, those institutions—most notably labour
unions—are rarely the initiators or essential sources of industry knowledge and skill. This
Page 2 of 21
is not to say they play no role in training and skill development, but rather their primary
role has been that of skill protector—helping groups of workers reveal their collective
contribution to industry skill-building processes and using that to initiate collective bar
gaining for higher wages and improved working conditions.
Starting from this institutional vantage point enables us not only to think critically about
why protective institutions might matter for skill development and for whom, but also to
interrogate which institutional forms best support worker efforts to reveal their ongoing
contribution to industry upskilling. This query has implications for immigration advocacy,
but equally suggests a new direction for the growing movement in support of low-wage
workers more generally—that is to say, a redirection that would call for increased wages
in light of evidence of worker-initiated skill contributions, rather than presuming skill is
initially absent without these wage gains.
In this chapter, we expand this discussion and provide an illustrative example from our
empirical study of Latino immigrant construction workers in two new destination cities.
The construction industry has long provided an empirical arena for debate about the val
ue of worker skill and the institutional safeguards necessary to defend it. Thanks in large
part to mobilization by organized labour, construction work was once appraised as highly
skilled. Now, however, as construction has experienced an influx of new immigrant work
ers, jobs in this industry have been recast as low-skill and low-wage. While industry ex
perts themselves push back against this reclassification, the narrative linking skill decline
to Latino immigrant incorporation in construction prevails in popular media accounts, im
migration policy (p. 521) discourse, and even academic scholarship (Borjas, 2003; Cortes,
2008). This revised view of construction work has taken hold, even though the industry
has experienced no technological shifts and the skill base required to complete construc
tion tasks has remained fundamentally unchanged. The construction industry therefore
offers as a poignant illustration of skill misclassification, and we use it as a staging
ground to reflect on what is at stake for both equity and innovation if contributions to in
dustry skill by low-waged workers remain undervalued.
Skill as Both Means and Ends

For many economists, the relationship between skill development and wages is easily ex
plained and predicted. To economists, wages are signifiers of individual skill and reflect
skill specificity. The more specific a set of skills to a company or task, the more invest
ment an employer is willing to make in training individual workers in that skill. But given
their investment, the employer will also be less willing to pay that worker a higher wage.
Equally, the specificity of that skill makes it more difficult for individual workers to move
to another company on the basis of that skill and, as such, that skill is less valued on the
open market and commands a significantly lower price. In contrast, general skills—which
is to say skills that are valued widely and not specific to any one company—are more
portable and often receive higher wages on the open market. They also tend to be devel
oped through formal education programmes and through investments in higher education
Page 3 of 21
that are made by individual workers and job seekers, rather than the employer. By exten
sion, a worker who is more highly educated can expect higher wages, both justifying and
offsetting their educational investment. Employers, for their part, are often willing to pay
a higher premium, or ‘efficiency’ wage, to keep more educated workers from leaving. In
the eyes of economists, wage differences help to signal to a worker which general skill
sets are more valued and thus guide them towards the right external educational and
training supports.
Of course, economists have extended their work beyond this stylized framework, at times
considering how market frictions—including those introduced by labour market institu
tions—shift individual incentives (i.e. wage returns) to invest time and resources in edu
cation and training (Acemoglu and Pischke, 1998). Still, what most studies in the human
capital tradition share is a view that skill is an easy-to-measure, individual attribute,
whose responsibility it is to develop is determined primarily by its relative transferability.
A rich body of scholarship has raised important challenges about economists’ oversimpli
fied categorization of skill (see Paul Attewell’s thorough review (Attewell, 1990)). For our
purposes, an especially problematic feature of the human-capital approach is the limited
attention given to how skill is developed and through what processes and social interac
tions. Viewed through a human-capital lens, the skill development process remains an un
explored black box, thereby reinforcing a focus on the ends—in this case an ‘individual’s
fund of knowledge and skill’ (Attewell, 1990, p. 425) measured by years of education or
work experience—rather than the means to reaching these ends. By failing to unpack
processes of skill development, we risk missing the way that skill is socially and institu
tionally produced, which, in turn, can affect the value that employers (and others) assign
it.
Perhaps the most stalwart critiques of human-capital conceptions are grounded

(p. 522)
empirical observations of skill and its reproduction. Authored by sociologists primarily in

the 1970s and 1980s, scholarship in this vein has looked at how work is organized and
carried out on the factory floor or in specific industry settings, and has focused on the im
plications of the labour processes for the way that skill is understood and developed (Do
eringer and Piore, 1971; Braverman, 1998; Burawoy, 1979; Juravich, 1985). These work
place ethnographies have paid attention to the way that the relations between workers
and management inform what is valued as skill (Lee, 1981). They have revealed how
worksite interactions not only shape worker access to training opportunities that are or
ganizationally sanctioned, but also support worker-initiated processes of learning that are
informal, unplanned, and often transgressive (Juravich, 1985). These accounts have also
called into question the easy binary between general and specific skills advanced by econ
omists, often noting the fluid and contested quality of most skill. Furthermore, they have
shown that skill may not, in fact, be the property of any individual worker (or employer
for that matter) but rather is most accurately understood as a collective achievement,
held in the workplace interactions through which it is enacted and cultivated (Van Maa
nen and Barley, 1982; Scribner, 1984; Lave, 1988; Cobble, 1991).
Page 4 of 21
The construction industry has long offered a rich terrain through which the collective de
velopment of skill has been documented, even prior to immigrant incorporation. As labour
process ethnographers have noted, the skill of construction workers is critical to industry
performance and, consequently, has been a central industry concern: the construction
process is inherently unpredictable, and production depends on workers with the exper
tise to adapt to new conditions and to resolve the unique challenges that emerge on the
construction site (Reimer, 1979). Each building structure reflects a particular design, and
is fixed to an exact physical location with idiosyncratic characteristics that inform how
the building process unfolds. Moreover, construction crews contend with factors such as
the vagaries of weather, the site-specific sequencing of construction tasks and coordina
tion with other trades, and differences in the qualities of materials. Construction tasks al
so involve working conditions that can be hazardous, such as work that occurs at heights
or working with hand-held pneumatic tools, and where safety outcomes are dependent on
the construction abilities (Iskander and Lowe, 2010). Given these conditions, the industry
depends on skill that is deep enough so that workers can also resolve the specific prob
lems that they may confront as they complete their work (Silver, 1986; Applebaum, 1999).
Given the centrality of construction expertise to day-to-day production, how do industry

actors perceive and identify skill? The workers, supervisors, and contractors queried by
labour ethnographers about definitions of skill concur that a good craftsman is an experi
enced worker (Reimer, 1979; Steiger, 1993). The industry equation of skill with experi
ence combines an attention to learning and skill; and because it blends a concern with
the means through which skill was learned with the technical competence that is its end,
it stands in sharp contrast to the human-capital model of skill that focuses too narrowly
on the outcome.
Ethnographies of skill development in construction have considered both union and non-
union settings, and find that despite the institutional difference, the social practices that
foster learning are remarkably consistent. Across institutional context, novices learn
through cumulative experience under the loose tutelage of more seasoned workers (Ap
plebaum, 1981; Emmitt and Gorse, 2006). This informal teaching system, seemingly casu
al and (p. 523) unstructured, is described as deceptively complex and sophisticated, built
around an array of teaching modalities (Graves, 1958; Steiger, 1993; Worthen and Berch
man, 2010). Guided demonstration emerges as a core pedagogical practice: in this teach
ing approach, an experienced worker brackets the flow of construction work and slows
down the execution of a task to reveal to the less experienced worker the component
movements and logic required to complete it, sometimes accompanying this demonstra
tion with a verbal explanation. During slack times on a construction site, or even off-site
during non-work times, novices engage in supervised experimentation of those same
tasks, with experienced workers providing active coaching or critique of these assays.
More experienced workers also provide mentorship in problem-solving. In Socratic form,
they lay out the building challenge to be addressed and solicit ideas from the novice for
how to resolve it. Just as often, the experienced worker creates a problem to be solved by
misdirecting a worker—asking for the wrong tool, for example—or by giving incomplete
instructions—ordering a worker to carry over lumber or piping but without specifying
Page 5 of 21
where the material should be brought. Storytelling is another pedagogical tactic detailed
by labour ethnographers (Graves, 1958; Worthen and Berchman, 2010). Journeymen
share ‘war stories’ to not only convey ways to cope with technical difficulties on the con
struction site, trouble with faulty equipment, for example, but also to model strategies to
resist management attempts to undermine worker autonomy (Reimer, 1979; Applebaum,
1999).
A motivating puzzle for construction studies—and for other industry studies as well—has
been how these intricate social systems for learning are reproduced when management
plays only a minimal training role. Here industry ethnographies help draw attention to
the larger social systems that tether construction-worker identity to their participation in
social processes of teaching and learning. This occupational identity is often overlaid onto
broader ethnic or neighbourhoods communities; family ties and ethnic affiliation have his
torically offered privileged access to construction jobs and to the union (Silver, 1986;
Finkel, 1997). A tradition of workers following fathers and grandfathers into the building
trades has made norms of mutual obligation around training novices compelling: a jour
neyman who trained someone else’s kin likely did so with the understanding that others
would train his own son or nephew (Applebaum, 1999). But while workers have tended to
gain access to the industry through social networks, their ongoing participation depends
on their adherence to the occupational culture in the industry, and especially on their def
erence to ‘craft’ mastery and experience on the job site. ‘Horseplay’ or ‘hazing’ of novices
is used on site to enforce the status associated with experience and to enact an occupa
tional hierarchy based on skill. In this context, learning is not merely or even primarily
about the acquisition of technical expertise; it is an induction into a way of life (Apple
baum, 1981; Lave and Wenger, 1991; Worthen and Berchman, 2010).
For most of the twentieth century, building trade unions were the most vocal and power
ful representatives of this occupational community, and they used skill to defend the posi
tion of their members (Palladino, 2005). Unions asserted that the craft expertise of their
members justified the higher wages and preferential hiring they demanded (Finkel,
1997). They lobbied hard to maintain craft standards in the industry, despite contractor
and, occasionally, government efforts to reduce industry skill requirements, either to re
duce labour costs or increase employment. Unions pledged to guarantee skill, and by im
plication, the production quality it supported. To that end, they vouched for the compe
tence of union journeymen and instituted an apprenticeship system to train new workers.
(p. 524) However, ethnographies of skill development have revealed that unions were less
involved in skill development than they claimed publicly. Instead, unions provided institu
tional cover for the informal social system through which skill was created and repro
duced in the industry. They protected social learning processes to which they were large
ly superfluous. Even in unionized segments of the construction labour force, hiring and
training decisions were made informally, often outside the purview of the building trades.
As Applebaum, in his monograph on unionized construction, reports, workers were re
cruited for jobs through personal connections, not through union hiring halls: ‘It is not
unusual for a super or foreman, address book in hand, to drive around at night or on the
Page 6 of 21
weekend, contacting workers in the homes, trying to round up crews for a job […] The
hiring hall is mainly for men either not well-known or not competent’ (1981, p. 26).
Similarly, studies of the industry observe that only a minority of tradesmen entered the in
dustry through formal, union-managed apprenticeships. Most learned their trade on the
periphery of this formal training system, many acquiring foundational knowledge from
friends or relatives on smaller side projects (Silver, 1986, p. 111). They entered the union
after showing proof of qualification by passing a trade test or clearing other forms of
evaluation administered by their local. Through their push for higher wages and employ
er contribution training programmes (under the Taft–Hartley act), unions pressed employ
ers to compensate workers for the social system through which the skill for their industry
was developed. In an industry where demand was variable and workers faced long and
unpredictable stretches of unemployment, unions compelled employers to share in the
costs of training industry newcomers and upskilling incumbents, such that when produc
tion resumed after a hiatus, employers had a replenished skill pool on which to draw.
In the 1970s, building trade unions came under concerted attack from contractors and
the Ford administration, and faced a decline in membership, which would drop from a lit
tle less than 50 per cent of the labour force in the 1970s to about 15 per cent when it fi
nally plateaued in the 2000s (Palladino, 2005). As they confronted this crisis, which would
only become more acute under the Reagan administration, they pushed to further formal
ize the apprenticeship system and make their contribution to skill development a more
tangible source of leverage. Unions systematized their programme of instruction: they
added new rubrics for assessment, bolstered classroom instruction, and, in many cases,
expanded classroom hours and forged collaborations with community colleges for degree-
granting programs (Weil, 2005).
But, in making the training provided under the union umbrella more visible, unions ulti
mately obscured and supplanted the casual social exchanges through which most indus
try learning occurred. Once the unions drew an institutional boundary that divided learn
ing from work, separating out pedagogical transfers from informal social interactions,
employers could point to the training offered by unions, now clearly defined, and claim
that employers, too, could provide such upskilling (Erlich and Grabelsky, 2005). In the
1970s and 1980s, contractor associations expanded their training programmes, offering
mostly short-term, specialized, and modular courses (Northrup and Northrup, 1984).
These did not replicate the robust social system of on-the-job learning, but because
unions, in their push to ring fence and claim training, had removed the notion of occupa
tional community from negotiations over skill, they were unable to invoke the value of in
formal learning to counter contractor encroachment. Paradoxically, by establishing an in
stitutional proxy for social processes of learning while failing to provide an institutional
shield for the processes themselves, (p. 525) unions implicitly advanced a definition of skill
as individual attribute, forsaking the rich social system of learning that had offered the
empirical basis for rebuttals to human capital notions of skill to begin with.
Page 7 of 21
Learning Processes Among Latino Workers in

Construction
The gap between the interactive social system for skill development and the institutional
ized structures that represent training raises questions about learning processes in con
struction labour markets today. In the 2000s, construction labour markets experienced a
sharp increase of Latino immigrant workers, with the proportion they represent more
than doubling from 11 per cent in 2003 to 24 per cent in 2012 (Kochhar, 2008). In cities
in the south and west of the USA, they make up more than two-thirds of the labour pool.
The majority of Latino immigrants in construction are employed in the residential seg
ment of the industry, but many also work on commercial and infrastructure projects. De
spite the proportion of the industry labour market they now represent, these immigrants
have widely been portrayed as unskilled, and have been blamed for undercutting wages
and turning construction work into a low-wage occupation (Erlich and Grabelsky, 2005).
In addition to the anti-immigrant rhetoric underlying this claim, it suggests that an indus
try that has depended on the expertise of workers to function had, in the short span of a
decade, somehow become devoid of skill.
This unsettling assertion could only be accurate if the longstanding equivalence in the in
dustry between skill and experience had suddenly been broken, and that learning sup
ported through social processes on the job no longer produced competence. Only then
would it make sense to assert that workers who had no access to training that was institu
tionally recognized also had no skill. To interrogate the basis for claims that this new Lati
no immigrant workforce in construction was unskilled, we conducted an empirical study
in two new destination labour markets: Philadelphia, Pennsylvania, where industry train
ing and credentialing processes are tightly controlled by labour unions but closed to im
migrant workers; and Raleigh–Durham, North Carolina, a region in a ‘right-to-work’ state
where union density is extremely low and therefore there are fewer institutional obsta
cles to immigrant participation in mainstream construction markets. Still, formal con
struction training and apprenticeship programmes are sparse in North Carolina and,
when they exist, provide limited access for immigrant workers.
Drawing on over 200 interviews across both sites over five years (2007–2011), we ex
plored how skills that immigrants had developed, often before immigrating, informed
their participation in construction labour markets (Iskander and Lowe, 2010). Contrary to
the prevailing representation of Latino construction workers as unskilled, we found that
over half of the immigrant workers we interviewed had acquired significant construction
experience before emigrating to the USA. Moreover, they used their competence as a
base from which to continue to develop their skill in US labour markets, adapting their
knowledge to localized construction techniques and deepening their expertise in one or
multiple building trades. They also developed collective learning processes, elaborating
learning strategies (p. 526) that consolidated their foothold in the labour market and en
abled them to create pathways for occupational advancement.
Page 8 of 21
The organization of construction on project sites that employed immigrant workers dif
fered in our two research locations: in Philadelphia, immigrants worked in small teams
that completed the range of tasks involved in residential construction and rehabilitation
with minimal supervision, whereas in Raleigh–Durham, immigrants worked on large, hier
archically organized construction sites where crews were assigned specialized construc
tion tasks. Despite these differences, the collective learning processes we observed in
each city were more alike than they were different, and they also displayed remarkable
continuity with those reported in earlier labour ethnographies of the construction indus
try.
Immigrants at both sites relied heavily on guided demonstration, and workers with more
experience in the USA showed their co-workers how to execute building techniques and
use unfamiliar construction tools (Iskander and Lowe, 2013). This teaching method was
supported with supervised experimentation. In Philadelphia, workers practised building
skills on the job site, relying on team members for help and correction, and in Raleigh–
Durham, where workers experienced more intensive and rigid supervision, they experi
mented instead on small side projects with more experienced workers instructing
novices. Workers also provided one another with mentorship in problem solving. Still, un
like most US workers who learned new skills through mentorship, the primary challenge
for the immigrant workers in our study was how to translate the skill they brought with
them to their new construction contexts, so that they might apply the full extent of their
technical expertise to the construction problems they confronted on the job site. In both
cities, workers used stories to share knowledge about how to deal with difficulties they
encounter on the job: how to handle supervision, how to avoid injury, and how to resist
exploitative practices.
They also cultivated a set of norms—or workplace customs—that governed learning on

the job site and established skill as shared resource. In a telling echo of the occupational
culture described in earlier accounts, deference to craft mastery emerged as a constitu
tive value of the learning practices in both cities. ‘The most important thing for learning
and teaching on the job is respect […] respect for each other and for your compadres who
have worked in construction for a long time’, explained Rafael from Philadelphia. Their
view of skill reasserted the equation of skill with experience that had historically been at
the core of definition of competence in industry. The immigrants in our study also merged
the means and ends of skill development: for them, the means of acquiring skill was to be
come part of an occupational community and to participate the social process of learning
that characterized it. ‘It’s all relationships’, added Rafael, ‘You treat your co-workers with
respect, with solidarity. It is your friends who teach you …’.
In the institutions that governed the construction industry in both cities, Latino immi
grants found little protection for the learning processes that were at the heart of their oc
cupational community. There were no formal structures that they could draw on to defend
training system they had fostered. In response, immigrants in our study cobbled together
a kind of institutional cover to safeguard and assign value to the social exchanges
through which they developed their competence, rather than to the skill that was its out
Page 9 of 21
come. In their approach, they focused on the means rather than the ends. In this respect,
their strategies resembled those adopted by unions before they found themselves in crisis
and responded by elevated the visibility of their apprenticeship programmes in order to
make their training contributions explicit (Iskander and Lowe, 2010, 2013; Lowe et al.,
2010).
In both cities, immigrants drew on the organization of production on job sites to

(p. 527)
defend and expand their social systems of learning. In Philadelphia, for example, where
immigrants worked in loosely supervised teams, they pushed for collective pay increases
and quality bonuses. In this way, they safeguarded the cohesion of their work group from
employer attempts to create divisions by paying workers differently. They protected the
least skilled among them, giving them time to learn as they pre-empted any employer at
tempts to winnow out the novices or to pit workers on the team against one another as a
strategy to drive down wages. In Raleigh–Durham, where the organization of work was
hierarchical and highly specialized, immigrant workers replicated certain dominant prac
tices in order initially to shield more transgressive practices of skill development. In sev
eral instances, highly ranked immigrant workers used their labour market status to pro
mote learning practices in the crews they were assigned to supervise. Aware of expertise
within their crews, yet also mindful of the need to support learning among newcomers,
these immigrant supervisors took steps to relax job categories and flatten job ladders,
thereby encouraging members of their work crew to engage in cross-task training and job
rotation (Iskander and Lowe, 2013).
Latino immigrants in both cities also used broader institutional structures as a resource
to open up additional spaces for learning. Government regulations and safety rules com
prised one institutional area that immigrants drew on. In Philadelphia, immigrant work
ers used government licence inspections of building permits opportunistically to query
city officials about scaffolding techniques and learn about the structural organization of
the historic row houses they were remodelling. In Raleigh–Durham, immigrant workers
used state-mandated on-site safety training as an arena to explore how to repurpose pre
vious skills for local construction and to acquire new ones: safety training videos were
used as a pedagogical break in which workers could collectively reflect on building tech
niques, and safety monitoring was transformed into a vehicle for mentoring around skill
and team-building (Lowe and Iskander, 2015).
Efforts like these demonstrate the value that workers place on collective learning
processes as not only a means for occupational advancement, but also as a cultural norm
of an occupational community. They also display the resourcefulness and ingenuity of
workers as they draw on workplace practice and institutional structure to create proto-in
stitutions to protect social processes. A subset of the immigrant workers in our study
were even able to achieve some improvement in job quality, including increased worker
prestige, more secure and predictable hours, and even small increases in compensation.
But, ultimately, with no institutional mechanism to compel employers to compensate them
Page 10 of 21
for their industry skill contribution, their jobs often remained low-wage and their employ
ment insecure.
Immigrant workers in non-construction industries also struggle to advance their labour-

market position on the basis of their contribution to collective learning processes. Rich
ethnographies by Roger Waldinger, Leslie Salzinger, Travis Du Bry, Manuel Adrián
Hernández Romero, Ruth Gomberg-Muñoz, and Miriam Wells, among others, provide
hints of this struggle through their detailed accounts of immigrant workers in agricul
ture, housekeeping, apparel, janitorial services, and hospitality. Admittedly, learning and
skill development were not their primary research concern, and so these descriptions of
immigrant-authored learning processes are less detailed and drawn out. However, similar
to what we uncover for construction, their depictions offer evidence that group learning
practices of immigrant workers contribute to a shared sense of pride in the work, and al
so make it difficult to assign attribution for quality performance to any one individual
within the group (Zlolniski, 2006; (p. 528) Newman, 2009). We flag these implicit refer
ences to collective learning as an opportunity for coordinating worker advocacy in multi
ple industries where low-wage work has become the new norm. Combining our research
in construction with related ethnographies of work creates an opening for organizing ef
forts in the name of social and economic justice to be more inclusive of these learning
processes, especially when making demands for higher wages and stronger institutional
protection at the bottom of the labour market. It is this connection to which we next turn
our attention.
The Low-wage Turn: Bringing Collective Learn

ing Back in
Immigrant advocates increasingly situate demands for improved working conditions and
wages within a larger critique of low-wage work generally. The focus on the low-wage
economy has intensified in recent years and has gained considerable traction given na
tional policy concern over income inequality in the wake of the Great Recession. Tether
ing the immigrant experience to that facing all low-wage workers, regardless of national
origin, is both necessary and strategic. It is impossible to study the low-wage economy
without recognizing the sizeable share of immigrant workers within many low-wage in
dustries and labour markets. Politically, too, the low-wage umbrella provides a helpful
buffer against anti-immigrant rhetoric and backlash, ultimately shifting the focus to ques
tions of moral economy, rather than citizenship. But while this close coupling has helped
to bring much needed research attention to the plight of immigrant workers, this low-
wage turn—at least in its current iteration—has pushed important insights about worker
contributions to skill and learning into the shadows. As research on low-wage jobs pro
gresses, so, too, must our understanding of workplace practices and learning processes
that low-wage workers contribute to and collectively inform.
Page 11 of 21
Existing studies of low-wage work help catalogue many features of low-wage jobs that
make them demeaning and unrewarding for workers (Appelbaum et al., 2003; Bernhardt
et al., 2008; Doussard, 2008). To be sure, the defining characteristic of these jobs is inad
equate compensation, but scholars also point out that low wages are accompanied by a
compendium of other traits that undercut job quality. These include managerial practices
that are degrading and exploitative, restrictions on worker autonomy and decision-mak
ing, and stratagems to siphon off some portion of worker earnings, either through overt
forms of wage theft or pernicious employment practices that drive down compensation
(Milkman et al., 2010; Kalleberg, 2011). Moreover, low wages are often correlated with
employer tactics to exert direct control over workers both on and off the job site: schedul
ing practices that prevent workers from holding additional jobs or managing non-work
obligations, employer codes specifying appropriate social behaviour, and other obstacles
to career advancement (Peck and Theodore, 2001; Standing, 2011; Weil, 2014).
Much of this scholarship has attributed the rise of low-quality, low-wage jobs to a whole
sale gutting of protective employment institutions. The macro-institutional shifts since the
late 1970s include not only de-industrialization and subsequent growth in low-end
service jobs, but also de-unionization and weakened labour laws that make it
(p. 529)
harder for workers to defend themselves against employer abuse (Appelbaum et al.,
2003; Bernhardt et al., 2008). Scholars have also considered micro-institutional changes,
most notably transformations in the organization of work and related normative shifts
that affect how employers treat and value their workforce. They have documented the
steady rise in contingent work arrangements, including labour subcontracting, that not
only create considerable distance between workers and the final beneficiaries of their ef
fort, but, more importantly, make it harder to identify which companies and employers
should be implicated for unsafe, unjust, and at times deadly, working conditions (Apple
baum et al., 2003; Kalleberg, 2011; Weil, 2014).
A sub-stream of scholarship unpacks industry-specific reconfigurations in order to ex

plore why some groups of workers within an industry or organizational setting might ex
perience these changes differently—for example, why flexible employment practices
might lead to greater worker empowerment in some organizational environments or occu
pational categories but not in others (Bailey and Bernhardt, 1996; Batt et al., 2003). In
highlighting ‘varieties’ of employment practices, this scholarship helps recast low-wage
work as the product of actions taken by employers when institutional protections are ab
sent, and suggests the ways in which labour advocacy can change the calculus on which
employers’ decisions are based.
The research on advocacy efforts for low-wage workers often starts with the insight that
low wages are not inevitable or a predetermined outcome of economic change, and then
looks for potential inroads for securing better jobs and better pay in an era where tradi
tional labour institutions have collapsed or been greatly weakened. The advocacy efforts
depicted in this scholarship have used low wages as a central organizing principle, but
their strategies reflect an understanding that low wages are associated with job charac
teristics that make organizing strategies within a single firm or industry unsuccessful.
Page 12 of 21
When jobs are contingent and when the offending employer is hard to pinpoint within nu
merous contractual layers, organizers find it difficult to use the traditional labour union
strategies to bargain collectively. Instead, organizers invoke community belonging or oth
er forms of identity politics to mobilize groups of workers (Piore and Safford, 2006;
Ghandnoosh, 2013).
Studies of these new forms of advocacy have shown that unions representing low-wage
workers, such the Service Employees International Union and its affiliates, have pio
neered new forms of community organizing that link job quality concerns to identity poli
tics (Milkman, 2006). Here, we also find examples of hybrid community-labour approach
es that target low-income immigrant workers in particular (Milkman, 2000; Milkman and
Wong, 2000; Osterman, 2002). Worker centres are a case in point, providing a laboratory
for pioneering new approaches to organizing and outreach that are often based in immi
grant neighbourhoods and that seek to promote job quality in immigrant-heavy indus
tries, such as construction, housekeeping, and hospitality (Fine, 2006; Valenzuela Jr,
2014).
Still, while this scholarship provides us with a rich and textured empirical understanding
of the world of low-wage work and illuminates a pathway for labour advocacy, it shares a
familiar blind spot when it comes to the question of skill development and, more specifi
cally, the collective learning processes that workers contribute to, even within this low-
wage context. Admittedly, some labour scholars have chosen to back away from (p. 530)
questions of worker skill altogether, fearing that this discussion will shift the focus away
from job quality to worker characteristics. Arne Kalleberg summarized this concern best,
arguing that a focus on skill can lead to the problematic reframing that there ‘might be
good and bad workers, but not good and bad jobs’ (2011, p. 6). Moving the focus away
from skill and towards institutional erosion has ultimately allowed labour scholars to
mount a powerful challenge to long-standing claims by neoclassical economists that ris
ing income inequality is simply the outcome of declining or irrelevant skills (Osterman,
2000; Levy and Temin, 2007). But, paradoxically, the lack of attention given to learning
processes by institutionally minded scholars only reinforces many of the same assump
tions that traditional theories of human capital make about skill and how it gets produced
and by whom.
As in the standard human capital model, workers are presumed to be compensated less
because they lack skill at that moment in time. Thus, many scholars advocating for im
provements at the bottom of the labour market also seem comfortable using the terms
low-wage and low-skilled interchangeably—and when describing skill, present it as an in
dividual attribute, fixed in time. Additionally, in the same way that educational pro
grammes rank highly as essential sources of general skills in the traditional human capi
tal narrative, so, too, do formal external institutions in the low-wage camp, even if the mix
of training institutions is more varied. Some scholars even make the case that workers re
main trapped in low-wage, dead-end jobs because of their exclusion from formal educa
tional and training institutions (Appelbaum et al., 2003; Grimshaw, 2011). By extension,
this leads to calls for expanding access to formal training systems through which low-
Page 13 of 21
wage workers can develop their skill and, in turn, gain access to better jobs. Admittedly,
some studies of low-wage work do make an important conceptual break from traditional
human capital theory by challenging the very notion that skill is a prerequisite to higher
wages and instead outlining a compelling argument that payments of higher wages will
lead to industry upskilling. However, this revised twist is often predicated on the logic
that employers will invest in worker training in order to offset those higher wage costs,
thus reinforcing yet another tenet of traditional theory.
What is missing from this research is an analytical space for also revealing how learning
happens within low-wage jobs, even if employer recognition and institutional support is
initially absent. Paying attention to skill development not only turns our attention back to
the job, but also brings squarely into the frame the social processes through which work
ers actively shape their jobs through their collective learning. In the example of low-wage
construction jobs we provide in this chapter—which is implicitly echoed in other ethno
graphies of low-wage work—workers used these social learning processes to improve the
quality of their jobs and press for higher wages, more discretion, and greater job security.
In a virtuous cycle, they used social interactions on the job site to strengthen collective
learning practices, thus deepening their skill contribution and increasing their leverage
to push for better working conditions. And equally the immigrants we studied also at
tempted to create norms and other proto-institutions to protect their skill-building
processes and contributions. However, these efforts at bottom-up institution building
have proved insufficient to compel the majority of employers to compensate and reward
workers fully for the skills they collectively create and replenish. This suggests the need
for further analysis that connects investigations of skill and collective learning in low-
wage jobs to an exploration of avenues for further advocacy.
(p. 531) A New Politics of Skill

The current and ever-growing spotlight on low-wage work has been essential for inspir
ing policy change and is clearly behind recent advances in minimum- and living-wage leg
islation and efforts to shore up state and federal labour laws. Still, there is an opportunity
for the next round of scholarship on low-wage work to advance worker bargaining power
by situating workers as active participants in collective processes of workplace learning
and, thus, as contributors to industry performance and innovation. Retraining the re
search eye on collective learning processes can also help inspire low-wage advocacy orga
nizations to embed fully worker contributions to industry skill within a larger narrative
around worker rights and demands for social and economic justice.
Linking justice with skill thus necessitates a unifying conceptual platform for combining
two currently divergent approaches to scholarship on labour advocacy (Adler, 2006; Bura
woy, 2008)—firstly, an older tradition that uses ‘thick description’ to reveal complex social
dynamics within occupational communities and in ways that reveal existing power strug
gles around skill; secondly, a newer focus on innovative strategies for worker empower
ment and mobilization, including new partnerships to reinvigorate the US labour move
Page 14 of 21
ment. Connecting these two threads requires not only that we integrate labour processes
within studies of the new labour movement, but also that we reposition worker advocacy
efforts to engage explicitly with the politics of skill.
A useful starting place for this combined research endeavour involves documenting the
diverse ways in which labour and community advocates currently link collective skill de
velopment processes to gains in worker compensation and worker rights more generally.
While a voluminous body of research is dedicated to institutional practices that support
collective learning within highly paid professions with particular attention to managerial
strategies to reward and strengthen knowledge sharing, we know very little about related
experiments that cultivate and protect collective skill development within the low-wage
economy. What might existing models look like for low-wage workers in particular? How
can advocates help increase the visibility of worker-initiated learning processes and use
this to secure better wages and improved working conditions at the bottom of the labour
market? To what extent are these experiments inclusive of employers, and how adaptive
are they to contingent forms of ‘fissured’ work that might limit employer involvement and
accountability?
An example by Leslie Salzinger (1991), grounded in an earlier labour process research

tradition, helps illustrate what can be gained from more documentation in this area.
Through her comparative case study of immigrant housekeepers in the San Francisco Bay
Area, Salzinger describes one successful cooperative, called ‘Choices’, as an ‘occupation
al community’ through which women immigrant refugees shared knowledge and insights,
and, in turn, gained valuable lessons from older, more experienced housekeepers and
nannies. As she put it, ‘members trade tips constantly, developing and sharing strategies
to deal with dirty houses and impossible employers in the same breath’ (Salzinger, 1991,
p. 149). A crucial focus of those discussions was communication with clients, and specifi
cally how to use those conversations to draw attention to worker skills and a related com
mitment to quality service. This included empowering all members to make it clear at the
time of service that quality required sufficient time be spent on a given task, but equally
that members would (p. 532) ‘not work extra time for free’ (Salzinger, 1991, p. 148). Mem
bers of the cooperative ultimately encouraged each other to walk away from any job that
undervalued their knowledge or undermined their sense of control over their work sched
ules and routine. The cooperative reinforced a space not only for collective skill-building,
but also for using that shared knowledge as the basis for worker power, which was espe
cially important as housework was typically performed individually, not by multiple mem
bers of the group.
The immigrant advocates at the non-profit that created the Choices cooperative built on
the skill exchanges initiated by cooperative members, and brought additional training op
portunities into the social interactions of the group, enabling members, for example, to
learn about new cleaning products and what might be required when encountering a new
kind of appliance, surface, or material. What is key, therefore, was the mutually reinforc
ing quality of this exchange. Rather than positioning the non-profit as the initiator of the
learning process, staff saw its role as learning partners that contributed and helped facili
Page 15 of 21
tate a virtuous skill-building cycle. Their role also ensured the collective skill of the coop
erative remained visible and formed the basis for securing wages that were almost twice
the legislatively mandated minimum wage.
Fundamentally, the Choices experiment speaks to the need to document whether and how
community and labour advocates today are transforming group learning into a collective
and visible resource from which to garner better wages and improve working conditions.
It is quite possible that local actors, like workers’ centres, are developing strategies to
cultivate and defend skill-building among low-wage workers, but research attention to ef
forts in this direction may have been edged out by the focus on wage-based mobilization.
Even as we propose an exploration of the way that local labour advocates foster and pro
tect collective skill-building, however, we are also mindful of the resource constraints fac
ing many non-profit advocacy groups, especially workers centres. This suggests the need
for additional research that helps link localized advocacy efforts to a larger macro-institu
tional push to strengthen the conceptual link between collective learning contributions
and efforts to secure broad-based gains in wages and worker rights.
The current movement for an overall increase to the national minimum wage and region
al increases above that to compensate for variable cost of living is grounded in an argu
ment for social justice and inclusion. This is a powerful framework, but without inclusive
language around skill, it risks homogenizing jobs at the bottom of the labour market and,
in the process, erasing industry specific skills contributions upon which further wage
gains can be secured. Its emphasis on justice without equal attention to worker contribu
tion through skill complicates larger conversations about how to create institutions that
defend collective learning and ensure that workers are compensated for the full support
they provide to industry.
In this chapter, we call attention to the ways in which workers in low-wage jobs develop
skills—skills that are specific to their firms and general to their industry, and skills that
they hold individually and that they hold collectively in interactions at the job site and in
their communities. We have highlighted the contribution their collective learning makes
to production and productivity. Finally, we have argued that what is needed is a more visi
ble and nuanced role of skill in the push for higher wages. Taken together, these observa
tions suggest there is a case to be made that low-wage work itself represents a form of
wage theft. Workers disproportionately carry the burden for industry training and skill
development; non-existent or insufficient compensation for their investment in skill cre
ation allows the (p. 533) jobs they hold to remain low-wage. As the movement for higher
wages progresses, a stronger call should be made for employers to absorb more of the
costs associated with this collective learning and not just reap its benefits. Even with
mandated wage raises, jobs in which workers are paid anything short of an amount that
reflects their full contribution still remain low-wage, and still undermine workers’ ability
to build solid livelihoods.
Page 16 of 21
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Lowe, N., Hagan, J., and Iskander, N. (2010). ‘Revealing talent: informal skills intermedia
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Planning A 42: 205–222.
Milkman, R. (2000). Organizing Immigrants: The Challenge for Unions in Contemporary

California (Ithaca, NY: Cornell University Press).
Milkman, R. (2006). L.A. Story: Immigrant Workers and the Future of the U.S. Labor
Movement (New York: Russell Sage Foundation).
Milkman, R. and Wong, K. (2000). ‘Organizing the Wicked City: The 1992 South
(p. 535)
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for Unions in Contemporary California, pp. 169–198 (Ithaca, NY: Cornell University
Press).
Milkman, R., Bloom, J., and Narro, V. (eds). (2010). Working for Justice: The LA Model of
Organizing and Advocacy (New York: ILR Press/Cornell University Press).
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York: Vintage Books).
Northrup, H.R. and Northrup, D.O. (1984). Open Shop Construction Revisited
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(Boston, MA: Beacon Press).
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olis, pp. 139–160 (Oakland, CA: University of California Press).
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day Cognition: Development in Social Context (Cambridge, MA: Harvard University
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nal of Social Welfare 20: 260–269.
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Page 20 of 21
Natasha Iskander
Natasha Iskander ([email protected]) is an Associate Professor of Public

Policy at Wagner Graduate School of Public Service, New York University. She con
ducts research on labour migration and economic development, on labour mobiliza
tion and its relationship to workforce development, and on processes of institutional
innovation and organizational learning. Her most recent book, Creative State: Forty
Years of Migration and Development Policy in Morocco and Mexico (Cornell Universi
ty Press, 2010), examines how the governments of Mexico and Morocco elaborated
policies to build a link between labour emigration and local economic development.
She is currently conducting research on processes of skill development among mi
grants in Qatar’s construction industry. She also worked as consultant on migration
and skills transfer policy for the governments of Mexico and Morocco, and for inter
national organizations such as the World Bank and the Inter-American Development
Bank.
Nichola Lowe
Nichola Lowe ([email protected]) is an Associate Professor at the Department of

City and Regional Planning, University of North Carolina at Chapel Hill. Her re
search focuses on the institutional arrangements that lead to more inclusive forms of
economic development and, specifically, the role that practitioners can play in align
ing growth and equity goals. She is undertaking research on local economic develop
ment and skills transference among immigrant construction workers and job strate
gies for displaced workers and less educated individuals in the North American con
text. She has worked as a consultant for the International Labour Organization, In
ter-American Development Bank, Bank of the Northeast Brazil, and Ontario Ministry
of Economic Development and Trade.
Page 21 of 21
Finance and Financial Systems: Evolving Geographies of Crisis and Instabil
ity
Finance and Financial Systems: Evolving Geographies

of Crisis and Instability
Gary Dymski
This chapter explores geographical approaches to financial systems, with special atten
tion to their instability. After examining the foundational contributions that launched the
geography of finance, the chapter summarizes spatial research on the global spread of in
novative practices in finance. It then asks why so little attention was paid to macro-as
pects of financial crises prior to September 2008. A review of geographers’ research of
sub-prime lending and crisis finds that this work, extensive as it is in analyzing the micro
foundational aspects of sub-prime lending and securitization, pays no attention to the
macro-dimension of financial instability. This lacuna is shared with mainstream macroeco
nomics, which famously failed to see the sub-prime crisis coming. The chapter then ex
plores economist Hyman Minsky’s macro-approach to financial instability and crisis. The
chapter concludes by arguing that developing a spatial analysis of financial instability
should be a high priority for the emerging geography of finance.
Keywords: geography of finance, financial systems, financial globalization, financial instability, financial innova
tions, sub-prime lending, financial crisis, Hyman Minsky, Keynesian theory
Introduction
THIS chapter explores geographical approaches to financial systems, with special atten
tion to their instability. This review focuses on research by geographers, while also taking
into account the implications for spatial analysis of economists’ approaches to financial
instability.
Financial dynamics since the late 1970s have been defined by relentlessly expanding
globalization and by instability of two different forms: ever-deepening financialization,
and increasingly frequent and virulent financial crises. Financialization, that is, ‘the in
creasing role of financial motives, financial markets, financial actors and financial institu
tions in the operation of the domestic and international economies’ (Epstein, 2006, p. 3),
has gradually transformed microeconomic and social dynamics during this period. And at
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the macro-level, as Laeven and Valencia (2012, p. 10) document, crisis cycles have coin
cided with (or followed from) credit cycles during this period: financial crises have oc
curred from the late 1970s onward, finally reaching a crescendo with the double (sub
prime and Eurozone) meltdown of the late 2000s.
These micro- and macro-phenomena are mutually reinforcing: growing household and
firm debt, one of the most visible manifestations of financialization, has fed financial
fragility and led to the destabilization of credit flows and economic growth the world over,
slowing economic growth, and increasing households’ and firms’ dependence on debt and
financial manipulation, leading to further financial instability, and so on.
Despite the centrality of these developments in global economic outcomes, economists

have reached no agreement on the sources of financial instability, the relationship be
tween local (national) and global financial dynamics, or whether and how public-policy re
sponses (p. 540) can mitigate the social costs of financial losses and crises at either the
micro- or macro-levels. On the contrary, they have proposed very different understand
ings, which say as much about the differences in their theoretical entry points as about fi
nancial processes and instability. Economists who use market equilibria as their points of
departure and of reference—that is, those in the mainstream—tend to trace the financial
losses and crises of recent years to factors interfering with markets’ microeconomic
workings: government policy failures or perverse incentive mechanisms in financial mar
kets. Financial crises, when they arise, reflect in-principle-avoidable coordination fail
ures; financial instability arises as because of disturbances to market logic, not as a con
sequence of market logic. The notion that financial losses and crises are inevitable com
ponents of economic processes is maintained by heterodox economists, whose entry
points typically include uncertainty, power, and/or class. Of special interest in this chap
ter is Minsky’s conception of financial instability as a core component of capitalist sys
tems with advanced financial systems.
Geographers’ investigations of how space matters in financial processes and systems, like
those of economists, are shaped by their analytical entry points. And those pioneering the
emerging field of the geography of finance have used very different entry points and theo
retical frameworks—Marxian crisis theory, critical social geography, and the institutional
analysis of global hybridity, in particular—to shed light on many different spatial aspects
of financial structures, behaviours, and outcomes. This chapter reflects on some of the
principal lines of development and findings of this literature, as well as exploring one
area ripe for further examinations of how space matters in finance—that is, the theory of
financial instability itself.
The next section examines some of the foundational contributions that launched the geog
raphy of finance. ‘The Spatial Logic of Globalizing Finance’ then describes spatial re
search on the global spread of innovative practices in finance—an initial focal point of
this young field. ‘Why Most Geographers and Economists Overlooked the 1980s–1990s Fi
nancial Crisis Wave’ asks why so little attention was paid to macro aspects of financial
crises prior to September 2008. ‘Geographers on Sub-prime Lending and Crisis’ reviews
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geographers’ investigations of subprime lending and of the subprime crisis; missing from
this work, as from the pre-crisis geography of finance, is attention to the macro-dimen
sion of financial instability. ‘Minskyian Financial Instability in a Spatial Context’ describes
the most prominent macro approach to financial instability and crisis, that of economist
Hyman Minsky, and elaborates both on its Keynesian foundations and on how incorporat
ing spatial dimensions into this approach can generate new insights into financial crisis
and instability. The chapter ends with ‘Conclusion: Debating Post-crisis Finance and Fi
nancial Instability’.
Foundational Explorations in the Geography of

Finance
Aalbers’ (2014) overview essay on the evolution of financial geography dates its begin
nings to several mid-1990s publications, including Andrew Leyshon’s three Progress in
Human Geography essays (1995, 1997, 1998) on geographies of money and finance. Aal
bers points out that geographers began examining spatial aspects of financial processes
in the 1970s. Two such early contributions set the pattern for subsequent geographical
work on financial (p. 541) systems and their instability. One direction, cited by Aalbers, is
the work of Boddy (1976) and Williams (1978) on the UK mortgage market. Boddy dis
cusses the links between housing finance and inequality, and Williams investigates race-
and income-based redlining by UK lenders in inner-city areas of UK cities.1 These two
early studies parallel the earliest work on redlining in US mortgage markets (Alhbrandt
1977; Bradford and the Urban–Suburban Investment Study Group, 1977) in recognizing
the destabilizing impact of redlining on the economic trajectories of affected urban areas.
The other notable 1970s geographical contribution on finance, David Harvey’s (1973)
work on the political economy of the city, focused more on its systemic (macro) role in
capitalist reproduction. This and subsequent works by this author inspired much of con
temporary social geography, by way of imitation, modification, or critique. As Ira Katznel
son points out in his foreword to the 1988 edition of Harvey’s 1973 volume Social Justice
and the City, Harvey’s goal, to ‘embed … [geography] in a theoretical project’, found a lo
cus in Marxism, ‘and an object of analysis for this theory within geography, the city’. The
tension between a surplus-generating mode of economic production and the spatial loca
tion of production and surplus absorption provides a robust anchor for Marxian work in
geography. Marx’s characterization of the accumulation process as contradictory and cri
sis prone finds ready interpretation in the contradictory demands made on urban space:
while productive assets and housing are spatially fixed and long lived, reorganizing sur
plus-generating activities and renewing accumulation requires the destruction and re
newal of places within the urban grid. Finance plays a central role, as Harvey recognized,
in putting expensive, long-lived assets in place; and these financial commitments can un
dermine capitalist growth or recovery when debt obligations remain after the real capital
they have financed is devalued.
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So finance is seen both as functionalist and as potentially dysfunctional: both a means of
resolving one set of contradictions (financing gaps) and the source of another (debt re
payment gaps). Harvey was especially attracted to Hilferding’s notion of ‘finance capital’,
wherein the allocation of credit and circulation of monies is driven by the needs of sur
plus-generating accumulation processes. This notion is embodied in the idea of a city as a
growth machine (Molotch, 1976). Harvey’s subsequent work (especially Harvey, 1982)
was based on a more comprehensive reading of Marx on capitalist accumulation and cri
sis. Regarding finance, he emphasized Marx’s analysis of how the pre-conditions for crisis
are created in cyclical upturns when promises to pay multiply without adequate attention
to ability to pay. In these foundational texts, Harvey poses a question that he leaves open:
is urban development explained by capitalism’s broader cyclical dynamics—its boom–bust
cycle—or is it independent of any ‘cycle’, with its own momentum?
These early contributions, then, confront the question of whether financial relations are
spatially embedded or, instead, are determined primarily by cyclical economic forces.
Leyshon’s (1995) survey of the emerging political economy of finance identifies three ap
proaches to this question. ‘Geopolitical economy’ examines hegemonic dominance and
transitions amongst national currencies. The ‘geoeconomics of finance’ opposes the no
tion that financial globalization means ‘the end of geography’ (O’Brien, 1991) by investi
gating the distinctive national, and even regional and local, basis on which financial sys
tems remain organized.2 The third approach identified by Leyshon, the geography of fi
nancial exclusion, encompasses both nations that have suffered debt crises and sub-na
tional spaces subject to ‘the closure of banking infrastructures, with catastrophic eco
nomic consequences for populations abandoned in this way’ (Leyshon, 1995, p. 538)—a
phenomenon that he viewed as being most acute in the USA but that he saw as spreading
to the UK and elsewhere.
Leyshon’s essay links destabilizing dynamics at the macro-level with the deepen
(p. 542)
ing of uneven development at the micro-level: he cites exchange-rate pressures due to im
balances among European economies, deregulation of financial services, and competition
for privileged customers as factors that are driving processes of micro-level exclusion.
The possibility that micro-level mechanisms could undermine macro-level financial stabili
ty was not yet in view: subprime lending and private-label securitization were in their in
fancy, and not until the early 2000s would housing price bubbles bring subprime mort
gages to Main Street. The mid-1990s stream of work on financial exclusion saw it as en
compassing ‘processes that prevent poor and disadvantaged social groups from gaining
access to the financial system… [with] implications for uneven development’ (Leyshon
and Thrift, 1995, p. 312) Consequently, scholarly work on financial exclusion encom
passed bank branch closures (Pollard, 1996), the role of finance in uneven spatial devel
opment (Dymski and Veitch, 1996), the shifting boundaries of the financial system, and
the need for policy change instituting a concept of ‘financial citizenship’ (Leyshon and
Thrift, 1996). In effect, financial exclusion was viewed as a generalization of the case of
redlining.
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The Spatial Logic of Globalizing Finance

The years immediately after the 1973 demise of the Bretton Woods system saw some na
tions succumb to recession and inflationary pressure, while others continued to expand.
And epochal institutional changes—including financial deregulation, an end to pattern
bargaining, and deindustrialization—were underway in some but not all countries. Some
scholars identified patterns in these contrasting trends: it seemed that institutional and
regulatory differences might account for these varying macroeconomic growth patterns.
Most notably, Zysman (1983) argued that the superior industrial competitiveness of Ger
many and Japan, as against France, the UK, and the USA, could be traced to the organiza
tion and governance of their financial systems. His suggestive contrast between Anglo-
American and German–Japanese approaches to finance shifted attention from the nature
of capitalist crisis per se to the question of how nations’ financial structures and regula
tions affect economic performance.3
This reframing of finance as a component of industrial strategy in a competitive global

marketplace raised yet a new question: how would the global shift to financial deregula
tion and freer capital movement affect individual firms and nation states? Geographers
began to undertake mappings that not only responded to O’Brien (1991), but also began
to identify a distinctive ‘geography of finance’ approach. As Clark and Wójcik (2007)
termed it:
This conceptual approach to understanding institutional change differs from more

functionalist approaches … The main premise of the approach is not only to take
the convergence forces behind global finance seriously—as more and more politi
cal economies engage with global finance—but also to recognize the variety of ge
ographically and historically contingent institutional responses and filters, which
result in hybridity rather than homogeneity.
These mappings focused on the role of practices (Jones and Murphy, 2010) and institu
tions in reproducing or challenging the loci of control over financial decisions and alloca
tions. In a study of pension fund decision making, Clark (2008) argued that good financial
governance (p. 543) would emerge if financial decision making reflected a balance be
tween expertise, on one hand, and community representation and political legitimacy, on
the other. The globalization of share-holding threatened this balance by creating pres
sures for homogenized decision making. The quantification of financial expertise (Hall,
2006) drove this homogenization, as did the spread of formalized business courses (Hall
and Appleyard, 2009), which both legitimized expertise and distributed it along the hubs
and spokes of financial supply chains.
Given the turn away from functionalism in explanation, whether the financial system
would continue to meet different spatial areas’ diverse needs then became an open ques
tion. Geographers’ institutional focus on hybridity was augmented by an analysis of glob
al networks and of the presence or absence of global convergence in standards and prac
tices. The evidence on global convergence was mixed. Mason and Harrison (2002) found
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that UK venture capital investment had become more equal across space, but invest
ments in younger UK companies remains concentrated in the broader London area. Zook
(2002) argued that the spatially uneven financing needs of the Internet industry were be
ing adequately met precisely because venture capitalists were resisting centralization
and homogenization.
Wójcik (2006) found a trend towards global convergence in corporate governance, involv
ing shareholder and board roles. Clark and Wójcik (2007) used German experience to
demonstrate the dynamic erosion of static ‘varieties of capitalism’ distinctions among na
tional economies. To explain this meta-trend, Clark et al. (2006, p. 303) observed: ‘The
continuity of different regimes of governance is subject to inter-market arbitrage’. In
turn, Dixon and Monk (2009) contrasted the harmonization of accounting standards and
spread of globalized corporate governance practices with the uneven spatial distribution
of defined-benefits pensions in the UK and the Netherlands. Examining Swiss pension
funds in this same (pre-crisis) time period, Corpataux et al. (2009) found that both homog
enizing and ‘territorial’ forces were at work: ‘the mobility/liquidity of capital and the
changing dimensions of new regions and countries are central to the finance industry’s
functioning’.
This emerging literature not only explored the scope and extent of financial globalization,
but also had a critical edge. As Leyshon has written, a paper by Clark and Wójcik (2007)
‘seeks to account for the growing power of money and finance within contemporary eco
nomic life’ (Leyshon, 2008, p. 262). Clark and Knox-Hayes (2007) found that ‘social sta
tus’ crucially determined pension holdings. Leyshon et al. (2008) found that building soci
ety closures were concentrated in poorer areas.
Why Most Geographers and Economists Over

looked the 1980s–1990s Financial Crisis Wave
Given the critical edge that characterized financial geography from its origins, Aalbers’
2014 observation in his overview of financial geography contributions to the geography
journal Transactions comes as a shock: ‘In the 1970s and early 1980s Transactions
published no papers that discuss the economic crises of that decade in primarily mone
tary or financial terms’. While geographers were engaged in critical analysis of subprime
lending well before (p. 544) the subprime crisis (see the next section), Aalbers has a point;
indeed, his comment on the absence of attention to financial crisis can be extended to
other geography journals, and to the 1990s, as well as the late 1970s and 1980s. A key
word search of the Web of Science database for thirteen leading geography and regional-
studies journals found zero appearances of the term ‘financial crisis’ in the 1980s, and on
ly one in the 1990s (in Transactions in 1995).4
This observation is surprising because these years were accompanied by successive fi
nancial crises: citing only the most severe episodes, the years prior to 2000 included the
US savings and loan crisis, the Latin American debt crisis, the 1987 stock market crash,
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the junk bond bubble and crash, the Mexican crisis of 1994–95, the East Asian financial
crisis of 1997, and the Russian–Brazilian–Turkish foreign exchange crisis of 1998. Econo
mists too paid little or no attention to financial crisis in these years. A parallel search for
a sample of leading mainstream economics journals in the 1980s and 1990s also finds vir
tually no keyword references to ‘financial crisis’; a search of heterodox economics jour
nals, only a handful.
In any event, most academics working on finance were subsequently caught unawares by
the subprime meltdown. And that event concentrated minds well outside of academia on
the disruptive power of finance. Indeed, the enormity of the September 2008 crisis led
Queen Elizabeth II to ask, in a November 2008 visit to the London School of Economics,
why economists did not foresee it. A July 2009 response by representatives of the Royal
Academy mentioned economists’ belief that ‘banks knew what they were doing’, and the
fact that low inflation and modest economic growth had lulled economists into ignoring
the growing imbalances; thus, there was a ‘failure of the collective imagination of many
bright people, both in this country and internationally’ (Besley and Hennessey, 2009). A
Financial Times columnist observed, in response, that ‘economists [had] shuffle[d] the
deckchairs’ (Brittan, 2009). Why then did geographers and most economists largely ig
nore the global wave of financial crises until the catastrophic events of Fall 2008 made it
impossible to look away?
Geographers’ neglect of financial crises can be traced to three factors. Firstly, the geog
raphy of finance had not yet cohered as a subfield. Secondly, when it did, it was initially
oriented towards the role of finance in industrial competitiveness. Thirdly, emerging work
on the geography of economics and finance relied primarily on two very different entry
points that were predisposed to overlooking the possibility of a cataclysmic financial cri
sis that could bring global capitalism to its knees: Marxian models of accumulation and
crisis, and neoclassical equilibrium models. We consider these in order.
Most geographers who implicitly or explicitly reject neoclassical economic theory, and in
stead view the capitalist economy as prone to booms and busts, tend to follow David
Harvey’s conception of Marxian crisis theory. In his framework, finance has an assigned
role to play in urban (or capitalist) reproduction. Geographical discourses that use Har
veyesque lenses to elaborate Marxian ideas about capitalist crises arguably view them as
crises of capitalism tout entier. To put it boldly, in the Marxian approaches followed with
in geography, economic crises might be accompanied by financial crises, but they are not
caused by financial crisis.
Neoclassical economic models, in turn, typically assign a passive role to finance. Efficient-
market theorists such as Fama (1980) regard financial structure as a passive element in
economic outcomes, on the basis that the self-interest of participants in hyper-competi
tive markets would lead them ruthlessly to eliminate any inefficiencies in resource alloca
tion; the key implication is that market processes leave no potentially profitable holes in
the financial services landscape. Neoclassical theorists prefer to use the general competi
tive equilibrium (p. 545) as their point of analytical reference, complexifying it as needed
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to explain why deviations from this equilibrium might occur. In the postwar period, this
analytical approach characterized microeconomic thinking, not macroeconomics. But
since the overthrow of Keynesian structural macro-modeling at the end of the 1970s, the
terrain of macro-modelling has been left to equilibrium models—most recently, the dy
namic stochastic general equilibrium (DSGE) model.
The defining characteristic of the DSGE model is its general equilibrium approach. In any
general equilibrium model (including DSGE), analysis focuses on the determinants of the
supply of goods and services, that is, on available technology, the prior distribution of
wealth, and agents’ preferences over consumption and leisure (more consumption can be
had if more labour is supplied, hence more supply created, ceteris paribus). Demand is
passive; any supply generated will be sold as long as prices are right. The prices may not
be right, owing to informational rigidities or transactions costs in particular. But what
should be emphasized is that this theoretical approach is antithetical to Keynes (1936)
and more broadly to Keynesian macroeconomics, which asserts that the level of effective
demand determines income flows and, in turn, the level of output: if demand falls, so will
employment and income levels. This emphasis on the centrality of demand contrasts
markedly with the orthodox perspective in macroeconomics, wherein demand responds to
supply and does not independently affect the level of economic activity.
The standard DSGE model excludes the possibility that aggregate spending can fall short
in the aggregate, because it anticipates that prices should always be able to fall so as to
close the gap. The idea that we may live in a world in which prices are ‘downward sticky’
is ruled out. Further, the DSGE model, in its unadulterated form, abstracts from the finan
cial sector altogether; so there is no space for even conceptualizing, much less explaining
financial crisis, except by reference to deviations from the conditions required for market
equilibrium.
These deviations tend to be explored in microeconomic models of banking, given the ab
sence of analytical oxygen in the DSGE model. And, indeed, coincident with the Latin
American debt crisis, Diamond and Dybvig (1983) developed an asymmetric information
banking model that generated a bank run as one possibility.5 This framework gave rise to
a sizeable literature exploring the implications of asymmetric information and one of its
consequences, moral hazard, for financial outcomes. Subsequently, then, problems in fi
nancial markets could be attributed by mainstream theorists to mechanism or design fail
ures, moral hazard problems, ‘sunspots’, or ‘sudden stops’.6 These categories neatly ac
count for the above list of crises: the Latin American crisis can be attributed to debtor na
tions’ moral hazard (Eaton et al., 1986), as can the East Asian crisis (Krugman, 1998); the
savings and loan crisis can be explained by thrift managers’ and regulators’ moral hazard
(Kane, 1990); and the 1997 and 1998 crises to sudden stops (Calvo, 1998).7
Evidence for the idea that financial crises could be blamed on flaws in market processes
became available when, in the wake of the East Asian financial crisis, economists associ
ated with the International Monetary Fund (IMF) and World Bank pioneered a new empir
ical approach to financial crisis. They created a database consisting of aggregate statis
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tics drawn from the years immediately before and after financial-crisis episodes in affect
ed countries; the idea was to identify causal patterns in these episodes. Econometric tests
using this database generate cross-national answers that abstract from differences in
time and space (Beck et al., 2010) This database has been expanded and used as the ba
sis of numerous studies; almost invariably these identify lax financial oversight as a root
cause of financial crises.
Geographers on Subprime Lending and

(p. 546)
Crisis
While geographers had largely ignored the 1980s Latin American and 1990s East Asian
financial crises, they did extensive work on subprime lending prior to the outbreak of the
crisis. While, as noted, this work focused on the microfoundational aspects of this lending
and not on the build up of macrostructures of financial imbalances, geographical work on
financial exclusion pre-dated the subprime crisis by three decades. Further, some of those
researching examining credit-market discrimination and financial exclusion turned their
attention to subprime lending soon after it emerged in the 1990s. The first rounds of
work on this new form of predatory financial inclusion forced researchers to ask basic in
stitutional questions: who was authorizing subprime loans, and who was funding them?
How were bank and non-bank markets connected, locally and nationally? Where was the
regulatory oversight of these new loan types? Were race and gender differences target
ed? Answers were proposed in a number of studies, including Listokin and Wyly (2000),
Bradford (2002), Newman and Wyly (2004), Wyly et al. (2006), and Williams et al. (2006).
UK-based research on subprime lending posed a further question: would the spread of
these instruments to the UK homogenize these markets across national borders? Wain
wright (2009a, 2009b) considered this question, based on research undertaken before the
2008 crisis. He showed how the process of feeding locally generated mortgages into the
globally linked securitization process reflected a mixture of influences: ‘Big Bang’ deregu
lation of the City of London, the broader financial deregulation process, and the specific
legal, political, and social institutions that defined UK housing finance. In other words,
UK housing finance did not involve cross-border cloning, but instead retained key differ
ences from US practices (see Ashton, 2009). Aalbers et al. (2011, p. 1779), in turn,
showed that mortgage practices in the Netherlands ‘reflects Dutch corporatist institution
al arrangements, implying that both geography and states do matter for the supposedly
aspatial process of securitization’.
What are the implications of the subprime crisis for the geography of finance? One was
described picturesquely by Lee et al. (2009): ‘When all that is solid is seen to melt into air,
[geographers] are forced into the role of the reporter who sketches the first draft of histo
ry’. Aalbers (2009a, 2009b) took up this challenge; his essays delineated the dynamics
and institutional context of the near collapse of global finance in September 2008. Enge
len and Faulconbridge (2009, p. 591) called for ‘financial geographies which are histori
cally situated and focused not on the epochal but the conjectural and … relevant to acad
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emic and policy debates’. The four contributors to another reactive essay broadly agreed
(Lee et al., 2009); for example, Clark emphasized the need to study ‘the interplay be
tween financial markets, between market players and institutions and between markets
and political institutions’ (Lee et al., 2009, p. 734).
And, indeed, a continuing stream of research in economic geography has pursued this
‘first draft of history’ by unearthing ‘the long chains associated with the credit
crunch’ (Wainwright, 2011, p. 1301). For example, Marshall et al. (2011) showed how the
September 2007 run on Northern Rock resulted from the interplay between global finan
cial centres and peripheral financial hubs such as Newcastle, and then deepened develop
ment in the urban landscape; Pani and Holman (2013) showed how even localities at a
‘fictitious distance’ from (p. 547) global booms and busts—such as Norwegian municipali
ties—were entangled in the crisis owing to intertwined cross-border financial cash flows;
and Hendrikse and Sidaway (2014) showed how the German city of Pforzheim experi
enced crisis-linked losses due to derivative contracts it had signed with Deutsche Bank.
Another reaction to the financial crisis was registered in Lee et al. (2009, pp. 740–1) by
Leyshon, who asserted that ‘we need to know more about the geographies of asset cre
ation and destruction’, ‘the regulatory geographies of the global financial system’, and
the ‘geopolitical consequences of finance’. Following this lead, French et al. (2009) set out
a framework describing the compositional architecture of the crisis. These authors identi
fied four geographical spaces that had combined to generate the extraordinary force of
this sequence of events: (i) the international financial centres, especially London and New
York; (ii) the growth of insular financial practices that disregard the risks arising from
small-margin bets on highly leveraged asset positions; (iii) structural imbalances in the
global economy, especially the US–China linkage; and (iv) the growing power of financial
media in shaping ‘the behavior and culture of financial agents and institutions’ (French et
al., 2009, p. 287). As these authors observed, while this crisis marked one logical end of
the globalization of finance, it did not clearly indicate the end of global finance. They wor
ried that ‘the financial system may already be reinventing itself in the midst of crisis. …
[It] is highly likely that a new financial paradigm is already in the making’ (French et al.,
2009, p. 299).
But what paradigm? What if the restless dynamism of the financial system, its temporal
instability, is part of what defines it? How could the architecture of an unstable global fi
nancial system be described across space? Pollard signalled the need for understanding
time/space dynamics when she called (in the same Lee et al. (2009) essay) for analysis
that went beyond ‘the scientism of technical, purportedly objective metrics of liquidity,
rate of return, shareholder value and so forth’ (p. 738). But doing so would require mov
ing from the description of spatially differentiated structures to an understanding of how
these structures moved and combined in real time (Hall, 2013); it would also require mov
ing further away from the efficient-market approach to finance and even further in the di
rection of ideas about finance which Hyman Minsky had initially advanced in the 1970s,
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and which were ever more critical in comprehending the evolving shape of financial rela
tions and financial crises.
Minskyian Financial Instability in a Spatial

Context
Shifting from a description of how spatial structures of finance could generate unstable
dynamics to a spatial dynamics of unstable finance requires two steps. The first is to build
a model that unfolds the motion of unstable financial processes across time. The second is
to understand the spatial scope and logic of such a model. We consider these in turn.
The first of these steps requires a conscious break from the view that financial crises
arise from regulatory disturbances or informational barriers that prevent financial
processes from achieving socially optimal equilibria. Understanding a financial crisis as a
disturbance from an otherwise stable financial equilibrium rules out seeing it as one logi
cal end point of core (p. 548) financial processes. University of California, Los Angeles,
economist Axel Leijonhufvud (2014, pp. 761–2) put it this way:
… the economists who in the last 20 or so years have based their macroeconomics
on GE [general equilibrium] constructions have shown little interest in investigat
ing their stability properties. Stability has been taken ‘on faith’ … It is my belief
that this stability-with-impediments approach is quite wrong, that it does not ex
plain recent events, and that it fails to suggest the right policies.
The diagnoses of our current problems that we get from DSGE practitioners all tend to
run in terms of stable general equilibrium systems beset with ‘ “frictions”. …Walrasian
constructions, even those of recent vintage … are hopelessly inadequate for dealing with
financial crises and their aftermaths’ (Leijonhufvud, 2014, pp. 771–2).
Contributions to the geography of finance do not generally identify their degree of re
liance on efficient-market or equilibrium frameworks. Pollard (2003) had recognized some
years before that implicit reliance on efficient-market theory made it impossible to under
stand the credit starvation of small businesses as disequilibria, the result of imperfect re
al-time decision-making. This provides a start towards a larger-scale breakdown of sup
ply-demand relations, triggered by malfunctioning financial contracts and spreading to
the broader real-sector effects, but it does not go all the way. Establishing that disequilib
ria in individual markets could generate broader-based financial malfunctioning and
macroeconomic disturbances requires an analytical framework in which the level of ag
gregate demand can differ systematically from aggregate supply—that is, a Keynesian
macro-framework. At the behavioural base of this process is necessarily the assumption
that economic agents are irrational, or that some agents are misinformed and taken ad
vantage of by others, or that agents are operating with incomplete information sets. The
latter two assumptions set up ‘real-time’ decisional contexts, as opposed to the notional
time context required to establish stable market equilibria.
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Fortunately, real-time financial analysis rooted in a Keynesian macro-framework does not
have to be invented de novo. This approach constituted the analytical baseline of the
work of the Keynesian economist Hyman Minsky (1975, 1982). Minsky and his followers
were among the heterodox Keynesian economists who had been warning about financial
instability and crises for nearly three decades (see Galbraith, 2009). Hyman Minsky based
his theory of capitalist dynamics on the centrality of money and credit. He argued that a
defining characteristic of capitalist economies was chronic financial fragility due to the
tendency of debt commitments to outpace available cash flows over the business cycle.
Built up financial fragility would generate financial instability once debt/cash flow gaps
put downward pressure on financial market prices. Following Keynes, Minsky argued that
when the panic came, a run to liquidity would result.
Whether a financial crisis then ensues depends on whether the central bank and fiscal au
thorities in the affected nation acts as a lender of last resort (satisfying liquidity demand)
and undertakes counter-cyclical spending. Minsky encapsulated this ‘financial instability
hypothesis’ with his oft-repeated phrase, ‘stability is destabilizing’. In this ‘Wall Street
view’, financial crisis arises as part of the normal cyclical rhythm of capitalist economies.
This brings us to the second step noted earlier: linking this logic to the space of inter
linked global financial crises. Heterodox Keynesians have begun exploring how to adapt
Minsky’s nation state- and US-centric ideas about the crisis-prone trajectory of financial
ized (p. 549) capitalism to the case of globally interlinked crises in the neo-liberal era.
Consider Keen’s (2015, p. 298) summary of the heterodox Keynesian approach to crisis:
Post Keynesian economics has two complementary theories of crisis that were
used to predict the 2007 crisis and diagnose its causes: Minsky’s financial instabil
ity hypothesis and Godley’s stockflow-consistent approach. Both theories take a
monetary perspective on capitalism and argue that the dynamics of private debt
caused the crisis. …both theories imply that the current recovery will be short-
lived because the underlying cause of the last crisis has not been addressed by
subsequent economic policy.
Here, structural imbalances at the global level are combined with Minskyian dynamics to
form the heart of the analysis. Crisis is an expression of imbalances at the level of the
whole, driven by debt overloads and balance-sheet inconsistency. The stock-flow consis
tent approach makes it clear that imbalances across the globe—trade balances, savings–
investment balances, and government revenue–expenditure balances—inevitably arise,
and must equal zero as a matter of logic. What makes it Keynesian is a dual assertion:
firstly, each of the aforementioned couplets includes one of the elements of aggregate de
mand; secondly, when aggregate demand is not sufficiently high, across the globe, only
government action is capable of assuring that the required balance will not be forced by
global economic shrinkage—that is, crisis.8 In the heterodox view, then, falling levels of
investment or consumption due to financial market collapse will unbalance the set of in
teracting macro-imbalances and force downward shifts in economic activity unless an ex
ternal force (such as government stimulus) steps in. This is what Leijonhufvud (2014)
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meant in observing that mainstream models have failed to identify the balance-sheet re
cession. In the heterodox view, an analysis of a global economic crisis requires a global
structural perspective. Structural rigidities are not disturbances that must be overcome if
a more desirable market equilibrium is to emerge; they are the model.
Geographers have, until now, overlooked Minsky’s analysis of financial instability. There
are several reasons. Firstly, Minsky produced his opus before the geography of finance
came of age; and the papers he published prior to his death in 1996 were published al
most exclusively in heterodox economics journals. So while these journals frequently ref
erence Minsky’s touchstone concepts and often use ‘Minsky’ as a keyword, geography
journals do not. Underlying this lacuna, in turn, is the fact that Minsky’s ideas are rooted
in Keynes’ central ideas—that fundamental uncertainty, not probabilistic risk, underlies
investment (Keynes, 1936, Ch. 12), and that inadequate aggregate demand will trigger
stagnation (Keynes, 1936, Chs 2–4). And geographers have, to this point, engaged only
minimally with the core Keynesian concepts of fundamental uncertainty and independent
aggregate demand.9
A third reason is that Minsky himself did not write about how space and place might af
fect the dynamics or outcomes of financial instability. He was always focused on a stylized
depiction of financial instability and crisis, with the stages enumerated—from a robust to
a fragile to a Ponzi financial structure—purposely left loosely defined. These stages, by
design, could refer to an economic unit or to an economy as a whole; so the notions of
variations across space, or how this framework might change in national settings other
than the US, were not considered.
Conclusion: Debating Post-crisis Finance

(p. 550)
and Financial Instability

While geographers have clearly demonstrated that taking space into account can more
clearly identify the scale and scope of financial processes, the economic approaches to fi
nance on which much inquiry in the geography of finance implicitly relies have largely ig
nored its spatial dimensions. Mainstream theoretical and empirical models of financial
crisis abstract from space; the heterodox approach highlights imbalances across space
but is indifferent to which areas are experiencing imbalance and why. The seriousness of
this lacuna became evident when the subprime crisis exposed the fact that geographers
had largely ignored financial crises until then - as one manifestation of an overall break
down in the capitalist accumulation process (per Harvey). Closing this gap in the wake of
the subprime crisis will require a consideration, within the geography of finance, of how
financial instability plays out through time and in space.
In effect, what is needed is a spatialization of Minsky’s financial instability framework.

While some economists have explored this terrain (Dymski, 1999; Schroeder, 2002), a
fuller mapping depends on expanding the dialogue between geographers and heterodox
economists (Dymski, 2010), especially those who work with Minsky’s ideas. Meanwhile,
Page 13 of 22
ity
the importance of analysing instability more directly is evident in two open debates in the
geography of finance.
The first of these debates concerns the role of finance in mediating relations between the
global economy and national capitalist formations. If, as Sokol (2013) has suggested, geo
graphers of money and finance see ‘financialisation as an inherently spatial process—as
part of the search for spatial–temporal fix’ does global finance operate flexibly, so as to
permit several semi-autonomous ‘varieties’ of capitalist societies to coexist? Or does it in
stead operate as an empowered forcefield, breaking down whatever barriers any given
nation state or region attempts to place on its freedom of movement?
Geographers have expressed increasing doubts about the former view. For example,
Dixon (2010), hoping for a ‘common agenda’ between the geography of finance and vari
eties of capitalism, argued that the institutional mechanisms of financialization could be
usefully explored within the varieties-of-capitalism framework. But in a later paper, he
criticizes the latter literature for presuming that ‘function follows from form’ (Dixon,
2012, p. 279). Engelen et al. (2010) also critique the varieties of capitalism framework for
its ‘productivist’ approach to finance, and argue that geographies of financialization are
‘in disarray’. These doubts lead to an open question for further research: are the global
forces creating this disarray homogenizing global space, or do they undermine some na
tional differences while leaving variegated remnants of differentiation behind? French
and Leyshon (2010, p. 2549) pointed out the irony that while the financial crisis required
massive state intervention, ‘rather than developing a form of capitalism wherein the state
exerted more control over the economy it seems conversely to have heralded an age of
austerity and an emboldened form of hyper-neoliberalisation’. But what then are the spa
tial and temporal characteristics of this hyper-neoliberalism?
The second ongoing debate turns to whether global finance organized through financial
centres is a source of economic growth or instability and crisis. It was brought into focus
(p. 551) by Martin (2011), who emphasized the uneven regional impacts of the crisis in the
UK and the USA, and then argued that the costs of hosting a global financial centre may
outweigh the benefits. Martin et al. make a further argument: ‘spatial economic imbal
ance in the UK has to do with the progressive concentration of economic, political and fi
nancial power in London and its environs’ (2015, p. 1). Wójcik (2012, 2013) argues that
global financial centres have undercut effective regulation, both before and after the sub
prime crisis: ‘the global financial crisis 2007–09 originated to a large extent in the [New
York-London] axis rather than in an abstract space of financial markets … contrary to ex
pectations the axis is not in decline’ (Wójcik, 2013, p. 2736).
This debate also involves the question of how to understand financial centres’ spatial foot
prints. On one hand, Cook et al. (2012), elaborating a theme introduced by Thrift (1994)
and Leyshon and Thrift (1997), show how City of London insiders use cultural capital to
reproduce its social exclusivity. On the other, Taylor et al. (2009) identify twenty com
mand-and-control financial centres throughout the global economy; and Wainwright ar
gues that the subprime crisis hit as deeply as it did precisely because the growth of ‘com
Page 14 of 22
ity
munities of practice’, and expertise in peripheral regions (such as Leeds) linked by grow
ing network relations to financial hubs (London) helped to ‘expose British mortgage
lenders to the crash’ (2013, p. 1041).
In conclusion, Queen Elizabeth II could not accuse geographers, as she did mainstream
macroeconomic theorists, of being blind to the perverse financial dynamics that preceded
the subprime crisis. On the contrary, geographers had undertaken in-depth analyses of
key elements undergirding these dynamics—from the global spread of innovative finan
cial instruments and practices to the growth of subprime lending. But geographers did
have an analytical blind spot: their work paid almost no attention to the increasingly se
vere financial crises that dotted the globe prior to 2007. The few economists who did ‘see
it coming’ largely built on the fragility–instability framework of Hyman Minsky. We have
argued here that the problem of how to incorporate financial instability into spatial analy
sis is among the logical next steps for research in the geography of finance. Spatializing
the analysis of instability in finance, in effect, will shed further light on some open de
bates among geographers. In the two debates reviewed immediately above, the dynamic
of financial instability is present but not explicit. This is not to say that there is one clear
answer to the question of how space and financial instability are interrelated. Given the
plethora of institutional structures and regulatory regimes now characterizing financial
systems around the globe, it would be surprising if one analytical conclusion sufficed. But
the ongoing economic and financial crises clearly demonstrate the urgency of rendering
more visible the links between financial instability and the space of financial systems.
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Wainwright, T. (2011). ‘Tax doesn’t have to be taxing: London’s “onshore” finance indus
Wainwright, T. (2013). ‘Finance’s outsiders? Networks, knowledge and power beyond the
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Williams, P. (1978). ‘Building societies and the inner city’. Transactions of the Institute of
British Geographers New Series 3: 23–34.
Williams, R., Nesiba, R., and Diaz McConnell, E. (2006). ‘The changing face of inequality
in home mortgage lending’. Social Problems 52: 181–208.
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Wójcik, D. (2012). ‘Where governance fails: Advanced business services and the offshore
world’. Progress in Human Geography 37: 330–347.
Wójcik, D. (2013). ‘The dark side of NY–LON: financial centres and the global financial
crisis’. Urban Studies 50: 2736–2752.
Wyly, E.K., Atia, M., Foxcroft, H., Hammel, D.J., and Phillips-Watts, K. (2006). ‘American
home: predatory mortgage capital and neighbourhood spaces of race and class exploita
tion in the United States’. Geografiska Annaler 88B: 105–132.
Zook, M.A. (2002). ‘Grounded capital: venture financing and the geography of the Inter
net industry, 1994–2000’. Journal of Economic Geography 2: 151–177.
Zysman, J. (1983). Governments, Markets and Growth: Financial Systems and the Politics
of Industrial Change (Oxford: Martin Robertson).
Notes:
(1.) Aalbers (2005) has himself published work on mortgage redlining in Rotterdam.
(2.) Leyshon cites Lash and Urry (1987, 1994). Also see Corpataux et al. (2009).
(3.) Zysman’s work renewed the tradition pioneered by Gurley and Shaw (1955) and Ger
schenkron (1962).
(4.) One important exception is Corbridge (1984). Details on the method used and on the
journals included in this investigation are set out in Dymski and Shabani (2017).
Page 21 of 22
ity
(5.) Their framework falls into the category of multiple-equilibrium ‘sunspot’ models dis
cussed above.
(6.) A sunspot model can shift among multiple equilibria when market participants’ be
liefs change. This same mechanism underlies the ‘sudden stop’ model, which has been
used to explain sovereign debt crises (such as that in East Asia) that cannot be traced to
borrowers’ moral hazard.
(7.) Dymski (2011) reviews economists’ writings on international debt crises.
(8.) Significantly, IMF economists have developed and begun to explore DSGE macro-
models that pay attention to stock-flow-consistent linkages in global dynamics; see
Kumhof et al. (2010).
(9.) Storper (2011) and Bhattacharjea (2010) discuss the non-Keynesian basis of the New
Economic Geography.
Gary Dymski
Gary A. Dymski ([email protected]) is Professor of Applied Economics at the

Leeds University Business School, University of Leeds. Professor Dymski has pub
lished numerous books, articles, chapters, and studies on banking, financial fragility,
urban development, credit-market discrimination, the Latin American and Asian fi
nancial crises, exploitation, housing finance, the subprime lending crisis, financial
regulation, the Eurozone crisis, and economic policy. Between 2003 and 2009, Gary
served as founding executive director of the University of California Center Sacra
mento, the University of California’s academic public-policy programme in
California’s state capitol. He is currently co-leader of the Leeds University interdisci
plinary CITIES research initiative.
Page 22 of 22
The Global Financial Networks

Dariusz Wójcik
The chapter outlines the concept of the global financial networks, defined as networks of
the financial and business services firms, and their activities linking financial centres, off
shore jurisdictions, and the rest of the world. It is a concept that helps to map finance,
place it on the map of the world economy, and analyse the latter in a dynamic framework
accounting for the forces of globalization and financialization. At the core of the global fi
nancial networks lies the global network of securities centres, focused on the creation,
distribution, and circulation of securities, which contributed to the recent global financial
crisis. Major trends reshaping the global financial networks include the rise of regulation
and public finance, technologies connecting investors, borrowers and lenders with each
other, and a potential geo-financial shift towards Asia.
Keywords: financial centres, financial networks, offshore jurisdictions, globalization, financialization, business ser
vices, securities, regulation, geo-finance
The remit of financial geography

FINANCIAL geography can be defined as the study of the spatiality of finance, guided by
three basic questions. First comes the what question. What is the spatiality of finance?
What spatial forms, structures, and manifestations does finance take? This question is
about mapping finance in a broad sense of the word ‘mapping’. Second comes the why
question. Why does the map of financial phenomena look the way it does? How can we ex
plain the spatiality of finance? This question requires the study of the forces that shape
the spatiality of finance, including the behaviour of agents, as well as the investigation of
economic structures, institutions, and ideas. This implies that while finance is a funda
mentally economic phenomenon, of most importance to economic geography, social, polit
ical, and cultural geography are also indispensable for financial geography. Rational and
irrational behaviour, property laws, financial regulation, trust, and confidence are just a
few examples that make clear how central social, political, and cultural geographies are
for understanding finance. It should be stressed that financial geography is more than a
section of economic geography with elements of social, political, and cultural geography.
Page 1 of 21
It is about informing geography with understanding of finance. This ambition is best justi
fied with the so what question of financial geography. What are the consequences of the
spatiality of finance for the economy, society, and environment? As a type of capital and
incentive, finance is fundamental to economic growth and innovation. Its distribution as
capital and store of value is key to inequality, and its circulation is decisive for crises and
stability. Finally, relationships between financial, natural, and social capital are crucial to
environmental and social sustainability.
Beyond the contours of geography as a discipline, financial geography is also about in
forming economics and other social sciences with understanding geography. If financial
economics, as a field of economics most directly concerned with finance, dealt with the
spatiality of finance effectively, we would not need financial geography. In reality, howev
er, mainstream economics, to which financial economics very much belongs, fails to con
sider space in finance. According to mainstream economics, financial systems channel
funds (p. 558) effectively and efficiently from utility-maximizing savers to borrowers, using
costless and symmetric information, and engaging in frictionless transactions in the con
ditions of perfect information. As a result, funds simply flow to best projects regardless of
location, rendering the spatial structure of a financial system irrelevant (Mishkin, 2006).
In a much more realistic, but difficult-to-model, world of economic and financial geogra
phy, savers and borrowers act in conditions of uncertainty and imperfect competition, us
ing costly and asymmetric information (with lenders knowing less than borrowers about
the projects for which money is borrowed), and incurring high transaction costs. What ob
tains is a financial system with an ‘over-accumulation of credit (debt) and investment in
one period, sector of the economy, or geographical location, and under-accumulation in
others’ (Klagge and Martin, 2005, p. 394). In its critique of mainstream economics and fi
nancial economics, financial geography can find allies in heterodox economics, including
the behavioural, institutional, Marxian, and post-Keynesian strands, political economy of
finance, sociology and anthropology of finance, legal studies of finance, and—not to be
forgotten—the history of finance.
Within financial geography such defined, this chapter focuses on financial centres and
networks as the key spatial manifestations of finance. Just as pyramids are the symbols of
many ancient civilizations, and cathedrals are associated with medieval Europe, the sky
scrapers decorating the skylines of largest cities are arguably the main symbol of the
twentieth- and early-twenty-first-century capitalism. The main tenants and often owners
of the skyscrapers are financial and related firms piled on the top of each other in a quin
tessentially geographical pursuit of maximizing their centrality, an economy-wide outlook,
and proximity to the commanding heights of the economy. Financial centres will hereby
be defined simply as concentrations of financial organizations and their activities. Finan
cial organizations consist of financial firms and public financial institutions, such as cen
tral banks and regulatory agencies. Our definition of financial firms will, however, be ex
tended beyond financial services firms to include business services (services firms serv
ing other firms) in accountancy, law, business consultancy, recruitment services, and in
formation technology (IT) services related to financial services (Dicken, 2011). As such
we will refer to them as financial and business services (FABS). Financial networks will
Page 2 of 21
be defined as networks of FABS activity linking financial centres, offshore jurisdictions,

and the rest of the world. This chapter is about financial centres, relationships between
them, their place in financial networks, and the position of financial networks in the glob
al economy. It is about what financial centres and networks are, why they exist, and what
implications they have for global finance and economy.
Placing Finance in Economic Geography

Let us first outline the broad structure of finance, focused on different types of financial
products or instruments, and markets (Figure 29.1). To start the list of financial products,
there are basic assets, either tangible, such as cash, real estate, plant, and machinery, or
intangible, such as the value of patents or brands. Loans represent more sophisticated as
sets, as they give the lender the right to a stream of payments from the borrower. Securi
ties are yet more sophisticated as they give the owner the right to a stream of payments
linked to an underlying asset or assets. In case of equity securities (shares), they offer a
share of profit (p. 559) from a company. In case of debt securities such as bonds, they of
fer a predetermined stream of payments from the general revenues of the borrower (is
suer), whether these are corporate revenues or tax revenues of a government. Securities
can be created from basic assets, loans, or other securities. Wherever there is a more or
less predictable stream of payments, it can be securitized (Leyshon and Thrift, 2007). It
can be a bond based on royalties predicted from copyrights to music. It may be a set of
mortgage loans, repackaged into a mortgage-backed security. Or it could be a set of secu
rities backed by mortgages and other types of loans repackaged into a collateralized debt
obligation. As we move from basic assets, through loans to layers of securities, the level
of financial abstraction and financial engineering grows. The highest level of innovation is
achieved with derivatives, such as futures, options, and swaps, which entitle the owner to
payments depending on the future value of underlying assets or securities. These can be
used to hedge production or investment activities or speculate. Just as the ‘genius’ of se
curities is that one can share in the gains of the issuing company, without owning a share
of each asset of the company, the ‘genius’ of derivatives is that one can benefit from the
movement of prices in the underlying financial instruments without owning them.
Page 3 of 21
Figure 29.1 The Structure of Finance.
Source: author.
After they are first created (issued) in primary markets, financial instruments can be trad
ed in secondary markets. The tradability differs from instrument to instrument. Gold and
foreign exchange, for example, are easier to buy or sell than a house. The invention of se
curities and derivatives has a lot to do with the demand to make financial instruments
easier to trade (make them more liquid). Equities mean that you can trade rights to cor
porate profits without trading actual assets of the company. Derivatives can also be trad
ed without trading the underlying assets. After the values of financial instruments are
first set in primary markets, they can change constantly in secondary markets.
The third building block of the world of finance that complements primary and secondary
markets are financial vehicles—containers that hold assemblages of financial instru
ments. These include companies themselves, containing tangible and intangible assets to
produce goods and services, holding companies that hold the controlling equity stakes in
other companies, and investment funds and trusts, which hold and trade financial instru
ments to produce returns for their beneficiaries. Financial vehicles have to be registered
somewhere and be subject to laws and regulations of a jurisdiction. In addition to assets,
which they own (p. 560) and in which they invest, they have to have clearly identified
sources of funding, referred to as liabilities. To be sure, a liability of one vehicle can be an
asset of another. For example, stocks or bonds issued by one company, when sold, be
come assets of another company or an investment fund. As such, financial vehicles are fi
nancial, legal, and accounting abstractions superimposed on each other (Wójcik, 2013a).
Page 4 of 21
Figure 29.2 The Map of Finance.
Source: author.
The three-part structure of finance can be translated into a map (Figure 29.2). Although
not distributed evenly, assets, including real estate, potential borrowers (individuals and
companies), and potential issuers of securities (companies and governments), are scat
tered all over the world. In contrast to relatively dispersed primary markets, secondary
markets concentrate in financial centres. Proximity to each other gives financial firms in
these centres better access to non-standardized, tacit knowledge relevant to trading. If
buy-and-sell orders are matched or even generated by computers, professionals creating
orders and programming computers to generate them still need access to such informa
tion and benefit from proximity to other professionals in secondary markets. Their con
centration spreads the costs of trading infrastructure, such as high-speed fibre-optic com
munication networks, and contributes to a large and deep pool of labour, attractive to
both finance professionals and their employers. Being centres of financial expertise, fi
nancial centres are also centres of financial innovation, creating new types of securities,
derivatives, and other financial instruments. As information relevant to secondary mar
kets is also highly relevant to primary markets, and large financial firms typically provide
services in both types of markets, financial centres are also key centres for the manage
ment of primary market transactions.
Financial vehicles have a distinctive geography. As legal and accounting abstractions,

they can be registered in a place different than the place of the sponsor—an individual or
a company that creates a financial vehicle. We will refer to these places as offshore juris
dictions. Registration in an offshore jurisdiction takes place because the sponsor wants
the financial vehicle, its activities, and proceeds to be subject to different laws, including
tax laws, and regulations than those prevalent in the jurisdiction where the sponsor itself
resides or is registered. As an example, consider a company operating in Central and
Eastern Europe but owned by a holding company registered in the Netherlands or
Switzerland; a hedge fund operating in London or New York, registered in the Cayman Is
lands; or a trust containing the wealth of a family living in London, registered in the
Channel Islands. To be sure, not all financial vehicles are registered offshore. Millions of
existing offshore companies and investment funds, however, warrant offshore jurisdic
tions a place on the map of finance. We use (p. 561) the term offshore jurisdiction rather
Page 5 of 21
than tax haven or offshore financial centre. These places are not only about tax, but also
about other laws and regulations that offer financial vehicles more flexibility in interna
tional operations or secrecy (Palan et al., 2010). In contrast to financial centres, their at
traction lies in jurisdictional autonomy, rather than in being centres of finance profession
als or expertise. While jurisdiction comes with state sovereignty, the latter is not neces
sary for an offshore jurisdiction. The state of Delaware, for example, can function as an
offshore jurisdiction within the USA, attracting thousands of business incorporations, be
cause US states have a high degree of autonomy in corporate law. Hong Kong can func
tion as an offshore jurisdiction within China, owing to its separate legal system. Hong
Kong also provides an example that a place can serve both as a financial centre and an
offshore jurisdiction, as these categories are not mutually exclusive.
What joins financial centres, offshore jurisdictions, and the rest of the world together are
FABS. With financial services firms in the lead, this sector includes law and accounting
firms. These are necessary to operate financial vehicles as legal and accounting con
structs, as well as to design and manage contracts underpinning financial transactions.
Relevant business services also include management consultancies, recruitment agen
cies, and IT firms. Financial transactions such as mergers and acquisitions involve corpo
rate restructuring. Financial services, particularly at the high-finance, wholesale end,
have high employee turnover, and are some of the savviest users of information and com
munication technology. The complexity of the financial sector and its activities thus gen
erate demand for related business services. FABS firms, headquartered mainly in finan
cial centres, link financial centres with the rest of the world through their networks,
reaching places that offer opportunities to manage financial assets, grant loans, and con
duct securitization of existing assets and loans (Taylor, 2004). Crucially, FABS also link fi
nancial centres and the rest of the world with offshore jurisdictions. For example, a
wealthy individual from Texas or Russia keen on minimizing their tax obligations is not
going to choose a financial vehicle and offshore jurisdiction by visiting a number of
Caribbean or other island states. Rather, they would approach one or more financial, le
gal or accounting firms and choose from a menu of options presented by them. To devel
op such options and service clients, large international FABS firms often maintain branch
es in offshore jurisdictions.
The next step in our framework is to fit this conceptual map of finance into a map of the
global economy (Figure 29.3). To conceptualize the map of the world economy, we will
use the global production networks (GPN) approach, according to which regional devel
opment is the outcome of the strategic coupling process between transnational corpora
tions (TNCs) and territories (Henderson et al., 2002). The approach relies on the tradi
tional focus of economic geography on the firm–territory nexus (Dicken and Malmberg,
2001), but it puts regional development in a truly global context, recognizing the power
of TNCs and their supply chains and networks. To be sure, TNCs and territories interact
through a multitude of formal and informal institutions operating at international (e.g.
World Trade Organization), national (e.g. national laws and regulations), and local levels
(including business customs). The firm–territory nexus is key to establishing the corre
spondence between the map of world finance and the GPNs. FABS are obviously on the
Page 6 of 21
firm side (Coe et al., 2014). They are among the world’s most globalized and networked
companies, and perform important functions intermediating between other TNCs and ter
ritories. In order to expand internationally and manage their supply chains, TNCs hire
FABS firms to help them raise capital, understand foreign laws, regulations, and markets,
as well as hire foreign labour. Governments (p. 562) representing territories also hire
FABS to help them attract TNCs directly or create conditions making their territories at
tractive to TNCs. FABS influence the institutional interface between TNCs and territories,
as they provide experts to shape international accounting rules, trade and investment
treaties, and so on. Offering knowledge, FABS affect the very way that TNCs and govern
ments think about the world economy. Consider that the concepts of BRICS (Brazil, Rus
sia, India, China, and South Africa), emerging economies, shareholder value, and value at
risk were all invented and/or popularized by FABS (Wójcik, 2012). Financial centres and
offshore jurisdictions represent special types of places. What distinguishes them from the
rest of the world is their centrality to the world of finance. By consequence, they may
have more in common with each other than with other places with which they coexist as
part of nation states. If we scan the map of the world, we find that the wealthiest
economies in terms of gross domestic product per capita, other than resource-rich coun
tries, include Switzerland, Ireland, Luxembourg, Liechtenstein, Bermuda, Singapore, and
Hong Kong, which clearly built their fortunes to a large extent as financial centres and/or
offshore jurisdictions.
Figure 29.3 Finance in the Global Economy.
Source: author, based on Coe, Lai, and Wójcik (2014)

published by Taylor & Francis Ltd.
www.tandfonline.com.
In analogy with GPN, we could refer to the conceptual map of finance, as global financial
networks (GFN), defined as networks of FABS activity linking financial centres, offshore
jurisdictions, and the rest of the world. Put together, GPNs and GFNs offer a schematic to
understand the world transformed by arguably two of the most important economic phe
nomena of the last decades: globalization and financialization. Indeed, in the light of the
framework the latter could be described as the growing significance of FABS, financial
centres, and offshore jurisdictions in the world economy. While, the framework is simpli
fied, two final examples should make clear how central GFNs are to GPNs and under
Page 7 of 21
standing the map of the world economy. Firstly, a study of over 43,000 companies operat
ing in more than one country showed that nearly 40 per cent of the value of these compa
nies is controlled by a super-core of 147 companies, which have almost complete control
over themselves, and three-quarters of which are financial companies (Vitali et al., 2011).
Another series of studies demonstrates that 30 to 50 per cent of the global stock of for
eign direct investment (FDI) (p. 563) is found in offshore jurisdictions. Moreover, offshore
FDI is as important to emerging and developing economies as it is for advanced
economies (Haberly and Wójcik, 2014).
The Global Network of Securities Centres

FABS are all at the heart of the GFNs, but different types of FABS play slightly different
roles. While financial services provide both expertise and capital (or intermediate in its
provision), business services provide only expertise. Financial services firms are typically
much larger than firms in any type of business services. The securities industry arguably
represents the elite of financial services. The industry is involved in the production, distri
bution, and circulation of securities and derivatives, and consists of the sell side, serving
the issuers of securities (companies and governments), and buy side, serving the buyers
of securities (individual and institutional investors). The sell side is sometimes referred to
as investment banking, and the buy side as asset management. Institutionally, the indus
try is made of securities departments or subsidiaries of universal banks (e.g. Citigroup or
Deutsche Bank) or specialized securities firms (e.g. Goldman Sachs or Morgan Stanley,
hedge funds, or investment consulting firms). Serving corporations, governments, and in
vestors, securities firms are privy to the most valuable information in capital markets
(Morrison and Wilhelm, 2007). Their elite character is reflected in salaries and bonuses
much higher than in any other financial or business services, job titles (with vice presi
dents, senior vice presidents, directors, managing directors, etc.), and prestigious office
locations. This section will focus on the securities industry, its geography (the what ques
tion), as well as the mechanisms explaining this geography (why) and its implications (so
what), in a series of five propositions (Wójcik, 2011).
The first proposition is that the process of securitization, understood as the growth in the
volume and value of securities, involves an institutional and geographical dispersion of
asset (including corporate) ownership. The objective of a company issuing stocks or
bonds, or a bank converting loans into securities, is to raise as much capital from in
vestors as possible, which requires selling securities to a large number of investors. As
there are limits to how many investors can be found in any one place, institutional disper
sion has to be complemented with geographical dispersion, with securities sold in as
many places as possible. This spatial dispersion or expansion is thus in the ‘DNA’ of secu
rities markets. Take Dutch East India Company, the world’s first company that issued
shares, as an example. The Company was chartered in 1602, and its start-up capital was
collected in Amsterdam and five other port cities of today’s Netherlands. The Company
listed on the Amsterdam Stock Exchange, raised more capital, and extended its owner
ship basis to over 1000 shareholder over the next twenty years, including investors from
Page 8 of 21
today’s Belgium and Luxembourg, as well as many immigrants from other countries (de
Vries and van der Woude, 1997).
Securitization implies not only the growth of the securities markets, but also the securi
ties industry that serves them. Firstly, there is a growing demand for ‘match-making’,
with intermediaries connecting an increasing number of investors from an increasing
number of places with issuers (in primary markets), and with each other (in secondary
markets). Secondly, there is growing demand for intermediaries addressing information
asymmetry and agency problems amplified by institutional and geographical dispersion of
asset ownership. Recall that information asymmetry means that borrowers or users of
capital know (p. 564) better how they are going to use the capital than lenders or in
vestors. Agency problem involves the risk that the user of capital (e.g. the manager of a
company) will use funding against the interests of investors, for example by hiring ineffi
cient subcontractors related to the manager. Information asymmetry and agency prob
lems apply to small and remote investors in the most acute form as such investors have
limited means and face high costs of gathering information and undertaking action to mit
igate these risks. This implies that as securitization unfolds and with it the institutional
and geographical dispersion of ownership, information and agency problems grow as
well, and so does demand for an industry to deal with them, including equity analysts and
investment advisors. In a typical fashion for financial services, the securities industry also
generates work for business services, including securities lawyers, audit and due dili
gence services, and corporate governance rating agencies and consultancies. In line with
galloping securitization, the securities industry has experienced a huge boom in the last
few decades. Its share (excluding related business services) in total US employment grew
from 0.3 per cent in 1978 to 0.8 per cent in 2008, and its slice of total payroll in the same
period increased from 0.5 per cent to 3.6 per cent. In France, Germany, and the UK, em
ployment in the securities industry grew by over 50 per cent between 1998 and 2008, in
comparably more than in other parts of the financial sector (Wójcik, 2012).
The third and fourth propositions can be considered in tandem. The third is that securi
ties firms benefit from co-location, forming securities centres. The fourth is that these se
curities centres are also important concentrations of corporate headquarters and in
vestors. Proximity among securities firms, issuers, and investors matters both in primary
and secondary markets. Take an initial public offering as an example of a primary market
transaction. An issuer needs a trustworthy investment bank to price and underwrite its
securities. The bank needs to engage closely with both the issuer to be able to judge its
business prospects and key potential investors to judge the demand for the issue. Invest
ment banks often form syndicates to promote an initial public offering. Proximity helps all
these interactions. For secondary markets, consider the case of HSBC, with its shares list
ed and traded on exchanges in Hong Kong, London, and New York. Despite the fact that
HSBC operates in all time zones, and has over 200 thousand shareholder in more than
100 countries, price discovery for the HSBC shares is concentrated in London, the seat of
the bank’s headquarters, home to most of its decision makers and key business relation
ships. This is where the most strategic and sensitive information about HSBC is available
from, with markets in Hong Kong and New York mostly just following the price move
Page 9 of 21
ments on the London market (Wójcik, 2011). Co-location of securities firms, and corpo
rate and investors’ headquarters also contributes to and is affected by access to special
ized labour market for finance and business professionals, and access to specialized infra
structure. In its pursuit of proximity, and agglomeration benefits, securities industry is
much more concentrated spatially than other parts of the financial sector. New York MSA,
for example, accounted for over 25 per cent of US employment in the securities industry
in 2008, compared with approximately 7 per cent in credit and insurance. In the same
year, the securities industry accounted for over 34 per cent of total payroll in Manhattan,
compared with a 12 per cent share of credit, insurance, and real estate. In 1978 the pro
portions were 6 to 16 per cent. We might even say that Manhattan has evolved from a
general financial centre to a securities centre (Wójcik, 2012). (p. 565)
Table 29.1 The Global Network of Morgan Stanley
Americas Europe, Middle East, Africa Asia-Pacific
New York, NY London (UK) Hong Kong (China)

Atlanta, GA Amsterdam (the Netherlands) Beijing (China)
Baltimore, MD Budapest (Hungary) Bangalore (India)
Boston, MA Dubai (United Arab Emirates) Bangkok (Thailand)
Boca Raton, FL Dublin (Ireland) Hanoi (Vietnam)
Chicago, IL Frankfurt (Germany) Jakarta (Indonesia)
Houston, TX Glasgow (UK) Melbourne (Aus
Los Angeles, CA Istanbul (Turkey) tralia)
Menlo Park, CA Johannesburg (South Africa) Mumbai (India)
Miami, FL Madrid (Spain) Labuan (Malaysia)
Purchase, NY Milan (Italy) Manila (Philippines)
San Francisco, CA Moscow (Russia) Seoul (South Korea)
Washington, DC Paris (France) Shanghai (China)
West Conshohock Riyadh (Saudi Arabia) Singapore (Singa
en, PA Stockholm (Sweden) pore)
Buenos Aires (Ar Tel Aviv (Israel) Sydney (Australia)
gentina) Warsaw (Poland) Taipei (Taiwan)
Calgary (Canada) Zürich (Switzerland) Tokyo (Japan)
Lima (Peru)
Mexico City (Mexi
co)
Montreal (Canada)
São Paulo (Brazil)
Vancouver (Canada)
Toronto (Canada)
Source: Author, based on information from morganstanley.com as of 3 August 2016.
Page 10 of 21
The fifth and final proposition is that while issuer- and investor-specific knowledge is im
portant to securities firms, so is global knowledge on exchange and interest rates, and
macroeconomic and sector-wide trends. The necessity of combining local knowledge from
different places with global knowledge pushes securities firms to create extensive inter
national branch networks. As for any other FABS, the creation of these networks is also
related to the fact that their main customers operate globally, and need global service
providers (Sassen, 1991). Morgan Stanley, a leading securities firm, with focus on invest
ment banking, is a good example of such a global network (Table 29.1). Morgan Stanley
has over fifty offices, with global headquarters in New York, and regional ones in London
and Hong Kong, the main financial trading hubs of the three major time zones. Its pres
ence in Menlo Park (Silicon Valley) and Tel Aviv is likely to be driven by access to cus
tomers in primary markets, as these places are concentrations of high-technology firms
and venture capital. Its presence in Baltimore and Boston may be related to the presence
of large institutional investors (such as T. Rowe Price and State Street, respectively). Its
presence in Amsterdam, Dublin, Hong Kong, and Singapore is also influenced by the fea
ture of these places as offshore jurisdictions, (p. 566) attracting the establishment of fi
nancial vehicles, which need the services of securities firms and related business ser
vices. Put together, firms like Morgan Stanley, through their networks of offices, and both
intra- and inter-firm transactions link securities centres, giving rise to a global network of
securities centres. This network can be seen as a type or a part of the GFNs, one that is
at the centre of the GFNs owing to its privileged access to the most sensitive and strate
gic financial information. Similar networks could be drawn for credit banking, insurance,
accounting, and other types of FABS. The borders between these networks are fuzzy ow
ing to the very nature of FABS. Many of the largest banks perform both credit and securi
ties industry functions. Big Four companies engage in accounting and legal services (in
cluding tax advisory), as well as securities transactions. Initial public offerings and merg
ers and acquisitions and many other transactions involve securities firms, accountancy,
and law and management consultancy firms, cooperating with each other on the same
deals. This complex, interrelated nature of FABS justifies their treatment as a group un
derpinning financial centres.
The Global Financial Networks in History

While we have outlined the development of the global network of securities centres, we
need to elaborate on the evolution of the GFNs as a whole. One way to analyse the dy
namics of the GFN is to chart the history of financial instruments and markets, from
which the GFN framework is derived (Figure 29.1). While coins and trade credit have ex
isted since ancient times, bank loans and the first securities in the form of government
bonds, first emerged in Italy in the thirteenth/fourteenth centuries (Kindleberger, 1984).
These financial innovations coincided in time and place with accounting and legal inven
tions of double-entry bookkeeping and limited liability (Braithwaite and Drahos, 2000),
which, in turn, laid the foundations for the development of joint stock companies as finan
cial vehicles. The Dutch East India Company, as the archetypal early joint stock company,
was instrumental in developing the Amsterdam Stock Exchange. While simple deriva
Page 11 of 21
tives, like forward and futures contracts on physical commodities, were traded already in
seventeenth-century Amsterdam, the first derivatives exchanges were created in the US
in the nineteenth century, and the first derivatives on financial instruments such as inter
est rates were invented in the 1970s (Bernstein, 2007). Further advancements in the use
of financial vehicles in the form of trusts and holdings companies, which enabled new
forms of investment management and industrial consolidation, came in the nineteenth
century (Geisst, 1997). The key message from charting the evolution of financial instru
ments is that it involves the history of financial, as well as legal and accounting, innova
tion, justifying the focus of the GFN framework on financial, legal, and accounting ser
vices.
Another way to approach the history of the GFN is by focusing on its spatial elements
(Figure 29.2). With regard to financial centres we can think about the well-documented
succession from Amsterdam, as the world’s leading centre in the seventeenth and eigh
teenth centuries, to London, taking over in the nineteenth century, and challenged by
New York in the twentieth century (Arrighi, 1994; Cassis, 2006). Moving to FABS, we can
consider the succession of securities firms as leading financial firms of their times, from
Hope & Co. merchant bank serving the Dutch East India Company, to Barings and Roth
schild, as the (p. 567) most powerful merchant banks of nineteenth-century London,
through JP Morgan dominant in the late nineteenth and early twentieth centuries in New
York, all the way to Morgan Stanley and Goldman Sachs, leading investment banks of the
mid- to late twentieth and early twenty-first centuries. To be sure, the fortunes of finan
cial centres and leading firms are closely interrelated. Hope & Co.’s success was built
partly on its expansion in London, JP Morgan had its roots in London’s JS Morgan, while
Rothchild’s inability to develop US operations brought an end to its dominance in high fi
nance (Ferguson, 1998).
Offshore jurisdictions have a shorter history, as they developed mainly in response to

stricter financial regulation introduced in the twentieth century, creating incentives for
sponsors to place financial vehicles beyond the reach of their home country’s laws and
regulations. The absolute majority of offshore jurisdictions emerged in former British
colonies, with Bermuda, the Cayman Islands, and the British Virgin Islands in the lead, of
fering British and UK-based sponsors a common language and law combined with low lev
els of taxation and regulation, and high levels of secrecy, giving rise to what some re
ferred to as ‘the second British empire’ (Palan et al., 2010). London itself became the co
ordinating centre of offshore finance, complemented by its functions as the centre of Eu
rodollar markets (Strange, 1986; Shaxson, 2011). The US-sponsored offshore network im
itated the British one, focusing on the Caribbean islands, and former US colonies like
Panama. A new offshore sub-network has developed since the 1990s, serving Eastern Eu
ropean sponsors, with Cyprus as the primary offshore jurisdiction (Haberly and Wójcik,
2014). Finally, the youngest sub-network, serving mainly Chinese sponsors, emerged in
the 2000s, with Hong Kong, Singapore, the Cayman Islands, and the British Virgin Is
lands as the leading offshore jurisdictions. Notwithstanding the role of former British
colonies, London, common law, and the English language, it should be noted that leading
offshore jurisdictions connecting the British, US, Eastern European, and Chinese net
Page 12 of 21
works include Luxembourg, Switzerland, and first of all the Netherlands (alongside the
UK and the British Virgin Islands). In a perverse way, the action of Organisation for Eco
nomic Co-operation and Development (OECD) and other organizations against tax havens
and money laundering since the late 1990s has reinforced the position of offshore juris
dictions that are OECD members, while undermining the position of smaller and weaker
jurisdictions (Sharman, 2006).
What the histories of financial centres, FABS, and offshore jurisdictions have in common
is growing interconnectivity. Arguably, today’s landscape of financial centres can be char
acterized not by the dominance of a single financial centre, but rather the centrality of
the New York–London axis, itself part of a dense network of financial centres (Wójcik,
2013b). The corporate supercore made of financial firms controlling a big chunk of all
TNCs in the world demonstrates the complex network of FABS and GPNs. Recent re
search on offshore FDI also presents a very dense network of connections (Haberly and
Wójcik, 2014, 2015). Overall, the history of the GFN is the history of leading financial
firms, centres, and offshore jurisdictions co-evolving in a changing context of the global
economy.
To place the evolution of the GFNs in a broader political and economic context, let us fo
cus on the shift from Fordism to flexible accumulation of the last half century, when con
temporary GFNs have become fully formed. Fordism describes a regime of accumulation
in the period from the end of World War II to the mid-1970s, characterized by mass pro
duction of standardized goods dominated by large, vertically integrated companies, ex
ploiting internal economies of scale. The key to the regime’s maintenance was a compro
mise between workers and corporate owners, manifested in collective wage bargaining,
and underpinned (p. 568) by welfare state, following the Keynesian economic principles of
full employment and control over cross-border financial flows (Glyn et al., 1991; Webber
and Rigby, 1996). Put simply, Fordism can be characterized as a system of social relations
featuring big government (with large public sector and significant state ownership of in
dustry), big labour (with strong unions), and big business, sheltered to a large extent
from disruptive external influence by a supranational framework aimed at economic sta
bility through regulation of exchange rates, international trade, financial markets, and de
velopment assistance (Figure 29.4a). Elements of the new regime of ‘flexible accumula
tion’ emerged in the 1970s in response to the crisis of Fordism and its rigidities, includ
ing the power of trade unions, the oligopolistic corporate sector, and large public sector,
which together exacerbated the problems of the high inflation (a wage price spiral) of the
1970s, and contributed to relatively low levels of innovation (Galbraith, 1975; Gertler,
1988; Harvey, 1988). The transition to the new regime was accompanied by a shift in the
focus of domestic macroeconomic policy from full employment and demand management
to monetary policies (low inflation even at the expense of higher unemployment); the
downsizing of the public sector through privatization; and increasing emphasis on com
petitiveness both domestically and internationally. In industry, focus on internal
economies has been replaced with that on external economies, involving a re-agglomera
tion of production in selected areas (shifts from Rust to Sunbelts), with active evasion of
labour pools dominated by the Fordist industry (Scott, 1988). In short, with the shift to
Page 13 of 21
flexible accumulation, ‘big’ business, labour, and government have all become more flexi
ble (Figure 29.4b).
Figure 29.4 (a) Fordism and (b) Flexible Accumula

tion.
Source: author.
While the history of post-Fordism has been hotly disputed (Tickell and Peck, 1992), little
attention has been paid the role of FABS in helping business, labour and government,
(p. 569) and the whole economy become more flexible and overcome the rigidities of
Fordism. To corporations FABS offered an option to outsource central coordinating func

tions to obtain specialist advice on business opportunities and threats in a globalizing
world (Sassen, 1991; Massey, 1995). A disciplining impact of FABS on corporations came
with the growing role of capital markets, putting companies across different industries
and increasingly across countries in direct competition for capital (Clark and Wójcik,
2007). In relation to labour, FABS not only offered new opportunities to match highly
skilled labour with employers, but also a chance for managers to outsource the burden of
downsizing labour. In relation to government FABS promised a flexible and competitive
way of evaluating economic performance, thus contributing to the perceived viability of
self-regulation as a substitute to regulation by government. Technology has also been a
key factor elevating the role of FABS. As Wood (1991, p. 163) argued, ‘The implementa
tion of new technologies, and of new forms of business organization, supporting what
Harvey characterises as “time-space compression”, have placed an even greater premium
on expertise. This is increasingly being made available through independent organiza
tions, in the business services sector’. In sum, FABS have been the core of technocracy in
a globalizing world economy (Strange, 1986). Their growth, particularly since the 1970s,
has been explosive (Figure 29.5).
Page 14 of 21
Figure 29.5 The Share of Financial and Business

Services in Total Employment.
Source: author based on data from Oxford Econom

ics.
Beyond the Perfect Storm

Since 2008 the global financial system has experienced a perfect storm. Many financial
markets have shrunk, including those for initial public offerings and securitized debt.
Banks have suffered from a bad reputation, following their contribution to the subprime
crisis, and investigations into market abuses, including assistance with tax evasion and
money laundering, and manipulation of interest rates and foreign exchange rates. In re
sponse to the crisis, (p. 570) governments have been rolling out new financial regulations
at a rate unseen in history, multiplying compliance costs for financial firms. At the same
time, the march of new financial technologies continues, offering new forms of electronic
trading, and platforms connecting borrowers and lenders directly, bypassing financial in
termediaries. These forces challenge the established business models of financial firms,
the global financial governance, and all elements of the GFNs.
The financial services sector has lost a large number of employees in advanced
economies. In the USA and the UK, the losses between 2008 and 2013 may have reached
as much as 10 per cent (Wójcik and MacDonald-Korth, 2015). Other business services
have suffered less, if at all, as they are much less cyclical than finance. Accounting ser
vices are necessary in good and bad times, while demand for corporate legal services
even grows with pressure to comply with mounting regulation and lawsuits. Demand for
new technologies that would help financial firms reduce labour costs, has also remained
buoyant. New forms of electronic or digital finance, including electronic trading, crowd-
funding, and mobile banking, imply a potential sea change, particularly in retail finance
(O’Brien and Keith, 2009). This means that financial IT services are becoming more cen
tral to finance, and the whole FABS complex. It also means that IT giants like Google,
Amazon, or Alibaba could expand their retail financial services, changing the structure
and hierarchy of FABS. In wholesale finance, where large customers (issuers and in
vestors) and large customized transactions, with a lot of strategic and sensitive informa
tion, are involved, technology may be less likely to cause a revolution. As a consequence,
Page 15 of 21
securities firms are likely to remain the elite of FABS in the near future. A shift, however,
might take place within the securities industry, as investment banks, directly associated
with the subprime crisis, and implicated in recent scandals, find themselves under much
more regulatory pressure than asset managers. The pressures include limits on propri
etary trading, higher capital requirements, separation from retail banking, and restric
tions on bonuses, just to name a few. Asset management has thus far attracted much less
regulatory scrutiny, has kept growing in terms of employment and revenues, and has a
much better reputation, legitimized inter alia with its mission to help governments and in
dividuals manage longevity risk. Symbolic and symptomatic in this respect is the demise
of the chief executive officers (CEOs) of investment banks, and the rise of Larry Fink, the
CEO of Blackrock, the world’s largest asset manager, with nearly US$5 trillion assets un
der management, as one of the most celebrated CEOs in the world. We might even specu
late whether Blackrock is not already overtaking Goldman Sachs, as the world’s most in
fluential financial company.
Trends within FABS may translate into a changing landscape of financial centres. The rise
of new financial technologies (fintech) raises questions about the location of firms carry
ing out these activities. In the last decade eastern New Jersey, west of Manhattan, has
risen as a centre of IT infrastructure generating and executing orders in financial mar
kets. San Francisco and Silicon Valley are a major source of fintech coming from both
small and big firms. In Europe, London is the major centre of fintech, and Hong Kong
makes efforts to attract the industry. India might also be seen as a prospective contestant
in fintech, with leading firms such as Goldman Sachs and Blackrock already employing
thousands of people in IT operations in Bangalore and Gurgaon, respectively. The shift
from sell side to buy side may privilege financial centres specializing in the latter, includ
ing Boston and Munich.
While new technologies make financial transactions cheaper, new regulation tends to
make them more expensive. This applies particularly to cross-border transactions, lead
ing (p. 571) to claims that the world is experiencing financial de-globalization or balka
nization (The Economist, 2014). With many financial firms focusing increasingly on do
mestic markets (see Royal Bank of Scotland, Barclays, ING), this raises the question
about the concentration of financial activities at different scales. Early research into this
issue indicates that foreign exchange trading, for example, has witnessed an acceleration
of concentration in London and New York, driven mainly by growing institutional concen
tration of this activity in a handful of largest banks (Wójcik et al., 2017). At a national lev
el, in the UK we have seen an unprecedented concentration of financial employment in
London, at the expense of provincial financial centres, influenced by industry consolida
tion, and regulation creating thousands of compliance jobs in London. In contrast, Ger
many, with a large local and regional banking sector, experienced no significant change in
the spatial distribution of financial employment (Wójcik and MacDonald-Korth, 2015).
The rise of Asian financial centres is also commonly expected, led among others by Japan
ese banks capitalizing on growth in Asian capital markets (Wójcik et al., 2016). Western
FABS, and particularly US financial firms, however, still dominate GFNs. Chinese state-
Page 16 of 21
owned banks may sit at the top of global rankings in terms of their asset size or revenues,
but they are even further from building GFNs than Chinese national champion companies
in other sectors are from building GPNs (Nolan, 2012). To be sure, the internationaliza
tion of the Chinese currency may yet prove to be a catalyst of a major transformation of
the GFNs. Another major catalyst may be the outcome of the UK’s European Union (EU)
referendum of June 2016. London’s success as a global financial centre in the last few
decades has relied to a great extent on easy access to EU markets through the ‘single-
passport’ system. Once established in London, financial firms from around the world
could operate throughout the EU with no or minimal additional requirements from other
member states. If Brexit makes access to EU markets more difficult, some firms may
leave London for Amsterdam, Dublin, Frankfurt, Luxembourg, Paris, or other cities. As
competitors are many, none is likely to overtake London as the leading European financial
centre, but collectively they may certainly weaken its position.
Recent events also raise important questions about the position of offshore jurisdictions.
With governments raising the level of regulation and taxation, the rewards for using off
shore jurisdictions increase, but so does the legal and reputational risk of getting caught
and/or blamed for unethical behaviour. While this certainly generates more work for tax
lawyers and advisers, a more cautious use of offshore jurisdictions is in order. This is bad
news for the most obvious tax havens like the Cayman Islands and Panama, but may be
good news for countries and financial centres less associated with their functions as off
shore jurisdictions, such as the Netherlands, Ireland, the UK, Hong Kong, or Singapore.
Witness, for example, the recent wave of corporate inversions, whereby US corporations
merge with much smaller companies, mainly in the UK, Ireland, and the Netherlands in
order to move their registered offices to lower tax jurisdictions. Related to offshore juris
dictions is a recent initiative driven by civil society organizations, including Oxfam, to
oblige companies to publish financial statements for each country in which they operate,
in addition to consolidated statements. This could help reveal how much revenue and
profit corporations book in different locations in relation to real economic activities un
dertaken there, thus shedding light on potential cases of tax and regulatory arbitrage,
evasion, and avoidance. As of 2016, country-by-country reporting in a minimal form has
been applied to extractive industry in the USA and in the EU, but the battle is on and
country-by-country reporting may be deepened and (p. 572) extended to other sectors
(Wójcik, 2015). The introduction of country-by-country reporting might serve as a gold
mine in researching both GFNs and GPNs.
In addition to regulation, the public financial sector is becoming more important in global
finance, as central banks and sovereign wealth funds account for a growing share of fi
nancial stocks and flows, and many governments took ownership stakes in financial firms.
Consider the doubling of the balance sheet of the Federal Reserve since 2007 to US$4
trillion. While the size of central banks and government ownership is likely to shrink if
and when the crisis is over, this will take time and sovereign wealth funds are likely to
stay and grow (Clark et al., 2013). This makes more dialogue between political and eco
nomic geography in the study of GFNs urgent, and might even call for geo-finance, a
macro-approach that combines geopolitics with finance. At a more micro- and meso-level
Page 17 of 21
we need further inquiry into the operations of individual FABS firms, their networks, and
their relationships with customers (investors, governments, non-financial firms). It is ar
gued that in the last decades the investment chains linking ultimate investors and ulti
mate users of capital have grown unnecessarily long and complex, exacerbating informa
tion asymmetry, agency problems, and conflicts of interests (Dixon and Monk, 2014). New
technologies linking lenders and borrowers directly are seen in this light as a chance to
reduce the ‘investment miles’ (Williams, 2011). Further on the meso-level, we need to rec
ognize that the development of FABS remains a major force in the urbanization of emerg
ing and developing economies. Cities in China and beyond compete fiercely to host lead
ing FABS firms, and the impact of this process on inequality between and within cities
should be of most interest to future research. In this sense, the GFN concept is largely
compatible and complementary with the World City and Global City research agendas.
Overall, the ambition of the GFN framework is to offer a big-picture map of global finance
and fit this map into the map of the world economy. It is a geographically focused lens to
view the past, present, and future of finance.
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Dariusz Wójcik

Peter’s College, and a Visiting Professor at Beijing Normal University. His research
focuses on finance, corporate governance, and economic globalization. His current
Page 21 of 21
Information Flows, Global Finance, and New Digital Spaces
Information Flows, Global Finance, and New Digital

Spaces
Matthew Zook
Information has long played an important role in the economy and over the past decades
its prominence has increased, particularly within the financial sector. Digital flows of in
formation are central to building advantage within capital exchanges, the creation of syn
thetic worlds, and the functioning of dentralized currencies and shared recordkeeping.
These new practices, spaces and geographies—manifesting within the architecture of
computers and absolutely dependent upon information flows—are powerful influences on
the financial industry and the entire global economy. The power to channel information
flows makes it absolutely fundamental to analyse the advantages and disadvantages of
these configurations. The economic geographies emerging from the current structure of
information flows reflect the ideologies with which they were created and the goals of
their designers.
Keywords: high-frequency trading (HFT), virtual worlds, virtual economy, Bitcoin, crowd source, virtual
currencies, information economy
Information Flows in the Global Economy

INFORMATION has long been a part of economic activity (Pred, 1977), but it is relatively
recently that it has become a central object of scholarly analysis. Beginning with Bell’s
(1973) theorization of the ‘post-industrial society … characterized not by a labour theory
but by a knowledge theory of value’, information flows and knowledge creation are now
considered key variables in the configuration of global economic geographies. Although
researchers have used many terms over the years—informational society, new economy,
internet economy, and so on—all formulations emphasize the ability of information and
knowledge generation to (re)shape jobs, firms, and the global geographies of economic
and cultural life.
Page 1 of 20
In short, information flows are fundamental to the global economy and the promises of
the 1990s have become the everyday experience of today, albeit often in unexpected
ways. In addition to reducing dramatically the frictions associated with communications,
transportation, and search (see Chapter 14), information flows have reshaped the finan
cial industry, creating novel tactics for capital exchanges, new digital market spaces, and
innovative virtual currencies for exchange. These new practices, spaces, and geographies
—manifesting within the architecture of computers and absolutely dependent upon infor
mation flows—are deeply embedded in the financial industry and, by extension, the entire
global economy. Despite their influence, the geographies of information in finance remain
relatively obscure both in their structure, but more importantly in their effect and poten
tial power. To counter this orientation, this chapter reviews how the geography of infor
mation flows are channelled in particular and powerful ways by the Internet (and for the
profit) of actors who seek advantage through the creation of new digital spaces within
global finance.
Information, Knowledge, and Financial Ge

(p. 576)
ographies
Castells’ (1996) theory of the network society and economy is centred on electronically
mediated networks that use flows of information to organize the production, distribution,
and consumption of goods and culture across space. Thus, the geography of the network
economy is based upon networked nodes of information, capital, and management in
which power is lodged—what Castells calls the space of flows—and which connect and
disconnect physical places in a largely interchangeable manner. While phrased in the ter
minology of computer technology, Castells’ formulation is not technologically determinant
but focused on how the activities and intent of actors using social networks to jump
across space in particular and power-laden ways. Although the space of flows is often
conflated with advanced services and finance or political networks within regional institu
tions such as the European Union (EU), Castells (1998) emphasizes how these systems
are also represented within underground networks within the cocaine trade that connect
the nodes of the coco fields, clandestine laboratories, and secret landing strips with
street-gang distribution and money laundering through offshore financial centres. In
short, networked information flows connect and disconnect actors and places in dynamic
structures largely at the behest of the power lodged within the space of flows.
Information, however, does not simply flow, but aggregates in particular places in the
form of localized knowledge, contributing to a regional advantage (Saxenian, 1994;
Markusen, 1996). Running counter to more simplistic expectations that greater informa
tional flows would render location less meaningful (O’Brien, 1992), the ability to create
and share knowledge has a clear spatial element. Despite the growth of information flows
over the past decades, not all places or all people have equal or equally useful access to
information. As Polanyi (1958) argues knowledge acquisition and sharing is difficult—‘We
know more than we can tell’—making privileged access to information and capacity to ab
Page 2 of 20
sorb knowledge particularly important. Face-to-face interaction and localized social net
works facilitated the exchange of more complex forms (and thus less easily transferred)
of information or tacit knowledge (Leamer and Storper, 2001). Although it is overly reduc
tionist to equate tacit knowledge with unequivocal geographical constraint (see Gertler’s
2003 critique), localized knowledge exchange represents an important way in which infor
mation flows help shape global economic geographies.
These spaces of information flow and aggregation are also extremely difficult to measure.
Therefore, a key project over the past decades has been mapping information to render it
visible (Zook, 2000; Townsend, 2001; Malecki, 2002; Graham et al., 2015). While these
mappings go beyond traditional economic subjects, the capabilities afforded by the visual
ized information flows are crucial to understanding changes to the geographies of the
global economy. This is perhaps best seen within the logistics industry, which relies on dy
namic information flows to manage global supply chains for manufacturing and retailing
(Aoyama et al., 2006; Schwarz, 2006). It is precisely the tagging of product flows with
corresponding information flows that has increased the efficiency and reach of logistics,
that is, storing inputs ‘in transit’, making information-based logistics a key and strategic
area within the global economy. In addition to organizing the flows of material goods, in
formation flows (p. 577) about the goods themselves—such as marketing, brand, and certi
fication—has emerged as a key means of creating value that surpasses any material dif
ferences between nearly identical products (Zook and Shelton, 2013).
While information and knowledge are important for all industries, information flows are
particularly important factors within the financial industry. Just as the expectations of
perfect capital mobility are belied by spatial differences (Gertler, 1984; Clark and
O’Conner, 1997; Zook, 2005), information flows are likewise constrained by space and
distance creating both specialized financial centres and differences in corporate gover
nance (Christopherson, 2002; Clark and Wójcik, 2007). While agglomeration economies
and path dependency contribute to the maintenance of these clusters, the ability to ac
cess the knowledge (albeit incomplete and at times speculative) of competitors and col
laborators are key factors drawing together financial actors (Clark, 2005). The spatial
constraining role of information is also present in the information asymmetries in lending
which can lead to both adverse selection, as investors must set terms based on less than
total information, and moral hazard on the part of a loan recipient who may redirect capi
tal to riskier ventures once a loan is secured (Gertler, 1988). As a result, local banking in
stitutions and actors with better access to information about entrepreneurs have a knowl
edge advantage vis-à-vis those outside the region. Moreover, this local advantage can ex
tend beyond the initial transfer of capital into strategic decisions taken by firms. Zook’s
(2005) analysis of venture capital financing demonstrates that within this specialized fi
nancial sector, the transfer of knowledge and connections is as important as the actual
money invested.
Research has also shown that localized information and knowledge is relevant beyond ini
tial capitalization but extends into stock markers and traders. Ivković and Weisbenner
(2005) find that individual and household investors are more likely to invest in local firms
Page 3 of 20
which they attribute not simply to greater familiarity, but by the advantages afforded by
better access to localized knowledge about these firms. Relatedly, Hau (2001) shows that
proximity to firm headquarters (and the superior access to knowledge) equates to higher
profits for traders, and Lo and Grote’s (2003) research highlights how evolving opinions
on the prospect of firms within a localized trading community provides strong incentives
to remain close by other traders despite opportunities to relocate. Related work by Clark
and Monk (2013) focuses on firms’ sources of information (produced internally or relying
on external sources), which can influence their profitability. These information flows and
knowledge networks are each characterized by a particular set of spatial relations illus
trating the fundamental role spatialized information plays in the financial industry (Wój
cik, 2009, 2011).
Capital Exchanges and the Tactical Use of In

formation Flows
In particular, capital exchanges are centres for the tactical use of information. The classic
image of the trading pit with brokers shouting out buy-and-sell orders represents one so
lution to managing information flows, but the needs of traders go well beyond the physi
cal confines of an exchange. The ability to access knowledge and insight on the finances
of firms, changing commodity prices, and the activities of others all contribute to traders’
decisions to (p. 578) buy and sell securities. As a result, stock exchanges have long been a
fertile site for innovations related to information access and time–space compression
(Harvey, 1989). Thus, rather than a perfect market operating in a pristine cloud of infor
mation flows, capital exchanges are deeply intertwined with material geographies and
competitive, spatial strategies for information management.
Over the last two decades, optimization of information acquisition and use has trans
ferred from trading pits to the computer circuits within the matching engines of ex
changes where buy-and-sell orders are ultimately filled today. One result of this computer
trading is what is known as high-frequency trading (HFT), which utilizes specialized com
puter software to pursue strategies at speeds beyond the capabilities of human beings.
The tactics of HFT are multiple, but a key element is the ability to identify small price dif
ferences between stocks trading in various exchanges separated by hundreds or thou
sands of miles and then compressing time–space to arbitrage these price differences
slightly more quickly (in the order of several milliseconds) than other traders (or, more
correctly, other trading algorithms). Concurrent to the rise of HFT has been the growth of
dark trading pools (more formally known as multilateral trading facilities) that allow for
anonymous trading. The combination of additional venues and anonymous trading has
been key for HFT as it provides multiple networks through which traders can gain a
speed advantage over other market participants (see Budish et al., 2013).
Although the speed differences are minute from the perspective of humans, lower latency,
that is, faster connections, between the matching engines of exchanges, has been a key
source of profit for HFT. This is because ultimately what seems like continuous trading to
Page 4 of 20
human senses is actually composed of a series of discrete events within computers, thus
providing the trader with the fastest system, opportunities for ‘purely technical
arbitrage’ (Budish et al., 2013, p. 2). While there are many and complex strategies to
achieve this, the ways in which HFT traders pursued this highlights how finance and capi
tal exchanges are fundamentally geographically based practices even in an era in which
stocks, orders, payments, and actants conducting the actual trade (e.g. the proprietary
software overseen by human brokers) are completely digital (Zook and Grote, 2017).
High-frequency Trading and Time–Space Compression
The algorithms used in HFT largely depend on pricing signals as they are straightforward
to interpret (Toulson, 2013) and necessitate little-to-no human oversight. Indeed, while
HFT traders monitor their algorithms during trading, there have been cases, most no
tably the Knight Capital Group—which lost close to half a billion dollars in one day—
where errors in the HFT software resulted in significant loses without any direct human
involvement. Given the importance of getting and acting on price information quickly, re
ducing latency between exchanges has been a key focus for HFT across all geographical
scales. At the macro-scale the strategy has been to create more direct pathways for fibre-
optic cable networks between major trading venues such as New York and Chicago. The
original routings—which largely followed existing right-of-way paths—meandered across
the landscape because it was more cost-efficient and produced no lag detectable by hu
man users. These new pathways follow a more direct line of sight (sometime necessitat
ing drilling holes through mountains) and allow the HFT algorithms to send signals s a
few milliseconds faster than if they travelled (p. 579) via the older routes (MacKenzie et
al., 2012). While undetectable by humans, this time difference provided a key speed ad
vantage to HFT. This lead was eventually surpassed by networks of microwave transmis
sion stations (Anthony, 2012; Laughlin et al., 2013) that could propel signals even faster
as communications by fibre-optic cables can only achieve 70 per cent the speed of light.
Given this demand to save time (no matter how small the increment) it is of little surprise
that optimization of latency continues at the scale of metres within the facilities in which
the matching engines of exchanges are physically co-present with the servers running the
HFT algorithms. In order to ensure that no trader is ‘closer’ to the matching engine, it is
now common practice to use ‘standardised fibre length’ (Deutsche Börse, 2011), as well
as identical access to air conditioning as cooler computers run slightly faster. The goal is
to ensure that the location within collocation centres does not differentially impact each
trader’s latency. HFT even focuses on speed beyond the scale of metres, and uses various
strategies to compress time–space within the actual circuits and operating systems of
their computers (Leber et al. 2011; Lockwood et al., 2012). Given the size of HFT—esti
mates place it at half of all trades—every trade within every day of exchange activity is af
fected either directly or indirectly by strategies and tactics that are fundamentally predi
cated on geographically derived differences in information flows.
Page 5 of 20
Increased Risk Derived from Information Flows
While the ability to compress time–space has allowed a few HFT traders to profit tremen
dously, this structuring of information geography has brought with it a number of prob
lems. The most significant issue is the fact HFT ultimately depends upon the creation of
minute information inequalities rather than any measure of the health, prospects, and po
tential futures of firms, and thus has little to do with the ostensible purpose of financial
markets, that is, allocating capital to investment opportunities in the economy. In short,
HFT is little more than geographically derived speculation (see Samuelson, 1957) within
financial markets.
In addition, HFT has been linked to a number of price disturbances within markets that
had little to do with anything happening in the overall economy. This is not particularly
surprising given that HFT is primarily focused on arbitraging price differences rather
than the assets, liabilities, and promise of firms and industries. Research has identified
over 18,000 ‘ultrafast extreme events’ during a five-year period in which stock prices
fluctuated very quickly (see Johnson et al., 2013). The largest such disturbance was on 6
May 2010 when stock indexes dipped by 7 per cent over the course of a few minutes be
fore returning to their earlier levels. This event was dubbed the ‘flash crash’ and HFT has
been highlighted as a key element in its propagation (Kirilenko et al., 2011). This kind of
vulnerability via automated feeds to trading software has not gone unnoticed; in April
2013 the Twitter account for the Associated Press (AP) was hacked and a fake tweet re
porting an explosion at the White House was sent. The HFT programs ingesting the AP
twitter feed (as a key pricing signal) reacted immediately, resulting in a drop of 1 per cent
in stock-market indexes (Domm, 2013). To date, these types of algorithmically induced
fluctuations have been corrected quickly but the risk remains. Such a sharp drop at the
close of market could easily spread globally as other markets and traders react to unex
pected and unexplained declines (Cliff and Northrop, 2010).
The case of HFT highlights the fundamental role of information flows to the finan
(p. 580)
cial industry and the importance placed by economic actors on reshaping the geographies
of these flows to their own advantage. Information technologies allow for new tactics for
manipulating information flows and creating new digital spaces in the economy offering
the opportunity for those with power to leverage information in unexpected and prof
itable ways.
New Digital Spaces, New Virtual Currencies

The new digital spaces of capital exchanges are but one example of leveraging new digi
tal spaces. In a related trend, the emergence of synthetic worlds based in informational
technologies, for example games such as World of Warcraft or Eve Online, are producing
new economic spaces in which users purchase completely digital objects (tools, clothing,
homes, etc.) for use in these games (Castranova, 2008). These spaces and economies are
already large—Gartner (2013) estimates the size of gaming industry as US$93 billion in
Page 6 of 20
2013—and are increasingly integrated into daily life. As Lehdonvirta and Castronova,
(2014, p. 266) argue, ‘many people in the world’s richest countries today live in a more or
less virtual economy, where our well-being is no longer constrained by any material lack
or need but is rather tied to the mental leisures, anxieties and status games of con
sumerism’.
While the economies of the new digital spaces are real, they differ from material
economies in that scarcity is no longer a foundational characteristic. As the music indus
try has seen, it is perfectly trivial to make exact copies of digital objects such as a music
file, thus making the power to regulate, such as enforce intellectual property regimes, a
key variable in determining economically profitable activities in the space of flows
(Castells, 1996). In practice, this power largely lies with the gaming company that con
trols the digital space and determines how digital goods can be acquired and exchanged.
Moreover, in additional to financial gain, a key incentive to create and exchange digital
items is to enhance one’s social status (Lehdonvirta and Castronova, 2014) marking these
digital spaces as locations for the symbolic and experiential consumption associated with
cultural economies (Power and Scott, 2004).
This shift from material to cultural consumption is characterized by Lehdonvirta and Cas
tronova (2014, p. 269) as a potential (albeit partial) solution to capitalist growth. As they
assert, ‘in virtual economies, we have for the first time managed to decouple economic
growth from ecological impact. … [P]erhaps our consumerist status games and markers
can finally become just that: compelling games that need not have any material impact on
the world’. While it is easy to be skeptical of this bold claim, after all information flows
consume electricity and rely on the production of electronics, it represents an intriguing
argument for how capitalism’s growth imperative might be accommodated within the en
vironmental limitations of Earth’s resources. A similar argument about how ‘immaterial
information is itself a new frontier for capital’ is made by Zook and Shelton (2013), albeit
less sanguinely, with their contention that digital spaces offer an ‘immaterial spatial fix’
for capital investment. To be sure, both these ideas are speculative and await further the
oretical framing and empirical study, but it is clear that these new digital spaces and as
sociated economies are real (Castronova, 2014) and of particular interest to the financial
industry, and have engendered a range of new virtual currencies.
(p. 581) New Virtual Currencies
Virtual currencies were first introduced for purchasing digital products in the new digital
spaces of games but are now used to acquire material goods and services, and even act
as a store of value. There are two main types of virtual currencies, those with a central
ized system of control and governance, and those in which these functions are decentral
ized. The former, such as the Interstellar Kredit used in the Eve Online game, are general
ly run by gaming companies that determine monetary supply and exchange rules. While
these centralized currencies are certainly novel developments, they are not without
precedent given the history of company scripts or private bank notes. The second type of
virtual currencies is much more innovative in that governance is decentralized via crowd-
Page 7 of 20
sourced computation based on blockchain technologies, for example Bitcoin, Litecoin,

and Dogecoin. At the time of writing there were over 600 of these currencies standing in
stark contrast to 2013 when only Bitcoin (the largest example) was evident (European
Central Bank, 2015, p. 4).
The decentralized and anonymous nature of this second type of virtual currency diverges
from traditional currencies backed by precious metals or fiat, and guaranteed by states or
financial institutions. Without this backing it is not surprising that most suffer from issues
of liquidity, uncertainty of legal obligations, and as the European Central Bank notes, ‘it is
clear that they also entail risks’ (European Central Banks, 2015, p. 32). While community-
backed currencies are not without precedent, they have generally been ‘local responses
to the contradictions and perceived alienation of the mainstream economy. They are un
derpinned by an attempt to rebuild local communities’ (Leyshon, 2004, p. 466). In con
trast, virtual currencies such as Bitcoin envisage operations at a global scale backed by
cryptography rather than relying on localized and embedded systems of trust. It is clear
that this vision of a crowd-sourced monetary system would not be possible (at either its
proposed scale or scope) without global information flows and related code. As Kitchin
and Dodge (2011, p. 133) note, ‘software offers a growing proportion of people with a set
of tools to … undertake tasks that were previously impossible due to issues of affordabili
ty, complexity, scale, or geographical separation’. Given the genesis of these currencies,
that is, a group of loosely affiliated programmers rather than officials from a sovereign
state or even a bank or gaming company, the software and ideologies behind the curren
cies are particularly useful to study to understand the political economies of these net
worked flows.
The Code of Bitcoin
Bitcoin began in 2009 with the release of a vision paper and source code for the system.
An introductory video describes Bitcoin simply as ‘The first decentralized digital
currency’ (WeUseCoins, 2011), while a more detailed overview states that ‘Building upon
the notion that money is any object, or any sort of record, accepted as payment for goods
and services and repayment of debts in a given country or socio-economic context, Bit
coin is designed around the idea of using cryptography to control the creation and trans
fer of money, rather than relying on central authorities’ (Bitcoin, 2012). These two quotes
highlight an emphasis on decentralization and reliance upon computer algorithms that is
a bedrock principle within the design of Bitcoin and derivative virtual currencies. Without
a central bank (or server) confirming exchanges, Bitcoin depends upon peer-to-peer net
works, personal (p. 582) encryption keys, and computational tasks that provide ‘proof’ of
transactions between strangers. Bitcoin is not tied to any other currency, commodity, or
national economy, and exists because of and in the network of its users.
The technical design of Bitcoin facilitates exchanges of Bitcoins without anything physi
cally transferred (as would be the case with coins or bills) and without any central, au
thoritative entity recording the exchange (as would be the case with a bank). Instead, the
network determines the validity of a transaction via the blockchain, a collective computa
Page 8 of 20
tional ‘proof-of-work’ task. This design aspect is critical for the functioning of Bitcoin as
otherwise it would be possible for a user to spend a Bitcoin twice with the expectation
that the distributed system would not know that the coin no longer belongs to that per
son. Without getting too deep into the specifics (interesting but not particularly relevant
to this chapter) Bitcoin relies upon hashing—an intense and irreversible computational
process—that participating users run on their machines to determine which transactions
are actually valid. The key part is that the hash is designed to be solved by the Bitcoin
network in about ten minutes with subsequent solutions by the network providing greater
validity. Anyone submitting a false transaction, for example stealing all of the Bitcoins,
would have to compete with the entire network to solve the hash and validate the transac
tion. As a result, false transactions are not propagated through the peer-to-peer network
of Bitcoin, but real ones are, facilitating the smooth operation of the currency system. Bit
coins are stored by each user in an electronic ‘wallet’ located on a computer or online
repository, which makes them subject to both loss or theft; however, like any information
they can be backed up. As outlined earlier, all Bitcoin transactions are made public but
the addresses associated with a user’s wallet are not publically available unless a user
chooses to make them so. As a result, Bitcoin is a semi-anonymous transaction system as
it is difficult (albeit possible) to trace transactions back to an individual.
Despite (or perhaps because) of its crowd-sourced origin, Bitcoin has grown tremendous
ly with a market capitalization of US$3.6 billion in June 2015 (CoinMarketCap, 2015) rep
resenting more than 80 per cent of the total capitalization of all existing decentralized
virtual currencies (European Central Bank, 2015, pp. 6–7). While there are more than 600
of these so-called crypto-currencies—mostly copies of the original Bitcoin system—the
vast majority are relatively small; only ten currencies have capitalizations greater than
$10 million and only forty-two are larger than $1million (CoinMarketCap, 2015). Regard
less of its size and dominance within virtual currencies, the current use of Bitcoin is rela
tively low, accounting for ‘around 69,000 transactions per day worldwide’, which is minis
cule compared with the 274 million non-cash, retail transactions that take place every day
in the EU (European Central Bank, 2015, p. 4). Not surprisingly, a very small number of
business accept Bitcoin—the European Central Bank (2015) estimates that only three out
every 10,000 businesses accepts any type of virtual currency. Some large corporations—
most notably Expedia—have set up systems so that customers can pay for hotels with Bit
coin. However, rather than accepting the currency directly, Expedia has designed a pay
ment flow in which Bitcoins are first converted to a standard state-backed currency be
fore receipt by the company (Davidson, 2015). Evidently, Expedia is utilizing Bitcoin as a
medium of exchange rather than a means for the long-term storing of value. This low lev
el of use is a major and ongoing challenge for Bitcoin and has resulted in both currency
volatility and liquidity problems (see Figure 30.1). (p. 583)
Page 9 of 20
Figure 30.1 Bitcoin to US Dollar Exchange Rates,

2013–15.
Legality of Bitcoin
The legal issues surrounding the use of Bitcoin remain uncertain although Castronova
(2014, p. 97) argues that ‘since no law expressly forbids virtual currencies, they appear to
be completely legal’. And despite worries and a reputation for financing illegal activities,
Bitcoin is used for a wide range of legal and mainstream economic activity, for example
booking hotel rooms via Expedia. Indeed, one of the most promising and potentially dis
ruptive effects of Bitcoin is facilitating transactions, particularly for cross-border pay
ments. While existing systems such as bank wire transfers and credit cards are the com
mon channels for this activity today, the fees charged by the intermediaries can be rela
tively high. Thus, payment systems in which a company accepts ‘currency in one country,
changes it into units of VCS [virtual currency schemes such as Bitcoin], transfers it via
the VCS network, changes it back into currency again in the receiving country and
arranges the pay-out’ (European Central Bank, 2015, p. 14) this might be an extremely
useful role for virtual currencies like Bitcoin. In other words, rather than fulfilling all the
roles of money such as store of value and unit of account, Bitcoin might, in practice, pri
marily be used in short-term exchange.
Nevertheless, banking officials take care to point out that ‘legally, Bitcoin is not a curren
cy, does not have the status of legal tender and/or does not meet the definition of a finan
cial instrument’ (European Central Bank, 2015, p. 30). Moreover, states regularly issue
warnings about the risks associated with using these types of decentralized virtual cur
rencies. Given this characterization as a risky activity, key actors within the Bitcoin com
munity have taken explicit steps to emphasize cooperation with governments. For exam
ple, Jeff Garzik, a member of the Bitcoin development team has stated, ‘We are working
with the government to (p. 584) make sure indeed the long arm of the government can
reach Bitcoin … the only way Bitcoins are gonna [sic] be successful is working with regu
lation and with the government’ (Liberale et Libertaire, 2011). This statement caused
Page 10 of 20
considerable (and generally unfavourable) commentary among Bitcoin users as the ide
ologies behind the project generally reject state-led regulation or even cooperation.
Ideologies of Bitcoin
This reaction is tied to the fact that the Bitcoin vision embodies the core hacker values as
outlined by Levy (1984), including calls to mistrust authority and decentralize, to provide
open access to the mechanisms of the computer (a trait shared more broadly with the
open-source movement) and ultimately that computers can be used to make life better.
Based on the values, Bitcoin aims to do away with (for better or worse) the modern finan
cial system, or, more correctly, do away with particular aspects of the financial system
and larger processes of regulation. It is useful to return to the original concept paper
published by Satoshi Nakamoto (the creator of Bitcoin) in 2009, which states in its open
ing paragraph:
Commerce on the Internet has come to rely almost exclusively on financial institu
tions serving as trusted third parties to process electronic payments. While the
system works well enough for most transactions, it still suffers from the inherent
weaknesses of the trust based model. Completely non-reversible transactions are
not really possible, since financial institutions cannot avoid mediating disputes.
The cost of mediation increases transaction costs, limiting the minimum practical
transaction size and cutting off the possibility for small casual transactions, and
there is a broader cost in the loss of ability to make non-reversible payments for
non-reversible services. With the possibility of reversal, the need for trust spreads.
Merchants must be wary of their customers, hassling them for more information
than they would otherwise need. A certain percentage of fraud is accepted as un
avoidable. These costs and payment uncertainties can be avoided in person by us
ing physical currency, but no mechanism exists to make payments over a commu
nications channel without a trusted party. What is needed is an electronic pay
ment system based on cryptographic proof instead of trust, allowing any two will
ing parties to transact directly with each other without the need for a trusted third
party. Transactions that are computationally impractical to reverse would protect
sellers from fraud, and routine escrow mechanisms could easily be implemented
to protect buyers (Nakamoto, 2009, p. 1; emphasis added).
What stands out in this vision is the contrast between a ‘trust based model’ of transac
tions that is ‘weak’, full of ‘transaction costs’, and ‘hassling’ versus a ‘cryptographic’ mod
el of exchange that allows ‘direct’ transactions that are ‘routine’ and would ‘protect’ both
buyer and seller. In one paragraph, Nakamoto replaces the complexity of a socially em
bedded currency with a central regulatory power and posits an ideal where informational
flows and computer code allow direct exchanges without social ties or institutions, partic
ularly banking ones. This fundamental idea is replicated through the Bitcoin rhetoric:
‘Compared to other alternatives, Bitcoins have a number of advantages. Bitcoins are
transferred directly from person to person via the net without going through a bank or
clearinghouse. This means the fees are much lower, you can use them in every (p. 585)
Page 11 of 20
country, your account cannot be frozen and there are no pre-requisites or arbitrary lim
its’ (WeUseCoins, 2011). In short, Bitcoin is a call for the disintermediation of the entire
financial system, and, for good measure, socially constructed trust as well (see also Cas
tronova, 2014, p. 175).
This is a profoundly libertarian vision that is echoed within the Wiki pages for Bitcoin dis
cussing the economic concepts of inflation and deflation. In addition to providing a much
more robust summary of Hayek’s views versus Keynes on macroeconomics, as well as dis
missing the labour theory of value as ‘generally accepted as false’, the Wiki provides a
link to an interview with Milton Friedman where he ‘proposed to replace the central bank
with a computer, and to fix the money supply growth at 4% annually’. A review of the dis
cussion side of the Wiki (which shows the history of edits and any discussion) shows no
disagreement about these statements or link.
The libertarian flavour of Bitcoin comes as no surprise to anyone who has studied the cul
ture of high technology (Parsier, 2011) and given that cultural values are reflected and
codified in software (Kitchin and Dodge, 2011, p. 37), the ideologies of the founders of
virtual currencies are propagated alongside the fast expansion of these system. This
means that the spread of Bitcoin is not simply a new means of conducting transactions,
but bound up in a larger project to replace certain values such as such as socially (and
geographically) embedded systems of studied trust (Sabel, 1993) with code and cryptog
raphy. And as Lessig (2006) argues, ‘We can build, or architect, or code cyberspace to
protect values that we believe are fundamental. Or we can build, or architect, or code cy
berspace to allow those values to disappear. There is no middle ground. There is no
choice that does not include some kind of building. Code is never found; it is only ever
made, and only ever made by us’. And it is for this reason that understanding the politics
behind transformative economic innovations such as Bitcoin is vitally important. After all,
the rise of virtual currencies is blurring the lines between the personal, the commodity,
and the state (Zook, 2013; Castronova, 2014) in novel and unexpected ways. Just as new
digital spaces provide the arena for ‘real’ economic activities, decentralized virtual cur
rencies are providing the means for ‘real’ economic transactions.
Beyond Bitcoin
Whatever the outcome of the Bitcoin project, the blockchain technology that undergirds
this community backed currency has already begun to exert an influence throughout the
financial world. The essential element of blockchain is that every transaction is broad
casted to the entire blockchain network and through cryptographic processing a transac
tion (or block) is verified as valid and added to the overall chain, thus providing a trans
parent and unalterable set of records. While Bitcoin makes its blockchain network public,
that is, anyone can join, this is not a technical requirement and other structures—such as
a closed network of trusted partners—can also be used to make a distributed system of
record keeping. This has caught the attention of the banking industry, not so much as a
system of currency as Bitcoin operates, but as a way to reduce costs in routine and back-
office verification work flow. As The Economist notes (2016), blockchain technologies
Page 12 of 20
‘hold out the prospect of liberation from all the dross that has accumulated in the finan
cial system, from incompatible (p. 586) IT systems to expensive intermediaries’ and is esti
mated to bring up US$20 billion a year in savings.
Given this potential, financial institutions have invested in a number of start-ups—R3,

Ripple, and the Open Ledger Project—developing scalable, open-source blockchain tech
nologies for use both in international monetary exchange and inter-organizational record
keeping. Moreover, given that it is unlikely that more than one or two of these ventures
will become widely adopted by even a plurality (let along a majority) of financial institu
tions, the competitive pressures to obtain power (and profit-making ability) over these
new digital spaces are intense (The Economist, 2016). Interest in blockchain technologies
for record keeping also comes from state banks such as Russia’s Central Bank and the
People’s Bank of China, which have explored the use of more centralized and private
blockchain ledgers for transaction verification (Palmer, 2016). While state-led initiatives
are driven, in part, by potential cost savings, control over the new digital space engen
dered by a blockchain solution also has the potential advantage of providing increased
visibility on financial flows and thus making tax avoidance and money laundering harder
to achieve. Both examples of blockchain initiatives—from private companies and from the
state—highlight the importance of holding power in these new digital spaces; whoever
can channel information to their own advantage stands to profit, perhaps as significantly
as the first high-frequency traders. In short, implementation of blockchain technology
shapes on who holds power over a particular space of flows; what was a decentralizing
and devolving moment within the Bitcoin project can also be used for re-centralization of
power by corporations and states.
However, once the genie (or blockchain) has escaped from the bottle it can be difficult to
return earlier patterns of regulation and control. In previous decades, the industries of
pornography, gambling, and email spam (as well as many other economic activities) lever
aged the new digital spaces of the Internet to locate personnel, incorporations, and com
puter servers across country borders in an attempt to place themselves beyond state reg
ulatory powers. While this type of geographical arbitrage was far from foolproof (Gold
smith and Wu, 2006) it did greatly complicate the efforts of authoritarian states to control
speech and make it more difficult for law enforcement to combat a wide range of scams
and other criminal activities (Zook, 2007). This leveraging of new digital spaces continues
today and current systems designed to be beyond state control are known as the ‘dark
web’ and run across the public Internet but require specialized software to access. These
networks range from small, private systems to larger and more public examples such as
Freenet, focused on bypassing state-based censorship regimes, or the Tor network, which
encrypts Internet protocol (IP) packets and routes them through a random set of servers
to mask the identity and location of users. Given this anonymity, the Tor network has a
high level of criminal activity, including child pornography and buying and sell drugs, and
the preferred medium of exchange is Bitcoin (Moore and Rid, 2016). To be clear, the Tor
also contains more innocuous activity as well, but when the ideologies associated with the
creation of new digital space are focused on bypassing both state and corporate networks
Page 13 of 20
—the case for both Bitcoin and the dark net—the resulting space of flows becomes partic
ularly attractive to underground and criminal activities.
(p. 587) The Geographies of the Information Econo

my
The uses and flows of information remain profoundly geographical phenomena, deeply in
tertwined with the global economy and financial industry. The review of cases in this
chapter—HFT, new digital spaces, and virtual currencies—does not seek to provide a
comprehensive review of information in the financial sector, but instead aims to highlight
key ways in which information shapes the ideologies, political economies, and geogra
phies of finance. These examples show the fundamental ways in which strategic and tacti
cal uses of information structure competitive advantage and opportunities for profit. This
ranges from the construction of informational advantage within capital exchanges to the
creation of synthetic worlds in which digital products can be consumed to dencentralized
currencies and anonymous marketplaces that aim to do away with existing systems of fi
nancial regulation and legal oversight. These examples have empowered (and profited)
specific groups of people—high-frequency traders, owners of gaming companies, comput
er programmers—who are able to use and manipulate these networks with varying de
grees of authority.
This also demonstrates how the ability to channel information flows can be used by rela
tively small groups to enact their particular vision, be it for a gaming experience or a de
sire to avoid scrutiny from the state. In short, the structure and effect of information
flows are not simply a question of the best technological arrangements; there are any
number of ways to code a trade or a transaction. Instead those with power within a par
ticular space of flows seek to construct networks and flows to their advantage. Thus, it is
fundamentally important to also assess the ideologies associated with any particular con
figuration of flows and to whom and how advantage is given. For example, blockchain
technology is about shared record keeping and can be used as means for value exchange
(as in the case of Bitcoin) or as a low-cost means of verifying contracts (in the case of the
Open Ledger Project). The economic geographies emerging from the current configura
tion of information flows reflect the ideologies with which they were created and the
goals of their designers. And as these values are codified into their source code of infor
mation flows, they emerge as unseen yet powerful influences on the economies and geo
graphies of the world’s economy.
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Matthew Zook
Matthew Zook ([email protected]) is Professor of Economic Geography and the director

of The DOLLY Project (Data on Local Life and You) at the University of Kentucky. His
research interests are at the intersection of economic, digital, and urban geogra
phies. In recent years, he has studied the micro-geographies of high-frequency trad
ing, the production of geosocial media, and how code, space, and place interact to
create the augmented realities of daily-lived geographies. He is also interested in the
multiple ways in which flows of ↵material goods in the global economy are shaped by
immaterial flows of information, and the ways in which the intertwining of material
Page 19 of 20
and virtual flows is providing news ways to study economic geography. He has writ
ten dozens of journal articles and book chapters on digital geographies, economic ge
ography, and globalization. He is a member of the editorial board at Big Data & Soci
ety: Critical Interdisciplinary Inquiries and the AAG’s new journal, GeoHumanities.
Page 20 of 20
‘Organic Finance’: The Incentives in Our Investment Products
‘Organic Finance’: The Incentives in Our Investment

Products
Ashby H.B Monk and Rajiv Sharma
The increasing complexity and de-localization of finance has allowed for an obfuscation of
fees, costs, and expenses, leading to distortion in the underlying incentives that are being
created. This distortion is driving an increasingly short-term and disconnected financial
world. Here it is argued that the world of finance and investment needs to better under
stand the underlying ingredients of financial products, in particular the fees and costs of
intermediated products. At the core of the arguments is a more professional and engaged
community of asset owners that can understand the ingredients in all the financial prod
ucts being consumed. This paradigm shift, termed ‘organic finance’, requires a research
programme that examines the relational dynamics between financial products, intermedi
aries, and asset-owner investors using methodologies that go beyond those within pure
economics. Economic geographers are enlisted to new studies of these important actors
and agents, and how their interactions will play out over time.
Keywords: institutional investment, economic geography, finance, asset management
Introduction
ESTIMATES suggest that Earth’s population may hit ten billion by 2050, which, if true,
would likely trigger a fourfold increase in natural resources consumption (Monk et al.,
2015). The stress this will place on our current infrastructure will be profound. In order
to avoid the effects of irreversible climate change, deepening inequality, and even mili
tary conflicts over resources, we will need to unlock large pools of long-term capital to
fund resource and infrastructure innovation. As such, it is critically important for the
health of our capitalist system and, indeed, the world that the global community of long-
term investors (LTIs), which includes pension funds, sovereign funds, endowments, foun
dations, and family offices, begin investing in long-term projects that will prepare us for
this future state (World Bank, 2015).
Page 1 of 25
The Organization for Economic Cooperation and Development has indicated that the com
munity of LTIs has more than US$100 trillion of assets under management (World Bank,
2015), which means there should be plenty of capital available for the costly economic
transitions ahead. However, the mobilization of LTIs towards long-term projects is not
happening; the patient capital to support the capital-intense, long-development ventures
and projects that could, for example, reduce greenhouse gas emissions are not there. In
fact, we have widening gaps in infrastructure and energy innovation financing (McKinsey,
2012). We recognize that solving the climate crisis and fixing our national infrastructure
is not an investor’s job per se. Rather, LTIs such as pensions or endowments are bound by
fiduciary obligations to maximize financial returns. And yet, we cannot help but believe
that an investor who contributes to solving climate change and facilitates the transition to
a new energy economy would be well compensated for doing so. Moreover, the impending
market dislocations from these existential threats will affect the mainstream portfolios of
these LTIs. All this, then, raises an important question: why can’t we find mechanisms to
unlock long-term capital for (p. 592) long-term projects and catalyse a more sustainable
version of capitalism? The answer to this question is, on the surface at least, simple: most
LTIs are not using their long time horizon, preferring instead to work through short-term
intermediaries (Barton and Wiseman, 2014). Consider that, according to New York Stock
Exchange data, the average holding period of assets was eight years in 1960 and is less
than half a year today.
This dramatic drop in time horizon, we argue, stems from the increasing complexity and
de-localization of finance, which has allowed for an obfuscation of the fees and costs that
asset managers charge to asset owners, both implicitly and explicitly. This obfuscation
has, in turn, led to a distortion in the underlying incentives—the fees and costs paid to
managers are important economic incentives—which asset owners set for the capitalist
system they support with their US$100 trillion or more of assets. The complexity, de-lo
calization, and obfuscation create distortions to capitalism and drive an increasingly
short-term and disconnected financial world. And it is this short-termism that creates a
variety of market failures and contributes to an unhealthy form of capitalist development.
To understand how all of this has come to pass requires a history lesson in the evolving
logics and theories of finance, starting with the development of modern portfolio theory
in the 1950s (Elton and Gruber, 1997). In the decades that followed, a plethora of acade
mic financial theories, such as the efficient markets hypotheses and rational actor model,
facilitated the mass production of finance. While mass production democratized access to
investment opportunities—often by deconstructing and repackaging assets and risks into
‘products’, ‘tranches’, ‘mandates’, and ‘allocations’—these innovations were hard to un
derstand. Worse, the LTIs that were targeted by such innovative products did not general
ly have the capabilities to assess them. Most LTIs could not—and today cannot—accurate
ly describe all of the underlying fees, costs, or risks that they accepted—or are accepting
—in their portfolios. And not understanding the fees, costs, and risks was and is tanta
mount to not understanding the motivations of their agents. While some gains were en
joyed in the short term thanks to this mass production, the version of finance that has
emerged over the last few decades has hidden its true costs and, as it turns out, is harm
Page 2 of 25
ing modern capitalism and, thus, society. In this chapter, we consider how a more holistic
version of finance-led capitalism can emerge.
At the core of our argument is the need for a more sophisticated and engaged set of LTIs
that understand the ingredients in their financial products. We draw parallels to the food
industry, as it has already seen a revolt against mass-produced, and poorly understood,
products. Indeed, as people have begun to understand the ingredients in their food, they
have started to consume food differently—often preferring organic foods with simple,
easy-to-understand ingredients. Similarly, we expect that as investors begin to under
stand the fees and costs hidden in their investment products, they, too, will begin to act
differently—preferring to invest in financial products and services they understand and
that are rooted in real assets in the real economy. This is a phenomenon we have taken to
calling ‘organic finance’, and it serves as the key conceptual contribution of this chapter.
Our chapter is a ‘call to arms’ for asset owners, institutional investors, and economic geo
graphers to pursue a better understanding of financial products and services. We hope to
help LTIs become organic investors, which means having strong internal capabilities and
high levels of sophistication, which would permit a reduction in intermediaries, complexi
ties, and abstractions. Organic investors will understand the incentives they are creating
with every investment, which begins with transparency around fees, costs, and expenses.
By uncovering the true cost of intermediation—and the alignment of interests that go
with (p. 593) it—organic investors will find new ways to cultivate opportunities that are
more aligned with their own long-term interests and that of the capitalist system.
In the sections that follow, we use the organic finance metaphor to sustain our argument,
conceptualizing the global financial capitalist system rather than reporting empirical re
sults. The metaphor is not adequately designed to ‘represent underlying economic and so
cial processes’ but instead be suggestive and work as an instrument of inspiration for
change (Clark, 2005). Building on Ang’s (2014) work on risk factors as ingredients, we po
sition organic finance as a means of understanding all the incentives and drivers of finan
cial return that are within financial products and offerings. We also illustrate why the
emergence of this new paradigm in finance will require the focus and attention of eco
nomic geographers.
From Food to Finance

In the first half of the twentieth century, organic food was just called ‘food’. At the time,
people cultivated, harvested, cooked, and ate locally; they had a clear sense of a food’s
‘place’. They consumed their food with an inherent understanding of where it came from
and how it arrived on their plate. They did not require an advanced degree to understand
the ingredients in their food, as most of it was fresh fruits, vegetables, grains, and meats.
All food was organic at that time. While seemingly a golden era, however, it came with
challenges. Food was expensive to produce, difficult to grow at scale, resource intensive,
and hard to transport. Food insecurity—the threat that some people would not have ac
Page 3 of 25
cess to sufficient, safe, and nutritious food to meet their needs—was seen as a serious
problem (Guthman, 2003), requiring product innovation to feed the masses.
The conventional food industry thus transitioned away from an inherently local product
into something that could be mass produced and mass consumed. Researchers and scien
tists augmented and reconstituted ‘food’ in ways that made it cheaper to grow and more
durable, while still palatable. The local and idiosyncratic features that one might expect
from food were replaced with generalized quality and homogenized characteristics. Most
people thought this was a good thing, as these methods helped feed the masses. What
few realized, however, was that widely distributing, non-local, mass-produced food creat
ed an entirely new set of problems for human health.
The delocalization, homogenization, and, indeed, ‘productization’ of food—in which you

buy a packaged and reconstituted edible product in a warehouse and take off a wrapper
before eating—created a market with countless cheap options but with too much opacity
and complexity. There was a lack of knowledge around the ingredients in these products,
let alone how some of these ingredients affected people over the long term.1 Increasingly,
we were eating things we did not understand. In fact, the purveyors of these products
seemed to target individuals that lacked basic knowledge and ability to assess the costs
and benefits of consumption.2 And so, we went from not having enough good food for peo
ple to eat to having too much bad food that everybody was eating. The obesity epidemic
in the USA, and, indeed, the world, is a function of this cheap food. Many people are
aware that these mass-produced foods are bad for us, and yet we still eat them. Why? Be
cause even for those people that realize they are eating ‘junk food’, the short-term ease
and relative low-cost vis-à-vis healthy food seems to trump any potential long-term prob
lems. Even if we now know (p. 594) this food is not cheap—and it is, in reality, not cheap
because it simply shifts the costs into the future in the form of illness and malaise—it still
remains popular.
In response to this, and the growing obesity epidemic globally, a new ‘organic’ food move
ment began to take hold, reinforced by the Food and Drug Administration’s decision to
demand food companies post on their products ingredients and caloric content (Guthman,
2003). Once the ingredients were measured and displayed, people began behaving differ
ently, focusing their consumption on healthier products (Seyfang, 2006). The organic
products may have been more costly in the short term, but the long-term costs in terms of
health and environmental sustainability were finally being integrated into consumers’ de
cision making. We should note that people are not moving back to the old agrarian mod
els of farming and consumption. Rather, modern tools and technologies are being used to
make organic foods commercially viable. The success of Whole Foods Markets is a case in
point.
What does organic food have to do with finance? It turns out the financial industry has
evolved in a similar manner to the food industry. Traditionally, finance was a highly per
sonal industry based on mutual and local understanding. Bankers often put themselves at
the centre of local communities, providing a service that was well understood and impor
Page 4 of 25
tant. Investors, in turn, focused on a deep knowledge of specific assets and opportunities.
While effective, this model of finance, as with the original model of food, was difficult to
mass produce. It required a very high personal touch from local representatives that
could understand in painstaking detail local circumstances. This was not only hard to do;
it was nearly impossible to scale. As such, just as food security was a big policy challenge
of the era, securing financing for capital-starved industries was also difficult. Accordingly,
product innovation was needed in order to transform the financial services industry into
something that could be more easily accessed by all.
The mass production or standardization of finance arguably stems from the early inven
tion of securities; these included bonds in late medieval Europe (specifically in Italy) and
shares in seventeenth-century Netherlands (Dutch East India Company). These inventions
facilitated asset ownership at a distance, which catalysed a new set of challenges associ
ated with information asymmetry and principal-agent problems (see Wójcik, 2011). The
mass production of finance as we see it today, however, truly accelerated with the devel
opment of modern portfolio theory in the 1950s, which used a variety of assumptions and
generalizations in order to homogenize, de-localize, and ultimately productize finance. Fi
nancial theory told us that this de-localization, deconstruction, disambiguation, and
repackaging of risks into products facilitated investment diversification, which, in turn,
allowed for the widespread distribution of financial capital and reduced the cost of capital
for corporations.
The ultimate financiers of our capitalist system, the asset owners or LTIs, were encour
aged by these developments. For reasons we explain later, they were attracted by the
ease of buying a product that purported to offer a ‘predictable return’. Accessing stan
dardized products with return targets was easier than actually studying the underlying
assets and their attendant risks, as the latter could be quite messy and idiosyncratic. But
converting numerous investment risks into standardized return expectations is highly
complex. It is also extremely difficult to assess ‘investment skill’ in this complex environ
ment.3 So, while these new tools and techniques posited themselves as simple, they were
anything but (Wainwright, 2011).
Finance thus transitioned from an inherently local product to a global product overseen
by firms in global financial centres (Lee et al., 2009). The very notion of selling financial
‘products’ (as opposed to investing in companies or assets) implied de-localization. As
with the food industry, financial products became abstractions of ‘real’ assets. The
(p. 595)
products tranched and stripped assets of local or idiosyncratic characteristics in order

that they could be sold to general consumers on exchanges with the help of rating agen
cies and a plethora of intermediaries. Just as in food, a financial product can, quite literal
ly, be ‘packaged’ and ‘wrapped’ and sold to consumers looking to satisfy a specific return
obligation with very little understanding of the ingredients that are meant to actually gen
erate those returns.
As with consumers of processed food, few among LTIs had the sophistication required to
make smart decisions about where to consume the rapidly expanding array of financial
Page 5 of 25
products and services. Most did not understand the fees, costs, risks, and thus incentives
being accepted either explicitly or implicitly in the bargain to move towards mass-pro
duced finance (see Box 31.1). And it was very hard to get ahead of the innovations in
terms of knowledge. Perversely, financial education and literacy has been linked to in
creasing levels of obfuscation and purposeful disorientation by financial service providers
intent on maintaining a knowledge gap (Carlin and Manso, 2011). In addition, the LTIs
were also, oftentimes, complicit, using the high expected returns of new products as a
mechanism to increase the expected return of their overall portfolio, which, thanks to ac
tuarial mathematics, served to reduce the future financial obligations of the sponsor.4
This was particularly true of public pension funds, where aggressive return targets were
often paired with under-resourced internal investment teams, pushing them into a world
of aggressive financial products they barely understood.
Box 31.1 Why Investment Fees and Costs are Overlooked Ingredients in Financial
Products
•Markets: There is an assumption that the market for financial services functions effi
ciently. It doesn’t.
•Diversification: Opacity from over-diversification creates an environment ripe for hid
den fees and costs.
•Priorities: Investors believe that asset allocation is the priority and that fees are not
important.
•Perspectives: It is difficult for investors to share fee information with peers.
•Unknown Unknowns: You don’t know what you don’t know. And the truth is you don’t
know a lot.
•Career Risk: What happens if I uncover some overlooked fee? Won’t I look bad? Yes.
•Misuse of Benchmarks: Inaccurate benchmarks can distort performance.
•Overconfidence Bias: My portfolio can’t be more efficient. I am good at what I do.
•Believing the Hype: Many investors feel lucky to have access to a ‘brand-name’ man
ager.
•Traditions: Asset-based fees (‘AUM bps’) treat dollars like dirt, but one is easier to
move than the other.
Notwithstanding, just as the food industry was pressured to deliver organic foods to in
creasingly sophisticated consumers, a growing community of sophisticated LTIs is moving
away from overly processed and engineered financial products and is working to invest in
real assets in the real economy. To be clear, these investors are not going back to the era
of ‘pioneer bankers’ living in local communities funding rural projects. Rather, these or
ganic investors are using innovative tools that empower LTIs to take a long-term view in
their investments. They are rethinking their access points or even purchasing assets in lo
cal communities on a direct basis rather than from warehouses on Wall Street.
Page 6 of 25
Similar to food, then, organic finance may seem more expensive in the short term,
(p. 596)
as it requires far greater sophistication and knowledge within the LTIs. However, in the
context of the long-term costs and misaligned incentives associated with mainstream fi
nance, many LTIs rightly see organic finance as cheaper and more competitive over the
long term. It is difficult to quantify these gains and the costs, but they undoubtedly exist,
and academic research seems to confirm this emerging bias as correct (see Harris et al.,
2014; Chuprinin et al., 2015; Fang et al., 2015). For example, research shows quite clear
ly that opaque assets cost more than transparent asset, even with the same pay-offs (Sa
to, 2014). In addition, some might view the fact that organic finance accentuates home
bias as a problem, but Graham et al. (2009) show that a home bias can be prudent. In
deed, local investing relative to non-local investing can add up to 3.2 per cent per year in
incremental, annual investment returns (Ivkovic and Weisbenner, 2005). The authors of
these studies show that the outsized returns stem from a better understanding of the val
ue-relevant information about the assets (Coval and Moskowitz, 2001). Clearly, there are
potential problems with local investing when it is done poorly (see Hochberg and Rauh,
2013). Good governance is the key to ensuring it is done well; and, thankfully we have
plenty of frameworks to ensure this is the case (Clark and Monk, 2014a, 2015). Finally,
organic finance is ultimately about investing in companies and products that are sustain
able. New research shows that an investment portfolio made up of companies that per
form well on sustainability factors that are material to their business—materiality is the
key here—generates 6 per cent of alpha (Khan et al., 2015).
In sum, organic finance may appear more costly, but we believe it offers a pathway to de
liver sustainably higher-risk-adjusted returns. In our view, it is the lack of transparency
about the fee and cost ingredients, which represent, quite simply, the incentives under
pinning our entire investment industry, that are crippling financial capitalism today (Jen
nings and Payne, 2016). The models and products that purported to render finance
cheaper, easier, better, and more efficient represent some of the most costly products in
our society. We would even challenge the Nobel Prize-winning theory that portfolio diver
sification, optimized by intermediaries, offers a ‘free lunch’ (Ibragimov et al., 2011).
There is a cost to diversification, and it is the lack of understanding that comes with a
portfolio that cannot be appreciated and evaluated. The organic finance movement is thus
ultimately about taking the ingredients in our financial products, as with those in our food
products, more seriously. In the following sections, we describe how this can be done in
practice.
The Business of Institutional Investment

In order to understand how the financial services industry evolved over time, it helps to
start by reviewing some information about the very base of our financial system: the
savers. These savers, which come in the form of pension funds, endowments, sovereign
funds, foundations, and other LTIs, are the owners of assets in capitalism. Intermediaries,
such as venture capitalists, hedge funds, and other asset managers, get the money they
manage from these LTIs. Healthy capitalism thus demands that the asset owners (the ulti
Page 7 of 25
mate sources of capital) set appropriate incentives for the entire system, ideally in a man
ner that aligns the interests of asset owners with the sponsors of projects and companies
(the ultimate users of capital).
At the most basic level, LTIs exist because their sponsors decided to manage a set
(p. 597)
of future liabilities (explicit or contingent) by setting aside financial assets today and then
investing those assets in financial markets (Clark and Monk, 2012a; Dixon and Monk,
2012). There are two key reasons why an asset owner would look to establish a long-term
pool of financial assets: on the one hand, prefunding ensures plan sponsors are making
credible and legitimate financial promises, that is, they will actually meet their future
obligations. On the other hand, it is often hoped that the pre-funded financial assets will
grow, thanks to prudent investing, at a rate faster than the liability, the sponsor, and even
the overall economy. This means that future liabilities are met at a relative discount by in
vesting in financial assets (Clark and Monk, 2012b). And, in both cases, there is an as
sumption that financial markets offer a reliable mechanism to manage financial assets to
meet liabilities (Campbell and Viceira, 2002).
In looking to meet liabilities, the sponsors of LTIs have been comfortable with the idea
that their funds would be overseen and managed by a long chain of principal–agent rela
tionships (Dixon and Monk, 2013). LTIs are often just conduits to the for-profit financial
services industry, contracting for investment management services with external asset
managers. The problem here, however, is that the contracting mechanism of most institu
tional investors is woefully underdeveloped (see Clark and Monk, 2014a). Additionally,
most LTIs are not sufficiently resourced to recruit the people or build the systems neces
sary to be effective (Bertram and Zvan, 2009; Ambachtsheer, 2011; Bachher and Monk,
2012). And this fact—that many LTIs lack internal resources to oversee properly the long
chain of intermediaries and products—is largely underappreciated and ignored in the
marketplace (Neil and Warren, 2015).
When people see large pools of assets under management, they assume these pools can
be tapped for internal resources. That is not true, as there is often a strict firewall be
tween the investment capital and the operating budgets of these organizations, leaving
the latter woefully inadequate for the management of the former. It is for this reason that
the traditional institutional investor is outsourced, rarely possessing the expertise and
competencies to execute even the most basic financial transactions without the help of
external advisors. Most LTIs are seen by their sponsors as government agencies or uni
versity divisions rather than what they truly are: the base of capitalism. As a result, the
base of capitalism operates according to logics that are often not very capitalist.
Over time, the extended chain of principal–agent relationships and complexity that sepa
rated LTIs from productive assets became problematic. In particular, the injection of fees
and costs (ultimately, new incentives and motivations) at each link of the chain served to
distort the original intentions of asset owners (MacIntosh and Scheibelhut, 2012; Sharpe,
2013). The investment decisions made by asset managers often maximized the utility of
the asset managers (and not the asset owners); a phenomenon known as ‘broken
Page 8 of 25
agency’ (see Sheffer and Levitt, 2010). Moreover, each layer of intermediation further ob
fuscated the risks and costs being incurred by LTIs to achieve their return objectives. As
this information was lost, so, too, was oversight (Leiblein et al., 2002).
The agents turned the tables on the principals, as asset managers used complexity and
layers of intermediation to take advantage of under-resourced LTIs. The current model of
financial capitalism often sees agents disciplining the principals.5 This has created a ne
farious culture in which asset managers believe they are ‘masters of the universe’, pursu
ing massive ‘free-market’ paydays (Kinnel, 2010; Lo, 2012). The problem with this, how
ever, is that (p. 598) the market for asset management is not really free, nor is it efficient
(Spence, 2002). Research shows quite clearly that institutional investors are ‘gamed’ on
fees by their managers (Starks, 1987; Carpenter, 2000; Bebchuk and Fried, 2004; Phalip
pou, 2010; Foster and Young, 2010; Ellis, 2012; Robinson and Sensoy, 2013). And in cases
where transparency is difficult to achieve, such as in private markets, these problems are
exacerbated. Take private equity as an example: Phalippou and Gottschalg (2005) show
that net of fees, fund performance adjusted for risk underperforms the S&P 500 by 6 per
cent.
It is also worth noting that many LTIs pay managers to develop capabilities that do not fo
cus on long-term value creation. There is a big difference between a manager using high
fees to create long-term value and that same manager using those fees to create and col
lect ‘foreknowledge’, which refers to accurate predictions of short-term events. Fore
knowledge, research tells us, offers no social value (Hirshleifer, 1971). In fact, the focus
on foreknowledge is a social cost because including information into prices one week, one
day, or one millisecond earlier is unlikely to lead to more efficient allocation of resources
in the real economy. But many LTIs will pursue these paths because they appear, at least
on the surface, to offer products that can meet aggressive return targets.
When you put all of this together, it becomes clear that the sponsors of LTIs—often gov
ernment policymakers—created an environment in which the for-profit asset managers
could extract a disproportionate share of value in the course of their business. This hap
pened, in large part, because the sponsors could not stomach what was actually needed
to build an effective and professional LTI organization (Dixon and Monk, 2013). Specifi
cally, the sponsors of LTIs often preferred to pay low (highly transparent) salaries to the
employees and extremely high (but non-transparent) fees to external, for-profit providers.
This was the politically palatable choice, at least while the external fees remained opaque
and under-appreciated by stakeholders.
Asset managers are thus benefitting disproportionately from the politics of pension funds
(Clark, 2007, 2008), as the industry receives the equivalent of a subsidy when LTI spon
sors choose to under-resource their LTIs, while setting high expected return targets. In
this regard, today’s intermediaries are not all that different from the food industry’s corn
farmers in that they are benefiting enormously from governments’ spending choices and
priorities. Consider this: the financial industry is so reliant on the so-called government
handouts that when a government does take the step of building a professional invest
Page 9 of 25
ment organization, popular press presents it as ‘bad news for money managers and con
sultants hoping to grab a share of those assets’.6 What is unarguably good for a govern
ment and its citizens—professional management of assets—is bad for financial intermedi
aries. This is a reminder that the financial industry does very well from its unsophisticat
ed clients.
Today, we are seeing signs that the pendulum may have reached its extreme position. The
Securities and Exchange Commission has been investigating 400 private equity general
partners and found that ‘a majority of private equity firms inflate fees and expenses
charged to companies in which they hold stakes’.7 Similarly, on the asset-owner side, ma
jor public pension funds in the USA have recently admitted that they do not even track
the billions in fees they pay to asset managers.8 Many LTIs present incomplete fee pic
tures in their annual reports: some focus only on base fees and bury performance fees in
net return numbers, while others make no attempt to quantify the implicit fees associated
with holding, moving, or trading assets (despite the fact that the implicit numbers, such
as spreads and transaction costs, can be very high). Is it any wonder that the financial
services industry in the USA captures a third of all corporate profits and creates more bil
lionaires than any other industry by a factor of two?
The present value of the average fees paid by asset owners to asset managers
(p. 599)
over a thirty-year period amounts to approximately one-third of the assets invested, which
is a lot of money to pay a manager that is not, on average, going to beat passive bench
marks (Greenwood and Scharfstein, 2013). And therein is the problem: most of the highly
paid professionals do not outperform the broad market indices over time. Fama and
French (2010) highlight that mutual funds underperform passive benchmarks even more
when you layer in fees. And even where returns are delivered above benchmarks, risk ad
justing those returns for tail risk removes the alpha (Jurek and Stafford, 2011).
All of this wealth flowing into a single industry that is not, in aggregate, adding much val
ue is having a variety of negative externalities. It’s obviously luring our best and brightest
minds away from socially productive uses and putting them in the business of cultivating
foreknowledge (Murphy et al., 1991). It is also driving increasing short-termism and
changing the allocation of resources in our economy. The only way to remedy these prob
lems is, in our view, to show the boards and, indeed, sponsors of these organizations the
true cost of financial intermediation. Fee and cost transparency is a first step on the path
towards LTI professionalization. As we show in the next section, organic finance therefore
focuses on understanding the ‘hidden’ costs of finance and investment, as this will not on
ly help us understand the incentives being created, but also demonstrate to the world the
real cost of investing and trigger a massive round of LTI innovation and improvement.
Organic Finance
We use the term ‘organic’ to reference any relationship in which the elements that fit to
gether do so harmoniously and as a necessary part of a broader system of complexity. In
other words, organic refers to something sustainable, healthy, and long term. In our con
Page 10 of 25
ceptualization, organic finance refers to a form of investment that focuses investors’ at
tention on all the ingredients in investment products so as to appreciate the short and
long-term costs and consequences of those ingredients on value creation and perfor
mance. In essence, organic finance re-emphasizes the importance of LTIs in the invest
ment world and de-emphasizes the often over-glorified for-profit financial services indus
try.
The term organic has been used frequently in business or corporate contexts. For exam
ple, organic production refers to a process devoid of artificial catalysts or stimulants,
rooted in ‘natural’ and thus sustainable inputs and outputs (Davidsson et al., 2006). Or
ganic growth refers to a business growing on its own and without mergers or acquisitions
(Davidsson et al., 2006). In our context, organic (finance) is about generating high invest
ment returns without relying on artificial catalysts or opaque inputs that focus on short-
term performance with dubious consequences for long-term commercial health and per
formance. Similar to how the organic farming industry avoids pesticides known to create
long-term harm to consumers, organic finance seeks to understand the effects of artificial
catalysts the finance industry uses and remove those with long-term consequences that
are harmful. Organic finance is about reintroducing the notion of long-term value cre
ation and sustainable growth back into capitalism. Figures 31.1 and 31.2 illustrate the
shift from an opaque, overly packaged form of finance towards a more transparent, pro
fessionalized version of long-term investing—organic finance. (p. 600)
Figure 31.1 Existing Opaque, Overly Packaged Form

of Investment Management.
SWF, sovereign wealth fund.
(p. 601)
Page 11 of 25
Figure 31.2 Organic Finance: Greater Investor Re

sponsibility on Fees and Efficiency of Investment Ac
cess Points.
We build on the work of Ang (2014) and his focus on risk factors as ingredients in finan
cial products. We expand it to consider the fees and costs, and their associated incen
tives, as additional key ingredients (and alignment factors) affecting long-term perfor
mance. If factor investing requires looking beneath the asset class or financial product la
bels to the underlying risk exposures (Ang, 2014), organic finance requires looking be
neath the products and mandates to the underlying incentives that are being created. An
organic investor will seek to understand the most efficient and aligned access points to
access risk factors, given the fees and costs (incentives).
At its core, organic finance is about recognizing short- and long-term costs with the goal
of encouraging more long-term investing, which research shows can provide significant
benefits to society (see Clark and Monk, 2015). Long-term investments in infrastructure
and green technologies are needed to help overcome some of the looming global chal
lenges of population growth, urbanization, and climate change. Infrastructure assets, in
particular, are the physical facilities that provide the building blocks of a functioning soci
ety. Institutional investment into these assets can directly support the well-being of
households, as well as production activities of enterprises at various points of the value
chain (Sharma, 2012). The International Monetary Fund’s ‘World Economic Outlook’
report (2014) reveals that an increase of one percentage point of gross domestic product
in public investment (used as a proxy for infrastructure investment) spending raises the
level of output by about 0.4 per cent in the same year and by 1.5 per cent four years after
the increase. Investments in other long-term, private-market asset classes can also be
seen to have wider economic impacts. Venture capital investments that back entrepre
neurs and new businesses, for example, have been proven to contribute to economic de
velopment (Timmons and Bygrave, 1986; Kortum and Lerner, 2000; Sampsa and Soren
son, 2011). Similarly, certain real-estate development investments have provided econom
ic benefit, particularly those in underdeveloped areas that could be classed as targeted
Page 12 of 25
investments (Hagerman et al., 2007). In our view, organic finance can help investors find
aligned access points to these assets.
So how do we begin to usher in this new era of organic finance? We see two keys to this
phenomenon.
Firstly, a key driver that must underpin the organic finance movement is a desire among
LTIs to better understand the potential inputs and outputs associated with a given strate
gy or product. Being an organic investor requires a deep understanding of the services
and products and specifically the underlying assets, risks, fees, and costs. Just as the food
product ingredients placed on packaging (which helps consumers make more intelligent
food choices) drove the rapid rise of the organic food industry, so, too, will a close scruti
ny on financial product ingredients serve to drive the organic finance industry.
Secondly, while the initial focus of organic investors will be on the risks, fees, and costs of
their financial products, this is just the first step in changing behaviours. For example,
the people that consume organic food, we know from the research, pay very close atten
tion to how the food is prepared (Guthman, 2003). Put another way, the organic food
movement does not stop at the purchasing of the food. The knowledge of an organic con
sumer shapes his or her ‘tastes’ and drives consumption behaviours towards more
healthy products. Similarly, additional steps taken by LTIs to understand their products
could usher in a new era of investment in which LTIs change the way they construct port
folios. It is perhaps for this reason that some have even called for an equivalent of a Food
and Drug Administration for finance (Weyl and Posner, 2012). The role of regulation for
increasing transparency cannot be underestimated and will be crucial for achieving the
intended objectives. Indeed, the (p. 602) knowledge that will come from a close under
standing of the fees and costs of financial products will provide a deeper understanding
of the financial industry, which, in turn, will catalyse greater professionalization of LTIs.
Through an emphasis on transparency, driven by more professional LTIs, the understand

ing that comes with organic finance will spur a variety of positive externalities for the in
vestment industry and generally speaking, the world, including:
Better Understanding Fee structures have the potential to dampen the volatility (risk)
of certain asset classes, which means that asset owners can misunderstand their risk
exposure. Is a university endowment with 80 per cent allocated to alternative asset
managers doing a good job if it generates 10 per cent returns? We would argue that
many endowments could not explain the returns generated per unit of risk and per unit
of cost. The reason is that they often do not know how much risk their external man
agers are actually taking or how much they are really paying those managers. The au
thors of this study have been told by senior managers at major endowments and foun
dations that ‘they’d rather not know’ how much they are really paying their managers.
And yet, understanding risks will help avoid preventable crises, and getting to the core
of the risks means understanding the fees being paid to the managers.
Free Money For large institutional investors, even the smallest savings in costs can
have a significant impact over time. This is all the more true in a low-interest-rate envi
Page 13 of 25
ronment, where saving basis points really is important. Most LTIs are overly focused
on being frugal with internal teams and systems and do not pay attention to external
teams. A more holistic frugality will offer unique benefits. Also, we cannot think of any
thing else an investor can do to generate risk-free returns than get a cheaper access
point to the same risk exposure. Why is there no big provider of ‘implementation al
pha’ today?
More Efficient Labour Market By overpaying certain asset managers (e.g. hedge
funds), we as a society are telling people that you can make real money through the
adroit playing of short-term, zero-sum games. Top business school graduates rarely
work for asset owner organizations such as a public pension fund. Conversely, top PhD
graduates in the pure sciences (mathematics, physics, chemistry) are lured into hedge
funds. By digging into the fees and costs of finance, we can provide appropriate incen
tives that do not distort labour markets.
Economies of Scale When people look at in- or outsourcing decisions, they often look
only at the cost and benefits at a single point in time. They rarely consider future peri
ods where the costs paid to (p. 603) external parties allow economies of scale to accrue
to those parties. By ceding capabilities to the private sector at a single point of time,
an LTI may be relegating itself to a disadvantageous negotiating position in the future
(Burton, 2013). Moving to an organic finance industry in which the asset owners are
fully professional will allow the economies of scale to accrue more evenly among asset
owners and asset managers.
In sum, more professional LTIs will take a longer-term view and bring a more harmonious
version of finance-led capitalism than the one we have today (see Hawley and Williams,
2000). That is the benefit the organic finance movement seeks.
Enlisting Economic Geographers

The financial economy is often perceived as separate from the real economy (Maurer,
2008; O’Neill, 2009). Financial products have, indeed, moved investors away from real as
sets and risks via segments or slices of assets (Clark and Monk, 2014b). While these prod
ucts ultimately rely on the performance of some underlying asset, they are de-localized.
Significantly, the removal of local or idiosyncratic risk was perceived to be a feature
rather than a flaw, as it allowed for wide diversification. And yet, as we argued earlier, the
layers of complexity and abstraction results in too much opacity and complexity. And it is
in these grey areas, the shadows, that financial intermediaries have consolidated their
power.
We believe the organic finance project could generate a series of benefits for companies,
project sponsors, LTIs, and even capitalism. We believe it will usher in a generation of
professional and capable LTIs, which can create new incentives for long termism and sus
tainability. But for this vision to become a reality, a new research programme that re-af
firms the value of the ‘local’ in finance and shines light in the shadows is warranted. Ac
cordingly, we believe there is a significant role to be played in organic finance by econom
Page 14 of 25
ic geographers. More to the point, this project could benefit greatly from the addition of
social scientists that are not pure economists.
The economics discipline operates at an abstract level and seeks generalizations and
broad theories; it is a world of models driven by mathematics (Lazear, 2000). To an ex
tent, these models allowed the financial services industry to operate with little account
ability as to the fees and costs being charged. A bottom-up approach that prioritizes the
‘ingredients’ in painstaking and rigorous detail—qualitative details—may add significantly
to our understanding of financial incentives and alignment (Clark, 1998).9 This is where
economic geographers can serve a useful purpose, as they focus on the rich texture of
contemporary economic circumstances (Clark et al., 2003; Arnott and Wrigley, 2001).
Economic geographers tend to use bottom-up methodologies, such as case studies and
fieldwork in order to conceptualize and, eventually, theorize (Clark, 1998). Geographers’
training involves a deep appreciation for outliers as well as contingencies and idiosyn
crasies of all kinds of economic actions and actors. This focus on local differences has
pushed the discipline towards less quantitative approaches or abstractions. In fact, eco
nomic geographers specifically seek to reconcile the unevenness of economic activity
with some broader understanding of economic landscapes (Graham and Marvin, 2001;
Clark and Wójcik, 2007). For example, the financialization conceptualization within eco
nomic geography tries to provide a better understanding of the machinations of financial
actors and intermediaries that are reshaping the landscapes of contemporary capitalism
(Faulconbridge and Muzio, 2009; Pike and Pollard, 2010; French et al., 2011).
We believe the community of economic geographers can thus play an important

(p. 604)
role in mapping the fees and costs of financial intermediation and institutional invest
ment, even offering investors ‘recipes’ and ‘blueprints’ for how they might invest with
better ingredients or more sturdy organizations (Wójcik 2011, 2013). Geographers can be
proactive in pushing for granular and face-to-face conversations about the implicit costs
of investing, which often require a tacit understanding of how these costs are levied (see
Gertler, 2003; Storper and Venables, 2004). The data on fees and costs are also often hid
den, which means public data do not exist and, as such, economists are not going to have
the key input (i.e. quantitative data) in their methodological approach.
It would not be the first time geographers turned their research focus to some fundamen
tal problems in finance. Nearly thirty years ago, Botts and Patterson (1987) first argued
that the economic impact of pension plans on regions was an area of inquiry necessitat
ing further investigation and understanding. It was then Gordon Clark’s body of research
on the design and governance of pension fund boards that is today guiding the manner in
which these institutional investors govern their operations, from Australia and the USA to
Europe and Asia (see Clark (2000) as the first book in a series by Clark). Financial inter
mediaries, metrics, and practices are ever-more engrained in the economic geographies
of our personal, working, and public lives through our access to and use of bank ac
counts, mortgages, pensions, and savings; employers’ ownership; access to capital and fi
nancing; and public infrastructure and services (O’Neill, 2009). This includes a deeper
Page 15 of 25
understanding of the packaging and securitization of private assets, such as urban infra
structure into financial products (Clark and O’Connor, 1997; Faulconbridge et al., 2007;
Torrance, 2009; Knight and Sharma, 2015). In short, the geographical research endeav
our is truly an emphasis on what sits between theory and practice and how to reconcile
and, indeed, solve any issues that may arise in that hard-to-define ‘place’ or ‘space’ (see
Bathelt and Glückler, 2011). Organic finance will require the services of economic geog
raphers.
Conclusions
Some view LTIs as if they are post-office boxes; a place where sponsors send money be
fore it is forwarded on to other ‘professional’ managers to deal with. But LTIs can no
longer be a pass-through from the plan sponsor to external money managers. They have
to professionalize. This seems self-evident given they are the foundation of capitalism, but
many are comfortable operating in non-capitalist ways. But this is no longer tenable, as
the financial innovations of the last decades have substantially increased the complexity
of instruments and services. With all of this new complexity, the costs of financial inter
mediation are increasingly difficult to identify, rationalize, and minimize. Worse, these
costs create new and hard-to-appreciate incentives that are driving short termism and un
sustainable practices. This raises the question: How do we transition the finance industry
towards a more ‘organic’ approach to investment?
For the most part we know what we need to do to fix the problems of finance: we need
the base of our capitalist system to professionalize. As we have argued, we genuinely be
lieve that sophisticated asset owners are needed to save capitalism from endemic short
termism and rent seeking and unlock the capital we require to finance critical projects. In
order to professionalize, we need to improve the governance of public investment organi
zations, but changing governance regimes can be a difficult undertaking. Many institu
tional investors have (p. 605) proven incapable of managing change within their organiza
tions, allowing inertia to be a key factor influencing decision making. So the more impor
tant question today is how to catalyse the sorts of changes we need.
In our view, cost and fee transparency is the most viable catalyst for innovation and
change, as it demonstrates unequivocally that the status quo in finance is not sustainable.
In the same way that food now comes standard with details on calories and ingredients,
so too should finance come with easy-to-understand labels that describe the true cost of
financial intermediation. The reason, then, to push fee transparency stems from the ob
servation that we need to change fundamentally the business of asset management if we
are going to have any chance of solving some of the intractable problems of our genera
tion. Boards and sponsors of LTIs have not invested in professionalization of their invest
ment teams because they have not yet seen the true cost of the outsourced investment
model. Paying an internal investment team US$20 million may seem costly on its own.
But it seems cheap when you consider the same service and performance costs US$200
million per year when it is paid to a team outside a pension fund (CEM Insights, 2010).
Page 16 of 25
We believe that if a pension fund or endowment board—let alone their sponsor or general
public—saw how much LTIs were paying Wall Street for their products, asset owners
would be inclined or even forced to professionalize (Ellis, 2012).10
In sum, this chapter makes two main arguments: (i) capitalism needs greater profession
alism and sophistication among asset owners; (ii) the only way to develop this is to
demonstrate the true cost of external professionals and the distortions these costs are
creating for capitalism. It is only in recognizing the true ingredients, and their incentives,
that LTIs will finally organize themselves to consume ‘healthier’ financial products. In our
view, a research programme that scrutinizes not only the actors and agents of finance,
but also the evolution of financial product ‘packaging’, will be required. The methods and
holistic approach of economic geography will be valuable in this regard, especially com
pared with the traditional forms of finance and economics research. In the world of or
ganic finance, the work of economic geographers will be critical.
Acknowledgements
The authors acknowledge the direct support of Stanford University’s Global Projects Cen
ter and the members of the research consortium on institutional investment. Members of
the research consortium provided access, field assistance, and partial support of staff
salaries throughout this project, though members were not involved in the formation of
the chapter’s content and argument. The authors would, however, like to thank Jagdeep
S. Bachher, Gordon L. Clark, Elliott Donnelley II, Raymond Levitt, Derek Murphy, Duncan
Sinclair, and Darek Wójcik for their insights and suggestions. Any errors or opinions here
in are the authors’ own.
References
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Notes:
(1.) Trans fats are still common in some areas despite the fact that we know they con
tribute to obesity; processed meats are also still popular despite the fact that they have
been shown to cause cancer (see Bouvard et al., 2015).
(2.) Moreover, lower- and middle-class families often have no other choice, as they are
forced to live in ‘food deserts’ in which only fast food is available.
(3.) Part of getting transparency may require understanding attribution and coming to a
view on the debate over luck versus skill in asset management. There is an enormous lit
erature focused on luck versus skill that we only touch upon (see Cornell, 2009 for a com
plete review). Asset owners should pay for skill not luck.
(4.) Novy-Marx and Rauh (2009) highlight the internal conflicts of pension funds, showing
that they are pushed to invest in high-risk assets so they can justify a higher discount
rate.
(5.) This is particularly true in the context of the endowment model of institutional invest
ment, in which asset owners often see their most important job as getting access to top
managers, no matter the cost.
(6.) http://www.pionline.com/article/20150601/PRINT/306019976/ontario-hopes-to-create-
investment-management-firm (last accessed 10 April 2017).
(7.) http://www.bloomberg.com/news/articles/2014-04-07/bogus-private-equity-fees-said-
found-at-200-firms-by-sec (last accessed 10 April 2017).
(8.) http://fortune.com/2015/09/04/calpers-still-cant-get-out-of-its-own-way-on-private-eq
uity/ (last accessed 10 April 2017).
(9.) The act of going and seeing for yourself the real people or assets that are at the heart
of traded financial products was emphasized with dramatic effect in Michael Lewis’s The
Big Short: Inside the Doomsday Machine about the 2007–09 subprime mortgage crisis. In
the book and later film, hedge-fund manager Mark Baum decides to travel to Miami, to in
vestigate for himself the financial credibility of those purchasing the mortgages, and how
the mortgage brokers were incentivized. The trip confirmed the suspicion of a speculative
housing bubble with most big banks entrenched, ultimately leading to the collapse of the
global economy.
Page 24 of 25
(10.) And, once the true cost of financial intermediation is uncovered (Fang et al., 2015),
there is a growing body of research conducted within economic geography and other dis
ciplines that can help asset owners reorganize (Clark and Monk, 2012c; Clark et al., 2012;
Bachher and Monk 2013; Dixon and Monk, 2014; Clark and Urwin, 2008, 2010).
Ashby H.B Monk
Ashby Monk ([email protected]) is the Executive and Research Director of the

Stanford Global Projects Center. He is also a Senior Research Associate at the Uni
versity of Oxford and a Senior Advisor to the Chief Investment Officer of the Univer
sity of California. His current research focus is on the design and governance of insti
tutional investors, with particular specialization on pension and sovereign wealth
funds. He has published several articles and op-eds on institutional co-investing, pen
sion funds, and ethical investment. His research and writing has been featured in
The Economist, The New York Times, The Wall Street Journal, The Financial Times,
Institutional Investor, Reuters, Forbes, and on National Public Radio, among a vari
ety of other media.
Rajiv Sharma
Rajiv Sharma ([email protected]) is a Research Director at Stanford

University’s Global Projects Center and an honorary research associate at the Oxford
University Smith School of Enterprise and the Environment. He received his Doctor
ate from Oxford University in the field of Pensions, Sovereign Wealth Funds and In
frastructure Investment. Prior to his position at Stanford, Rajiv worked as an econo
mist for the Organisation for Economic Cooperation and Development (OECD) in
Paris. Promoting long-term investment by institutional investors is a focus of his cur
rent work at Stanford and through this, he has worked with a number of global insti
tutional investors and governments. His latest book is entitled Reframing Finance,
which looks at how more institutional investor capital can be channelled into long-
term projects like infrastructure, real estate, private equity and agriculture through
collaboration and co-investment. He has also worked for venture capital private equi
ty firm Oxford Capital Partners and London-based Infrastructure/Private Equity Advi
sory firm, Campbell Lutyens.
Page 25 of 25
Financialization of Everyday Life

Karen Lai
This chapter identifies three key research themes for investigating the financialization of
everyday life, whereby individual subjectivity, aspiration, and forms of conduct at the lev
el of individuals and households are increasingly tied to financial structures and logics.
The first theme analyses how new intermediaries of finance have increased the influence
and pervasiveness of financial instruments and solutions in everyday life. The second ex
amines the discourse of risk taking and self-management that has shaped the formation of
financial subjects. The third concerns the role of the state in financialization and consid
ers whether it is a distant or reactionary agent in ‘context’ or a strategic actor who mobi
lizes financialization scripts for political–economic purposes. A research agenda is put
forward that highlights the household as a key site from which to explore the construc
tions and practices of financialization and proposes specific areas for future research.
Keywords: financialization, financial subjects, households, investment, state, consumption
Introduction
THE global financial system, the influence of financial markets on corporate governance
and national policies, and the broader implications of financial logics for governing eco
nomic and social lives have recently become more important in economic geography re
search (Hall, 2012). This is particularly evident in the traction gained by the concept of fi
nancialization among geographers and other social scientists as a way of describing the
growing power of financial markets and financial institutions in economic, political, and
social life (see Engelen, 2008; Pike and Pollard, 2010; French et al., 2011). Studies range
from how the finance sector dominates national political economies (Blackburn, 2006;
Dore, 2008), to how firm strategies and management are increasingly beholden to the
logics of finance (Williams, 2000; Froud et al., 2002; Krippner, 2005), and the ways in
which households and individuals are tied into increasingly complex relationships with
the international financial system (Martin, 2002; Langley, 2008a). In most conceptions,
the adoption of financial logics is rendered either as an exogenous shock to political
Page 1 of 21
economies, as they are ‘captured’ by finance and financial actors, or as an unintended

consequence of deregulation and changes in monetary policy in order to attract capital
(see Streeck and Thelen, 2005; Krippner, 2012). This shift in financial logic and behaviour
is also evident at the level of individuals and households. Habits of saving and financial
planning have transformed over time as everyday lives and life cycles (relating to hous
ing, consumption, health, retirement, death, etc.) are increasingly tied to the perfor
mance of financial markets, with individuals seeking market solutions for personal life
goals and future security.
While this chapter focuses on everyday financialization, studies at the macro-institutional

level and firm level are useful in contextualizing the processes and impacts of financial
ization as they unfold in the realms of everyday life.1 Institutional studies that interrogate
the interdependent relations between financialization and neoliberal governments demon
strate how multiple rounds of deregulation and government support fuelling the growth
of finance industries have reified financialization as the ideal technique of governance.
Firm-level (p. 612) studies from critical social accountancy also demonstrate how the in
creasing power of shareholders and their desire to raise corporate value has pressured
management to seek out wealth creation in non-traditional venues, such as financial and
property markets, rather than through production or innovation (Froud et al., 2000,
2006). This ‘narrative of numbers’, in which key financial indicators such as shareholder
value become prominent metrics of success, has resulted in distinctive changes in firm
behaviour and corporate governance, away from core business activities and towards fi
nancial investments and indicators. Financial markets, instruments, and logics are in
creasingly framed as solutions for governments and firms in solving budgetary crises or
in seeking new growth strategies (Dymski, 2009a; du Gay et al., 2012). This increasingly
privileged position of finance promotes new forms of calculative and competitive econom
ic behaviour in the contemporary neoliberal era (Duménil and Lévy, 2004; Larner, 2012).
Other than analysing the processes and impacts of financialization on firms and regions
(Pike and Pollard, 2010; Coe et al., 2014), geographers have been particularly influential
with respect to culturally inflected sociological research on how finance shapes everyday
life within contemporary capitalist societies. The operation and impacts of financialization
at the individual level reflects how increasing consumption of financial products and the
growing acceptance of financial logics in the context of dwindling state-welfare benefits
normalizes risks and risk-taking behaviour (Martin, 2002). Individuals adopt new modes
of self-governance and reflexivity to monitor their investments and consumption habits.
Changing practices of borrowing and saving are also seen in both the rise of credit card
and other debts, and in the channelling of savings into insurance and investment prod
ucts rather than conventional bank deposits. Changing state policies, new technologies
on credit scoring and securitization, and the rise of middle-class consumers in developing
economies are also changing the nature and impacts of financial consumption and finan
cialized behaviour. While some view this as a democratization of finance and investment
to a broader public (i.e. a growth market), others see it as the creation and extension of
new risks with spatially uneven impacts.
Page 2 of 21
The financialization of everyday life involves the making of finance capitalism through
particular narratives, actors, and technologies that emphasize individual responsibility,
risk taking, and calculative assessment in managing personal financial security and well-
being. The 2008 global financial crisis has highlighted the profound changes to relation
ships between households and global financial markets. However, through more than just
predatory lending practices to vulnerable households and communities, the unfolding and
impact of the subprime crisis demonstrate a much broader expansion of financial power,
in which individual subjectivity, aspiration, and forms of conduct at an individual level are
directly linked to global financial structures. This calls for more systematic and incisive
analyses into the household and its constituent elements in the construction and mobiliza
tion of financialized behaviour and outcomes. The rest of this chapter is divided into three
sections that trace the historical growth of financialization at the household level, assess
the current research approach that emphasizes financial subjects and governmentality,
and suggest a renewed engagement with the state as a vital and strategic actor in finan
cialization for future research directions. The conclusion reflects on the role of cultural
economy in studying the financialization of everyday life and broader issues of equitabili
ty and sustainability.
(p. 613) New Intermediaries of Finance

The financialization of everyday life has been accelerated by important technological and
institutional developments over the last few decades, although its beginnings could be
traced further back. Since the mid-1800s, industrial life assurance and cheque trading
(known collectively as ‘doorstep finance’) were based on sales and service by door-to-door
agents and lenders with weekly collection of contributions towards small life-assurance
policies and the issuance of credit cheques. These were established in Victorian Britain
and the USA to provide the means to certain forms of consumption for the growing work
ing class (Zelizer, 1983, 2011; McFall, 2015). In the early years, the life-assurance indus
try grew out of the demand for funeral coverage, as it constituted a large expense for one
of the most important ritual events in the life cycle. Over time, policies expanded to in
clude endowment and pension plans that could be used to pay for other important life
events such as weddings, anniversaries, and big-consumption items like houses, cars, and
other consumer products. While operating on a much smaller scale than industrial life as
surance, cheque trading or door-step lending also played an important role in changing
the consumption patterns of individuals and households, as the credit issued (in the form
of cash cheques that carried a fee plus interest) enabled poorer households to buy subsis
tence goods initially but was later utilized for larger consumer items. Such forms of finan
cial services continue to operate in particular regions and neighbourhoods that have been
excluded by mainstream financial systems, as those households often do not fulfil re
quired credit ratings (Leyshon et al., 2004).
The impact of information technology on the intermediation of financial products and ser
vices has been particularly influential in the growth of credit scoring. Over the last fifty
years, a technocratic, statistical expertise has been gradually applied by lenders to regu
Page 3 of 21
late the problem of default by borrowers, which, in practice, reframes consumers and
their attributes as various forms of ‘legible’ and calculable risks, such that they become
amenable to new forms of government (Marron, 2007). Whereas credit used to be grant
ed and managed by individual retailers such as large department stores and mail-order
companies, the postwar boom saw the entry of financial institutions into the profitable
provision of credit for immediate personal consumption (rather than long-term purchase
with collateral such as property).
The issuance of general bank credit cards represented a new form of mass consumer
credit and required new ways of calculating and managing information and risks in the
form of categorical, quantified data. Credit scoring and the process of constituting risk
provided the lender with new means of understanding and managing individual con
sumers by stringing together commercial considerations of default, operational costs of
the firm and standardization of credit approval procedures. Moreover, the ‘objectivity’
produced in scoring also enabled lenders to deploy statistical models as a means for re
futing claims of unlawful discrimination in credit granting. The use of credit-scoring tech
nologies became ever more pervasive with the widespread adoption of credit cards
among Anglo-American consumers, the growth in computing power for statistical model
ling and the electronic storage and management of data. These, in turn, drove lenders to
pursue an ever-larger customer base for economies of scale and contributed to increased
consumption and household debt over the last two decades (McFall, 2008; Langley, 2009;
Marron, 2009).
The conceptualization and management of credit risk took on a powerful narra

(p. 614)
tive as it became colonized by new credit bureaux and credit consultancy firms. These are
the electronic repositories of the credit histories of almost all credit consumers in the
country of jurisdiction, derived from the records of all mainstream consumer lenders (be
they financial institutions or department stores), which are, in turn, used as a resource by
lenders in guiding credit assessment (Leyshon and Thrift, 1999). Credit scores are thus
transformed into a commodity that can be sold to lenders who, for whatever reason,
would rather not formulate risk-assessment models of their own. Concerns regarding de
faults by consumers have also created new measurements for over-indebtedness that con
nect individuals’ attributes and life events, such as unemployment, illness, marital
changes, age, education, and number of children, to their credit ratings (Marron, 2012;
Deville, 2015).
The construction of individuals as quantifiable risks has also become entangled with
broader uncertainties experienced by financial institutions at large as they trade entire
portfolios of loans encompassing an array of consumers and credit agreements. This is
done through the process of securitization, another important technology of intermedia
tion that has become particularly prominent over the last two decades. Securitization
takes an illiquid asset or groups of assets and repackages them into a tradable form of se
curity, which could then be moved off the balance sheet of the issuing entity (thus improv
ing its financial position and enabling new rounds of accumulation). The ways in which
securitization and financial engineering created new forms of relationships between
Page 4 of 21
households and the larger financial system, and new risks, came under the spotlight dur
ing the 2008 subprime mortgage crisis and credit crunch (Langley, 2008b; Christophers,
2009; Aalbers, 2009a).
In the past, loans were funded primarily from savings that went into financial institutions.
This was seen as limiting as financial markets could provide cheaper and more available
sources of funds compared with savings alone. Securitization thus enabled mortgage
lenders to sell their mortgage portfolio on secondary mortgage markets to investors. In
the same process, those mortgages were taken off the balance sheets of mortgage
lenders, which frees up more equity for more loans. However, secondary mortgage mar
kets are global markets, which means that a crisis of mortgage securitization soon affect
ed institutions, investors, and economies around the world—from Chinese sovereign
wealth funds to German pension funds and from Swiss investment banks to Singaporean
municipal councils (Aalbers, 2009b; Martin, 2010). Through securitization, housing has
become an electronic instrument for high-risk finance (Sassen, 2009), as well as the basis
for the creation of new topographies of race and class on the urban landscapes (Dymski,
2009b; Wyly et al., 2009). The ‘calculating tools’ and ‘technical devices’ of credit scoring,
computer technologies, statistical models, and securitization have therefore been crucial
intermediaries of financialization in the assembly of new consumer markets, and the en
tanglement of daily lives, life events, and livelihoods into contemporary financial markets.
Financial advisors are also key intermediaries in the financialization process. More than
just connecting the supply and demand of financial products, financial advisors shape the
financial knowledge and investment practices of consumers and their modes of articula
tion into capital markets. Finance is performed on a daily basis not only by investors, but
also by financial institutions, managers, marketing professionals, and political actors
(Clark et al., 2004). More than just standardized forms of technical expertise, financial
advisors perform and legitimize new cultural circuits of (financialized) capitalism (Thrift,
2005) that help assemble particular kinds of investor subjects for contemporary systems
of (p. 615) accumulation. Financial advisors themselves can also be seen as knowing sub
jects (Larner, 2012) governed by different modes of corporate management, industry
structures, remuneration structures, and incentivizing schemes that result in variegated
encounters and practices with clients. While this is not the place for an in-depth case
study, an illustrative discussion of the industry structure and professional practice of the
financial advisory sector in Singapore could provide some useful insights into these inter
mediaries of financialization.
Financial advisors for the mass market in Singapore are largely divided into three groups:
insurance agents based in major insurance companies; wealth managers or relationship
managers employed by retail banks; and independent financial advisors affiliated with in
dependent financial advisory firms. Other than the basic function of advising clients on fi
nancial planning, product information, and transactional services, all three types of finan
cial advisors operate under distinctive corporate environments. Only relationship man
agers with banks are salaried employees, while insurance agents and independent finan
cial advisors are self-employed, and they are completely reliant on commission and other
Page 5 of 21
incentives for remuneration. The actual range of financial products that financial advisors
can recommend and provide transactional services for are surprisingly limited and depen
dent on their affiliated companies. They range from only in-house products to an exten
sive list of licensed external products. This provides highly variable motivation for tailor
ing financial advice and sales tactics to clients depending on product availability and in
centive structures (tied to overall sales targets or product-specific bonuses). The types of
financial advisors that potential clients are likely to engage is also influenced by new or
existing banking relationships (in the case of relationship managers) or family and other
personal networks (more often the case with insurance agents and independent financial
advisors), which, in turn, affects the financial advice (given whether more insurance- or
investment-oriented) and the actual financial investments.
Taken together, different types of financial advisors operate under distinctive forms of
employment, remuneration and incentives structures, licensed products, client base, and
institutional reputation. These often have a direct impact on their professional practice in
terms of the financial planning process, product recommendations, and sourcing for new
clientele. Instead of adhering to principles of financial protection and catering to clients’
life stages and financial goals, financial advisors may lean on established reputational ef
fect of their companies to sell only particular types of products or they may follow exist
ing preferences of clients to achieve quick sales, rather than deliberately ‘educating’
clients on more comprehensive financial planning and less popular products for better
risk management.
The financial advisory sector in Singapore hints at the complex ways in which consumers
are drawn into different forms of financial relationships and their uneven access to infor
mation and resources. The financial system can be recast as a coalition of smaller consti
tutive ecologies, such that distinctive groupings of financial knowledge and practices
emerge in different places with uneven connectivity and material outcomes. Instead of a
democratization of finance, whereby financial products and services are made available
to mass consumers and individuals have greater freedom to protect against the uncertain
ties of life through financial planning, such financial ecologies reveal the partial and un
even process of financialization through key intermediaries like financial advisors (French
et al., 2011; Lai, 2016).
(p. 616) Financial Subjects and Governmentality

The ways in which discourses of risk-taking and self-management have shaped the behav
iour of individuals and households constitute one of the most vibrant areas of research in
the financialization of everyday life. The shift towards financial markets for the provision
of people’s daily needs and longer-term security and well-being is facilitated by specific
narratives that emphasize individual responsibility, the normalization of risk and calcula
tive assessment in financial management, and, by extension, the management of life
stages and life goals. This concerns not only the material outcomes of financialization (in
terms of new growth markets in insurance and investment products and increased finan
Page 6 of 21
cial flows), but also its impacts on the subjective understandings of one’s role within the
political economy and a convergence of finance and the life cycle (Cutler and Waine, 2001;
Martin, 2002; French and Kneale, 2009; Zelizer, 2011). Individuals adopt new modes of
self-governance and reflexivity to monitor their investments and consumption habits. Re
lated studies on behavioural geographies have mapped the ways in which the wider finan
cial environment shapes understandings of ‘rationality’ in investments and retirement
strategies made by British households and individuals (Strauss, 2008; Clark, 2010; Clark,
2011). Wider processes of financialization are thus underpinned by the promotion of new
forms of economic behaviour in the contemporary neoliberal era (Larner, 2012).
Langley’s (2006) seminal work demonstrates how neo-liberal governments in the USA and
UK encourage citizens to participate actively and invest in financial products for retire
ment, ultimately legitimizing state reductions in pensions benefits (Finlayson, 2009a).
This draws from Foucault’s notion of governmentality—how states regulate behaviour ‘at
a distance’ through discursive production of knowledge and techniques of self-gover
nance (Barnett, 2001) that motivate subjects to ascribe voluntarily to self-disciplinary
ways in order to achieve ‘rationality’. Financial planning becomes a form of biopower
whereby investor subjects are mobilized to plan, calculate, and invest wisely to fulfil and
secure their future well-being (Langley, 2008a). In the process of producing these new
subjects of sophisticated, calculative investors, financial risk is effectively reshaped into
something that is manageable by individuals through wise and calculative ‘technologies
of the self’ (Langley, 2006). Through discourses of ‘personal responsibility’ and ‘self-suffi
ciency’ produced by state-sponsored financial literacy programmes, individuals are nor
malized as responsible for their own financial well-being (Martin, 2002).
By focusing on risk taking and self-management, scholars identify the formation of the ‘fi
nancial subject’ or ‘investor subject’ (Langley, 2006; Aitken, 2007; Langley and Leyshon,
2012) who insures himself/herself against the risks of the life course through self-disci
plined financial practices. Neo-liberal policies and associated banking practices, discours
es, and instruments frame people as rational and responsible subjects who are expected
to take care of their financial futures and assume individual responsibility for their own
welfare and financial security. Technologies such as credit scoring, financial profiling, and
pension fund reforms prompt consumers to internalize these market logics and to become
self-governing subjects.
Financial logic thus enters everyday life through the discourses, regulations, financial in
struments, and technological devices that compel people to enact financial decisions and
practices by allowing or disallowing particular actions or subjectivities. Risk, in
(p. 617)
the form of accepting increasing uncertainty in everyday life, is also rescaled from the
state to the individual as it motivates financial subjects to take charge of and fund their
future financial needs. However, the formation of financial subjects under neo-liberal pro
grammes of government is often contingent and contested (Erturk et al., 2007; Finlayson,
2009b). Increased anxiety and uncertainty over investments and returns may drive indi
viduals to retreat to the safety of savings accounts, thus departing from the definition of
the investor as a clearly defined and unproblematic subject position performed by ratio
Page 7 of 21
nal and financially literate individuals (Langley, 2007). Investors may choose risk-averse
investment options, such as low-performing capital-guaranteed funds or bonds, or make
investment decisions based on reputation of the issuer/distributor and long-standing cus
tom with a financial institution, rather than through a calculative assessment of risk and
returns (Lai, 2013). Investors could also reject financial-market investments altogether, in
favour of yields from property investment (Leyshon and French, 2009). As such, the na
ture of financial subject formation and of financialization itself is necessarily contested
and incomplete, as financial subjects engage in different and sometimes contradictory
sets of financial practices.
While much of the work on financial subject formation has focused on the investor, that
is, the reshaping of the passive, saver subject into an active and entrepreneurial investor
subject, a smaller but growing body of work analyses the formation of biofinancial sub
jects, which concerns politics of care and management of the body and of life (French and
Kneale, 2009). Biofinancialization, the intersection of financialization and biopolitics,
refers to the ways in which contemporary processes of financialization and of the politics
of life itself (Rose, 2007) intersect in new ways to produce distinctive relationships be
tween capital and health/bodies/life cycles/other bodily experiences and aspects of life
and living (French and Kneale, 2012). Biofinancialization introduces a culture of (finan
cial) valuation into everyday life, such that the worth of activities, bodies, health, and of
life itself can be translated into financial evaluations, which subsequently impacts on how
individuals modify their behaviour and lifestyles. In this sense, financial value espouses
the primacy of investment value over other values (e.g. aesthetic, moral, ecological, cul
tural), such that there is future monetary profit to be gained from potentially any aspect
of life and of living (Lilley and Papadopoulos, 2014).
Using the frame of biopolitics and affect, French and Kneale (2009, 2012) examine the
ways in which the rationale of lifestyle and habits leads to a reworking of life assurance
and annuity in the UK. Biopolitical metrics such as the body mass index and alcohol units
are enrolled and mobilized by the insurance industry to influence the behaviour and
lifestyles of individuals as the (financial) value of their lives become bound up with these
new forms of government. Markers or traces of disease or morbidity on the body, or the
anticipation of such markers as in the case of lifestyle factors, become targets of calcula
tion and discipline. Rather like the development of credit-scoring technologies that en
able the constructions of individuals as quantifiable risks, the entanglement of insurance,
medical, and regulatory knowledges gives rise to the capture, sorting, and ranking of
(projected) morbidity such that the (financial) value of individuals could be calculated and
mobilized in terms of premiums, payouts, and exclusions. Innovations in health insurance
and other forms of financial provision thus create new environments in which responsible
subjects with ‘desirable’ lifestyles could be assembled (Guthman and Dupuis, 2006;
French and Kneale, 2012).
There has been some scepticism as to whether the everyday consumer possesses
(p. 618)
the level of financial literacy or even self-awareness of their own financial status and fi
nancial goals to make informed decisions about financial planning (Erturk et al., 2007;
Page 8 of 21
Finlayson, 2009b). Financial education and literacy or charges of ‘irrationality’ are, how
ever, insufficient to explain the variegated financialization of households and individual
subjects. Understandings of financial freedom and financial security are not only consti
tuted by economistic calculations set against average life expectancies; sociocultural con
structs often underpin everyday attitudes towards money (Zelizer, 1993, 1994; Maurer,
2006), with value judgements being bound up in financial decisions and investment prac
tices. The framing of ‘freedom’ and ‘security’ by financial subjects themselves requires
deeper interrogation in order to explain what might appear to be irrational, passive, or
contradictory financial practices, but which could well be appropriate and persuasive
when viewed outside of a neoliberal governmentality frame. People ‘inhabit multiple sub
ject positions within a financial ecology in ways that conform, diverge and subvert neolib
eral versions of the responsible, financially self-disciplined individual’ (Coppock, 2013, p.
479). The actual nature of what actually constitutes responsible and self-disciplined finan
cial subjects could also change over time through embodied, emotional, and socially in
flected processes, rather than through rational and calculative practices (Deville, 2012,
2015). All these point to the value of a critical engagement with money cultures in exam
ining financial subjects and practices (Gilbert, 2005; Maurer, 2006; Deville and Seig
worth, 2015).
The State and/in Financialization

The analysis of state and state actors within financialization studies tends to focus on fi
nancial deregulation and its impacts on institutional change, firm behaviour, and every
day habits of savings and borrowing (van der Zwan, 2014). These approaches tend to em
phasize market imperatives and neo-liberal logics rather than consider how financializa
tion of the economy could be a deliberate pathway sought by state actors and policymak
ers. The role of the state has been largely set within the context of neo-liberalization, with
market efficiency and financial logics justifying the rolling back of state functions and de
volving state responsibilities for social provision to individuals and households (Dore,
2000; Cutler and Waine, 2001; Martin, 2002; Langley, 2008a). The emphasis on market
imperative, however, obscures the strategic ways in which the state actively mobilizes in
stitutions, firms, and households to adopt and enact financialization scripts for political
economic purposes.
More recently, some scholars have suggested that far from ‘retreating’ or ‘declining,’ the
state has taken on qualitatively different roles in its relationships with financial markets,
financial institutions, and non-financial firms. This approach focuses on financialization of
the state itself, as state actors and institutions turn to financial markets as solutions in
the face of economic (and political) crises such as budget deficits or economic recessions
(Aalbers, 2009a; Bassens et al., 2013; Hendrikse and Sidaway, 2014). Even before the
2008 global financial crises, property and mortgages have featured prominently in the fi
nancialization of everyday life. As part of efforts to roll back the postwar welfare state in
the USA (and later on in the UK), residential property ownership became a core compo
nent of asset-based welfare under the new neo-liberal regime. Real increases in incomes
Page 9 of 21
were held down (p. 619) in order to combat inflation, leading to the demand for other
forms of credit in order to sustain standards of living. Deregulation of the financial sys
tem during the 1980s encouraged financial institutions to compete in extending credit to
consumers. Of particular relevance here is the practice of borrowing against the appreci
ation of the value of residential property, thereby bringing forward the projected future
gains from the sale of an asset. Properties are thus increasingly mobilized to offset de
clines in real wages and to sustain lifestyles and consumption (French and Leyshon,
2012). This has created wider socio-economic problems owing to the reluctance of gov
ernments to tackle the unsustainable housing boom and property price bubbles that have
served to fuel consumer-led growth over the past decades (Hay, 2009; Montgomerie,
2009).
It might be instructive to investigate more closely the role of the state in driving
financialization, instead of treating the state as a distant or reactionary actor in providing
the background of deregulation amidst neo-liberalizing pressures (i.e. conceptualizing the
roles of the state and the process of financialization as interconnected but separate fields,
while focusing analytical attention towards the transformation of everyday life/living at
the individual or microscale). This requires a deeper interrogation of state–subject rela
tions in the mobilization of financialization processes and financial subject formation and
the motivations for the state in promoting financial subject formation, as these have im
portant implications for the modes and outcomes of state-led financialization. Individual
consumers are financial subjects who not only fulfil the neo-liberalized scripts of self-re
liant, disciplined, and responsible subjects who take care of their own financial futures;
they can also be mobilized as citizen-subjects to build a stronger and more competitive
national economy through their changing financial practices, even as they benefit from
greater access to financial products and services. In turn, the state is able to achieve par
ticular developmental goals, ensure its own economic and political viability in a competi
tive global environment, and bolster the ruling government’s political legitimacy.
This relationship between popular finance and the forging of a ‘national economy’ has
been examined by Aitken (2007), who demonstrates how specific financial instruments
(e.g. US Savings Bonds, New York Stock Exchange mass-investment programme) are
used in the inter- and postwar periods for patriotic purposes. Working-class individuals
are thus enrolled into financial practices through which the national economy could be
made real. Aitken’s primary objective is to deconstruct how knowledge and practices of
the national economy are assembled such that the notion and operation of a ‘national’
economy’ is constructed and mobilized. His findings, however, also signal how individual
financial practices play vital roles in securing the nation state through economic develop
ment. Instead of viewing financialization as primarily driven by market processes, a more
developmental perspective could uncover a different set of dynamics connecting state, in
stitutions, and individuals in the changing roles of financial logics in everyday life, and
how those are embedded in broader political economic objectives. In contextualizing the
transformation of saver subjects to investor subjects, the concept of financial citizenship
Page 10 of 21
could serve as a useful tool to analyse shifting state–subject relations in the financializa
tion process.
The term ‘financial citizenship’ first emerged in the mid-1990s, during a period of mas
sive restructuring of retail banking and extensive bank branch closures in the US and UK.
The decline of small British rural communities and towns, due, in part, to a lack of access
to banking services, led to the rise of the concept of financial citizenship, which champi
ons access to financial services as a basic right tied with citizenship (Leyshon et al.,
2008). (p. 620) Leyshon and Thrift (1995, 1997) argue that rather than just being a matter
of market adjustment to consumer demand, states need to reform national financial sys
tems such that they are inclusionary, rather than exclusionary, in providing the basic fi
nancial services necessary for individuals’ meaningful involvement in contemporary eco
nomic life. This concept of financial citizenship was later expanded beyond the national
scale to examine at a global scale how access to financial services and mobility of capital
are marked by class differences and differential transaction costs between the rich and
poor (Dymski and Li, 2003; Dymski, 2005). This line of research critiques the inability of
households and small businesses to access a full range of depository and credit services
at competitive mainstream prices, rather than through subprime or informal credit facili
ties, with further research focusing on the issue of financial exclusion and bifurcated mar
kets between formal/informal financial services for the rich/poor (Leyshon et al., 2008;
Appleyard, 2011; Coppock, 2013).
Beyond addressing the politics of financial inclusion/exclusion and spatial inequality in

access to financial services, the concept of financial citizenship has the potential to deep
en our understanding of the intersections between the state, institutions, and individuals
in financialization by focusing on a more geopolitical reading of financial citizenship (Lai
and Tan, 2015). This emphasis on the ‘citizen-subject’ highlights the active and evolving
relationship between the state and financial subjects in the financialization of everyday
life. While financial subjects may be understood as knowledgeable investors (Martin,
2002) or uncertain subjects (Langley, 2007), they are also citizen-subjects with certain (fi
nancial) rights, privileges, and duties framed within the geopolitical frame of the nation
state. This conceptualization of financial citizenship explicitly places state–citizen rela
tions as the nexus through which financial landscapes are shaped, (re)produced, and con
tested through the assemblage of institutional change and financial subject formation.
A ‘citizenship’ reading of financial subjects also highlights the ways in which individuals
are incorporated into financial systems in ways that may fulfil the broader strategic ob
jectives of the state to pursue economic growth and secure legitimacy. Drawing upon the
British’s government responses to the 2008 financial crisis, Brassett and Vaughan-
Williams’ (2012) study utilizes this understanding of financial citizenship to demonstrate
how British savers, firms, and bankers in the City of London were framed as victims re
quiring state assistance. The policy interventions taken by the British government were
intended to safeguard the financialization processes in Britain and maintain London’s po
sition as a leading international financial centre. Similarly, Pathak (2014) draws upon the
governance of morality to investigate how the British government reframed indebtedness
Page 11 of 21
and responsible behaviour. Indebtedness caused by unemployment or by reckless spend

ing were deemed individual faults that should be avoided, but indebtedness resulting
from mortgages was not branded as irresponsible, as mortgages were key to the
government’s asset-based welfare policies. The financial subject position of individuals
must therefore be contextualized within the state’s political economic framing of the in
tended roles played by individuals and households in the national economy in order to
achieve particular political economic goals.
While emphasizing the empirical significance and theoretical relevance of state-led finan
cialization for understanding financial subject formation, the above agenda has been sup
ported by wider trends in banking over the last three decades. Erturk and Solari (2007)
note how ‘interest-based banking’ has given way to a ‘fee-based banking’ model for both
retail and investment banks in Europe and the USA, with an increased emphasis on fee-
based activities such as wealth management and the sales of financial products (see also
Hardie et al., (p. 621) 2013). In the face of banking liberalization and greater competition,
banks have increasingly been shifting their business emphasis away from traditional loan
mediation and transforming themselves as financial services corporations based on a
wider array of fee-generating activities and deeper participation in financial markets for
capital gains. Therefore, while banks have not acted in conjunction with the state for the
most part in the rolling out of ever-more-financial products and services for everyday con
sumers,2 state promotion of financialized behaviour in households and individuals has
certainly aligned with the banks’ increasing business focus on financial markets and prod
ucts and the enlargement of non-bank financial investments in insurance and investment
functions.
As financial citizenship focuses on the interactions between state and individuals, it

avoids privileging state discourses surrounding risk, management, and responsibility in
structuring and producing financial subjects (see Martin, 2002; Langley, 2008a). Focusing
on state–subject interactions also allows the constraints and agencies of both states and
financial subjects to be better situated by framing their relationship as co-constructed
and negotiated through networked relations. Looking forward, this allows for a fuller and
more nuanced analysis of the relational interactions between state-driven agendas, insti
tutional agents (e.g. pension funds, insurance firms, banks), and individual–local narra
tives and practices in order to uncover the dynamics of how individuals are discursively
constructed and incorporated into circuits of finance and financialization and their devel
opmental outcomes. This has particular resonance for a broader theoretical agenda on ex
plicating the spatialities and multiscalar impacts of global financial networks as they un
fold across different scales and territories (Coe et al., 2014).
Conclusion
While the nascent field of financialization has produced multiple approaches to analysing
the growing significance of finance in changing capitalist modes of production, national
economies, corporate strategies, and household behaviour, this chapter has focused on
Page 12 of 21
the diverse ways in which finance is grounded in the realms of everyday life. The preced
ing sections have identified key research themes and highlighted some future directions
for investigating the processes and impacts of financialization on households and individ
uals, and how the embodied and lived experiences of the everyday citizen have enmeshed
with the making of financial capitalism.
Underlying the discussion is an assertion of the household as a key site from which to ex
plore the constructions and practices of financialization. There are three specific areas of
future research that could further our understanding of financialization and the ways in
which it unfolds through and impacts upon everyday life. Firstly, financial subject forma
tion occurs not only through a neo-liberal framework of entrepreneurial investors, but al
so through the frame of intimacies as family and personal relationships, emotions, and
care become intimately bound up in decisions about financial commitments and invest
ment practices that concern the life course of not only individuals, but also family mem
bers and other dependants. This calls for more serious engagement with ideas of emo
tions, morality, and care, as they are not just legitimate but vital components to the calcu
lation and production of financial logics and practices by (re)shaping the narratives and
practices (p. 622) of households and individuals. The demand for insurance, for invest
ment, and for credit is driven by relationships and by ties of obligation, love, and fear. In
vestment decisions and financial practices are steeped in the quotidian world of bodies
and intimacies, inseparable from habits and routines, dispositions and moods, and the dis
ciplining rhythms of premium payments in the enactment of individual aspirations and
household responsibilities (McFall, 2008; Deville, 2015). In analysing the process and im
pacts of financialization in everyday life, it is therefore imperative that we bring together
the financial and the mundane in the analysis of financial market development and finan
cial subject formation.
Secondly, structural factors need to be more closely interrogated in examining the varie
gated processes and impacts of financialization. A focus on households and individuals in
financialization does not necessarily mean that structural issues are to be sidelined in
favour of cultural economy analysis at the microscale (Hall, 2011).3 As financialization is
extending, deepening, and normalizing the reach of financial metrics into households,
new patterns of interdependencies and inequalities are being mobilized and carved out
along gender, class, age, and other markers of difference with uneven socio-spatial im
pacts (Pollard, 2013). A renewed sensitivity to structural issues would be in keeping with
the spirit of geographical enquiry in analysing new economic agents and new spatialities
of finance (Lai, 2017).
One such approach could be through the framework of financial ecologies. Instead of an
abstract and monolithic entity, a financial ecologies approach reframes the financial sys
tem into a coalition of smaller constitutive ecologies, such that distinctive groupings of fi
nancial knowledge, practices, and subjectivities emerge in different places with uneven
connectivity and material outcomes (French et al., 2011). This brings into focus how
households and individuals are changing their investment practices and are drawn into
different financial relationships, as delineated by distinctive sociocultural demographics
Page 13 of 21
(Leyshon et al., 2004; Lai, 2013). Financial subjectivities are also being reshaped by
broader shifts in financial regulation and changing corporate strategies of financial insti
tutions to draw in everyday consumers (Lai and Tan, 2015; Lai, 2016). A research focus
on the household that is situated against broader institutional and regulatory changes
can thereby contribute to an economic geography that is better equipped to address
broader structural issues of power and the variegated impacts of financialization across
different sites of capitalist production and accumulation.
Thirdly, we need to re-engage with the role of the state in financialization, particularly
through a reinvigorated focus on state–subject relations in the mobilization of financial
practices. Research into the roles of state policies, agencies, and regulatory power in re
shaping the financial subject formation could generate new insights into the dynamics
connecting the state, institutions, and individuals in the political economy of financializa
tion. The concept of financial citizenship, for instance, explicitly places state–citizen rela
tions as the nexus through which financial landscapes are shaped, (re)produced, and con
tested, through the assemblage of institutional change and financial subject formation.
Moreover, the very stability and health of national financial institutions and financial sys
tems directly implicate the legitimacy of governments and their claims to power. This has
become more evident after the 2008 financial crisis, with the flurry of bank bailouts in the
USA, the UK, the Netherlands, and elsewhere.
A more systematic treatment of the relationships between the state, firms, and individu
als would enable a deeper understanding of the changing roles of financial logics in
everyday life and in corporate transformation, and how those changing roles feed into
strategic goals of national development or political legitimacy. This has wider resonance
for research into (p. 623) the increasingly extra-territorial powers of state-turned-financial
actors, such as sovereign wealth funds and pension funds, which have important implica
tions for the future financial security of households and individuals (Clark et al., 2010;
Monk, 2011; Yeung, 2011). In valourizing the role of the state and interrogating the ways
in which it mobilizes and intersects with firms and individuals in financialization, there is
considerable scope for bringing into focus new actors, relationships, and territories in
global financial networks (Coe et al., 2014). As financial logics, institutions, and actors
have become inseparable from ever more segments of economy and society (Hall, 2013),
such an approach could yield valuable insights beyond the household to the topics of capi
talist change, state rationalities, and regional development.
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Notes:
(1.) For more comprehensive surveys of the financialization literature, see Hall (2012) and
van der Zwan (2014).
(2.) Although see the earlier discussion on the construction of special financial instru
ments in the USA during the inter- and postwar period (Aitken, 2007) and the explicit role
played by a national savings bank in Singapore in the forging of specific kinds of financial
subjectivities (Lai and Tan, 2015).
(3.) For some critiques of how cultural economy and social studies of finance approaches
have tended to overlook the political nature of financial development and market making,
see Pryke and du Gay (2007) and Engelen and Faulconbridge (2009).
Karen Lai
Karen P.Y. Lai ([email protected]) is an Assistant Professor of Geography at the

National University of Singapore. Her research interests include geographies of mon
ey and finance, markets, varieties of capitalism, service sectors, global city networks,
and international financial centres. Her recent project examines everyday financial
ization through the knowledge networks of financial advisors and consumers. She is
currently researching the global financial networks of investment banks in mergers
and acquisitions, and initial public offerings. She has authored or co-authored a
book, several journal articles, and book chapters on financialization, knowledge net
works, and economic development in East and South East Asia. She is also on the
Standing Committee of the Global Production Networks Centre at the National Uni
versity of Singapore, and editorial board member of Geography Compass.
Page 21 of 21
Infrastructure and Finance

Philip O'Neill
Infrastructure in advanced nations has been transformed from a sector dominated by

state-owned utilities into one characterized by the presence of private capital and diverse
non-state organizations. The chapter shows how these changes not only affect the ways
infrastructure steers economic relations within cities, but also reconstitutes urban gover
nance in surprising ways. The chapter explores the theoretical challenges that these
trends bring to economic geography. On one hand, there is growing redundancy of the
historical taxonomy of infrastructure and the idea of infrastructure as a public good. One
the other there is normative obsession with the idea of the state-run utilities system as if
no other form of infrastructure provision can be just and sustainable. The chapter draws
eclectically on economic sources to build a model of analysis that combines capital, orga
nizational, and regulatory structures into a single frame, and demonstrates the theoreti
cal and policy power of such an approach.
Keywords: infrastructure, privatization, financialization, regulation, public goods
Introduction
INFRASTRUCTURE is a relatively new word and category in academic and public policy
discourse (Rankin, 2009). In its simplest economic sense infrastructure is a capital asset
that delivers public goods over a long period of time. By public goods we mean goods that
are non-rival and non-exclusive. In other words, that there is no significant opportunity
cost if the use of the good is extended to additional parties, and that the consumption of
the good by one party does not diminish the benefits of consumption by another. The con
sumption of the services of a lighthouse, for example, is very different to what happens
when we consume an apple. But infrastructure also has meanings beyond that of an eco
nomic category. It can refer to a suite of public works encased in a utility; a network that
enables the movement of water, energy, goods, people, and information; a set of assets
and resources, such as in the areas of health and education, that deliver individual and
social services; and ecosystems, such as forests, wetlands, and natural riparian and
Page 1 of 17
coastal corridors, which supply an urban area with water, air, and drainage services. Of
course, these are all legitimate uses of the word ‘infrastructure’ because in different spo
ken and written contexts the users of the word have important things to say; and, be
sides, what right do academics have to dictate what the true meaning of a word should
be? The point of this opening paragraph is to show that whenever the word infrastructure
is deployed a political discussion is occurring about the allocation of scarce resources—
now and into the future—for some sort of collective venture.
This chapter examines the geographical and economic dimensions of the politics of infra
structure. It commences with a selective history of how the term has been used. It then
discusses the forces that have shifted the commissioning, funding, and operation of infra
structure away from public-sector domination; and the new formats for infrastructure de
livery and operation that have emerged. I discuss these in terms of the organizational,
capital, and regulatory structures involved. The chapter concludes with some observa
tions about how these arrangements are affecting the general welfare of those who live
and work in our cities.
(p. 629) Infrastructure’s Etymologies

Adam Smith
The problem of how to provide infrastructure is longstanding. The issue is elevated as a

primary concern of economics in 1776 in Adam Smith’s The Wealth of Nations where
Smith assigns the infrastructure task to ‘the sovereign’. This responsibility is for:
… erecting and maintaining certain public works and certain public institutions,
which it can never be the interest of any individual or small number of individuals
to erect and maintain (Smith, 1976, pp. 687–88).
It was one of only three duties that Smith thought the sovereign should undertake. Smith
argued that public works were vital to the betterment of commerce, but their supply was
beyond the capability of private enterprise because of their peculiar property and materi
al characters. This assignment was an extraordinary political concession for Smith and
exposes how distinctive infrastructure is as a class of object and event. An infrastructure
item cannot be exclusively private because infrastructure involves crossing private do
mains, both geographically and functionally. Yet infrastructure is central to the commer
cial functions of a city. For Smith, infrastructure makes two things possible: firstly, it
gives producers access to larger markets; and, secondly, it enables inputs to be drawn
from a wider spatial field which, with the growth of markets, deepens specializations and
divisions of labour and raises factor productivity. Infrastructure, then, is central to eco
nomic growth and capital accumulation. As a consequence, from the early days of capital
ist cities, infrastructure became one of society’s great political settlements: an organiza
tional responsibility of the state funded largely from taxation revenues, both with
capital’s blessing.
Page 2 of 17
Keynesian Sensibilities
The twentieth century saw the urban infrastructure platform expand with rising expecta
tions of city dwellers for common access to the provision of quality water, energy, trans
port, and public hygiene. By the middle of that century infrastructure became the fore
most representation of the hybrid compromises of New Deal and Keynesian capitalism.
Across Western nations, infrastructure steered the state into taxation and planning
regimes historically resisted by private capital. Infrastructure expenditure became the
counter-cyclical tool of governments to refit capitalism with bigger markets, and more
complex divisions of labour, while delivering legitimacy and reproduction outcomes
through jobs creation and enduring urban betterments.
In parallel, orthodox economics delivered textbook justifications for the ongoing state
role. Competition theory, especially in the accounts of market structures and behaviours
derived from Edward Chamberlin (e.g. 1965) and Ronald Coase (e.g. 1970), showed the
good sense of monopoly provision of a public good via a forever-falling long-run average
cost curve. An intellectual alliance, then, between orthodox, marginal-cost economics and
the pragmatic politics of fiscal Keynesianism, legitimized the flow of public finance into
the (p. 630) construction and operation of state-owned infrastructure monopolies. A conse
quence was that infrastructure roll-out became an uncontested political action with the
utility becoming infrastructure’s organizational custodian, and the capital works budget
on a state’s balance sheet its funding source.
International Politics
So, in Western nations at least, the provision of a basic kit of urban infrastructure—water,
energy, drainage, roads, and public transport—became normal. Indeed, the privileged po
litical status of these entities was looked to enviously by other public goods domains
where economic benefits were not so directly linked. Notable yearners were not only the
education and health systems, but also state-led systems that delivered art and cultural
amenities and services. Today this group is called ‘soft infrastructure’.
Yet there were deliberate attempts in the 1950s to broaden the meaning of infrastructure
to embrace a range of social interventions to widen the benefits of capitalism in advanced
nations and to underpin the process of economic development elsewhere. Here we turn to
a remarkable paper by William Rankin (2009), which traces the frustrated passage of the
idea of ‘social overhead capital’ into mainstream development economics and policy. Key
to the story is the place of the idea of social overhead capital in Walter Rostow’s theory of
the stages of economic growth.1 The intriguing thing here, of course, is that Rostow’s text
Stages of Economic Growth was, in his words, a ‘non-communist manifesto’, a pathway to
economic development without resorting to the varieties of Marxist-led revolutions being
enacted at that time. Like Adam Smith, Rostow sees investment in social overhead capital
as essential to capitalist take-off in a developing nation. But, mindful of the social invest
ments heralded in communist manifestos, Rostow’s social overheard capital includes not
only railway lines and electricity grids, but also education and health systems.
Page 3 of 17
Rankin charts the campaign for the creation of a United Nations (UN) development arm
to be known as the Special United Nations Fund for Economic Development, or SUNFED,
to stand alongside the other development initiatives of the UN: the International Mone
tary Fund, the General Agreement on Tariffs and Trade, and the World Bank. Indeed,
Rankin discovers that the 1955 SUNFED documentation actually substituted the word ‘in
frastructure’ for Rostow’s ‘social overhead capital’ in an attempt to create a simpler term
to refer to the wide field of asset and services investment needed to underpin a world
wide development project. While the SUNFED proposal was not adopted by the UN, a
Rostovian place for social overhead investment was inserted into the World Bank’s agen
da, where it remains to this day. Perhaps more significantly, the documentation and dis
cussion surrounding SUNFED steered education and health investments permanently in
to the infrastructure category, albeit with the ‘soft’ modifier; and so concluded one of the
more significant inter-textual moments in the history of public policy.
Rankin’s work exposes the wider semantic process underway within the infrastructure
debate. It reminds us that at the level of a single infrastructure asset no incontestable
logic assigns the responsibility for provision to any entity in particular. Each asset has
many potential providers each with seemingly valid claims, with variations due to politi
cal predispositions, obviously, but also due to different assumptions about the assignment
of benefits through time and space. The tools of cost–benefit analysis, including net
present value, or (p. 631) discount cash-flow analysis, have been developed as a direct
consequence of intense political conflict over the desirability of different assets and the
vehicles for their delivery.
Territory and Technology
Building on Rankin, we can see that the infrastructure investment process codifies and
reproduces public ideas about the role of the state, territorial sovereignty, and the direc
tion of modernization. There is a feedback loop in infrastructure investment more power
ful than in other economic transactions. The loop arises in combination from
infrastructure’s sheer size, the expense involved, the institutional and political processes
that have to be enacted, and the fine-skills sets that have to be assembled and deployed.
For one part of the world, Schipper and Schot (2011) explore this extended loop via the
concept of ‘infrastructural Europeanism’. They align the progression of infrastructure
conceptualization to the development of the political and economic entity of Europe (in all
its changed forms). Citing Van Laak (2004, p. 247), the authors nominate 13 August 1875
as the first recorded use of the word infrastructure, from a report on a French project to
describe the various ‘understructures’ (land, embankments, bridge) that enabled the in
stallation of a railway’s ‘superstructure’ (rail lines, stations, and other overhead
fixtures).2 They note, too, the long gestation of the idea such that Britain’s Winston
Churchill scorned the word as the ‘jargon’ of a ‘band of intellectual highbrows’ (Van Laak,
2004, p. 247) in a House of Commons speech (as leader of the opposition) as late as June
1950. Nevertheless, the word became an unrivalled signifier for a raft of historical ac
tions driving the extent, intensity, and speed of geographical connectedness. Infrastruc
ture became a central instrument for the modernist projects of nation, technology, and
Page 4 of 17
capitalism such that investments in national and cross-border installations became tech
nical ventures, encased in objective, scientific logic, rather than outcomes of political ar
gument and deliberation, even though these were inseparable.
So Schipper and Schot nominate the staging of infrastructure investments in Europe as a

spatial and political arrangement or pact, which they call ‘transnational infrastructure
regimes’; with a first regime commencing in the first half of the nineteenth century with
investments in the carriage of goods, people, and information across European borders.
Important in the staged history of infrastructural Europeanism is the interplay between
sectoral-specific initiatives, such as the General Conference on Communications and
Transit held in 1921 in Barcelona, Spain, and the development of wider institutional
structures that consolidated and legitimized such actions. The Convention and Statute on
Freedom of Transit, the legal event that arose from the Barcelona conference, is one ex
ample. There are more embracing moments like the establishment of the UN Economic
Commission for Europe in 1947 and the Maastricht Treaty, which formally established the
European Union (EU) in 1992 wherein the EU was charged with the generation of trans-
European networks in the areas of transport, energy, and telecommunications. We can
see in all these that the growth of a distinctive institutional framework for the delivery of
infrastructure, the physical growth of infrastructure investment, and the changing institu
tional framework of ‘Europe’ are inseparable.
Earlier, Hughes (1983) had pre-empted the infrastructure/politics nexus by showing how
the institutional systems of electricity generation and supply in Europe were more impor
tant (p. 632) to the roll-out of a continental grid than the grid’s actual enabling inventions
and innovations. In like manner, Lagendijk (2011) draws out the political relations essen
tial to the evolution and expansion of a European electricity network showing how the de
velopment of a cross-border grid became a major device for wider experimentation in Eu
ropean integration. An indicative action here is the process of unbundling. A consequence
of the state-based assembly of a domestically bound, integrated electricity supply ensem
ble was the establishment of utilities with monopoly control of electricity production,
transmission, and distribution. The establishment of a market-based electricity supply
network across Europe required the disassembly—or unbundling—of the vertically inte
grated electricity utilities. Just like the processes of assembly in the mid-twentieth centu
ry, disassembly required integrated political action and regulatory innovation. In parallel
work Laborie (2011) shows how development of international post and telecommunica
tions services can only be read through the lens of Cold War politics with the develop
ment of the settings that enabled cross-European and later genuinely global communica
tions structures driven more by political negotiation than by technological advancement.
Urban Planning
Finally, we reflect briefly on the development of the idea of infrastructure in the field of
urban planning, a crucial component of the roll-out of mass-consumption twentieth-centu
ry capitalism. Much has been written on the role of planning in post-war, suburban Key
nesian–Fordism, but little on the role of infrastructure. Perhaps this is because
Page 5 of 17
infrastructure’s presence in a Keynesian capitalism was legitimized and propelled in

macroeconomic domains, as discussed earlier, so its place in state funding, procurement,
and management was secure. The municipal roll-out of suburban infrastructure then pro
ceeded as a subsumed political process and an often unseen material process. An ordi
nary street, for example, disguises the infrastructure corridors that carry the pipes and
wires and junctions that make urban life possible. And for decades streets as infrastruc
ture corridors generated the expectation that the state would provide the regulations and
finance to ensure a continuation of the enormous value-add that infrastructure roll-out
gives to the development of land. Planners were freed up to colour the land use maps of
an earth surface that arrived on their desks pre-fitted with the devices that enabled the
movements and connections of urban life.
An Intermediate Conclusion
Our discussion shows that infrastructure has always been a political rather than (exclu
sively) an economic, technical, social, or environmental event. We can also see that the
decades following World War II were extraordinary in that they produced a remarkably
settled political consensus around a particular model of infrastructure commissioning and
operation. Elsewhere (O’Neill, 2014) I have called this a subsumed political process, the
idea that public spending on infrastructure within a public utilities organizational model
became common sense to the extent that it became instinctive with little public debate
about form or method of financing. This consensus has now unravelled for reasons that
will be explained.
At this intermediate point we make these conclusions. Firstly, that infrastructure

(p. 633)
as an idea is an extraordinarily complex language event. At its core, infrastructure is a set

of material and service events for securing a built environment that satisfies the needs of
capitalism for markets and labour, while meeting the social aspirations of an urban citi
zenry. Reconciling the conditions for capital accumulation with the need for social legiti
macy is the enduring problem of market economies (Offe, 1984; O’Neill, 1996). What fits
inside the infrastructure category, however, is ever under negotiation in intensely politi
cal ways, because infrastructure is inevitably expensive and invasive.
Secondly, our brief history shows how extraordinarily naïve (and therefore ineffective) the
political economy of infrastructure provision over the last couple of decades has become.
Across the Organisation for Economic Co-operation and Development (OECD) nations
progressive commentators argue for the retention of a utilities-based, state-monopoly
model that is publicly owned and state-funded. As a result, the left side of politics has lit
tle to say about the economic productivity opportunities for infrastructure, and so be
comes a sideline commentator on social equity and environmental outcomes, with few vi
able alternative projects to offer. A return to a twentieth-century public utilities model is
proffered by default. A consequence of this political paralysis is that the next generation
of infrastructure roll-out is being designed and funded in a lop-sided political process.
Rostow (1990, p. 25) said, correctly, that infrastructure is a ‘lumpy’ historical process
with ‘long periods of gestation and pay-off’. The lesson to be drawn from Rostow today is
Page 6 of 17
that the infrastructure we build this decade is the infrastructure our cities will operate
for at least the first half of the twenty-first century. Drawing on Raco, then, what we need
is ‘an approach that emphasises the hybridities that characterise actually existing policies
[and therefore] provides the discursive and intellectual space to develop alternative and
broader ranging conceptions of development processes and practices’ (Raco, 2005, p.
344).
A Framework for Understanding Changes in In

frastructure Financing
The brief review in the previous section shows that infrastructure provision today re
quires a targeted, deliberate framework of analysis, one that is not only informed by the
economic forces at play, but also one that is cognisant of the inseparability of the commis
sioning and operation of large urban infrastructure assets from the politics of construct
ing large material entities and passageways in urban landscapes and their funding over
long time spans. Large infrastructure procurement is always a major political event. What
requires resolution is the difficult economic question of determining the optimal level of
resources available for the construction and operation of an infrastructure asset to pro
vide non-rival goods in an economic system dependent (usually) on price signals to allo
cate resources for the production of private consumption goods. Certainly as we have
seen, there are elegant expositions of the economic dimensions of the problem of assign
ing responsibility for supplying public goods and apportioning their rewards (see, espe
cially, Samuelson, 1954, and Buchanan, 1965). But, in the end, infrastructural solutions
are institutionally sourced rather than market driven, (p. 634) being bound up in political
valuations requiring targeted, often bespoke, organizational and regulatory arrange
ments and equally considered financial packaging. R.H. Coase made this point in a not-
too-subtle attack on his fellow economists’ empirical detachment in a famous note ‘The
lighthouse in economics’:
Despite the extensive use of the lighthouse example in the literature, no econo
mist, to my knowledge, has ever made a comprehensive study of lighthouse fi
nance and administration. The lighthouse is simply plucked out of the air to serve
as an illustration. The purpose of the lighthouse example is to provide ‘corrobora
tive detail, intended to give artistic verisimilitude to an otherwise bald and uncon
vincing narrative’ [from W.S. Gilbert, The Mikado]. This seems to me to be the
wrong approach. I think we should try to develop generalisations which would
give us guidance as to how various activities should best be organised and fi
nanced. But such generalisations are not likely to be helpful unless they are de
rived from studies of how such activities are actually carried out within different
institutional frameworks. Such studies would enable us to discover which factors
are important and which are not in determining the outcome and would lead to
generalisations which have a solid base. They are also likely to serve another pur
Page 7 of 17
pose, by showing us the richness of the social alternatives between which we can
choose (1974, p. 375).
Coase had a particular interest in the nature of public and monopoly goods, writing ob
servations about the rise of a broadcasting service (1947) and a national electricity grid
(1950), the tense relationships between national regulators and utility operators (1939),
the justifications for monopoly provision of national postal services (1961), the rationale
for price setting in public utilities (1970), and, famously, as we have just seen, the com
plexities of assigning costs and apportioning benefits in the provision of lighthouse ser
vices to coastal shipping and ports operators (1974). One can see in these writings the
transfer of thinking by Coase about the role of the institutional structure of an economy,
in particular the ways economic transactions are framed by organizational and regulatory
circumstances (e.g. Coase, 1937). Certainly, the development of the utility in Western na
tions in the postwar period as an organizational structure for the development of public
works and their operation and maintenance can be explained in no small part by Coase’s
explanation of firms as efficient sites for the internalization of vast webs of relationships
that would otherwise entail tedious transactions and expensive costs. Doig’s (2001)
fascinating study of the growth of the Port Authority of New York and New Jersey is a fit
ting illustration of the necessity for containment of the myriad of commercial, environ
mental, and regulatory exchanges involved in the commissioning, construction, and oper
ation of New York’s port and transportation systems.
At this juncture we note the work of Morag Torrance (2008, 2009) who shows how institu
tional make-up and obligation affect the interplay between infrastructure investors and
operators. Similarly, we draw on the important contributions from Gordon Clark’s Oxford
project,3 involving scholars such as Morag Torrance, Ashby Monk, Rajiv Sharma, Eric
Knight, Adam Dixon, and Yin Yang in applying Coasian insights on firm behaviours, espe
cially in management strategy, to explain the investment practices of pension funds and
related institutions. Coase could never have imagined the economic and political terrain
for infrastructure provisioning and operation today. Nevertheless, his work hands to us
the three dimensions of a framework for studying the economic geography of urban infra
structure in the second decade of the twenty-first century. Torrance (2009) identifies
these (p. 635) dimensions as organization, capital structure, and regulation. Here we take
a slightly different approach preferring to identify sets of practices under these headings
rather than the sets of players referred to by Torrance (see Figure 1 in Torrance, 2009),
although we see the analysis here as drawing heavily from the relational approach to in
frastructure investment that permeates her article.
But why these three dimensions? Firstly, they define a set of considerations that are cen
tral to the operation of infrastructure, in turn: the rationale for behaviour (in Coasian
terms) that comes from an organization’s constitution, the logic for a financing arrange
ment, and the possibilities that are created and constrained by a set of rules and con
tracts. Secondly, because they are far from discrete fields where one dimension is always
partial without the presence of the other two, they force attention to historical and politi
cal associations and interactions. Thirdly, they are dimensions that incorporate tenden
Page 8 of 17
cies towards instability because of the potential for shifts: in organizational presence and
form; the nature and make-up of circuits of capital; and the directions of social and eco
nomic regulation more generally. Stability thus comes from engineering across the dimen
sions of organization, finance, and regulation; a somewhat ironic situation given the lifes
pan of the physical objects involved. To be clear, there are public- and private-sector in
terests in each of the three dimensions and in their interplay, and, a priori, neither sector
can be afforded a pre-eminent position. What the framework provides, though, is the op
portunity to monitor the roll-out and operation of infrastructure in terms of outputs with
an assessment of contributions from the public and private sectors taking place at each
stage and level of the analysis. I think this leads to better, more strategic infrastructure
development, and to a more discerning, robust knowledge-generation process. We now
turn to a brief discussion of the three dimensions.
Organizational Structure
Chamberlin and others show how in any market, the forces of competition coexist with
the anti-competitive forces of monopolization, with enterprises framing strategy accord
ing to their possession of market power and their anticipation of how others yield their
own market power.4 It is possible to see the behaviours of the giant twentieth-century
public-sector infrastructure utilities as expressions of uncontested market control, and
their high cost and poor service outcomes as consequences. Government action to break
up the utilities in association with privatization of the sector occurred in the OECD na
tions between the 1980s and the early 2000s. Central to the break-up was the introduc
tion of new organizational forms. Some early-mover acquirers of infrastructure created
novel organizational forms for the capture and harvesting of returns from the newly pri
vatized assets, with the proliferation of highly specialized (and contract-dense) structured
investment vehicles and closed private funds. Yet more stable, stakeholder-serving orga
nizational forms have subsequently emerged. Ongoing open and listed funds are more
alert to the links between the custodianship of assets and consistent competitive returns.
Highly competitive pension and sovereign wealth funds are similarly motivated, their
presence impelled by growing pools of member savings. Publicly listed corporations from
engineering and construction backgrounds have added infrastructure operations and in
vestment divisions, while merchant banks and large (p. 636) financial and legal houses
have formalized the sector as an asset class with the installation of standardized prac
tices and specialist services, including a vocabulary of technical jargon, calculative prac
tices, databases, a body of law, conference circuits, and so on. So there is a widening vari
ety of organizational forms and practices in play, but with some clear trends inviting more
detailed analysis.
Capital Structure
The evolution and stabilization of infrastructure’s organizational structure is paralleled by

a maturing of the sector’s hybrid capital structures. Three major features are observable.
The first is that capital structure has become a nervous settlement between quite differ
ent interests of equity and debt capital providers. Equity providers demand control over
Page 9 of 17
the asset in order to diminish risk and generate above-market returns through time while
debt lenders seek assurances that returns (revenues) from the asset are managed to meet
predictable obligations to debt holders and ensure final settlement. Tensions between eq
uity and debt providers are intensified by quantitative easing—now seen as ensuring
cheap debt finance for many years to come—with key equity providers (general partners)
to a financialized infrastructure asset keen to substitute cheap debt for equity capital,
and so leverage higher returns, without eroding legal control over the asset.5 Debt
providers, of course, become concerned when intensified leverage heightens risk. The de
velopment of a capital structure where there is debt-equity rapprochement, then, be
comes a key process in the financialization of an infrastructure asset, with major negotia
tions required each time a significant re-financing event takes place.
This gives rise to the second feature: that both savings aggregators (typically the banks)
and the savings pool managers (typically pension and sovereign wealth funds) have be
come confident enough in their skills and trusting enough of fellow oligopolists such that
there is fluidity in membership of the debt and equity sides of the financing equation.
There is much to be known about the implications of this fluidity for long-term arrange
ment of infrastructure assets.6
The third feature is the emergence of user revenues as the primary source of funding for
infrastructure investment. While taxation revenues, delivered direct or via availability
concessions, remain significant, regulated user fees and tolling have become essential to
the long-term commercial viability of brownfields privatizations and underpin risk mini
mization and revenue assurance in greenfields infrastructure projects. The shift from tax
ation to user-pays is attractive to governments as their balance sheets struggle, especial
ly at the level of provincial and municipal governments where imbalance between rev
enues and costs are most pronounced and where debt-raising possibilities are limited.
Clearly, there is much more to be said about capital structures in the infrastructure sec
tor, and of the extent to which their apparent stabilization will continue. For here, we can
note that privatized infrastructure has been able to extricate itself from the complexities
of the global financial crisis with a seemingly assured supply of finance and stable in
vestor–asset relationships such that there is an expanding core of urban assets with a
claim to financial and functional viability into the future. Certainly, there are equity and
sustainability (p. 637) concerns arising from the nature and distribution of the infrastruc
ture services involved; the point for now is that a stable, perhaps viable, form of capital
structure outside the fiscal domains of the state seems to have emerged.
A Regulatory Regime
Stability in infrastructure’s organizational and capital structures, and in the finance mar
ket more generally, come not accidently from stabilization in the sector’s regulatory envi
ronment. There is evidence, though, that the regulatory environment for the infrastruc
ture sector has not evolved in the ways that have been typical of other product markets,
as we will discuss. Certainly there are various state experiments involving, for example,
Page 10 of 17
templated public–private partnership initiatives in Ontario, British Columbia, Alberta, and

Quebec (Siemiatycki, n.d.), and across the UK more generally. Yet these practices have
progressed little beyond their domestic territories with evidence of only modest interna
tional learning and no moves as yet towards transnational standardization.
Bearing heavily on the role of regulation in the infrastructure sector, Helm and Tindall
(2009) explain the need for guaranteed contractual conditions between the state and an
infrastructure investor. They see each side of the investment relationship as having sub
stantial interest in the strength of these contracts. For the state, there is the need to en
sure an asset performs over its life course and that charges to consumers are fair and ac
ceptable given the prevalence of monopoly positions for the new infrastructure owners
and operators. For the investor, there is the need for adequate returns to cover operating
costs and to ensure sunk costs are recoverable at a reasonable rate over the life of the in
frastructure asset. There is also the need for ownership assurance, seen by the investor
as a primary way of managing risk given the high level of uncertainty surrounding a large
urban infrastructure asset through lengthy time periods (see also Stern, 2012). Yet given
the peculiar nature of the infrastructure sector, and therefore the unlikelihood of being
able to import pre-existing regulatory devices and processes from other sectors or juris
dictions, infrastructure contracts between governments and investors have invariably
been constructed on an individualized basis. Typically, these include the functions of mon
itoring and control, as well as prescriptions as to ownership rights, including property
rights, market conditions, protection from competition, and so on. Helm and Tindall
(2009, p. 149) conclude that, ‘Because of this complex interplay of political and economic
factors, each privatisation [has] had its own unique characteristics and, not surprisingly
the outcome of the privatisation programme as a whole [has been] a messy one’.
Certainly, there has been an industry-wide role in this continual resort to one-off arrange
ments involving lucrative fees for lawyers, financial advisers, and related professional
services providers. As a consequence, the standardized and transparent regulatory sys
tems that pervade other economic sectors are absent from the infrastructure sector.
These include global ISO product standards, national product regulations, international
trade agreements, financial standards and practices legislation and agreements, and so
on. These sorts of standardizations have yet to be created for the infrastructure invest
ments sector, leaving the sector very much aligned to what Cutler (2010, p. 157) for the
defence and security sector sees as a tendency to be:
(p. 638)
… shaped by private actors, institutions and processes that operate transnational

ly, linking local and global orders through complex laws and regulatory arrange
ments. These private governance arrangements are legitimized through their
claims to possess expert knowledge and authority.
Analysis of the role of privatized regulation in the government of the infrastructure sec
tor, and therefore of its impact on the sector’s organizational and capital structures, is a
topic for major research. Guidance as to its direction not only comes from Cutler (see
Page 11 of 17
above), but also from the regulatory capitalism literature, including works by John Braith
waite (e.g. 2008; Braithwaite and Drahos, 2000) and David Levi-Faur (e.g. 2012; Levi-Faur
and Gilad, 2004). The Oxford Handbook of Governance captures much of this work as
does scholarship in the journal Regulation and Governance. Application of this literature
to the development of the privatized and financialized infrastructure sector is urgently
needed.
Implications and Conclusions

Clearly, there is a research agenda in infrastructure of some length and thickness. A new
large commercial sector is a rare thing; and to the extent that privatized and financialized
infrastructure assets are relatively novel, and given their creation and direction are sub
ject to considerable political scrutiny and debate, it is surprising (with notable excep
tions) that research output on the field is still meagre. Perhaps this comes from the way
infrastructure traverses so many academic and policy disciplines involving such a level of
technical and professional/practitioner skills that academic research teams are daunted
by the task. Yet there are responses with great potential. The UK government-funded
iBuild7 and ICIF8 research entities have been structured as large multidisciplinary
projects with agenda across design, governance, and financing domains. Similar ap
proaches are needed elsewhere.
That said, successful research into the maturing financialized infrastructure sector needs
a framework that is beyond a simple pooling of knowledge from across the discipline
spectrum alongside the insights of policymakers and practitioners, however worthwhile
such blended activity can be. A new framework must match the thing that infrastructure
has become: a large hybrid field where there is now an imperative for heightened levels
of involvement from both private and public sectors. No other economic sector can have
this claim made for it. At this stage of the public sector’s history, across the world, there
is insufficient fiscal capacity to maintain and re-equip existing infrastructure and meet
the demands for new assets. Moreover state agencies and the utilities are now empty of
the engineering, financial, and operational management expertise to undertake these
tasks, even if public sector spending capacity were available. However, the private sector
also lacks major powers and capacities and so must call on the state to partner its infra
structure ventures. The list of necessary state and public-sector contributions is lengthy:
property rights, legitimacies afforded through planning and approvals processes, rights
to negotiate operating and ownership conditions into the future in order to mitigate risk
and deal with uncertainty without threatening the viability of the asset, creating and en
suring asset productivity through alliance with other urban assets, and so on. There is al
so the need for (p. 639) the state to ensure the shared outputs of infrastructure operation,
which we call positive externalities, are distributed, not blocked or corralled, a process
that seems in its entirety unable to be assigned to the private sector with any
confidence.9 What is needed, then, is a research framework capable of dealing with all
this hybridity without being trapped by the political argument that comes with the public
sector–private sector binary—while remaining intensely political about the social and en
Page 12 of 17
vironmental outcomes that are being sought from the presence of desirable urban infra
structure. Such a framework needs close and careful preparation.
This projected work in both academic research and policy development can only occur if
there is a shift in the politics of infrastructure to accompany the other profound changes
underway. Perhaps the major contribution of this chapter might be that by laying out the
very developed, maturing, now-monopolistic stage of the infrastructure sector the knee-
jerk opposition to substantial private-sector presence in infrastructure provision might
abate. Beyond nostalgia and history—however much popular progressive history is based
on accurate representations of the past rather than on illusion—political effort for a
restoration of almost-exclusive public sector ownership and operation of the infrastruc
ture sector is now futile. Certainly there is an important role of criticism. At the same
time, however, there is a duty, necessitated by urgency, to undertake research that leads
directly to better urban circumstances, environmentally and socially, and therefore which
works from an acceptance of the hybridity we talk about, not against it.
Finally, while all government portfolios have a claim to primary importance and therefore
deserving of raised political attention, infrastructure’s physicality in combination with its
sheer size and enormous cost mean that infrastructure is relatively unmalleable, with lim
ited options for changing design, funding, and operation once initial procurement is com
pleted. Retrofitting for, say, better social and environmental outcomes is very difficult
with major cost and disruption hurdles to overcome. In other words, a political battle for
infrastructure—and fights over the what, where, how, and for whom questions—may not
be revisited for decades, such is the physical longevity of the assets involved. This means
that activism across the many dimensions of public life must be successful in forcing the
best possible infrastructure decisions in terms of economic, social, and environmental
outcomes. Understanding the hybrid composition of the contemporary infrastructure sec
tor is a prerequisite to successfully negotiated infrastructure provision. In contrast, obsti
nate allegiance to campaigns for a return to a mythical golden age of public ownership
and operation is a diversion of energy and imagination, saying nothing of the poor analy
sis that lies beneath.
Acknowledgements
Version of the arguments contained in this chapter have appeared in the following publi
cations:
O’Neill, P. (2014). ‘How Infrastructure Became a Structured Investment Vehicle’ in M.

Roche, J. Mansvelt, R. Prince, and A. Gallagher (eds) Engaging Geographies: Landscapes,
Lifecourses and Mobilities, pp. 29–44 (Newcastle: Cambridge Scholars).
O’Neill, P.M. (2013). ‘The financialisation of infrastructure: The role of categorisation and
property relations’. Cambridge Journal of Society, Economy and Regions 6: 441–454.
Page 13 of 17
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Afrikas 1880 bis 1960 (Paderborn: Schöningh). (p. 642)
Notes:
(1.) Rostow (1990) saw infrastructure as crucial to development, especially in the transi
tion of countries from ‘preconditions’ to ‘take off’. Importantly, infrastructure was seen
not just as a way of raising factor productivity and extending markets, but as a symbol of
development with each major infrastructure venture becoming a large visual symbol of a
nation’s commitment to a modernization pathway.
(2.) Not accidently, say Schipper and Schot (2011), there seems to be an appropriation
here of the Marxist separation, popular among French philosophers at the time, of the
economic base of capitalism from an overarching social superstructure.
(3.) See www.geog.ox.ac.uk/staff/glclark.html.
(4.) See Helm and Tindall (2009) for an exposition of the importance on understanding
the infrastructure market structure as a guide to market behaviour.
(5.) An example is the UK water utilities where significant capital gain accrued to first
movers through the simple task of replacing debt with equity capital (Armitage, 2012).
(6.) See Helm and Tindall (2009, p. 414): ‘These [infrastructure asset] contracts between
owners, regulators, and managers are inevitably going to be incomplete, and this brings
into play a crucial role for ownership in incomplete contracts … With unforeseen contin
gencies and non-contractable managerial effort, ownership is always important because it
determines who has the “residual right of control”.’
(7.) See https://research.ncl.ac.uk/ibuild/.
(8.) ICIF stands for International Centre for Infrastructure Futures. See http://
www.icif.ac.uk/.
(9.) Given that outputs like decongestion, cleaner air and water, more efficient movement
through the city, better public and social relations through telecommunications systems,
and so on are very much internal to the functioning of infrastructure.
Philip O'Neill
Phillip O’Neill ([email protected]) is Professor of Economic Geography

and Director, Centre for Western Sydney, at Western Sydney University. Before join
ing the University of Western Sydney as Foundation Director of the Urban Research
Centre in 2006, he was Director of the Centre for Urban and Regional Studies at the
University of Newcastle, NSW. He was recognized as a Fellow of the Institute of Aus
tralian Geographers in 2008. From 2008 to 2013 Phillip was editor-in-chief of Geo
graphical Research and he currently sits on the editorial boards of Environment and
Page 16 of 17
Planning A and the Journal of Economic Geography. His research interests include
urban infrastructure, suburban labour markets, and state theory and practice. Phillip
is widely published in economic geography, as well as in the mainstream media
where he is a prominent columnist and commentator.
Page 17 of 17
The Financialization Thesis Revisited: Commodities as an Asset Class
The Financialization Thesis Revisited: Commodities as

an Asset Class
Sarah McGill
Roughly coinciding with the onset of the commodity price boom of the 2000s was an in
flux of financial investment in commodity derivatives. This ‘financialization’ has given rise
to debates regarding the potential influence of investors on commodity prices. This chap
ter examines these debates and places them within the context of the wider scholarship
on financialization. It argues that critiques of financialization are problematic in several
important respects. They are underpinned by long-standing suspicions and misconcep
tions of derivatives trading as a socially unproductive or harmful activity; they tend to
conflate the participation of financial investors with ‘speculation’. The chapter finds that
the term ‘financialization’ is ultimately misleading for in its characterization of the new
institutional realities of the commodity price formation process. Rather than attempting
to demarcate ‘purely’ financial investment in commodities from commercial trading, ‘fi
nancialization’ should refer to the growth of ‘hyper’ or short-term trading that occurs in
commodity markets.
Keywords: commodities, financialization, speculation, derivatives, super-cycle
Introduction
LONG a subject of interest in economics, commodity price dynamics attracted a great
deal of interest across the social sciences beginning in the run up to the global financial
crisis of 2008. Commodity markets experienced an unprecedented price boom beginning
in 2003: although punctuated by a sharp drop in the wake of the global financial crisis in
2008, prices all but recovered previous highs despite weak global growth prospects. Al
though this recovery led to some expectation that high prices represented a ‘new normal’
for commodity markets, by 2012 prices had once again dropped significantly. The boom is
now widely considered an instance of a super-cycle: a strong and sustained rise in (pri
marily industrial) commodity prices driven by demand from emerging market economies,
in this case led by China. For certain commodities, notably oil, price volatility was also
Page 1 of 23
unusually pronounced during this period. Much has been written about the super-cycle
and the ways in which it reflects short-term, cyclical, and structural dimensions of com
modity prices. While there is little dispute that the super-cycle represented an unusually
strong and long-lasting upswing, for a great many observers, the price dynamics of that
decade cannot entirely be accounted for by reference to ordinary cyclical supply and de
mand factors.
From roughly the same time as the beginning of the upswing in the 2003–12 super-cycle,
financial investors such as pension funds, hedge funds, endowments, and sovereign
wealth funds began injecting historically large amounts of capital into commodities, as
evidenced not least (if indirectly) by the rapid growth in the volume of contracts traded
on futures exchanges—a figure that increased roughly sevenfold between 2000 and 2010
(UNCTAD, 2011, p. 15). This trend strongly suggested to many observers that price move
ments, if not price levels, have come to be shaped by more than supply shocks, burgeon
ing (p. 646) emerging-market demand, or, indeed, any other changes in fundamentals. In
stead, commodity markets were said to have become ‘financialized’. These suspicions
were only heightened by dramatic commodity price spikes, most notably the apparent oil
price bubble from 2006 to 2008 and food price rises in 2008 and 2010.
While these two trends—high prices and record volatility (at least in oil markets) on the
one hand, and dramatic investor interest in commodities on the other—roughly coincided,
definitively proving causation between them in either direction is exceedingly difficult
(UNCTAD, 2011; Bos and van der Molen, 2013, p. 4). Nonetheless, because of the actors
involved and their suspected effects on prices of such critical resources as oil and basic
foodstuffs, financial investment in commodities has become a political hot-button issue.
Accordingly, a large body of quantitative empirical studies as well as academic and policy
making commentary seeks various explanations for commodity price behaviour during
the boom. It is only recently that something approaching a consensus has emerged on
whether, let alone how, such investment shapes prices: in a word, evidence has grown
that the presence of financial investors played some role in exacerbating price swings.
Yet while the super-cycle is currently in a trough, the wider questions raised during the
boom concerning the intersections between financial markets and the ‘real economy’ re
main highly salient.
As part of the wider project on financialization, derivatives trading in general has been of
long-standing interest to market theorists. In the broadest sense, the financialization
project has proposed a governing logic that has encouraged the growth of the financial
sector and the spread of so-called financial innovation and, in turn, infused firms and in
dustries—not to mention individuals, households, and entire economies (French et al.,
2011, p. 799). However, Muellerleile (2009) has observed that ‘On the whole, the concept
of financialization as studied in the social sciences remains imbued with an almost atmos
pheric quality, omnipresent but absent of context or cause’, and empirical case studies
have been few and far between (French et al., 2011).1 At the same time, for all that natur
al resources and financialization alike have been on the social science research agenda
for some time, the intersection between commodities and financial markets has received
Page 2 of 23
less in-depth treatment (but see Labban, 2010, for a notable exception). Now that the
most recent super-cycle can be viewed with the wisdom of hindsight, the case of com
modities offers a rich and timely opportunity to match conceptual foundations with empir
ics.
This chapter examines discourses about financialization in commodity derivatives mar

kets as they have been rehearsed by economic geographers and economists alike. It finds
that the ideological lines in these debates are drawn within what may conventionally be
thought of as these two ‘camps’ as often as they are drawn between them. In particular,
there are striking commonalities between the critiques of a great many geographers, het
erodox political economists, and ‘mainstream’ economists. The chapter argues that, while
not entirely misplaced, conventional critiques of financialization in commodity markets
are problematic in several important respects. At their most crude, they reflect a wider
suspicion of market agents—whether financial or otherwise—which, in turn, glosses over
the complexities of the commodity price formation process. Such suspicion of commodity
trading is far from new, being what Merton Miller (1997) has called ‘standard visceral re
actions against middlemen and speculators’. Further contributing to a lack of clarity is
the semantic and conceptual ambiguity evident in many other analyses. At its best, the fi
nancialization thesis recognizes the central importance of expectations in setting prices.
The chapter proceeds as follows. The next two sections outline the financializa
(p. 647)
tion thesis as it appears across a spectrum of scholarly opinion: while ‘The Financializa
tion Thesis and Derivatives Trading’ focuses upon perspectives from a number of strands
of political economy literature, ‘Commodity Trading and the Financialization Thesis’
sketches out the development of commodities as an asset class and outlines controversies
about the impact of financial investment on commodity prices as presented in ‘main
stream’ economics and finance literature. The following two sections take the form of a
‘critique of the critique’ of the financialization thesis. The section ‘The Defence of Deriva
tives’ explores a number of conceptual and semantic difficulties apparent in the litera
ture. ‘Iterated Expectations’ examines the concept of ‘speculation’ in greater detail, and
based on this discussion presents an alternative picture of what precisely is meant by ‘the
financialization of commodity markets’. Finally, concluding thoughts are offered.
The Financialization Thesis and Derivatives

Trading
Lee et al. (2009) have identified seventeen different conceptualizations—some overlap
ping, some conflicting—of ‘financialization’, all of which overtly or implicitly describe a
hegemonic process, logic, or system. As articulated by Epstein (2005, p. 3), financializa
tion refers to ‘the increasing role of financial markets, financial motives, financial actors,
and financial institutions in the operation of the domestic and international economies’.
At its heart, financialization is believed to be no less than the totalizing realization of neo
classical finance and economics theory, as epitomized in, for example, Merton and Bodie
(2005). More than simply a pervasive logic, ‘financialization alters behaviour and values
Page 3 of 23
in the economy, in society and in governmental institutions and policy regimes. … [I]t has
been aided and abetted by Western states driven to open up markets and globalise their
economies’ (Christopherson et al., 2013, p. 352). While seldom discussed explicitly in re
lation to commodity production and trading (see O’Neill (2001), and Labban (2010) for ex
ceptions), financial logic has arguably pervaded commodity production and trade at all
points along the supply chain, as we shall see. Of primary interest here, however, is that
strand of the literature concerning itself with the proliferation of trade in futures con
tracts and other financial instruments since the 1970s (Pryke and Allen, 2000; Krippner,
2005).
The heterodox account of derivatives trading covers a wide spectrum of opinion but can
be summarized briefly as follows. The Marxist tradition condemns outright the very exis
tence of financial instruments in all markets as a form of ‘fictitious capital’ (Harvey, 2006,
2011). Derivatives, in this view, are conceived as spatially and temporally displaced repre
sentations of physical goods, if not a direct replacement of them. At the outset, deriva
tives have two strikes against them: not only does the exchange of goods in general lack
intrinsic value, but derivatives themselves also have no economic worth because they are
no more than abstract representations of an underlying asset. At one level, then, this
school of thought offers a heterodox theory of value for derivatives, which itself has more
profound systemic implications. The trading of financial derivatives represents a divorce
between the ‘real economy’ and a ‘financial economy’ constituted entirely by ‘disembod
ied’ or fictitious (p. 648) capital. As such, financial markets have their own ‘space–time
logic’ that has no direct bearing on ‘real’ markets (Harvey, 2006; Mann, 2006 cited in
Christophers, 2011; see also LiPuma and Lee, 2004). Much like credit, derivatives create
financial value before the value of the underlying commodity can be realized in produc
tion and exchange (Harvey, 2006; see also Krippner, 2005). As such, their sole (de facto)
purpose is believed to be a more rapid and lucrative generation of profit for an elite ren
tier class. In a word: ‘Finance finances itself, but does not finance investment’ (Duménil
and Lévy, 2004, cited in Labban, 2010, p. 548, original emphasis).
It is not difficult to see the salience of this argument to the case of commodity derivatives
markets; indeed, oil futures contracts have been dismissed in more than one account as
mere ‘paper barrels’ (O’Sullivan, 2009; Labban, 2010). The sheer number of derivatives
traded on a given day in relation to the volume of underlying assets in productive circula
tion is commonly cited as proof of the ‘fictitious capital’ thesis (Labban, 2010; see also
O’Sullivan, 2009). For instance, figures from UNCTAD (2011) suggest that at the end of
2010, the total number of outstanding contracts on organized exchanges alone exceeded
the global total number of barrels of oil produced worldwide by a factor of 2.5. Labban
(2010) takes this ‘fictitious capital’ thesis to its logical conclusion. Because commodity
prices are governed by a parallel financial logic, ‘circulation of value can precede its pro
duction in the labour process and realisation in the market’ (Labban, 2010, p. 550). This,
in turn, lays the foundations for a crisis: in the medium term, the bursting of an asset
bubble. In the very long term, he obliquely suggests, the financialization of commodity
markets may temporarily disguise the ultimate resource crisis: the depletion of oil re
serves (Labban, 2010, p. 551). Implicit here is the idea that the ‘growth machine’ of capi
Page 4 of 23
talism, let alone finance capitalism, cannot continue indefinitely, whether due to natural
limits (the ‘second contradiction of capital’ (O’Connor, 1998)) or otherwise (see Harvey,
2011).
A less hard-line approach, which both overlaps with the Marxist critique and is shared be
yond the heterodox tradition, is concerned not so much with the widespread use of fu
tures contracts per se but with their ‘abuse’ by ‘speculators’. In this account, ‘specula
tion’ is rarely defined explicitly but, in contradistinction to hedging, it is virtually synony
mous with gambling (Bryan and Rafferty, 2006). Less dramatically, the spread of deriva
tives trading has fundamentally altered economic agents’ conception of risk such that
their ‘focus [is] on risk-reward ratios rather than on absolute risk’ (LiPuma and Lee,
2004, p. 45; see also Pryke and Allen, 2000; Bryan and Rafferty, 2006). However, whereas
the broad-brush approach accepts unequivocally that the term encompasses all trade in
financial instruments, which are ‘targets for speculative investment’ (Harvey, 2011, p. 83)
apparently by their very nature, the softer critique is somewhat hazy on precisely what
types of activities constitute ‘speculation’. What is clear in this view is that, because of
the dominance of finance-led capitalism and the ‘time–space compression’ it allows, spec
ulation has a major destabilizing effect on commodity markets—and the global economy
writ large—in that it contributes to both volatility and asset bubbles. Indeed, financial
trading exacerbates the very volatility it is intended to smooth out. Precisely because
derivatives trading lowers transaction costs, it encourages short-termism and gives rise
to price volatility, which, in turn, wastes resources and shortens the planning horizons of
firms and investors (Labban, 2010, p. 546; Harvey, 2011; see also Miller, 1997). Moreover,
this very volatility is what makes derivatives trading profitable (Swyngedouw, 1996, cited
in Labban, 2010, p. 546). In the medium term, too, financialization accelerates and ampli
fies the boom–bust cycles that characterize capitalism (Harvey, 2006).
Evident here is a condemnation of the short termism that characterizes much of

(p. 649)
contemporary financial markets. Such alarm is far from new (see Strange’s (1986)
account of ‘casino capitalism’), although it has certainly been heightened in the wake of
the global financial crisis (see Sinn, 2010). What is notable here is that the association be
tween short termism and contemporary financial markets finds parallels in the ‘main
stream’ of economics and finance. As summarized by Kay (2012), short-termist market be
haviour is a twofold phenomenon, at once myopic for its failure to invest for the creation
of durable economic value and hyperactive for its propensity to trade in ever-briefer in
tervals. It is driven by both human behavioural biases (Clark, 2011) and a suite of wider
market incentives (see Kay, 2012). Short termism in markets is typically associated with
the pursuit of self-interested gains, which disrupts the transfer of savings into investment
for economic growth. This is particularly true of long-duration projects which ‘yield the
highest long-term (private and social) returns and hence offer the biggest boost to future
growth’ (Haldane and Davies, 2011, p. 14).
Ultimately, therefore, to its critics financialization is not only a socially redundant activity
in and of itself, but it also results in deleterious side effects in that it detracts scarce capi
tal resources from productive investment. Even more than that, in so doing it creates a
Page 5 of 23
governing logic, which leads to the mispricing of assets. As we shall see in the next sec
tion, this generic argument appears to resonate perfectly in the case of commodity deriv
atives markets—the archetypical bridging point between finance and the ‘real economy’.
Commodity Trading and the Financialization

Thesis
The Development of an Asset Class
The issue of financialization in commodity derivatives trading is relatively new in and of

itself, even though commodities have been regarded as a component of a well-diversified
portfolio for some time (Greer, 1978; Bodie and Rosansky, 1980, both cited in Parsons,
2010), and deep suspicion of ‘speculators’ in commodity markets dates back centuries.
However, it has deeper significance in two respects. On one level, it represents one of the
latest flashpoints in a decades-long debate over causes and remedies for commodity price
instability (see Radetzki, 2008). On another level, the very problems perceived to have
been caused by financialization took place against the backdrop of the global financial
crisis and the widespread scepticism of finance that attended it (described in the previ
ous section). The roots of the issue can be traced back to the rise of institutional investors
and ‘shareholder capitalism’ ideology beginning in the 1970s, both of which have dramat
ically increased both the size of financial players and the scope of their reach into new
markets (Pike and Pollard, 2009). These markets were largely ‘constructed’ in order to
satisfy investors’ rate of return targets, a process that can be briefly sketched out as fol
lows.
At the same time as pension funds face growing liabilities, portfolio returns have proven
disappointing over the last fifteen years or more, owing to both the collapse of the equity
market premium of the last fifty years and the long-term decline in discount rates on re
turns (see Clark and Monk, 2013). The bursting of the equity-market bubble in 2000 pre
cipitated (p. 650) this process. The ensuing search for returns led investors into a range of
‘marginal’ markets, both in the sense of alternative asset classes (Leyshon and Thrift,
2007) and also of peripheral geographic regions (Clark and Monk, 2013). Along with the
2003 decision by the US Federal Reserve to allow banks to invest in physical commodity
production, transport, and storage infrastructure, financial deregulation of derivatives
markets during the 1990s and early 2000s—notably the Gramm–Leach–Bliley Act of 1999,
which partially dismantled the Glass–Steagall Act by allowing bank holding companies’ in
volvement in commodity markets, and the Commodity Futures Modernization Act of 2000,
which removed over-the-counter (OTC) derivative trading from regulatory oversight—
helped accelerate the development of commodities as one such ‘alternative asset
class’ (Clapp and Helleiner, 2012; Valiante, 2013).
Market conditions at the beginning of the 2000s were thus ripe for the accelerated devel
opment of commodities as an asset class. In a narrower sense, the foundations for the
current wave of investment were arguably laid in 1991with the creation of the Goldman
Page 6 of 23
Sachs Commodity Index (GSCI, now the S&P GSCI), an investment product that has been
closely replicated many times over by other financial institutions. Beginning around 2003,
however, institutional investors bought en masse into academic research (notably Gorton
and Rouwenhurst, 2004), which found a negative correlation between commodity and
stock returns (see Tang and Xiong, 2010, p. 9). In essence, they were subscribing to a
narrative about global growth and natural resource scarcity: the rise of emerging
economies, led by China (and to a lesser extent, India, Brazil, and Russia), was creating
burgeoning and unprecedented demand for commodities across the board, driving up
their prices to an extent that this market offered an opportunity to earn outsize returns.
Investing in commodities thus represented a direct investment in emerging markets: one
that promised not only outsized returns, but also a means of portfolio diversification and
a hedge against inflation. With the onset of the global financial crisis in 2008, this narra
tive only gained further traction, as returns in ‘traditional’ asset classes remained disap
pointing, while the long-term growth prospects for the largest and most resource-hungry
economies appeared brighter than for mature markets (if less robust than they had prior
to 2008).
While comprehensive and reliable data on financial trading of commodities, including vol
umes and the number, sizes, and identities of market participants, is scarce, there exists
strong indirect evidence of a dramatic increase in financial participation. For example, as
already noted, the volume of both exchange-traded and OTC derivatives has risen sharply
since 2004: while the number of futures and options contracts traded on exchanges glob
ally has increased from an initial US$15 million to over US$60 million in 2010, the notion
al value of outstanding OTC derivatives grew from less than US$2 million to nearly
US$14 million in mid-2008 (UNCTAD, 2011, p.15). Total financial investment in exchange-
traded commodity derivatives is also estimated to have grown markedly from US$80 mil
lion in 2005 to US$375 million in 2010 (UNCTAD, 2011, p.16) (Figure 34.1).
Financial investors gain exposure to commodities primarily through four channels (UNC
TAD, 2011, pp. 14–15). Commodity indices, which attracted the lion’s share of capital
(and, accordingly, controversy), are composites of futures contracts on a given range of
commodities traded on exchanges. They are largely provided by investment banks: among
the best known are the S&P GSCI (Standard and Poor’s Goldman Sachs Commodity In
dex), the Reuters/Jeffries CRB Index, and the Dow Jones AIG Index. Investors buy into
these indices by entering into a swap or other bilateral financial agreement with the in
dex provider, which (p. 651) hedges its exposure through exchange-traded commodity fu
tures contracts. Crucially, and in contrast to more ‘conventional’ speculation on commodi
ty futures markets, these indices comprise only long positions, which are ‘rolled over’, or
replaced with longer-dated contracts, close to the date of expiration of the contract. In
dex investing is considered to be a passive, longer-term strategy, although indices are
typically weighted and re-weighted to capture prices with relatively stronger outlooks.
This strategy rests on the assumption that commodities are a discrete asset class with a
unique risk premium. In order to be profitable, the market in question must be in back
wardation (i.e. the spot price must be higher than the futures price)—a condition imply
Page 7 of 23
ing low inventory levels and a positive convenience yield (Domanski and Heath, 2007, p.
56; Östensson, 2012).2
Figure 34.1 Notional Amount of Outstanding Over-

the-Counter Commodity Derivatives, December
1998–June 2010 (US$ trillion).
Source: UNCTAD (2011, p. 15).
A second, and more active, trading strategy entails taking both long and short positions in
futures and options contracts. This is more short termist and somewhat more risky. Ex
change-traded products (ETPs), a third type of instrument, have begun to raise concerns
because relatively new versions of them are backed by physical commodities, rather than
using futures contracts as collateral. Recent market conditions (specifically risk aversion
and low interest rates) have only enhanced the popularity of physically backed ETPs. Fi
nally, structured products, used since 2006, ‘typically combine an underlying asset with a
derivative’. Beyond these channels, some banks have entered physical markets as produc
ers (UNCTAD, 2011, p. 42; Valiante, 2013).
After the global financial crisis of 2008, investment patterns in the overall asset class also
appear to have shifted. At the onset of the crisis, both financial investment in commodi
ties and commodity prices fell in tandem, suggesting to many critics that financial
(p. 652) participation had given rise to a bubble which burst along with ‘speculative’ bub
bles in other asset classes (UNCTAD, 2009, p. 55). Interest in commodities not only re
bounded and even surpassed previous levels in the aftermath of the crisis, but investors
also increasingly pursued more active strategies and more ‘innovative’ products. Evi
dence reviewed by UNCTAD (2011, p. 28) suggests not only that financial investment in
commodities increased still further since mid-2010, but also that the relative share of pas
sive investments in indices declined from 65 to 85 per cent in 2005–07 (the run-up to the
crisis) to 45 per cent in 2010 (Figure 34.2).
Page 8 of 23
Figure 34.2 Financial Investment in Commodities,

Assets Under Management, by Product, 2005–11
(US$ billion).
ETP, exchange-traded product.
The Commodity Financialization Thesis and Antithesis
In this context, therefore, the term ‘financialization’ does not denote the trading of deriva
tives per se, as even ‘genuine’ commercial hedgers use financial instruments (Baffes and
Haniotis, 2010). Rather, it refers to the growing and significant presence and influence of
participants without a direct commercial interest in a given derivatives market. These ac
tors, which include pension funds, endowments, and hedge funds, trade commodity fu
tures not on the basis of supply and demand fundamentals, but on short-term
considerations related to managing their own portfolios, including price movements in
other asset classes such as equities and bonds (Mayer, 2009, p. 1; UNCTAD, 2011, p. 13).
As well as actors on the buy side of the securities industry, entities on the sell side—par
ticularly investment banks—also dramatically increased their participation in both physi
cal and financial commodity markets during the period under discussion.3
Macroeconomic factors unrelated to commodity supply and demand have thereby come to
influence decisions to invest in commodities to an unprecedented degree. Although over
all portfolio allocations to commodities remain only a small percentage of total financial-
market investments,4 they are large relative to overall commodity production (Domanski
and Heath, 2007, p. 53). Ultimately, however, the proportion of financial participants to
commercial actors is thought to be relatively unimportant, (p. 653) as even a comparative
ly small share of financial trades can conceivably change the behaviour of other traders
and impact prices (Maugeri, 2009, pp. 159–60; Fattouh et al., 2012, p. 6). The presence of
financial investors has thus further promoted the central role played by expectations in
price formation (Kemp, 2012).
It must be mentioned here that the term ‘speculation’ has typically been used inter
changeably with ‘financialization’, although this tendency has lessened of late.
Broadly speaking, speculation has been defined as the purchase of a commodity or relat
ed derivative in anticipation of profiting from future price changes. It can take place in
physical markets through hoarding and manipulation, as well as in financial markets
(Baffes and Haniotis, 2010). It is, however, extremely difficult to articulate a definition of
speculation that is not in some way tautological or at least redundant. Even in the nar
Page 9 of 23
rower sense of ‘financial speculation’ for which it is often shorthand, the term loses much
of its significance—a point that will be revisited later.
This point aside, what is ultimately at stake in controversies about financialization is less
the definition of the term than the nature of the influence of financial trading on prices—
if, indeed, such an influence exists at all. This is because the relationship between so-
called financial investment and futures prices is not well understood (Irwin and Sanders,
2010). Nor is the relationship between physical and financial prices well established, de
spite at least a half-century’s worth of efforts to do so.5 Various econometric analyses
have yielded evidence in support of both arguments (see Baffes and Haniotis, 2010, for a
review). While a handful of these studies tend to be heavily cited as strong evidence (if
not quite definitive proof) of one side or the other, it is often forgotten that each is mak
ing only a relatively modest claim based on a comparatively narrow set of parameters.
Nonetheless, both positions can be briefly summarized as follows.
On one side, many observers have found the financialization hypothesis to be counterintu
itive and empirically unsound on a number of counts. They believe supply and demand
fundamentals to be adequate to explain the price dynamics of the super-cycle, given fac
tors such as the rate of industrialization in China and long lead times on the supply side
(Östensson, 2012). Moreover, they rightly point out the fundamental difference between
supply and demand dynamics in futures as opposed to pure goods markets: namely that
the supply and demand for futures contracts does not correspond directly to the supply
and demand for the underlying commodity, and each position in a futures market must be
offset against an equal and opposite position. In this instance, the large demand for fu
tures contracts from investors via index funds must be offset by an equal volume of short
positions—and, as such, there is no net effect of investment in futures contracts on prices.
While it is true that dramatic growth in commodity index investment coincided with sharp
price rises, correlation has often been uncritically accepted as a clear indicator of causa
tion (Irwin and Sanders, 2010, p. 3), as exemplified by the highly influential US Congres
sional testimony of former hedge fund manager Michael Masters (2008). Nor is financial
investment in and of itself a particularly convincing explanation for price volatility, as
volatility has been experienced to similar degrees in commodity markets without a finan
cial component (Frankel and Rose, 2010, p. 10).
In a normative sense, too, financial investment in commodity markets is not only unobjec
tionable to these observers, but it also has a number of beneficial effects. Futures mar
kets tend to function more effectively with the participation of a greater number of actors
—provided they do not engage in herding behaviour. Absent herding, even the presence
of (p. 654) many short-term traders has a stabilizing effect on prices (Somanathan and
Nageswaran 2015, p. 91). Further, many larger institutions, in particular, bring superior
market intelligence to bear on their trading activities. Perhaps more importantly than
market depth, financial investors also provide a degree of liquidity that had previously
been lacking (Radetzki, 2008; Baffes and Haniotis, 2010; UNCTAD, 2011; Östensson,
2012; Sandor, 2012).
Page 10 of 23
For their part, critics of financialization assert that the enormous influx of fund activity
that began in 2005–06 has led to a breakdown in the relationship between commodity in
ventories and prices (Humphreys, 2009; see also Henderson et al., 2015). This has been
shown in various studies to have had three effects. Firstly, price comovement—both
across commodity sectors (Baffes, 2009; Basak and Pavlova, 2016) and between commodi
ties and other asset classes (Baffes and Haniotis, 2010; Basak and Pavlova, 2016)—has
been observed. While conventional wisdom had previously held that comovement could
not completely be accounted for by fundamentals and that ‘excess’ comovement was
caused by herding behaviour on the part of traders (Pindyck and Rotemberg, 1990), it
now appears more likely that supply and demand variables—most notably the greater
share of energy input costs in the production of other commodities—are a sufficient ex
planation (Ai et al., 2006). As for the observed closer correlation between commodity
prices and other asset classes, market-wide changes in risk appetite simultaneously affect
demand for apparently unrelated assets in the wake of the global financial crisis (Bank of
Japan, 2011). Both the degree of correlation and the extent to which it is a lasting phe
nomenon, rather than simply a byproduct of the extraordinary events of the global finan
cial crisis, remains a matter of dispute (see Büyükşahin, et al., 2008), although there is
evidence to suggest that algorithmic trading can exacerbate correlations over short peri
ods (Bicchetti and Maystre, 2012). Such correlation across asset classes can in principle
limit investors’ ability to hedge financial risk.
Secondly, financialization is alleged to have exacerbated the pronounced price volatility

attendant to the recent super-cycle. Commodity market volatility is accepted, to a certain
degree, as inevitable, given that supply and demand are highly inelastic in the short run.
Trade on organized exchanges generally reduces price volatility due to greater liquidity
and transparency—a point that is borne out not only in principle, but also by reference to
comparisons of price data for traded and non-traded commodities such as iron ore or
molybdenum (Humphreys, 2009). However, the presence of large participants such as fi
nancial institutions or commodity funds can potentially move short-term prices owing to
their sheer weight in markets—an effect that has been exacerbated by the increasing
prevalence of high-frequency trading (UNCTAD, 2011). Financial investment is also
feared to have volatility spillover effects from other asset classes, or across different com
modities (Tang and Xiong, 2010; Basak and Pavlova, 2016).
Volatility is undesirable from a macroeconomic perspective because of its deleterious ef

fects on the terms of trade and fiscal stability of commodity-dependent economies (Cashin
and McDermott, 2001, p. 25). Above a certain threshold it can also ‘contaminate’ the
price discovery process. Without price stability, hedging for smaller commercial partici
pants becomes more costly, reducing their involvement in the market. Producer and con
sumer planning also become subject to greater uncertainty, leading to risk aversion and
lack of productive investment—and, ultimately, further negative repercussions for macro
economic growth. In these respects, volatility is more salient for policymakers than long-
term price trends (Baffes and Haniotis, 2010). It is, however, a difficult problem to man
age: any given episode may be driven by a number of factors, including sensitivity to sup
ply shocks, tighter (p. 655) interdependencies between demand for individual commodi
Page 11 of 23
ties, and (less plausibly) inflation. Moreover, it is known that volatility in futures markets
can lead to spot price volatility (Bos and van der Molen, 2013, p. 5).
Finally, and most importantly, financial involvement in commodity markets is also widely
feared—by financial-market ‘insiders’ and critics alike—to exacerbate boom–bust cycles
in spot markets. Like volatility, bubbles are accepted as inevitable for commodities, as
well as other markets. Commodity markets are characterized by various types of uncer
tainty, including medium- to long-term supply forecasts (not least due to uncertainty sur
rounding ultimately recoverable resources of finite mineral commodities); incomplete or
unreliable inventory data; and incomplete or unreliable data on global supply and de
mand dynamics. As such, their participants are already subject to herd behaviour (UNC
TAD, 2011, p. 60, n. 17). The presence of financial investors has been a further important
factor in altering the commodity price formation process in such a way that it is driven by
expectations formed in conditions of heightened uncertainty. In these circumstances in
vestors attach greater weight to present conditions, and so futures prices will closely
track spot prices (Fattouh and Scaramozzino, 2011). In more practical terms, one upshot
of this breakdown in confidence is that the price formation process is driven largely by
short-termist, myopic incentives and therefore prone to herding behaviour and the forma
tion of asset bubbles (Parsons, 2010; UNCTAD, 2011). Momentum trading has also be
come a common strategy, with hedge funds and others using statistical analysis to follow
or even predict market movements (Parsons, 2010; UNCTAD, 2011). Since 2008, algorith
mic or high-frequency trading has also become more prevalent (Bicchetti and Maystre,
2012).
The upshot is that financialization generates unreliable price signals, which causes fu
tures markets to overshoot because financial markets can (over)react to new information
more quickly than physical markets can (Dornbush, 1976, cited in Mabro, 2008). It cre
ates greater overall market uncertainty and sends incorrect signals to producers and con
sumers. The end results include ‘an immense misallocation of resources’ and, from time
to time, asset bubbles (Dornbush, 1976, cited in Mabro, 2008, p. 34). More problematic
still, ‘an imperfect pricing system can continue to survive unchallenged for a long time
until a powerful shock or a series of small shocks exposes its weaknesses and limitations
and most importantly alters the balance of power (or perceived power) among the main
players’ (Fattouh, 2006, p. 95).
The Defence of Derivatives

Commodity futures trading has been plagued by popular suspicion at least since the
founding of the Chicago Board of Trade in 1848. More recently this suspicion has been a
reaction against the state’s withdrawal from commodity markets beginning in the 1970s
in favour of market forces (Radetzki, 2008; Sandor, 2012). A number of reasons for this
attitude have been suggested. The transparency of organized exchanges makes price
volatility highly visible, while at the same time, these exchanges are perceived to hold a
monopoly on information and economic power (Jacks, 2001). Yet a large body of quantita
Page 12 of 23
tive research shows that price volatility is lower for commodities with centralized trading
(see Headey and Fan, 2008; Irwin et al., 2009, cited in Irwin and Sanders, 2010).
Perhaps more compelling is popular ‘indignation over the handsome profits gener
(p. 656)
ated by agents’ (Jacks, 2001), echoed in the folk assumption that trading exists, in part, to
generate outsized profits for an elite rentier class (see ‘The Financialization Thesis and
Derivatives Trading’ section). However, such a view confounds two separate normative is
sues. The implicit critique of the institutional arrangements that permit profits to grow
large in the first place is certainly part of a broad-church effort to curb financial trading
profits more generally (see European Commission, 2013). In this respect, the tide has
turned against Merton Miller’s (1997) once-orthodox explanation that ‘The prospect of
trading profits is the “bribe”, so to speak, that society uses to motivate the collection, and
ultimately the revelation, of the dispersed information about supply and demand’. Howev
er, popular suspicion of trading also overlooks the welfare effects of futures exchanges in
the form of greater ease of trade and more stable, transparent prices (Newberry and
Stiglitz, 1981; Turnovsky, 1983, both cited in Pennings and Leuthold, 2000). In other
words, derivatives trading transmits information to ‘promot[e] economically desirable ad
justment of commodity stocks, thereby reducing price fluctuations’ (Working, 1953, p.
342; see also Pindyck, 2004).
Contrast these assumptions with the ‘paper barrels’ view of derivatives contracts, which
fail to consider them as representing a service. Indeed, Miller (1997) has dismissed
wholesale critiques of derivatives as a form of ‘modern-day Physiocracy’, rooted in an
eighteenth-century belief that ‘the ultimate source of national wealth [is] in the produc
tion of physical commodities’. Yet contrary to the assumption underpinning the ‘fictitious
capital’ and speculation theses alike, it does not follow that derivatives are a form of ficti
tious capital simply because the volume of futures contracts traded is orders of magni
tude larger than the volume of physical commodities in ‘productive’ circulation. Unlike in
markets for pure goods, the quantity of futures contracts in a given market does not
match the supply of the underlying asset one-to-one (Radetzki, 2008; Irwin et al., 2009;
Smith, 2012). Expanded trading, in part, reflects market participants’ expectations of
greater price changes (Östensson, 2012, p. 21).
Another reason the volume of futures contracts outstanding can grow so large is because
margin requirements for exchanges are only a fraction—typically about 5 per cent—of a
given participant’s overall position. In the case of swap markets, the nominal dollar
amounts of outstanding swaps are merely ‘notional values’ and ‘bookkeeping conven
tions’ (Miller, 1997); and the difference between two given commodity prices is traded
with swaps. In this vein, ‘cornering’ futures markets is not tantamount to cornering in
physical markets (Irwin and Sanders, 2010, p. 8) as each position on an exchange must
be matched by an equal and opposite position. Thus more trading does not imply more
waste: on the contrary—at least in principle—it is a means of price discovery in that
traders aggregate disparate information (Miller, 1997; Östensson, 2012, p. 21). For all
Page 13 of 23
these reasons, the perceived dichotomy between finance and the ‘real economy’ is, as
Pike and Pollard (2009) suggest, specious.
The related if slightly less hard-line tendency is to conflate financialization with ‘specula
tion’, and so this latter term has typically been liberally used yet ill defined in many dis
courses—even within the financial economics literature. Perhaps as a matter of conve
nience, econometric studies tend to adopt the Commodity Futures Trading Commission’s
(CFTC) distinction between commercial and non-commercial traders to divide hedgers
from speculators, although these two categories are widely recognized as somewhat arbi
trary. Serious attempts to categorize what types of trading activity properly constitute
speculation as opposed to hedging typically remain unresolved, as evidenced, for exam
ple, by the (p. 657) controversy surrounding the CFTC’s re-classification in 2009 of vari
ous categories of traders (CFTC, 2009). Speculative activities may also reflect a diversity
of motivations, and, accordingly, the term has both positive and normative dimensions
(Fattouh et al., 2012, p. 3).
It would seem that while there is a great deal of overlap between the terms ‘speculation’
and ‘financialization’, the former more often than not is meant to denote the latter. Even
as a matter of convenience this is unhelpful owing to the complexities of, and blurry
boundaries between, physical and financial trading: many market participants now en
gage in both physical production and logistics, as well as various types of trading (Baffes
and Haniotis, 2010, p. 36). But more to the point, crudely equating speculation with trad
ing in futures contracts, as much of the heterodox critique does, is not simply misleading,
but it amounts to a tautology, as ‘Future pricing is by definition speculative’ (Zalik, 2010,
p. 554).
Iterated Expectations
In a sense, the persistent use of the term ‘speculation’ underscores the central role
played by expectations about future supply and demand conditions in the price formation
process in both physical (spot) and futures markets (Working, 1942, cited in Fattouh et
al., 2012). Even many critics of financialization tend to acknowledge that a certain
amount of speculation in this sense is beneficial to, and indeed necessary for, the proper
functioning of commodity futures markets, as speculators offer both greater liquidity and
more sophisticated hedging instruments. Crucially, however, this participation is benefi
cial only if financial investors are not simply engaging in herding behaviour or noise trad
ing, as this creates the conditions for a speculative bubble to form (Radetzki, 2008).
While such bubbles are, in turn, often mistaken for manipulation, ‘the beliefs driving a
bubble can gain traction without there being any identifiable individuals behind it’ (Par
sons, 2010, p. 109). In order to identify an episode of speculation with any accuracy, it
would therefore be essential to identify different types of financial participants, as well as
their trading strategies and tactics (Fattouh, 2010, p. 1; Sandor, 2012, p. 550). For these
reasons, as Working (1963, pp. 22–23) pointed out over half a century ago, proving or dis
Page 14 of 23
proving that ‘speculative’ futures trading causes price instability is impossible without
empirical evidence of the drivers of speculative behaviour.
There is another sense in which the channels through which financial trading might influ
ence commodity prices are opaque: real-time data on commodity prices, as well as pro
duction, inventories, and trade, is incomplete and often of questionable accuracy. While
this is problematic for studies of the possible impacts of financial investors on prices, it is
also true that critics of the financialization thesis have the impossible task of proving a
negative (Jarecki, 2011, p. 10), and so, in an important sense, no amount of high-quality
data will prove their case. In any event, it is doubtful whether greater volumes of more
reliable data on physical markets would eliminate the problems that financialization is be
lieved to cause. In all trading environments, ‘fixing’ information asymmetry is tantamount
to creating conditions for information overload (Kay, 2012, pp. 71–72; see also Fattouh
and Allsopp, 2009, p. 2). Yet the point remains that even if individual traders had ‘suffi
cient’ information on supply and demand fundamentals and other traders’ motivations at
the moment each trade is executed, it is their perceptions and expectations that ‘move
their “animal spirits” ’ to translate this information into a given price’ (Mabro, 2008, p. 3;
see also Akerlof and Shiller, 2009).
More to the point, financial trading’s effect on commodity prices is so difficult to

(p. 658)
discern because comprehensive information about investor motivations and behaviour is

simply unavailable (Radetzki, 2008; Humphreys, 2009). Yet neither these data nor econo
metric ‘proof’ of financialization is necessary for financial investors to shape markets. Re
call once again the centrality of expectations in commodity price formation, financializa
tion or not. When coupled with existing institutional arrangements that incentivize short-
over long-term gains not only for financial investors but for ‘commercial’ producers, con
sumers, and traders (see Kay, 2012; Clark, 2013)—in other words, ‘genuine hedgers’—
such an environment, in turn, exacerbates the innate human tendency towards short-term
thinking (Kay, 2012; Clark, 2013). As discussed in the ‘Commodity Trading and the Finan
cialization Thesis’ section, this amounts to attaching outsize weight to present and near-
term conditions, where in reality commodity prices are primarily determined by cyclical
(medium-term) and structural (long-term) supply and demand factors. Given that finan
cial investors have been a sizeable presence in commodity markets for a decade at the
time of writing, it can be expected that, as in other financial markets, greater volumes of
trading activity have further enhanced this effect (Kay, 2012, p. 40).
Conceivably, the very suspicion on the part of a sufficient proportion of all traders that
prices reflect information from other asset classes, as well as commodity supply and de
mand fundamentals, will shift their short-term expectations accordingly (UNCTAD, 2011,
p. 29; Smith, 2012). This belief has, in some cases, found its way into the underpinnings
of the forecasts and strategies employed by physical traders (UNCTAD, 2011; Terazono,
2012). If this is, indeed, the case, the price formation process for exchange-traded com
modities can be said to have taken on the character of Keynes’s ‘beauty contest’, or more
formally Allen et al.’s (2006) ‘iterated expectations’, in which prices reflect participants’
expectations about others’ expectations ad infinitum (Allsopp and Fattouh, 2011). In this
Page 15 of 23
sense, the identities of trading parties is only of secondary importance at best as motiva
tions and tactics become homogenized. Instead, their models have a more complex and
intimate relationship to the very phenomenon they ostensibly do no more than describe
(see Barry and Slater, 2005). The financialization of commodity markets thus resembles
many similar tendencies in other securities markets (see Kay, 2012). Put differently, in the
manner described by Akerlof and Shiller (2009, p.54, cited in Fattouh, 2011), partici
pants’ beliefs or ‘stories’ have become ‘a real part of how the economy functions’, and so
‘The stories no longer merely explain the facts; they are the facts’.
Conclusions and Implications for the Financial

ization Thesis
A close reading and synthesis of various versions of the commodity financialization thesis
reveals many disagreements, most obviously over the societal value of futures trading.
This is particularly true in the wake of the global financial crisis: the strong normative ex
pectation of commodity trading on the part of society mirrors or coincides with evident
societal expectations of banking and financial intermediaries. However, there is also
much overlap between the heterodox and orthodox accounts: in particular, a concern that
financial (p. 659) investment exacerbates both commodity price volatility and boom–bust
cycles. Here it may be tempting to conclude that financialization has created both a new
governing logic and an economic space more or less independent of ‘the real economy’.
However, semantic and conceptual ambiguity and confusion surround commodity markets
and derivatives trading, and this chapter has attempted to clarify some key issues. What
can ultimately be gleaned from this exercise is that the strong presence of financial in
vestors in these markets has helped to promote a short-termist, expectations-driven ap
proach to pricing. Given the loss of faith in the price formation process stemming from
these and other sources of uncertainty, it is not surprising that financial participation in
commodity markets should find itself a scapegoat once more and be reviled as mere
‘speculation’.
While it has long been feared that financialization might have deleterious effects on com
modity prices, what is now of equal or greater concern to critics is that the growing re
semblance of commodity markets to other financial markets might have made them a
source of systemic financial rather than resource risk. In this respect, commodity markets
are but one source of post-crisis anxiety about macroeconomic and financial stability—if
not, indeed, nostalgia for a supposedly more stable, orderly era when financial markets
satisfactorily performed their ‘proper’ functions of raising capital for productive invest
ment, transferring risk, and safeguarding savings (Kay, 2012). Yet financialization is not
necessarily a historically unprecedented, or indeed permanent, phenomenon (Krippner,
2005, p. 199). Moreover, as Kindleberger (1978), Minsky (1977, 1992), and their intellec
tual heirs have long observed, regulation and oversight, while going a considerable way
to smooth out peaks and troughs in economic cycles, cannot entirely eliminate them.
Page 16 of 23
None of this is to dismiss out of hand the long-lasting relevance of financialization in com
modity markets. Even if the super-cycle has come to an end, certain commodities may
continue to hold their relevance for investors as a proxy for the long-term material
growth prospects of emerging markets. Ultimately, however, by attaching outsized impor
tance to the role of financial trading in setting commodity prices—by characterizing the
impact of financialization as a totalizing, transformative force—critics have, ironically
enough, lost sight of both the long-term and the ‘real’ components of commodity markets.
Coupled with faltering confidence about the sustainability and security of supply, growth
in emerging economies has been more than sufficient to reshape pricing expectations.
While not untouched by financialization, then, commodity markets can never entirely suc
cumb to its logic.
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Notes:
(1.) Muellerleile (2009) himself provides one notable exception; see also Pike and Pollard
(2009) as well as contributions to the November 2013 special issue of the Cambridge
Journal of Regions, Economy and Society.
Page 22 of 23
(2.) Investors can gain exposure to commodity index returns via three other financial in
struments: commodity index swaps, exchange traded funds, and exchange traded notes.
See Tang and Xiong (2010, p. 6, n. 9).
(3.) The role of the sell side was not often explicitly considered in discussions on financial
ization in commodity markets until relatively recently. While critically important and in
creasingly controversial, the changing institutional landscape of commodity trading con
stitutes another sense in which the term ‘financialization’ may be used in this context and
thus lies outside the primary scope of this chapter (but see Wójcik (2012) for a general
discussion of the power of investment banks).
(4.) In 2005, commodity futures and options accounted for only 8% of all derivatives con
tracts traded globally (UNCTAD, 2006).
(5.) Bos and van der Molen (2013, p. 4) provide a brief overview of this literature; see al
so Mabro (2008); Fattouh (2010, p. 5).
Sarah McGill
Sarah McGill ([email protected]) is a Research Associate at the

Smith School of Enterprise and the Environment, School of Geography and the Envi
ronment, University of Oxford. Her current research uses behavioural and institu
tional approaches to examine cross-country differences in social security provision
and the ↵barriers that prevent households from adequate long-term financial plan
ning. She obtained her DPhil at the University of Oxford in 2015. Her previous re
search focused on commodity markets, mineral resource governance, and the rela
tionship between the financial sector and the ‘real economy’; she has also published
several papers and reports on sustainable investing. She is a member of the editorial
board of the Journal of Sustainable Finance and Investment.
Page 23 of 23
Vulnerable Regions in a Changing Climate

Robin Leichenko
Economic geographers have made important contributions to the understanding of many

facets of climate change, yet the field has had relatively limited engagement with the
study of climate impacts, vulnerabilities, and adaptation. Instead, most work on the eco
nomic consequences of climate disruption is being done by researchers in other disci
plines or in other subfields of geography. This chapter argues that broad recognition of
humanity’s role in shaping Earth’s planetary systems, combined with new hope and op
portunity engendered by the 2015 Paris Agreement on reduction of greenhouse gas emis
sions, present a pivotal moment for economic geographers to take a more central role in
the study of climate change and in broader, interdisciplinary conversations about the
meaning and implications of the Anthropocene.
Keywords: economic vulnerability, climate change, impacts, adaptation, interdisciplinarity, Anthropocene
Introduction
EARTH has entered the epoch of Anthropocene whereby human actions are widely recog
nized as an influential force in planetary biophysical and geological systems. While the
2015 Paris Agreement on reduction of greenhouse gas emissions offers hope that the
most dire scenarios of climate change may be avoided, economic disruptions associated
with climate-related extreme events and climate-induced loss and damage are expected
for the foreseeable future. For regional economies, highly visible climate events such as
unprecedented flooding in Chennai, India, in 2015, which inundated 90 per cent of the
city and displaced more than two million people; Typhon Haiyan (Yolanda) in 2013, which
killed more than 6000 people in the Philippines; and Hurricane Sandy in 2012, which
caused more than US$60 billion in property and infrastructure damage to the east coast
of the USA, have focused attention on risks and vulnerabilities associated climate change.
Growing awareness of the regional economic impacts of climate-related stresses, such as
declining water availability, deterioration of resource-based livelihoods, and coastal inun
Page 1 of 22
dation as the result of sea-level rise, has further reinforced interest in the development of
strategies to build regional climate resilience.
Although economic geographers have made important contributions to the understanding

of many facets of climate change, including formation of new carbon economies, evolu
tion of energy regimes, development of carbon-offset schemes, and determinants of re
gional resilience (e.g. Bumpus and Liverman, 2008; Boykoff et al., 2009; Bradshaw, 2010;
Bridge, 2010; Knox-Hayes, 2010; Essletzbicher, 2012; Bridge et al., 2013; Martin and Sun
ley, 2015), the field has had relatively limited engagement with study of economic im
pacts, vulnerability, and adaptation to climate change. Instead, most work on the econom
ic consequences of and responses to climate disruption is being done by researchers in
economics, planning, policy, and engineering. Indeed, a new field of ‘climate economics’
has emerged around exploration of how variation in weather conditions, including tem
perature, precipitation, and windstorms, affect local, regional, and national economies
(Dell et al., 2014). Related (p. 666) subfields explore the effects of extreme climate events
for urban and regional economic growth and development (e.g. Hallegatte et al., 2011),
poverty rates (e.g. Skoufias et al., 2012), and housing and property markets (e.g. Pryce et
al., 2011). While economics and allied fields have dominated study of the impacts of cli
mate change, research on economic vulnerability to climate change is primarily happen
ing within the interdisciplinary fields of human dimensions of climate change and disaster
risk reduction, as well as in subfields of geography, including political ecology, natural
hazards, environmental justice, and international development (Fuller and Pincetl, 2015).
Climate vulnerability research emphasizes identification of communities, sectors, social
groups, and households that are more likely than others to be harmed by climate change
or are less able to adapt to climate-related shocks and stresses. This research typically in
corporates economic variables and recognizes a role for economic processes, such as
globalization, in shaping vulnerabilities, yet the central focus of the work is generally di
rected towards understanding uneven spatial, social, and livelihood vulnerabilities, rather
than towards issues that are of more central concern to economic geographers such as
impacts on supply chains, regional labour markets, and future patterns of regional
growth and development. Furthermore, only limited attention has been directed within
economic geography to questions of how vulnerability is generated and maintained by
processes such as neo-liberalization and financialization.
This chapter argues that growing public and policy attention to climate-related economic
disruption, combined with broad recognition of humanity’s role in shaping planetary sys
tems, presents a pivotal moment for economic geographers to take a more central role in
climate impact and vulnerability studies and in larger, interdisciplinary conversations
about the meaning and implications of the Anthropocene. The first part of the chapter de
fines economic vulnerability and describes important developments in vulnerability think
ing. The next section assesses the state of research on regional impacts and vulnerability,
showing how ongoing work on spatial, sectoral, and household vulnerabilities provides a
strong foundation for answering questions such as which local and regional economies
are most vulnerable to the impacts of climate change, and which sectors and which types
of workers are most susceptible to harm and least able to bounce back. The chapter then
Page 2 of 22
highlights emerging work on the production of economic vulnerability, which is beginning

to ask questions about how market-driven responses to climate risks are shaping vulnera
bilities. The chapter concludes by identifying opportunities for economic geographers to
further explore impacts and vulnerabilities and to engage with the interdisciplinary glob
al change research community.
Defining Economic Vulnerability

Vulnerability to climate change is generally understood as a propensity to be harmed by
climate shocks and stresses (Intergovernmental Panel on Climate Change, 2012). Climat
ic shocks include extreme events, such as hurricanes and heat waves. Climatic stresses
entail longer-term changes such as sea-level rise and gradually warming temperatures.
Within the climate change literature, definitions of vulnerability typically take into ac
count physical exposure to climate shocks and stresses, degree of sensitivity or suscepti
bility to harm from these events, and the ability to respond and recover.1 The highly un
even nature of (p. 667) vulnerability within and across regions, communities, and house
holds stems from differences in exposure to climate extremes, as well as variations in so
cial, demographic economic, institutional, and technological factors that influence both
susceptibility to harm and capacity to respond (Liverman, 1990; Adger, et al., 2003; Eakin
and Luers, 2006; Barnett and Eakin, 2015). The notion of economic resilience incorpo
rates consideration of how quickly regions, communities, or households might recover
from climate shocks and reduce vulnerability to future events (Leichenko et al., 2015). Al
though vulnerability and resilience are intertwined,2 resilience is touched upon only
briefly in this chapter because it is explored elsewhere in the volume (see Chapter 45).
As with the concept of vulnerability, economic vulnerability has a range of different us
ages and interpretations (Leichenko et al., 2014). In the economics literature, economic
vulnerability is typically used to specify the degree to which national economies may be
more or less subject to harm from external economic shocks and perturbations (Briguglio
et al., 2009). Economic shocks stem from factors such as changes in trade policy, fluctua
tions in exchange rates, or shifts in commodity prices. Climate change has been implicat
ed as a source of economic shocks, including dramatic shifts in food commodity prices
(Wheeler and von Braun, 2013), with significant negative implications for economic
growth and poverty within and across the Global South (Ahmed et al., 2009; Hertel et al.,
2010). According to this line of work, higher levels of economic vulnerability to climate
change are associated with dependency on climate-sensitive commodity sectors, such as
agriculture and natural resources, in combination with lower overall income levels (Dell
et al., 2012).
The intersection of climatic and economic shocks is also addressed within the literature
on vulnerability to multiple stressors. This work highlights the fact that climatic shocks
and stresses do not happen in isolation, but are interwoven with other processes of eco
nomic, political, and social change (Leichenko and O’Brien, 2008; Casale et al., 2010; Sil
va et al., 2010; Jeffers, 2013; Burton and Peoples, 2014; McCubbin et al., 2015; Rhiney,
Page 3 of 22
2015). Work by economic geographers demonstrates how exposure to globalization-relat

ed economic stresses in combination with climatic shocks can reinforce existing patterns
of uneven development, and also create new and unexpected vulnerabilities (Leichenko et
al., 2010; Silva et al., 2010, 2015). There is also recognition that regional vulnerabilities
are highly interconnected spatially and sectorally as the result of global trade linkages
and foreign investment patterns, and insurance and reinsurance markets (Liverman,
2015a). The emergence and growing usage of the concept of ‘teleconnections’ within the
human dimensions of global change literature (e.g. Adger et al., 2009; Seto et al., 2012;
Moser and Hart, 2015) to describe how global flows of goods, services, and information
may transmit vulnerabilities across space and time provides but one example of how con
cepts from economic geography are shaping understanding of regional climate impacts
and vulnerabilities.
Research also highlights the dynamic nature of economic vulnerability to climate change
(Jeffers, 2013; Mechler and Bouwer, 2015). Vulnerability is continually evolving as exoge
nous economic and political processes such as marketization and financialization alter the
capacity of regions and households to respond and adapt to climatic stresses. Work by Jef
fers (2013) shows how the growing dominance of a neo-liberal discourse of development
planning shapes decision-making processes associated with responding to economic and
climatic stresses, contributing to an emphasis on technological approaches to climate
risks (Jeffers, 2013). The dynamic nature of economic vulnerability is also apparent in the
context of post-disaster learning. Decision-makers in some regions that experience ex
treme events (p. 668) are found to learn from these events and to take these lessons into
account when siting new development, making locational decisions, and planning for fu
ture events, all of which shape subsequent vulnerabilities (Mechler and Bouwer, 2015).
While space does not permit full consideration of critical perspectives on vulnerability
(e.g. Birkenholtz, 2012; Bassett and Fogelman, 2013; Tschakert et al., 2013; Grove, 2014;
Ribot, 2014), it is important to acknowledge some of the key limitations of vulnerability
approaches. One important shortcoming of much vulnerability work over the last decade
is that the emphasis has shifted away from ‘root causes’ of vulnerability (Ribot, 2014). Al
though explicit emphasis on political economy and challenges to status quo understand
ings of environmental hazards were key components of early vulnerability work (e.g. Liv
erman, 1990; Dow, 1992; Watts and Bohle, 1993; Bohle et al., 1994; Wisner et al., 1994;
Cutter, 1996), this dimension is often lost in newer studies that frame the work primarily
in terms of exposure to physical processes such as flooding and sea-level rise. As a conse
quence, much vulnerability work focuses on documentation and quantification of loca
tions, sectors, and populations likely to be exposed to climate shocks or stresses and who
have characteristics that make them more prone to harm or less able to respond, with lit
tle or no questioning of forces putting people in harm’s way.
Proposals to address vulnerability that emerge from applied studies have also been sub
ject to critique. Because this work has little acknowledgement of underlying social
processes that create vulnerability, efforts to identify vulnerable locations may inadver
tently reinforce official narratives of disadvantage, as well as power structures that per
Page 4 of 22
petuate these disadvantages (Yamane, 2009; Preston et al., 2011). The work has some
times been labelled ‘post-political’ (e.g. Swyngedouw, 2010), in that it emphasizes techni
cal and managerial measures, such as improvements in infrastructure that reduce physi
cal exposure, changes in land-use policy, and provision or expansion of early warning sys
tems, rather than addressing power and wealth differentials that create and maintain pre
carity. All of these critiques reveal the need for more attention to economic processes that
are shaping vulnerabilities, as well as explicit recognition of how different discourses are
exercised in the application of vulnerability approaches. As discussed in the section ‘Pro
ducing Vulnerability’, economic geographers are beginning to explore many of these is
sues.
Studying Regional Economic Vulnerability

Studies of regional economic vulnerability consider whether and how a region’s economic
assets, economic activities, workers, and households might be directly or indirectly affect
ed by climate-related shocks and stresses. The work explores how and why regional eco
nomic vulnerability varies spatially and considers whether efforts to respond to climate
change impacts may create new types of vulnerabilities. Although detailed discussion of
climate mitigation policies, such as a tax on carbon, is beyond the scope of this chapter, it
is important to recognize that regional economic vulnerabilities may also arise as the re
sult of policy responses intended to limit or sequester greenhouse gas emissions. Mitiga
tion policies can be expected to have significant consequences for many regional
economies, especially for regions that produce or are highly dependent upon fossil fuels.
For example, the demise of the coal industry in the USA due to a combination of pollution-
limiting policies and (p. 669) growing competition from natural gas produced via hydrolog
ical fracturing, is dramatically reshaping local economies in coal-producing regions (Van
cura, 2015).
Which Economic Assets are Vulnerable?
The need for identification and valuation of economic assets that are likely to be exposed
to climate extremes has become a major concern for cities and regions worldwide. Re
search on this topic explores exposure of economic assets, including property, physical
capital, and inventories that are directly exposed to prominent facets of climate change
such as storm events and sea-level rise (Leichenko at al., 2014). Studies focused on vul
nerability to extreme storms generally emphasize costs associated with storm-related
damage to property and infrastructure, costs of business interruption, and secondary im
pacts on regional economies. Using indicators such as number of affected business estab
lishments, taxable sales, production and employment, housing prices, and wages, this
work estimates and projects damage costs associated with past and future storm events
(Leichenko and Thomas, 2012). Studies of regional exposure to rising sea levels investi
gate projected exposure of economic assets over many decades (Bosello and De Cian,
2014). The studies typically overlay projections of sea-level rise onto property or parcel
maps in order quantify number of properties exposed, total property values, municipal tax
Page 5 of 22
bases, and infrastructure over various time horizons (e.g. 2020, 2050, and 2080) or for
various scenarios of greenhouse emissions (e.g. Kirshen et al., 2008; Tate and Frazier,
2013; Maloney and Preston, 2014; Brady et al., 2015; Neumann et al., 2015).
While studies of assets at risk are drawing public and policy attention to the potential
economic costs of climate change, there are a number of areas where additional input
from economic geographers might enhance this work. Most exposure studies focus on
coastal regions of the Global North, particularly the US Gulf Coast, the Atlantic Seaboard,
coastal Alaska, and major port cities such as London and Rotterdam. Work is beginning to
appear for other areas, such as Dar es Salaam (Kebede and Nichols, 2012) and the South
Pacific (Kumar and Taylor, 2015), but there is a need for more attention to highly exposed
regions of the Global South, including low-lying megacities, island nations, and ecologi
cally important coastal zones (de Sherbinin et al., 2007; McGranahan et al., 2007; Rhiney,
2015). There is also a need for consideration of economic exposure to other types of cli
matic stresses, such as droughts and heat waves that may affect non-coastal areas, and
regions that depend upon climate-sensitive ecosystem services such as dryland agricul
ture or glacier-based water supplies. Another area for potential contribution by economic
geographers would be to incorporate other dimensions of ‘economic’ into estimation of
exposure. In particular, there is a need for greater recognition of non-market and non-
monetary values-associated ecosystem services, cultural heritage sites, and assets that
form the basis for informal economies (Leichenko and Thomas, 2012; Brady, 2015).
Which Regions are Vulnerable?
Exploration of spatial patterns and determinants of regional economic vulnerability and

resilience is another important research area. Work in this realm draws, in part, from
(p. 670) geography’s vulnerability mapping tradition, with an emphasis on comparative as
sessment of exposure and susceptibility to climate and environmental hazards among

cross-sections of states, counties, districts, or other political units (e.g. Cutter et al.,
2003, 2008, 2014; O’Brien et al., 2004b). The studies often measure vulnerability via com
posite indices that incorporate a wide range of social, technological, institutional, envi
ronmental, and economic variables that are thought to influence susceptibility to harm or
capacity to respond. While most spatial vulnerability work falls more squarely within haz
ards and human dimensions traditions, a number of studies adopt a more explicitly eco
nomic focus (e.g. Frazier et al., 2010; Leichenko and Solecki, 2013; Thatcher et al., 2013;
Boero et al., 2015). Thatcher et al. (2013), for example, develop an index of economic vul
nerability for counties in the US northern Gulf Coast that incorporates factors thought to
contribute to societal risk from rising sea level, including value of residential and com
mercial buildings and types of infrastructure. Other studies focus on how and why region
al patterns of economic vulnerability are changing over time. Preston (2013) draws on
concepts including path dependency and lock-in to investigate expected future patterns of
vulnerability across US counties. Future socio-economic conditions are projected based
on extrapolation of growth trends for population, income, and earnings growth, which
dictate future exposure to natural hazards of all types. The study notes that, without sig
nificant transformation of development patterns, large increases in economic losses from
Page 6 of 22
natural hazards are likely, even before accounting for the potential effects of climate
change (Preston, 2013).
The connection between climate change and spatial inequality is another topic of interest
for economic geography. While the possibility that climate change will exacerbate in
equalities is well recognized (Intergovernmental Panel on Climate Change, 2014), empiri
cal studies have only begun to shed light on this issue at the regional level. A study by Sil
va et al. (2015), for example, explores linkages between extreme weather events, eco
nomic shocks, and regional inequalities within Mozambique. The study demonstrates that
climatic and economic shocks exacerbate both income and power disparities in most re
gions, but there are some cases where disparities and polarization decline following cli
mate and economic shocks. Further exploration of those unexpected cases suggested that
the shocks had contributed to a so-called ‘poverty trap’ whereby regions experienced de
teriorating overall levels of income and wealth. Regions that were prone to poverty traps
were found to have high dependency on agriculture and limited diversity of economic op
portunity. Research also finds evidence that poverty traps may result from persistent cli
mate stresses. In examining how sea-level rise may affect regional economic growth and
poverty dynamics over long time horizons, Hallegatte (2012) demonstrates that poverty
traps may be created when loss of land, destruction of infrastructure assets, and loss of
physical and social capital is followed by diversion of public resources towards costly
adaptation measures such as coastal defence structures. Other researchers contest the
premise that climate shocks create poverty traps, showing that shocks may, in fact, pro
vide opportunities to enhance future resilience (Leichenko and Silva, 2014). Such was the
case in Honduras, where community responses in the years after Hurricane Mitch includ
ed institutional changes that reduced vulnerability to future flooding (McSweeney and
Coomes, 2011). The mixed results for these studies suggest a need for further exploration
of the linkages between climate shocks, regional inequalities, and poverty traps, especial
ly (p. 671) given the expectation that shock events will become more frequent and more
severe as the result of climate change.
Which Sectors are Vulnerable?
Regional vulnerability is also frequently examined through a sectoral lens. Regions that
depend upon climate-sensitive sectors such as agriculture and fisheries, lumber and
forestry products, outdoor recreation, and tourism are expected be more vulnerable to
climate change shocks and stresses (Lal et al., 2011; Johnson et al., 2012; Morrison and
Pickering, 2013; Sagoe-Addy and Addo, 2013). In addition to direct dependence on climat
ic conditions such as temperature, rainfall, and snowfall, other sources of sectoral vulner
ability stem from the spatial immobility of certain types of production facilities and
processes. For industries such as oil and gas and mineral mining, re-location away from
flood-vulnerable riverine areas or low-lying coastal areas is not feasible with existing
technologies (Cruz and Krausmann, 2013; Sharma and Franks, 2013). In addition to ex
ploring how production of goods or provision of services might be directly affected by cli
mate change, sectorally focused studies have also considered how consumer demand for
tourism and recreational activities in different regions may change as a function of pre
Page 7 of 22
dicted climate changes such as loss of snow pack and warmer temperatures (Scott et al.,
2008; Barrios and Ibañez, 2015). Research has also explored how economic vulnerabili
ties vary for producers within different sectors, attempting to specify how institutional,
social, and political factors, in combination with firm characteristics such as size and as
sets, may interact to shape decision-making about climate risks within different regional
settings (Eakin et al., 2012; Barnett and Eakin, 2015; Vancura and Leichenko, 2015).
Although investigation of sectors that are directly on the front lines of climate change,
such as tourism and agriculture, is critical for illuminating regional vulnerabilities, there
is a need for further investigation of how climate change may affect other sectors of the
economy (Liverman and Glasmeier, 2014; Liverman, 2015a). Within the field of climate
economics, integrated sectoral modelling studies are generally focused on impacts and in
teractions across climate-sensitive sectors, such as water resources, agriculture, and
coastal zones (e.g. Harrison et al., 2015). There remains a need for examination of cli
mate change impacts in high-value sectors, particularly those that are driving global eco
nomic growth and are the major sources of employment, such as chemicals, textiles, elec
tronics, and automotives (Liverman and Glasmeier, 2014). Climate-related disruptions of
supply chains and inventories in these sectors can have long-lasting consequences for re
gional economies. Flooding of production facilities in the automobile and electronics in
dustries in Thailand in 2011, for example, resulted in severe and sustained disruptions of
global supply chains with economic and political repercussions in many other regions
(Stern et al., 2013; Liverman and Glasmeier, 2014). Impacts of climate change on sectors
such as health care, information technology, retail, and real estate are also under-exam
ined (Liverman and Glasmeier, 2014). Each of these sectors may see dramatic changes in
patterns of consumer demand in response to climate stresses and shocks, such as chang
ing needs for medicine and health products, greater usage of mobile information prod
ucts, shifting preferences for where to live, and changes willingness to pay or tolerance
for risk.
(p. 672) Which Populations are Vulnerable?
Differential patterns of economic vulnerability also emerge for individuals and house
holds. Poverty is often highlighted as a key factor that increases the propensity of individ
uals and households to be harmed by climatic shocks and stresses (Adger et al., 2003;
Füssel, 2012; Intergovernmental Panel on Climate Change, 2012; Leichenko and Silva,
2014; Mutabazi et al., 2015). Globally, poorer individuals have a greater propensity to be
harmed by climate change for a variety of reasons, including fewer assets to rely on for
recovery from droughts, hurricanes, and floods, dependence on livelihoods within cli
mate-sensitive sectors (e.g. agriculture, fishing, pastoralism), and limited access to infor
mation about climate risks (Jones et al., 2009; Skoufias et al., 2012; Barua et al., 2014).
Physical health and psychological dimensions of poverty, which compound monetary dis
advantage and hinder the ability to cope with external shocks, or plan for the future, also
contribute to vulnerability of poor populations (Leichenko and Silva, 2014).
Page 8 of 22
Individual and household vulnerability are also highly variable by region. Within rural re
gions of the Global South, factors that contribute to vulnerability of poor households in
clude limited land ownership, lack of options for livelihood diversification, lack of market
access, and ongoing degradation of ecological resources such as forests. Growing re
liance on cash crops aimed at global markets further exacerbates vulnerabilities to ex
treme weather and climate change, as small-scale agriculturalists abandon traditional
strategies for managing climate risks (Silva et al., 2010). In urban areas of the Global
South, living and working in hazardous physical environments, in conjunction with fac
tors such as inadequate infrastructure and weak governance, contribute to vulnerability
of poor populations to climate extremes (Pelling, 2003; Douglas et al., 2008; Hardoy and
Pandiella, 2009; Tanner et al., 2009; Chatterjee, 2010). Studies have also documented
greater exposure to climate stresses of poor populations in wealthy countries, particular
ly the USA (Cutter et al., 2003; Lal et al., 2011; Paolisso et al., 2012; Martinich et al.,
2013; Maldonado et al., 2013). The economic vulnerability of relatively poor US popula
tions is tied to factors including social isolation, limited options for affordable housing,
and dependence on public transport infrastructure (Halpin, 2013; Barnes, 2015). Climate-
related transport disruptions, in particular, tend to have a disproportionate economic ef
fect on individuals who hold low-wage hourly positions and may not have access to pri
vate automobile transport during weather-related shutdowns (Barnes, 2015).
Research on individual and household vulnerability emphasizes that it is often the inter
section of many dimensions of poverty, such as limited income, gender, ethnic or racial
discrimination, lack of assets and capabilities, and failed or misguided development poli
cies that contribute to susceptibility of poor populations (Eakin et al., 2012; Burnham et
al., 2013). Emphasizing the relational nature of vulnerability, Turner (2016) suggests that
social relations, including differential social obligations and opportunities, have a critical
influence on individual and household vulnerability. Research by Ajibade et al. (2013) on
economic vulnerability to flooding in Lagos is illustrative of these emerging intersectional
and relational perspectives. The work documents greater negative impacts of flooding for
low-income women in Lagos as compared with middle- and high-income women, demon
strating how gender relations and gender roles, occupational status, and household struc
ture together contribute to greater vulnerabilities for lower-income women. Work on the
gendered nature (p. 673) of economic vulnerability in the Eastern Gangetic Plains of India
similarly demonstrates that women from marginal farmer and tenant households are
more vulnerable than other individuals, and that this vulnerability is integrally connection
with gender roles and social relations which are interwoven with expectations of outmi
gration for economic opportunities elsewhere for men (Sugden et al., 2014).
Producing Vulnerability
In addition to exploring patterns and processes driving regional vulnerability, economic
geographers are also beginning to probe underlying factors that create vulnerability, in
cluding financial and governance mechanisms that put assets and people in harm’s way,
produce new risks, and shape adaptation responses. Incorporating insights from a range
Page 9 of 22
of literatures including studies of the cultural economy, political ecology, feminist theory,
and science and technology studies, work in this vein explores financialization, marketiza
tion, and commodification of climate risk, governance of corporate responses to climate
change, and the emergence of the adaptation industry (e.g. Pollard et al., 2008; Pattberg,
2012; Webber, 2013; Johnson, 2014). In many cases, actions intended to reduce climate
exposure or promote adaptation are found to create new and unanticipated vulnerabili
ties.
The insurance sector plays a particularly important role in producing new vulnerabilities.
Researchers have demonstrated that the emergence of index insurance, weather deriva
tives, and catastrophe bonds as alternative asset classes, are influencing the association
of risk calculations with decisions such as where and how to build, what to grow, and how
to allocate municipal finances (Pryke, 2007; Pollard et al., 2008; Johnson, 2014). Work by
Johnson (2014) shows how place-based vulnerabilities of physical assets have become a
new commodity traded via the insurance-linked securitization (ILS) market. The research
reveals how climate change is increasingly understood as a business opportunity for the
insurance sector because the expectation of greater future losses associated with ex
treme weather events allows for higher premiums. Noting that the immobility of econom
ic assets necessitates the purchase of insurance for protection against climate-related
damage to physical capital, business interruption, and worker compensation, Johnson
documents how the development of ILS markets have created the ‘ability to fashion geo
graphic liabilities as strategic resources’ (2014, p. 173), thereby contributing to built en
vironments that are more exposed to climatic risk.
Changes in the norms and expectations around the pricing of hazard insurance have also
contributed to the production of new geographies of insured risks and vulnerabilities. Re
searchers have long noted that subsidization of flood insurance contributes to growing
climate and hazard vulnerabilities (Thomas and Leichenko, 2011), yet shifts towards risk-
or market-based pricing of insurance are also problematic. Detailed analysis of the distri
butional effects of risk-based pricing in the UK demonstrates that market-based pricing
produces new vulnerabilities within poorer communities as households forgo insurance
coverage altogether (Penning-Rowsell and Pardoe, 2015). Uneven distributional outcomes
were also found in the aftermath of Hurricane Sandy in coastal New Jersey, where pat
terns of recovery and rebuilding varied, in part, because of differences in insurance cov
erage and capacity to afford higher insurance premiums for newly rebuilt properties (Le
ichenko et al., 2014).
Other research raises more fundamental questions about the framing of climate
(p. 674)
change as an economic threat, including the mechanisms and motivations behind the
emergence of the climate change risk and adaptation industries (Pattberg, 2012; Webber,
2013). Pattberg (2012) examines how climate change became a business risk for multina
tional corporations, showing how this risk is governed through instruments of disclosure
and transparency, both of which serve the needs and interests of institutional investors.
Non-state actors, such as the C40 Global Cities Leadership Group and the Carbon Disclo
sure Project, which largely operate outside the boundaries of state authority and gover
Page 10 of 22
nance, are found to play a decisive role in manufacturing corporate climate risks. Propos
ing the concept of performative vulnerability, Webber (2013) explores the climate change
adaptation industry within the island nation of Kiribati, demonstrating how encounters
between financiers and government officials produce a particular form of vulnerability.
Questioning the conventional understanding of vulnerability as a latent condition, Webber
argues that vulnerability is, instead, an emergent effect that is ‘produced in historical and
contemporary encounters that are uneven and power laden, with meaning given by an as
semblage of facts, expert actors, and objects’ (2013, p. 2722). While studies of this type
are beginning to shed light on the myriad ways that climate change is articulated as an
economic issue, there is need for further investigation of the production of vulnerability
and adaptation within different regions and sectors.
Conclusion: Directions and Opportunities for

Future Research
Widespread recognition that human actions are a driving force in planetary geological
systems has ignited interest across the discipline in the social, political, and economic di
mensions of global change. For economic geography, the onset of the Anthropocene rais
es foundational questions about drivers of regional growth, spatial differences in regional
economic performance, and regional responses to stresses and shocks (see Storper, 2011;
Chapter 7). While geographers of all stripes have long rejected notions of environmental
determinism, there is a need to come to new theoretical understandings of the role of the
changing material environment for the economy. What does climate non-stationarity
mean for firm decision-making in both the short and long term? How will gradual deterio
ration of environmental baselines affect regional economic growth and development tra
jectories? In what ways will adaptation responses to climatic and environmental stresses,
such as out-migration from inundated or drought-prone areas, affect wages and housing
markets? This chapter has highlighted a wide array of research on the regional dimen
sions of climate vulnerability, yet there remains a pressing need for attention to regional
impacts and vulnerabilities in non-coastal contexts, areas that depend on climate-sensi
tive ecosystem services, high-value manufacturing and service sectors, and informal
economies. There is also a need for further investigation of climate impacts on regional
labour markets and spatial inequalities, of intersectional and relational dimensions of eco
nomic vulnerability, and of the production and performance of vulnerability in a variety of
regional contexts.
While this chapter has focused primarily on vulnerabilities to climate shocks and
(p. 675)
stresses, there is also a need for more attention to the economic consequences of both
adaptation and mitigation. Adaptation decisions in response to sea-level rise, for example,
may span a continuum that ranges from expansion of physical flood defences to complete
retreat from a flood-prone area. Each decision along this continuum is likely to have sig
nificant consequences, both deliberate and unintended, that will influence economic vul
nerabilities of communities, households, and firms. New flood defences may benefit pro
Page 11 of 22
tected regions but enhance flood exposure in areas that are immediately adjacent to the
protective structures. Retreat will affect populations living in adjacent areas and those
that are ‘left behind’, and may also affect distant locations that receive an influx of in-mi
grants. Mitigation in the form of changing energy policies, such as implementation of a
carbon tax, subsidization of biofuel production, or promotion of energy transitions that in
clude widespread adoption of wind, solar, or nuclear energy, would have significant eco
nomic implications for both fossil fuel-producing regions and for regions that have an en
ergy mix that is highly dependent on coal, oil, or natural gas. A number of studies suggest
that unexpected vulnerabilities are emerging as the consequence of climate-related ener
gy policies (Marino and Ribot, 2012; Hodbod and Tomei, 2013; Venkatasubramanian,
2016), but further research is needed on the connections between climate change re
sponses and vulnerability, particularly in light of implementation of the Paris Agreement
and similar measures in the future.
In addition to opportunities for theoretical and empirical work within economic geogra
phy, the study of climate change also provides a multitude of opportunities for collabora
tion both within and outside geography. Recognition of climate change as a material force
provides avenues for engagement between economic geography and subfields such as sci
ence and technology studies and feminist geography, which are re-thinking how economy
and environment interact and seeking to identify alternative societal pathways. The need
for better understanding of how environmental baselines are changing, which ecosystem
disruptions are expected, and what types of non-linearities and tipping points might arise,
suggests possibilities for fruitful collaboration with researchers studying social and eco
logical resilience and transformation (Harden et al., 2014). With respect to methodology,
economic geography’s traditional strengths in key informant and stakeholder-based re
search could make important contributions to collaborative vulnerability research, where
co-production approaches are increasingly used to identify climate stresses and to ensure
that vulnerability knowledge is relevant to decision-makers (e.g. Frazier et al., 2010; Cor
fee-Morlot et al., 2011; Rosenzweig et al., 2011; Leichenko et al., 2014; Brady, 2015; Ford
et al., 2015). In short, study of climate change offers countless avenues for fruitful collab
oration, not only with other subfields of geography, but also with the interdisciplinary
global change research community (Liverman, 2015b). Economic geography has much to
offer to the field of climate change and much to gain through further engagement in con
versations about the Anthropocene.
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Notes:
(1.) Exposure is sometimes defined as a separate phenomenon from vulnerability: expo

sure results from exogenous factors that influence particular locations or sectors, while
vulnerability emphasizes endogenous factors that influence susceptibility to harm from
exposure and capacity to respond (Intergovernmental Panel on Climate Change, 2012).
(2.) The connections between vulnerability and resilience are also debated within the cli
mate change and hazards literatures (O’Brien et al., 2004a; Cutter et al., 2008; Turner,
2010; Maru et al., 2014).
Robin Leichenko
Robin Leichenko ([email protected]) is Professor and Department Chair at

the Department of Geography at Rutgers University. She is also the co-director of the
Rutgers Climate Institute. Her research interests span the fields of economic geogra
phy and human dimensions of global environmental change. She studies how and
why processes of global economic and environmental change differentially affect
cities, regions, and sectors, and the implications of these processes for questions of
vulnerability, equity, and sustainability. ↵She has published more than forty-five jour
nal articles, and is the co-author of two books, namely Environmental Change and
Globalization: Double Exposures and Housing and Economic Development in Indian
Country: Challenge and Opportunity. She is past chair of the Economy Geography
Speciality Group at the Association of American Geographers. Between 2012 and
2013, she also served as a committee member at the Panel to Review the US Nation
al Climate Assessment at the National Academy of Sciences/National Research Coun
cil.
Page 22 of 22
Carbon Markets: Resource Governance and Sustainable Valuation
Carbon Markets: Resource Governance and Sustainable

Valuation
Janelle Knox-Hayes
Carbon markets open several important avenues of inquiry into resource governance de
signed to address problems like climate change. The discipline of economic geography is
well situated to add insight. This chapter examines the underlying assumptions behind
market-based governance, particularly the emphasis on controlling greenhouse gases
through pricing. The pricing of externalities alone does not guarantee the material
changes in energy use now in the future that are required to combat climate change. A
new framework for consideration of the spatial and temporal dynamics of value is pro
posed. A renewed focus on use value and its spatial characteristics could lend consider
able insight to the understanding of industry, market creation, and resource governance.
For example, entraining the temporal production of instruments of exchange to their
sources of production and creating property rights to manage natural resources as ser
vice stocks rather than commodities could better generate external value.
Keywords: carbon markets, climate change, resource governance, space time, environmental finance, value
Introduction
RESOURCE extraction has long been the purview of economic geography from studies of
mining, agriculture, and energy (Bakker, 2000; Clark, 2005; Michielsen, 2013) to more
comprehensive analyses of resource supply chains (Bridge, 2008). Indeed, resources,
whether material or energy, are essential to every economic activity. As the scale of envi
ronmental degradation and decline has increased, economic geographers are expanding
their attention to include issues of environmental management, such as forestry conser
vation (Klooster, 2002), water management (Swyngedouw, 2009; Bakker, 2010;), and food
sourcing (Ouma, 2015). Economic geographers have additionally turned their attention to
the application of market-based management to environmental challenges like climate
change (Johnson, 2014). Beginning with the control of pollutants such as sulphur dioxide,
market-based approaches have spread to the management of a full range of environmen
Page 1 of 23
tal benefits or costs accrued from economic activities that are not accounted in economic
transactions (positive and negative externalities), including greenhouse gas emissions,
biodiversity, forest operation, and ecosystem functionality.
Efforts to use market-based approaches to account for positive and negative environmen
tal externalities are epitomized by the marketization of carbon emissions (Böhm et al.,
2012; Stripple and Bulkeley, 2013; Knox-Hayes and Hayes, 2014). Carbon markets trace
their roots to the theories of Ronald Coase and John Dales, which suggest that well-de
fined property rights can be used to price unaccounted outcomes and thus overcome the
problem of externalities (Coase, 1960; Dales, 2002). Drawing on this reasoning, the Kyoto
Protocol attempted to translate public concern about climate change by financializing the
emission of carbon into the atmosphere through greenhouse gas permits and credit
prices. By drawing (p. 684) on markets for carbon reductions, the Kyoto approach was
modelled after the successful response to acid rain in the US through a sulphur dioxide
cap and trading market (Lohmann, 2005). As in the sulphur dioxide markets, carbon mar
kets operate through the establishment of a cap on the amount of carbon that can be
emitted by various greenhouse gas emitters, such as power plants, heavy industrial cor
porations, or waste management facilities. If an entity exceeds its emissions cap, it must
purchase credits to offset its emissions, thus monetizing carbon emissions for polluters.
Over time, the cap would be progressively lowered, increasing the cost of carbon emis
sions and economically rewarding technological and operational innovation and the com
panies that implement those innovations.
Since the ratification of the Kyoto Protocol in 2004 a variety of market systems have been
set up around the world with a range of operational permutations. However, at the core of
each market is the belief that climate change can be solved through the scientific mea
surement of greenhouse gas levels and the economic management of greenhouse gas
pricing (Knight and Knox-Hayes, 2015). Carbon markets embody a new form of climate
capitalism through which economic activity is seen not only as the source of but also the
solution to climate change (Perramond, 2012).
The study of carbon markets opens the traditional purview of economic geography to a
range of issues. For example, carbon markets draw attention to the nature and function
of market creation. This is in some contrast to economic geography’s traditional focus on
industry production functions across a range of scales, which take markets as given
(Clark et al., 2000). In parallel with developments in disciplines like sociology that decon
struct the nature and function of markets (Callon, 1998), economic geography has taken
an increased interest in how markets are constructed and enacted in local places by par
ticular actors (Knorr-Cetina and Preda, 2005) and how they drive economic productivity
(MacKenzie, 2006). Because carbon markets are being constructed in real time (Knox-
Hayes, 2010a), they enable economic geographers an avenue to investigate the creation
of markets.
The expanding focus on markets in general and carbon markets in particular allows eco
nomic geographers to expand on a long-standing focus on the geographical scope of
Page 2 of 23
economies in the context of economic change, the forces driving those changes and the
role of localities in global economic transformation (Clark et al., 2000). The spatially spe
cific differences in carbon financialization also fits with the established interest within
economic geography regarding distinctive geographic patterns of performance that high
light differentiation and realization as the products of ongoing economic processes that
sustain long-term spatial differentiation (Scott, 2000). Carbon markets also extend and
benefit from analyses based on heterogeneity, information asymmetries, and disjoined
systems of meaning.
This chapter examines the underlying assumptions behind market-based governance, and
particularly the emphasis on controlling greenhouse gases through pricing. In the next
section I explain the structure of carbon markets, review critical literature of carbon ac
counting practices, and explore the roots of the market approach to carbon governance in
economic theory. Carbon markets seek to introduce a new form of governance that man
ages environmental resources through the pricing of positive and negative externalities.
However, the mechanisms of pricing ignore issues of where externalities exist in space
and time. In the third section I propose a new framework for considering the spatial and
temporal dynamics of value. Such a framework links carbon markets (as an initiating
mechanisms (p. 685) of environmental finance) to the broader economy through an under
standing of external value, or use value extended in time. In the fourth section I suggest
that the pricing of externalities is insufficient and propose mechanisms that could better
generate external value by capturing the use potential of natural resources. I conclude
with some reflections on avenues of inquiry for economic geography that would add in
sight to the understanding of resource governance and the management of contemporary
problems like climate change.
The Structure and Operation of Carbon Mar

kets
Since the Kyoto Protocol came into force in 2004, a number of regulated and voluntary
carbon markets have been set up around the world aiming to achieve carbon dioxide
(CO2) emission reductions, largely through cap-and-trade mechanisms (Michaelowa and
Michaelowa, 2012). The oldest of these systems is the European Union Emissions Trading
System (EU ETS), which caps the emissions of more than 10,000 industrial facilities in
Europe. Additionally, regulated markets have been created in Australia, China, Japan,
New Zealand, and South Korea. Finally, trial emissions markets are being established in a
range of countries, including Brazil, Chile, Mexico Indonesia, and Thailand (Kossoy et al.,
2014).
Each system is structured with its own unique rules and procedures, but all carbon mar
kets operate in a similar way. Regulators or market authorities in each system place a cap
on the amount of carbon that can be emitted by various greenhouse gas emitters. If the
carbon emitted by a capped entity exceeds its cap, the entity must purchase credits to off
set its emissions. Entities that do not reach their cap can sell excess permits onto the car
Page 3 of 23
bon market. In theory, the cap is ratcheted down in time, and emitters either become
more efficient or go out of business. Either way, the systems should reduce the total
amount of emissions under the cap, as well as send a price signal through the markets
that benefits carbon-alternative fuel sources and technologies. Much of the challenge and
uncertainty of the markets resides in the details of the design, as well as the enforcement
of rules (Lohmann, 2009). Central to these challenges is the constructed nature of carbon
credits as inverse commodities (Knox-Hayes, 2010b). Unlike many markets, carbon mar
kets value absence rather than existence—in this case, the absence of greenhouse gases.
Although there are differences across the schemes, carbon markets trade two main types
of credits: allowances and offsets (Michaelowa, 2004). Both products—which are mea
sured in units equivalent to one tonne of CO2—are constructed purely from information.
Allowances are essentially permits that allow regulated entities to emit an amount of
greenhouse gases. Offsets serve as reduction credits and mark the absence of an emis
sions occurrence in one location. Crucially, the materiality of the offset lies in the counter
factual: the offset is derived from a claim of emissions that would have otherwise been
emitted. The counterfactual absence embodied in the offset then can be transferred to an
other location to allow for emissions there. Both credit types are constructed through a
system of measurement that creates baselines or projection scenarios of the levels of
greenhouse gas emission that would occur without intervention (see e.g. Bansal and
Knox-Hayes, 2013). As such, the reality of emissions reduction through carbon markets
cannot be proven, only presented (p. 686) through arguments of ‘additionality’ (additional
greenhouse gas reductions) both within and external to each system (Mason and Planti
nga, 2013).
Because the markets trade commodities that are measured against otherwise-assumed
realities (i.e. a wind plant in contrast to the otherwise-assumed thermal power plant that
would provide energy in its place) it becomes very difficult to assess whether the markets
are reducing emissions. A number of scholars have highlighted design flaws, failures, and
pervasive weaknesses in implementation of emissions markets (Lohmann, 2009; MacKen
zie, 2009a; Knight, 2011). However, arguably there have also been positive developments
from the emissions markets, such as the establishment of the Carbon Disclosure Project,
an initiative that asks some of the world’s largest companies to disclose voluntarily their
emissions. In measuring their carbon liabilities, companies have suggested they identify
inefficiencies, which helps them to not only reduce carbon emissions, but also to generate
revenue (Plambeck, 2012). As a consequence of initiatives such as these, the business
community is becoming increasingly aware of carbon liabilities, and policy responses to
climate change are beginning to assume a profit logic (Knox-Hayes and Levy, 2011). Of
ten overlooked in the debates over the internal validity of carbon markets is the external
interaction between markets and the environment.
Specifically, a key challenge for carbon markets lies in their inability to accommodate ful
ly the spatial and temporal scale at which CO2 and other greenhouse gases cycle within
the ecosphere, and particularly the rate of actual removal from the atmosphere (Bansal
and Knox-Hayes, 2013; Knox-Hayes, 2013). Carbon credits are defined in time frames at
Page 4 of 23
tuned to economic rather than environmental cycles. The credits are registered on a year
ly or bi-yearly basis and operate according to the regulatory phases (3-5 year intervals) of
emissions trading systems, whereas CO2 takes much longer to actually leave the atmos
phere once released (MacKenzie, 2009b; Bansal and Knox-Hayes, 2013). Thus, there is a
fundamental mismatch between markets and the real environment. While climate change
is a physical problem deeply embedded in space and time, carbon markets create inverse
commodities—commodities absent in space and time.
Critical Studies of Carbon Markets
As the prior discussion suggests, economic geographers have been particularly effective
leveraging critiques against carbon governance practices. Carbon markets are complex
systems of multi-level governance that require cooperation and coordination across inter
national, national, and regional institutions, and which ultimately blur the lines between
politics and economics (Bumpus, 2011). Considerable social coordination is required to
operationalize the markets (Knox-Hayes, 2010a). Neil Smith (2008), for example, high
lights the ways in which carbon markets operate through calculative practices that simul
taneously aggregate social practices and individualize carbon accounting. Others note
that carbon market construction co-opts the function of the markets into existing finan
cial institutions and financial logics (Callon, 2009; Knox-Hayes and Levy, 2011). Ian Bailey
and colleagues (2011) suggest that carbon markets are a form of ecological moderniza
tion that has unintended consequences, including governance by industry, limited geo
graphical and political representation, and market lock-in to experimental mechanisms
with great uncertainty (Lotay, 2009).
Economic geographers have particularly challenged the accounting practices (En

(p. 687)
gels, 2009; Hopwood, 2009) within carbon markets, arguing that they create increasing
complexity of governance process that is neither innovative nor effective (Mason and
Plantinga, 2013). For example, the accounting standards that made carbon markets at
tractive to industry have difficulty in capturing the materiality of carbon emissions reduc
tions (Wright, 2013). As Lansing (2011) demonstrates through a study of carbon forestry
in Costa Rica, the materiality of carbon projects is lost in calculation (Lansing, 2011).
Similarly Klooster (2002) finds that the accounting of emissions reductions does not ade
quately capture the utility of particular agricultural and conservation projects, potentially
resulting in suboptimal land-use practices (Klooster, 2002). Furthermore, projects with
less environmental impact (large scale hydro projects) more easily lend themselves to
commodification than projects with beneficial environmental and social impacts such as
cook stoves in Honduras (Shen et al., 2013).
These criticisms challenge the ways in which climate change has become framed as an
economic problem, solvable with existing accounting approaches and techniques, rather
than a spatial–temporal problem of the dis-entrainment of socio-economic and ecological
systems (Knox-Hayes and Hayes, 2014). Carbon accounting is indifferent to where or how
emissions cuts are made and discourages attention to path dependence, positive feed
back, and innovation (Lovell et al., 2009). Lohmann (2009) argues that the conflation of
Page 5 of 23
reductions and offsets confounds probability with uncertainty, ignorance, and indetermi
nacy; and obstructs social thinking about long-term directions with a focus on achieving
short-term efficiency. MacKenzie (2009b) demonstrates the complexity of commensura
tion (making equivalent) of different greenhouse gases by comparing the accounting CO2
emissions from a power plant in Europe with the burning of HFC-23 (refrigerant gas) in
China. He demonstrates that that assumptions and frames of accounting have a signifi
cant and often distorting influence on the evaluation of greenhouse gas impact (MacKen
zie, 2009b). In the first phase of the EU ETS (the largest operating carbon market), the
calculations used to commensurate HFC-23 made the reduction of one unit of HFC-23
11,000 times more valuable than the reduction of one unit of CO2 from a power plant. As
a consequence, the markets became flooded with HFC-23 offsets, raising questions re
garding the mission of the markets to reduce emissions from industrial activity.
These critiques, while essential, do not entirely engage with the materiality of carbon
emissions reductions to understand why and how spatial and temporal context is ab
stracted through accounting. The problem is that climate change is perceived to be a fail
ure of economics that can be understood through the framework of existing economic
theories. This assumes not only that economic theories can adequately account for the in
teraction between human and environmental systems, but also that economic theories
themselves are equipped to deal with differences in spatial and temporal scale. On the
latter count, the theories upon which the markets are built are flawed: the instruments of
economic valuation have not been designed to accommodate differences in spatial and
temporal scale. As such, the natural environment is perpetually undervalued and the
long-term environmental consequences of actions directed at economic growth are under
estimated. Climate change is not a singular problem; it is symptomatic of a much deeper
crisis of value and representation at the core of how modern economies operate. Thus, by
exposing the temporal and spatial limitations of economic theory, the study of carbon
markets within economic geography has the potential to reshape the foundations of mod
ern economic thought and practice. (p. 688)
Figure 36.1 Marshall’s Supply-and-Demand Curve.
Page 6 of 23
Carbon Markets from Economic Theory: Governance Through Price

and Quantity
Carbon markets suggest that climate change arises out of the failure to price externali
ties. For example, the burning of fossil fuels results in the emission of CO2 and other
greenhouse gases that are not accounted for in the price of energy unless a carbon-pric
ing scheme is put in place. Treating climate change as a matter of externality pricing is
symbolic of ecological modernization—the idea that markets can integrate environmental
and social equity into economic instruments through the recalibration of economics. Eco
logical modernization takes a socio-political problem, removes it from the realm of politi
cal discourse, and recasts it in economic, technical language (Garsten and Jacobsson,
2007). Accordingly, the market mechanism-based economic framing of climate change sit
uates the solutions to the problem of climate change as technocratic matters requiring
only the proper implementation of economic theory (Bailey and Wilson, 2009).
Consequently, ecological modernization through market-based governance draws heavily

on microeconomic theory. Individual pursuit of self-interest in a free-market system can
lead to the most efficient production outcomes for society (Herzog, 2013). At the core of
microeconomic theory is the law of supply and demand. It was first articulated by Adam
Smith in 1776 (see Smith, 1937) as the invisible hand of the market, and later developed
by Alfred Marshall (1890) with the application of mathematics into a series of models for
determining the movement of price and quantity of supply and demand in a market sys
tem (Figure 36.1). According to the supply-and-demand curve the price for a particular
good will vary until it settles at a point where the quantity demanded by consumers (at
the current price) will equal the quantity supplied by producers (at current prices), re
sulting in an economic equilibrium for price and quantity. Marshall’s principles of eco
nomics initiated the marginal revolution, the idea that the value of goods is not deter
mined by the difficulty in acquiring them (Smith) or the labour required to produce them
(Marx), but rather by the maximization of individual preference in the face of scarcity.
This logic finds expression in carbon markets through the idea that once a price is intro
duced for carbon, supply and (p. 689) demand for carbon-intensive products and indus
tries will settle at (increasingly) lower equilibrium points.
The significance of these early formulations cannot be underestimated, because modern

economics is still based on the same core assumptions about value. The theories and
models of neoclassical economics revolve around exchange value (the price of goods and
services). From exchange value, the core functions of markets are determined by con
sumers and producers maximizing marginal utility to determine quantity and price. A ma
jor market failure is the inability of supply and demand (for various reasons) to provide a
stable and reflective equilibrium price and socially desired quantity.
The underlying logic is clear. Value is linked to price through exchange. Quantity is deter
mined through supply and demand. This basic logic carries into every aspect of market-
based governance, including climate change. Rather than conceptualize climate change
as a failure of economies to produce at a rate the natural environment can accommodate,
Page 7 of 23
it is conceptualized as a failure to price externalities appropriately so as to limit the quan

tity of their production. The solution, markets to price greenhouse gases, carries the core
logic of value through exchange. Scientists determine the appropriate quantity of green
house gases in the atmosphere (i.e. 450 parts per million), rationalizing levels of emis
sions already reached against average warming predictions. Economists calibrate the
mechanisms (markets, taxes, quotas, etc.) that will establish the equilibrium price to
achieve the negotiated quantity of greenhouse gas emissions.
Although there is considerable complexity in the numerical modelling of economics today,

the underlying logic of controlling price and quantity through supply and demand has
changed very little from Smith’s time. A more considered appraisal of the interface of
economic theory and the environment through carbon markets, however, suggests that
the core assumptions upon which market-based governance is built lack a full conceptual
ization and integration of value. Firstly, in calculations of price and quantity only one form
of value (exchange) is fully theorized while the operation of the natural environment (wa
ter purification, carbon sinks) draws attention to the importance of use value. Secondly,
the original conception of value misses a critical dimension of valuation: time.
Valuation and New Economic Theory: The Spa

tial and Temporal Distinction
The first challenge to the theoretical underpinnings of market-based governance lays in
its formulation around one type of value—exchange value. Adam Smith (1776 (see Smith,
1937)) elaborated a dichotomy of value around use and exchange: ‘The word value … has
two different meanings, and sometimes expresses the utility of some particular object,
and sometimes the power of purchasing other goods which the passion of that object con
veys. The one may be called “value in use”; the other, “value in exchange” ’. Over time,
the use element of value has been increasingly obscured by the modern drive by markets
to create valuation through instruments of exchange. Incorporating use value pushes a
reformation of economic calculation by incorporating considerations of use or utility.
Take, for example, the question of how might it be possible to increase energy resources?
From an exchange-value perspective, (p. 690) the solution focuses on changing the price
of fossil fuels. Accounting for use value, however, brings in considerations of utility and
with it a focus on renewability and limitations on energy use so as to increase efficiency.
Use value is objective (Marx, 1867; Harvey, 1982), it is about the individual consumption
of a good or service, embedded in a specific set of actors, at a determined location, per
forming a particular activity for a defined duration. The spatial and temporal dimensions
of use value can be identified on a Cartesian grid and located in a specific frame of time.
Exchange, in contrast, is value in process or circulation (McGinnis, 2003, p. 536). It is
subjective: valuation that is subject to human desire and belief. For this reason econo
mists such as Ludwig von Mises (1954) and John Maynard Keynes (2006) emphasize the
Page 8 of 23
subjective nature of exchange value. The distinction between objective and subjective is
predominantly spatial.
Space here does not refer specifically to place, but rather to a frame of reference from
which relationships between subjects and objects can be understood (Lefebvre, 1991).
Socio-economic space references socio-material relationships, particularly relationships
that are built around economic transactions. For example, a labourer paid a wage for per
forming a service or constructing a good is a relationship that can be framed from the
standpoint of socio-economic space. In contrast, socio-environmental space refers to the
relationship between humans and environmental resources. The felling of timber or the
consumption of energy are relationships that can be framed from the standpoint of socio-
environmental space. These relationships are about physical materiality, the consumption
and use of physical resources.1
Valuation With a Temporal Dimension
The original dichotomy of use and exchange only goes so far, however, to address the
modern failure to adequately conceptualize value. Notably, both use and exchange deal
with one temporal frame—the present possibilities of a good or service. With respect to
the time, the objective–subjective distinction can be understood through potential versus
realized value. Realized value is value that exists (i.e. that can be put to use) in the
present. Potential value is value that is yet to be created; it has the possibility to exist in
the future. Because the future is undetermined, potential value is subjective and only
arises from the fulfilment of particular conditions. As future value is not situated in an ob
jective reality, it is not truly commensurate with value that has already come to exist.
For example, a barrel of oil has both a present exchange and a use value. In 2015 a barrel
of oil might at one moment in time be exchanged for US$52 and used to acquire any num
ber of goods or services. Alternatively, the barrel could be put to use, converted to 24 gal
lons of gasoline,2 and used to fill the tank of an automobile that can then transport an in
dividual 600 miles. Both of these are present values. The barrel might also be saved for
use or exchange in the future. In 10 years the price of the barrel of oil may have quadru
pled if demand increases and supply decreases, or it may be virtually worthless if a new
technology, such as electric vehicles, eliminates demand. The future or potential value of
the oil is subject to conditions that are yet to occur. The danger of commensuration
through exchange arises from treating potential value (the value of a barrel of oil 10
years from now) as though it were the same, exchangeable for present value (Knox-
Hayes, 2013). (p. 691)
Page 9 of 23
Figure 36.2 Typology of the Spatial and Temporal

Dynamics of Value.
Taken together these distinctions suggest that use and exchange value must also have a
temporal distinction, present use versus potential use; present exchange versus potential
exchange. In failing to recognize these spatial and temporal distinctions, the systems and
instruments of economic valuation miss a critical aspect of resource governance, namely
where, when, and how value exists across space and time. The spatial and temporal dis
tinctions of value can be illustrated through a typology (Figure 36.2). Clarifying the rela
tionship of space and time to these forms of value elucidates the missing link (use in time)
in economic valuation and market-based governance for problems like climate change.
The matrix in Figure 36.2 represents a typology of value that accounts for spatial and
temporal dynamics. The vertical axis divides space into socio-economic and socio-environ
mental relations. The horizontal axis divides time into present (realized economy) and fu
ture (potential economy). Four distinct types of value are identified: use, exchange, de
rived (e.g. derivatives like wheat options or repackaged home mortgages), and external
(the value of externalities, or value outside present use and exchange). Consider a com
mon commodity like a bushel of wheat. Use value is the value acquired from using or con
suming the bushel. Exchange value is the value of exchanging the commodity for some
thing else, or the monetary price of a bushel of wheat. Derived value is the value derived
from the exchange of the commodity in the future; a contract to sell a bushel of wheat at
a certain price at a set time, for example. External value is the value external to the pro
duction of the commodity, for example the value of depleted soil or fertilizer run-off from
growing the bushel of wheat.
The typology makes some important distinctions with respect to the value of resources.
Resource value is at its core use value. The ultimate objective of any resource is use,
whether now or in the future. Value is objectively embodied in the physicality of and real
ized through the use of the commodity. Wheat is wasted without consumption.
Page 10 of 23
Although use value is the ultimate objective of a commodity, the only metric to ac
(p. 692)
count the value of the resource is exchange value. Value is measured relative to price. For
this reason, carbon pricing is used to try to solve environmental problems (climate
change). The challenge is that the solutions actually require a direct transformation of
use (shifting energy resources) and price does not guarantee a particular use.
The Challenge of Accounting Derived and Exchange Value
Derived value leverages an underlying commodity to create future, potential exchange

value. External value leverages an underlying commodity to create future, potential use
value. Whereas use and exchange are temporally singular—an item can either be used or
exchanged—derived and external values present multiple alternatives for use and ex
change because they both reflect subjective time frames. This creates a challenge for ac
counting external and derived value. Figure 36.2 illustrates both present and future or po
tential value with individual columns. While present value is singular (commodities and
services exist in particular places and have value either in use or exchange at any given
moment), future or potential value is unlimited. Figure 36.2 could therefore illustrate fu
ture value with innumerable columns moving to the right across time. Because future or
potential value is subjective, within finance there exists the potential to create numerous
layers of value from singular physical resources through the structuring of potential value
(Knox-Hayes, 2013).
The subjective nature of future and potential value generates concerns for the ways in
which financial value becomes represented in present time. Modern economic systems
recognize all types of value as commensurate through pricing, regardless of qualifications
of how, when, and where value actually exists. For example, derivatives contracts can ref
erence the exchange of an underlying commodity (the bushel of wheat) across multiple
time frames. These can all be represented in the present and priced accordingly. A wheat
option might generate a quantitatively similar price to a bushel of wheat, but the quality
of value contained within the two, as well as the consequence of their value, is consider
ably different. The bushel of wheat can feed hungry people. The wheat option merely pro
vides the opportunity for a potentially advantageous economic transaction in the future.
This is not to say a financial option is without value, but rather that its value is qualita
tively different from the use value of the commodity itself.
Similarly, external value can recognize a range of potential future use outcomes that re
sult from the production and consumption of the underlying commodity. Negative exter
nalities (costs) from the production of wheat might include depletion of soil or run-off into
streams. Positive externalities (benefits) might include the low-cost provision of nutrition
to poor communities. The key to the creation of external value is the idea that the ulti
mate objective is not only use of the resource, but also sustained use across time. Consid
er two forests, one of 100,000 hectares in size, the second of similar quality but only
10,000 hectares in size. Evaluating only from the standpoint of present exchange value,
or price, the first is seemingly more valuable. However, the true measure of value is de
termined by use. The first forest is clear-cut, harvested, and sold. The second forest has
Page 11 of 23
15 per cent of its trees harvested every ten years for 100 years. Within 100 years it will
have not only produced greater exchange value than the first forest (which was destroyed
in a single harvest), but it will also (p. 693) undeniably produce greater use value because
it is still contains standing trees and can still be used into the future.
Figure 36.3 Economies of Production and Internal

ization Through the Circulation of Value.
Use, and particularly sustained use across time, is critical to the valuation of environmen
tal resources. Valuing resources based exclusively on price, singularly in time, does not
appropriately account for the value or resources. The goal of external value is not only to
borrow value from the future (as with derivatives), but also to shape present consumption
so as to return value to the future. The value of the forest can be extended beyond the
use of the individual trees, if they are harvested in such a way as to leave the forest ecolo
gy intact. The forest will regenerate and continue to create value external to the con
sumption of individual trees. Each tree still contains its use value, but accounting for po
tential use, treated as a system and harvested slowly, they generate external value.
Environmental Finance: External Value Through Pricing or Extended

Use
The goal of externalities pricing is to capture external value and to build economies that
recognize external value. Consider again the typology of value with the addition of vari
ous circuits of capital (Figure 36.3).
This diagram illustrates the circulation of value in production and extends the basic
Marxist conception of value produced through the circulation of commodities and money
with a consideration of derived and external value. In each quadrant, and associated with
each type of value is a distinct circuit of capital: consumption, commerce, finance, and en
vironmental finance. The lower-left quadrant (socio-environmental transaction in present
time) is where use value is created and consumption takes place. The upper-left quadrant
Page 12 of 23
(present socio-economic transaction) is where exchange value is created and com

(p. 694)
merce takes place. The upper-right quadrant (potential socio-economic transaction) is

where derived value is created and where finance exists. Finally, the lower-right quadrant
(potential socio-environmental transactions) is where external value is created and where
environmental finance is being initiated. Finance and environmental finance derive value
from the potential exchange and use of underlying resources and services (commodities
and social relations).
At the centre of the diagram, production is conceptualized as the transition of value be
tween commerce, finance, and consumption according to the formula (M–D–C–M’). Mon
ey is used to leverage derivative value (e.g. stocks), which is then converted invested into
commodities, which are transformed into surplus capital. The key assumption to this for
mula in financial production is that the capital borrowed from the future (D) is less than
the surplus capital (M’) generated from the production of commodities today, which en
ables the return on the original investment plus a profit. For this to be accurate the cir
cuit must actually generate commodities that are useful.
The establishment of new mechanisms for the pricing of externalities, such as green
house gases, is designed to balance the productive circuit by forcing value from finance
through externalities into the creation of environmentally beneficial technologies like re
newable energy. In Figure 36.3 this cycle of the ‘internalization of externalities’ (M–E–C–
M’) is represented in the centre of the diagram by the grey arrows moving from money to
externalities (E) to commodities (C) and back to surplus value (M’). This cycle results
from the creation of the fourth and hereto missing circuit of capital—environmental fi
nance. Internalization is considered here as the process of pricing externalities to change
production decisions. For example, accounting for the price of CO2 released from the
burning of fossil fuels might lead to the production of solar panels owing to new relative
price competiveness of solar energy over conventional thermal energy combined with a
carbon price.
In theory, internalization should close the loop and return value from finance or surplus
accumulation to improve the quality of the natural environment or at the least to improve
socio-environmental relations. Parallel to financial production, value is deposited into the
future potential of the commodity through the priced externality, which, in turn, shapes
production decisions (solar instead of thermal energy). The assumption remains that the
value deposited through the externality (carbon credit) E is less than the profit accrued
from the sale of the commodity M’ allowing the return on investment. For this to be true,
government regulation is needed to make carbon fuel sources more expensive than alter
natives, at least at the outset.
In practice, there are several challenges with the ability of externality pricing to balance
the social and environmental detriments of production. In order to operate effectively, en
vironmental finance must account for externalities and generate environmentally benefi
cial commodities. The problem is that just as finance can short-circuit the cycle of produc
tion, creating paths for money to generate surplus value irrespective of underlying physi
Page 13 of 23
cal commodities (e.g. 2008 US financial crisis), so too can environmental finance shortcut
the cycle of externality pricing that should generate new technologies. Internalization can
be short circuited if the externality is treated merely as a source of exchange value and
used to leverage derivatives for the production of surplus value. As early as 2008 this was
occurring in carbon markets with the creation of derivatives products like the collateral
ized carbon (p. 695) obligation (Lotay, 2009). These collateralized carbon obligations un
dermine environmental finance as a means of rebalancing socio-environmental relations
because they derive surplus value solely from the circulation of environmental externali
ties through financial transactions. To be truly effective, environmental finance must gen
erate a change in the nature of commodity production.
Carbon markets seek to internalize negative externalities by creating exchange value for
the absent externality. Compliance parties pay more for the carbon-based production so
as to change the use of fossil fuels. The challenge is that the value of the credit is its price
(exchange value), which means it can be exchanged for other outcomes beyond just the
switching of fuel sources. Price alone is insufficient to govern the creation of externalities
and to change the use of resources. A more effective way to leverage external value
would be to create a direct accounting of future use. There may be several paths to redi
rect and to maximize potential use, such as revaluing resources with spatial temporal sig
natures such that renewable resources have higher qualitative value. The key is to focus
on the lower-right quadrant (Figure 36.3), on the creation of external value, or the exten
sion of use across time. This highlights the inability of economics to come to terms with
value and, in particular, the absence of a theory of use value and the attendant instru
ments and systems of sustainable valuation. While the creation of such a theory is beyond
the scope of this chapter, it is an important avenue of investigation for the discipline of
economic geography. In the next section I explore various potential means of refocusing
externalities on the generation of value for future use.
A Path Towards Sustainable Resource Valuation

Externality pricing allows for resource exchange but does not account for temporal scale.
Because externality pricing leads to resource allocation (for which temporality is central),
the absence of temporal scale in externality pricing is problematic. Take the application
of externality pricing to a forest. Externality pricing manages the forest by valuing the
positive and negative externalities generated from various production decisions, and al
lowing these externalities to be exchanged. For example, a forest can serve as a water fil
ter for a river basin. It will hold the water in the vegetation, slowing the water flow, and
allowing it to percolate through the substrate, thus purifying the water before it reaches
the river. Externality pricing frames this dynamic as a positive externality that through
environmental finance can be packaged as a commodity, exchanged, and used to offset
the water pollution of a manufacturing plant downstream.
The challenge is that the service the forest provides is, in fact, geographically and tempo
rally localized and situated within the ecology of the forest. Packaged as exchange value,
Page 14 of 23
it can be exchanged for pollution downstream, but physically the water purification up
stream does not cancel pollution downstream. In this regard, even though the credits
might be exchanged, ecosystem services are not trans-locatable. Their physical impact
lies in the places where they are located. To maximize positive externalities, the (p. 696)
instruments of exchange must recognize the ecology in which externalities are produced.
If its ecology is properly maintained, a forest provides a range of externalities or ecosys
tem services such as the preservation of a watershed, the sinking CO2 from the atmos
phere, and the support of multi-value flora and fauna (e.g. pollinators for neighbouring
crops).
Furthermore, maximizing positive externalities means taking account of the temporal

scale of their production. For example, the forest ecology that can support pollinators and
attenuate floods requires time to become established. Thus, a more sustainable means of
resource valuation accounts for use value of resources over time. To this end, several
methods offer the promise of better integration of time into exchange value. Firstly, in
struments of exchange value can be linked to realistic expectations of the production of
use value (an issue of both leverage ratios, as well as time scale of production). Secondly,
the rate of value transfer can be entrained to the rate of value production. Finally, the na
ture of property rights might be changed so as to better maximize use rather than ex
change value.
With respect to the first method of time integration, it is undoubtedly true that finance
has the useful benefit of borrowing value in from the future for production today. The
challenge, however, lies in the tendency to treat all value as though it is made commensu
rate through exchange. This, in turn, allows for distortions in the scale at which potential
(future) value is represented in the present. To address this problem, regulation should
focus on limiting the degree to which value can be created through derivatives. In other
words, there should be limits on how far value can be temporally extended from its un
derlying material resource. In practice, this means that rather than a stream of cascading
or multiple derivatives that increasingly distance exchange value from the material un
derlying, derivatives might be limited in the singular and only for specific commodities.
Moreover, there should be limits placed on the leverage ratios (the amount of debt or fu
ture value, relative to equity or present productive value) that are allowed in the creation
of derivatives. For natural resources, the issue of the time-scale of resource production is
attendant with problems arising from extending productive value by borrowing from the
future. By factoring in timescale and rate of production, sustainable valuation becomes
more likely.
The second method focuses on better entraining the rate of value transfer to the rate of
value production. This is particularly important for natural resources, the production and
renewal of which cannot be accelerated. Allowing the exchange value of resources to be
vested over longer time horizons adds recognition to the temporal scale of their produc
tion and would limit the demand for accelerated turnover. In practice, instruments for
ecosystem service valuation should be long-term investment vehicles. For example, in
struments to value the production of resources such as standing forests should require
Page 15 of 23
long-term ownership so that the value of the forests can actually be produced before the
instruments are exchanged. If ecosystem services are eventually to be valued through fi
nancial instruments, these instruments must have controls on how quickly they can be ex
changed, because natural capital can take longer to vest than financial instruments allow.
This should allow for resources to be valued over greater time frames. Extending the rate
of valuation should also allow for the use of resources that experience greater value over
greater time scales. For example, if energy use was packaged and priced over greater
time frames (yearly or even multi-year increments instead of monthly), clean energy
would experience an advantage over conventional sources.
(p. 697)Finally, the nature of property rights might be transformed to manage natural re
sources as service stocks rather than commodities. Consider again the example of a for
est. It is a resource that has numerous uses. It can provide timber, or, if left standing, can
filter water, provide a habitat for bees and biodiversity, and generate tourism. The forest’s
ecological uses can magnify its value if these are accounted over greater temporal
frames. So, as cutting down the forest and selling the trees for timber produces greater
financial gain in the short term, over longer time frames the financial benefits of the
standing forest dwarf those of the timber sale. Policies and financial practices then need
to find a way to make the long and short term correspond. For example, land ownership
might be charged with the creation of property services rather than rights for the natural
environment. Returning again to the example of forestry, the tendency is to create a sys
tem of property rights to manage a forest system. To be protected, the forest must belong
to someone because ownership ensures that an interested actor will collect the value of
the conservation activity. However, to privilege the use value, the forest should be man
aged as a service stock that has a fixed use, rather than a commodity that can be traded
and sold. That is, the forest can only derive exchange value if it is used in line with the
listed use value. Thus, property granted for dedicated use would begin to accomplish the
service model. The ownership is granted but not the authority to do with the resource as
pleased. Rather the owner acts as a custodian that maintains of the resource.
In this model, the forest is a provider of ecological services. Ownership does not convey
the right to transform the forest into another use, merely to accrue the value of guaran
teeing and protecting the use. The use value is thus fixed and guaranteed, rather than by
proxy through exchange valuation. This approach transforms the valuation model by plac
ing use value on level with exchange value. Challenges abound, however. Legal and eco
nomic systems would face substantial reordering, with a framework of ecological preser
vation at the centre in which value is conveyed only through proper use. Doing so would
radically transform the way in which land is used, and would consequently have cascad
ing effects throughout the political economy.
Returning to the issue of climate change, there are implications for focusing on use value.
The ultimate function of carbon markets should be to transition economies away from the
use of fossil fuels. As a consequence, exchange value becomes secondary to use value.
Thus, limits may be placed on the rate of trade of carbon credits, which would ensure that
the carbon credits are linked to the places and timescales of carbon sinking. Additionally,
Page 16 of 23
there should be considerable effort dedicated to controlling the rate of exchange of envi
ronmental assets to control for temporal and spatial dislocation. At the core of economic
processes focus should shift from exchange value gains to material effects. Clean energy
could be made more valuable if the rate of credit maturations was extended. Moreover,
revaluing resources to account for spatial and temporal effects should make clean energy
more effective. Focusing on material effects within the valuation of carbon credits would
shift emphasis to clean energy commodities as the basis of valuation. While this does not
preclude other forms of valuation, in the end the value of carbon credits would be as
sessed in terms of material contributions (e.g. how much more clean energy is produced).
In the spirit of capturing use value, rather than allowing credits to be exchanged for oth
er instruments they would only yield exchange value once they transferred back into ma
terial outcomes, for example funding development of technology.
(p. 698) Conclusion

Climate change has become the pressing issue of the twenty-first century. In an effort to
confront this grave and global collective action problem, governments around the world
are increasingly turning attention to the use of carbon-pricing market mechanisms to re
duce greenhouse gas emissions. Markets to price greenhouse gases have been set up in
over forty-five countries around the world. The approach is drawn from the belief that cli
mate change can be solved through the scientific measurement of greenhouse gas levels
and the economic management of greenhouse gas pricing. Economic geographers have
criticized carbon markets for a number of reasons, including the complexity of interna
tional coordination required to create the market infrastructure, the use of existing finan
cial logics in market design, and the failure of accounting practices to capture the com
plexities of carbon syncing. As this chapter demonstrates, of central importance is failure
of carbon markets to account for the spatial and temporal complexity of carbon reduc
tion. In particular, carbon markets stem from a belief that resources and their attendant
externalities are best managed through controls on price and quantity.
In taking this approach, carbon markets are built from theories of exchange value, partic
ularly the idea that the pricing of externalities will solve climate change. These theories,
however, fail to take account of a critically important issue—the rate and scale at which
industrial production occurs relative to the ability of the natural environment to generate
resources and sink waste. A more complete consideration of intersection of political econ
omy with climate change requires a fundamental rethinking of economic value. Rather
than just a spatial distinction of use and exchange, there are also temporal distinctions in
the types of value operating in economic systems. Exchange value can be extended in
time to derived value. Use value can likewise be extended in time to external value, the
value of sustaining potential use across time.
Such a reconsideration of the spatial and temporal qualities of value demonstrates that
externalities are, in fact, an extension of use value rather than exchange value. There
fore, attempting to curb externalities through pricing to some extent misses the point. Ex
Page 17 of 23
ternal value can best be captured through mechanisms that address use rather than
through exchange. While this chapter does not seek to generate a new theory of use val
ue, it does present ideas regarding the ways in which existing mechanisms could come to
emphasize and generate use value. Firstly, spatial and temporal controls should be placed
on the exchange of externality credits, so as to limit leverage ratios and link exchange
with the material production of value. Secondly, extending time frames of the generation
of exchange value would make resources such as clean energy more valuable. If the in
strument of exchange is instantaneous then short-term profits are privileged, but if the in
strument is designed to accommodate greater temporal scale, profit in time must be con
sidered. Thirdly, property rights might be transformed to manage natural resources as
service stocks rather than commodities. This would allow for the maintenance of produc
tivity of resources such as forests across time and through different owners.
Carbon markets open several important lines of inquiry to economic geography. With the
emphasis on context, history, and scale, economic geography can add considerable in
sight to the analysis of new forms of resource governance designed to address problems
(p. 699) like climate change. In addition to carbon, markets for a range of ecosystems ser
vices, including forestry, water, and biodiversity are being created. Rather than managing
natural resources as conventional economic inputs, these markets attempt to manage nat
ural resource through the potential of their externalities. These markets and systems
open a range of new avenues of both theoretical and empirical investigation to the disci
pline of economic geography.
There is a broader issue of what these markets symbolize relative to the evolution of mod
ern capitalism. Economic geography has pushed the boundaries of economic thought with
new theories of production, regional development, varieties and variegations of capital
ism (Hall and Soskice, 2001; Peck and Theodore, 2007), and the evolution of financial ser
vices and markets (Clark and Wójcik, 2007). Additionally, scholars in the Marxist tradition
such David Harvey (2014) have extended critiques of the function and contradictions in
herent in capitalism. Yet, insufficient attention has been brought to bear on the core prin
ciples of economics, particularly the nature of value estimation that underlies the system.
In particular, economic geographers could lend considerable insight into new theories of
use value. What might a renewed focus on use value and its spatial characteristics lend to
the understanding of industry, market creation, and resource governance? Furthermore,
how might economies come to operate if they were guided by principles of use, rather
than exchange? Perhaps theories of use might in time generate a more sustainable sys
tem of valuation. At the least, use value presents a new frame of analysis and a new way
to come to terms with the pressing challenges the next generation of economic geogra
phers will confront.
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Notes:
(1.) For a more comprehensive overview of the distinction between socio-material and
physical materiality see Bansal and Knox-Hayes (2013).
(2.) http://www.energy.ca.gov/2008publications/CEC-180-2008-003/CEC-180-2008-008/
CEC-180-2008-008.PDF (last accessed 19 April 2017).
Page 22 of 23
Janelle Knox-Hayes
Janelle Knox-Hayes ([email protected]) is the Lister Brothers Associate Professor of

Economic Geography and Planning in the Department of Urban Studies and Plan
ning, MIT. Her research focuses on the ways in which social and environmental sys
tems are governed under changing temporal and spatial scales as a consequence of
globalization. Her latest project examines how social values shape sustainable devel
opment in the Arctic. She is an author, co-author, and co-editor of fifteen journal arti
cles, and two books, including Saving for Retirement and The Culture of Markets:
The Political Economy of Climate Governance. She is also book-review editor of the
Journal of Economic Geography, and editor for the Cambridge Journal of Regions,
Economy and Society, as well as the Journal of Urban Planning.
Page 23 of 23
Long-run Resource Scarcity

Dieter R. Helm
This chapter considers whether long-run resource scarcity limits economic growth. It dis
tinguishes between renewable and non-renewable resources, as types of natural capital.
Using the example of oil, it shows that the depletion of non-renewables is not a binding
constraint. It critiques the peak oil concept, and, in particular, notes that it fails to take
account of either technical progress or the impact of prices in allocating resources. On
renewables there are serious depletion concerns; the chapter advances the aggregate
natural capital rule, and sets out how this provides a rigorous asset-base constraint on
sustainable economic growth. The operationalization of this rule requires a natural capi
tal balance sheet, a risk register for renewable resources, and the provision of capital
maintenance.
Keywords: natural capital, renewable and non-renewable resources, aggregate natural capital rule, capital main
tenance, natural balance sheets peak oil, depletion thresholds
Introduction
*
FOR more than a century, it has been a recurring fashion to predict that key natural re
sources are about to run out, and that as a result economic growth will come to a shud
dering halt. In the mid-1860s, William Stanley Jevons in The Coal Question (1865) was so
worried that Great Britain would run out of coal that he predicted it may contract to its
former ‘littleness’.
As the world’s population expanded rapidly, from around 1.7 billion in 1900 to over seven
billion now, and as economic growth took off, the pressure on natural resources intensi
fied. Almost every decade of the twentieth century has witnessed scares about running
out of oil, with associated predictions of sharply rising prices and industrial dislocation.
Looking forward into the twenty-first century, given current world growth rates, the
world economy will be around sixteen times bigger than it is now by 2100, and population
will be anywhere between about nine billion and thirteen billion (United Nations, 2014).
Page 1 of 15
The scale of natural resources that will be used up to meet these extra demands, and the
scale of their impacts on the wider environment, are potentially awesome. It is, therefore,
an obvious question to ask: whether the rates of depletion can be sustained and therefore
whether resource scarcity is a serious problem in the long run. Put another way, is eco
nomic growth sustainable in the long run?
This chapter considers these questions. The next section divides up resources into renew
ables and non-renewables. The section ‘Non-renewables, Peak Oil and Resource Scarcity’
concentrates on non-renewables and shows why concerns have been repeatedly exagger
ated, using oil as an example. The ‘Renewables’ section explains why their long-run avail
ability is at risk. ‘Depletion and Sustainability’ brings the two types of resources together
and provides a sustainable framework within which resources can be maintained in the
long run in order to ensure that the constraints do not undermine future growth, and
(p. 704) that future generations enjoy sufficient quantities of these assets. The chapter
ends with the conclusions.
Different Types of Resources

Nature provides resources for free: they are natural capital.1 These resources come in a
variety of shapes and sizes, and with different supply potentials. There is plenty of coal:
not so many diamonds. The claim to resource scarcity is about some resources rather
than all, and therefore a series of categories need to be identified to help ascertain which
ones matter.
A key distinction is between renewable and non-renewable resources (Natural Capital

Committee, 2013). In some cases (renewables) nature is capable of going on providing
these resources forever (renewables), while for others (non-renewables) there is a finite
stock, so that these can only be used once. In the former case, the challenge is to utilize
these resources so they carry on being renewed. In the latter case, it is about who uses
them, over what period, and whether any are so critical to production and hence to con
tinuing economic activities that their depletion has to be constrained.
The question of the sustainability of these resources, and of the economic growth that de
pends upon them, is different between renewables and non-renewables. The ‘sustainabili
ty’ concept itself gives rise to many different interpretations, but at its core is the general
idea that each generation should pass on a set of assets that is at least as good as those it
itself inherited. The famous Brundtland Commission defined sustainable development as
follows:2
Sustainable development is development that meets the needs of the present with
out compromising the ability of future generations to meet their own needs (Unit
ed Nations, 1987, Chapter 2).
In the case of renewables, it is, in principle, straightforward, although there may be dif
ferent compositions of an aggregate amount of renewable natural capital. In the case of
Page 2 of 15
non-renewables, as the resource can only be used once, it cannot be passed onto the next
generation. Instead, if the next generation is to be at least as well off in asset terms, it
must inherit other types of assets (renewables, physical, and human capital) worth at
least as much as the depleted non-renewable resource. In the ‘Depletion and Sustainabili
ty’ section, these general conditions are formalized into aggregate natural capital rules.
Non-renewables, Peak Oil, and Resource

Scarcity
Non-renewables are forms of natural capital that are in finite supply. If they are used now,
typically they cannot be used again (although some elements may be recycled). Most min
erals fall into this category, many of which do not have substantive uses. Most of the
world’s (p. 705) rocks have limited applications. Resource scarcity focuses on a small num
ber of minerals that have proved core elements to the development of modern economies.
Classic examples are the fossil fuels, laid down millions of years ago by natural processes.
They may be created again, but they will not be restocked in any relevant human time
horizon.
There are several questions relevant to the long-run scarcity of these physically limited
resources: How much is left? What about substitutes? What is the impact of technical
progress? Do they have significant economic value? While each has its own special char
acteristics, the general approach is illustrated with reference to oil.
The first and most important aspect of these physically limited resources is that while
they may be finite, their total is uncertain. There is physical uncertainty about the re
source base and economic uncertainty about the recoverable quantities.
Physical uncertainty relates to the composition of Earth’s crust. Although knowledge has
advanced greatly with seismic and other surveying technological developments, the esti
mates of the total resource base of any of Earth’s main minerals remain primitive. Al
though the rock composition of Earth’s crust is reasonably well understood, the finer de
tail of mineral composition is absent in many areas of the planet. The US Geological Sur
vey, for example, estimated that the Arctic Circle contains 22 per cent of the remaining
undiscovered, technically recoverable resources of oil, natural gas, and natural gas liq
uids in the world (US Geological Survey, 2008). It is an educated guess and no more. Fur
ther, most of the resource base, even if identified, may be physically unrecoverable and
even if recoverable of little value or too costly to be worth recovering with current tech
nologies. As future technologies are not known, the recoverable resources cannot be
known.
The scale of misunderstanding and misrepresentation is well reflected in the various the
ories and empirical claims about peak oil.3 Physical estimates of the remaining oil re
sources have led to predictions in almost every decade of the twentieth century of immi
nent resource exhaustion. In the last decade, these claims were sufficient to convince pol
Page 3 of 15
icymakers that diversifying from fossil fuels to renewables (and in the British case, nu
clear) is economically efficient, irrespective of the climate change concerns (see Helm,
2015b, Chapters 4 and 7, and Helm, 2017).
In the 1950s, the theory of peak oil was expounded by Marion King Hubbert (1956). He
analysed US oil wells, and assumed that all the significant discoveries had already been
made. The total resource could be estimated by taking these oil fields, and applying to
them the depletion patterns that had been observed. Thus, not only was the physical re
source base known, but so too was the depletion pattern for the remaining wells. On this
evidence basis it was a comparatively trivial exercise to aggregate across the known oil
wells, take the rate of depletion, extrapolate, and predict that US oil production would
peak around 1970, and indeed he turned out to be right about the peak, up until the re
cent transformation of the US oil and gas industries.
Hubbert’s followers took this simple empirical projection from US data on its existing
wells and generalized the results into a theory about the world’s supply of oil, and then
predicted the world’s peak production date (see e.g. Campbell, 1997). Because the evi
dence base was less reliable (even assuming that all the big finds had been made), the es
timates of the world peak varied. Demand, too, had to be assumed, and, interestingly, few,
if any, of the peak oil theorists could have imagined how long fast and for how long China
would grow. As a result demand was widely underestimated in China and globally.
But in both the US and the global cases the peak oilers have turned out to be wrong.
Hubbert had no knowledge of the potential of unconventionals, did not anticipate frack
ing, (p. 706) and could not have known that in the twenty-first century, US production
would push up in less than a decade to almost nine million barrels a day (Figure 37.1),
holding out the prospect of eventual oil independence for North America as a whole. Hub
bert and his followers took a supply-side, physical approach and neglected the economics,
and, in particular, price. As the low-oil-price years of the 1990s gave way to gradual ris
ing prices in the 2000s, technical progress pushed out the boundaries of oil exploration.
The combination of seismic technologies, horizontal drilling, and fracking released enor
mous unconventional resources, while deep-water drilling brought the possibilities of sig
nificant offshore resources. (The subsequent boost to supply forced prices down in late
2014, and pushed marginal supplies off the market.) The Alberta tar sands never figured
in the peak oiler’s estimates, nor did the deep-water fields in the Gulf of Mexico. Finally,
the assumed depletion patterns followed from the pressure flows, and hence it was not
envisaged that existing wells might be more extensively depleted, rather than being aban
doned at around 50 per cent or less of their potential reserves.
Page 4 of 15
Figure 37.1 US Field Production of Crude Oil (1000

Barrels per Day), 1920–2014.
Source: US Energy Information Administration

(2015).
The key point here is that it is economics driving oil supply, not the physical constraints.
As and when the limits of the physical resource are reached, the price can be expected to
rise again, and this will then set off further technological advances, and encourage the
search for substitutes (to which we return later).
Hubbert’s peak-oil theory was generalized to other minerals. Perhaps the most famous at
tempt to extrapolate the resource base was presented in the Club of Rome report in 1972
—The Limits to Growth (Meadows et al., 1972). MIT was commissioned by the Club of
Rome to run a modelling exercise to discover where economic growth had ‘limits’. The
model took the usual constraints that preoccupied environmentalists: population, food
production, industrial production, pollution, and consumption of non-renewable natural
resources—and (p. 707) left out the technology and human capital. If the five parameters
experienced exponential growth, then there would inevitably be a day of reckoning.
Therefore, the Club of Rome Report concluded that:
If the present growth trends in world population, industrialization, pollution, food

production, and resource depletion continue unchanged, the limits to growth on
this planet will be reached sometime within the next one hundred years. The most
probable result will be a rather sudden and uncontrollable decline in both popula
tion and industrial capacity (Meadows et al., 1972, p. 23).
The exercise had the merits of modelling the feedbacks and interactions between these
five inputs, and it duly predicted global collapse sometime in the twenty-first century. As
with all such ‘garbage in–garbage out’ exercises, the model scenario predictions are de
termined by the assumptions about the inputs. If these are growing exponentially there
will inevitably be limits. It could not be otherwise. A stationary state would eventually ma
terialize, and this could be achieved either by a population and capital collapse—or by de
liberating imposing limits. The Club of Rome was little more than an extension of the old
Page 5 of 15
Malthusian argument—with a few extra parameters. Malthus had focused on population,

and the Club of Rome was similarly concerned at a time of rapid population growth.
Given the coincidence with the first OPEC (Organization of the Petroleum Exporting
Countries) oil shock, and the more general economic crises in the 1970s, it was perhaps
not surprising that much attention focused on the minerals section, and their depletion
rates. In the Club of Rome report, the assumptions drove the conclusion that there would
be serious depletion problems within the next half century.
In the report, simplistic calculations were provided that purported to show that the stocks
of many minerals would soon be depleted. Julian Simon took issue with the Club of Rome,
and he entered into a famous bet with Paul Ehrlich, the author of The Population Bomb
(Ehrlich, 1968). He asked Ehrlich to name any five minerals, and bet that the price of all
of them would be lower in 1990 than it was at the time of the bet.4 He won on all counts:
the 1970s, when the Club of Rome report was published, turned out to be a very high-
mineral-price world, on the back of the demand built up in the great post- World War II
economic boom and the Vietnam war, and for the rest of the century commodity prices re
fused to follow the Club of Rome script.
What Hubbert and the Club of Rome got wrong was the impacts of the high prices they
foresaw, particularly on technology. They could not have forecast the subsequent develop
ments, in part because all depended on future technologies. The key mistake was to base
predictions on current technologies. In the oil case, Hubbert’s followers made this mis
take too, and compounded it with the assumptions that the high knowledge base about
US oil wells could be extrapolated elsewhere, and that there would not be further signifi
cant discoveries. Indeed, the typical assumption of the peak-oil theorists was that as there
had not been many big discoveries in the 1980s and 1990s, there would not be any more
to come. They forgot that at the low prices in the 1980s, and especially the 1990s, they
were not worth prospecting for.
Almost everything that could be wrong with the peak-oil theories turned out to be so. The
estimated physical reserves of oil are higher now than at any previous time. These esti
mates relate in large measure to conventional oil: unconventional shale and tight oil de
posits are a recent addition, and it is only in the USA that the geological knowledge of
these is reasonably comprehensive. Conventional resources in the Arctic, in the Antarctic,
in the Sahara, (p. 708) and in much of Russia remain under-explored. Unconventional re
serves are largely a matter of guesswork outside the USA. Recent disappointing drilling
experience in Poland for shale gas indicates the level of ignorance, even when promising
rock formations are identified. Knowing that rocks might contain oil deposits is not the
same thing as finding out whether they do, and further whether they can be extracted
cost-effectively. Finding how much is physically present and what it might cost requires
holes to be drilled.
An important conclusion follows: the uncertainty will remain for the foreseeable future.
Predictions of exhaustion are therefore hypothetical. As the technologies for surveying
Earth’s crust improve and as more holes are drilled, more information will become avail
Page 6 of 15
able. Current estimates are lower bounds, and the key question is whether at these lower
bounds, plus reasonable estimates of potential additional resources, there is the prospect
of scarcity. The total physical quantities are profoundly uninteresting from a scarcity per
spective.
In the case of oil, the lower bound is sufficiently high as to negate resource-scarcity
boundaries. Indeed, the physical supply limits will only bind if there are no alternative
competing ways of capturing energy and there is no concern about carbon emissions.
Neither turns out to be likely.
It is worth noting that the expertise of discovering more oil as the technology and price-
incentivized exploration carries across to gas. Until 1990, gas was regarded as a scarce
premium fuel to be kept primarily for the petrochemical industry—so scarce that it was il
legal in Europe and the USA to burn it in power stations. Within a decade, it became the
fuel of choice for new electricity-generating power stations, and even before shale gas
transformed the reserves position. Gas is now so physically plentiful that from a policy
perceptive it is best regarded as infinite.
Finally, of the fossil fuels coal is super-abundant and super-polluting. There is so much
that is so cheap to produce that it is hardly worth trying to work out how much the total
resource base might be.5 Were even a fraction of this remaining quantity to be burned,
the damage to the climate would be devastating, according to current climate models.
Physical limits are all about supply, whereas scarcity is about the confluence of supply
and demand. The demand for fossil fuels—and minerals generally—depends upon the
availability of substitutes. While peak-oil theorists assume that oil is in inelastic supply,
and that it is driven by transport’s dependency on oil, this is, in fact, merely a reflection
that at current prices it is not economic to develop alternative substitute sources of ener
gy supply. Yet in the transport case, oil is not essential. Indeed, the electric motor preced
ed the internal combustion engine, only to be out-competed as cheap and abundant oil
flowed. Vehicles can be powered by electricity, and are increasingly likely to be so. Elec
tricity can be produced not only by fossil fuels, but also generated from nuclear, solar, ge
othermal, and hydro power. There is also the prospect of substitution between fossil fuels:
gas can power vehicles directly, or be a fuel for the electricity displacing the internal
combustion engine.
For almost any manufacturing process, there is always the possibility that alternative as
sets might perform the same functions. In the case of energy, technical progress may
yield new ways of generating electricity, and cars may convert to electricity. Consider
some of the possibilities. Current-generation solar power is very inefficient. It uses a very
small fraction of the light spectrum. What would happen if more of the light spectrum
was opened up, given the abundance of solar radiation the planet receives? Now consider
how the solar (p. 709) energy is harvested. Current solar photovoltaic panels are also
primitive. New technologies based upon new materials like graphene, utilizing nanotech
nologies, and developing solar film might transform the generation of electricity.6
Page 7 of 15
The obvious objection is that these developments are far from certain. Yet the reason they
do not yet exist is not necessarily that they cannot, but rather while the price of fossil fu
els is cheap, there is little incentive to do so. As resources are depleted, the price can be
expected to rise, and as the price rises the incentives for R & D rise accordingly.
There may be some non-renewables for which there are no substitutes, and which play
key parts in industrial processes. But this is far from clear. Iron ore as a source of steel
could be described in this way, but even here new materials may displace it. Graphene is
one example, following the much earlier discovery of plastics, and then carbon fibre. The
key point is that the combination of necessity and scarcity cannot be just assumed, be
cause the results of future R & D are not known.
For most of the twentieth century the main non-renewable energy sources have been re
markably abundant and remarkably cheap. For this reason they have been depleted at the
expense of developing alternatives. The internal combustion engine is a century old, and
both coal power stations and the basic elements in steel manufacture are even older. As
and when they become scarce, the incentives change.
The conclusion that follows is that the physical scarcity of non-renewables is not the same
as their economic scarcity. Physical scarcity ultimately limits these assets, but not neces
sarily their economic applications. The price mechanism incentivizes the rates of their de
pletion, and the search for substitutes and the associated R & D.
Renewables
The long-run resource scarcity problem that provides the greater threat is not the deple
tion of non-renewable fossil resources, as suggested by the peak-oil theorists and the
Club of Rome would have us believe the depletion of finite resources. It is the rapid deple
tion of renewables, which would, if left to their own devices, be for practical purposes po
tentially infinite in supply. Nature keeps on reproducing them, and will go on doing so un
til the end of Earth’s existence, subject to how they evolve. While there is physically only
one Earth in terms of finite non-renewables, there is an open-ended prospect with renew
ables.
It is these natural capital assets that are in rapid decline, and at risk of long-run scarcity.
The rate of extinction is at a level that qualifies alongside the other great extinction
episodes in geological history, described by E.O. Wilson as the sixth great extinction
episode. As he explains, we are ‘in the midst of one of the greatest extinction spasms of
geological history’ (Wilson, 1992, p. 268).
Habitat and ecosystem destruction is taking place on a global scale, with serious damage
being inflicted on the major rainforests in the Amazon, Congo, and the Mekong, and the
gradual pollution of the oceans, alongside the smaller scale damage (Myers et al., 2000).
Deserts are encroaching, farmland is increasingly characterized by monocultures, and
pesticides and herbicides are increasingly killing off pests, competing plant life, and the
Page 8 of 15
insects and birds that depend upon these plants. Unlike non-renewables, there is no tech
nical progress to replace renewables—other than evolution.
In the case of China, the impact of rapid economic growth, conventionally mea
(p. 710)
sured, and renewable natural resources is starkly illustrated. China’s pollution is now
global in scale. It leads the world in carbon emissions, with severe consequences for bio
diversity and human well-being. Its main rivers are biologically dead in significant parts,
its agricultural land is seriously polluted with heavy metals, and its biodiversity is in seri
ous retreat (see e.g. Economy, 2004; The World Bank and Development Research Center
of the State Council, 2013).
This depletion not only reduces the long-run natural capital, but also in the process un
dermines the future sustainable growth paths for two reasons. First and foremost renew
able natural capital is a primary factor of production. Without clean air, freshwater sup
plies and food supplies, human existence is not possible, and without a plentiful supply of
these factor inputs, economic production is greatly constrained. These are all services
that depend upon renewable natural capital. Plants mop up carbon dioxide and emit oxy
gen, and, indeed, it was the growth and development of plants that created the current
atmosphere necessary for human existence. Fresh water is the product of a complex biol
ogy. Food supplies depend upon soil, and soil functions as it does because of its own com
plex biology of micro- and macro-organisms. Secondly, renewable natural capital yields
many direct benefits. Nature is vital to human well-being, and provides direct utility in
the forms of leisure, health, and cultural and aesthetic values (Natural Capital Commit
tee, 2014).
The key feature of renewable natural capital—that goes on providing its bounty for free—
is challenged when they approach thresholds. These thresholds are typically both uncer
tain and also interdependent. The units of analysis are complex. Renewable natural capi
tal does not come in discrete lumps of identifiable and separate assets. It comes in
ecosystems, is set in habitats, and relies upon the systems’ interdependence. As a result,
it is hard to provide estimates of the renewables populations, because it is not clear what
the population relates to (see Mace, 2014).
An example helps here. Consider Atlantic Salmon. The population is much diminished, as
a result of many factors. Salmon can be counted: the total stock of the different species
can be estimated. Yet the threshold below which salmon are no longer capable of renew
ing themselves is not adequately captured by the number of salmon. The salmon depend
upon multiple ecosystems—the feeding grounds off Greenland, the state of estuaries, riv
er systems and their levels, spawning grounds, the existence of commercial fish farms
and the associated sea lice and other parasites, and so on. The threshold beyond which
salmon can no longer reproduce sustainably is made up of these multiple ecosystem fea
tures.
The uncertainty about the units and the causal relations means that thresholds can only
be approximately estimated. In practice, there is typically a range of uncertainty within
which the renewable asset is at risk. As there is a discontinuity at the threshold, as the
Page 9 of 15
depletion below this level is irreversible, and as above the threshold the resource is avail
able for free, a risk-averse approach indicates that safe limits should be set above the
mean expected threshold.
But it is possible to do better than maintain the threshold. For many renewable natural
resources, the benefits merit setting the optimal stock above the threshold at some target
level. It is not a matter of scarcity, but rather the investment in maintaining the level of
the resource that yields the highest economic value.
(p. 711) Depletion and Sustainability

In the long run, the prospects for future economic growth depend upon the depletion
rules applied to resources. A sustainable growth path is one that bequeaths to the next
generation a set of assets at least as good as the ones it inherited. In other words, the ag
gregate capital stock should be non-declining.
This general asset rule allows for substitution between the asset classes. In particular,
man-made capital and human capital can be substitutes for depleted natural-capital re
sources. A more stringent rule would require that the aggregate level of natural capital is
not allowed to fall. This would still admit substitution between natural capital and other
forms of capital, but within the overarching constraint. Any loss of natural capital through
development has to be matched by a corresponding increase elsewhere. The justification
for such a rule lies with the scale of the threats to non-renewables noted earlier.7
The application of these asset rules differs between non-renewable natural capital and re
newable natural capital. Non-renewables can only be used once, so depletion is a matter
of who benefits. If one generation uses them, they are not available to future generations.
The question is then: how should future generations be compensated for the loss?
The conventional answer is that when non-renewables are depleted, the economic rents
should be reinvested in other capital assets, so that the benefits are shared with future
generations. These rents are net of the costs (including normal profit) of the depletion. It
is an answer that is almost always violated: very few resource-rich countries explicitly
provide for such investments. Few have sovereign wealth funds and those that do rarely
follow this rule.
Consider, for example, British North Sea oil and gas. The benefits from depletion were
taken by the current generation. The tax yield (which accounts for most of the economic
rents) went to the government of the day, and facilitated lower taxes and higher public
expenditure. Some of this benefit will have fed through into investment. Some public ex
penditure is capital rather than current. Consumers and companies may also have invest
ed some of the proceeds. Yet the overall impact will not have been remotely equivalent to
the economic rents.8
Page 10 of 15
Even the relatively straightforward North Sea example throws up a number of complicat
ing dimensions. Technical progress has implications for the depletion rate. Suppose, as
noted earlier, a substitute for oil is discovered, so that its value gradually falls towards ze
ro. Future generations therefore place zero value on the resource. There is less need to
compensate them for use now. However, suppose the depletion yields a liability for future
generations—the carbon dioxide in the atmosphere. Compensation is then required for
this liability.
It remains to sort out what sort of compensating investments should be made. The aggre
gate natural-capital rule dictates that the depletion of non-renewables should fund in
creases in renewables. A weaker general aggregate capital version allows for a mix of
capital investments.
For the renewables, the aggregate rule dictates that where these assets are damaged,
there should be corresponding compensation to the value at least as great. Recall that re
newables can continue to provide their services for the very long run—in effect, forever.
The loss of a renewable asset, by driving the stock below the threshold, foregoes the full
value of the yield in perpetuity. It is a value only bounded if a discount rate is applied.
The stronger principle of compensating investments in other non-renewable nat

(p. 712)
ural capital requires the measurement of natural capital so that assets at least as good
can offset the loss (Department for Environment, Food and Rural Affairs, 2013). This
turns out to be complicated: all natural assets are located in specific ecosystems, and
hence a like-for-like compensation is potentially not going to be on offer. Suppose an an
cient woodland or part of a rainforest is cut down. Recreating and restoring these assets
is practically impossible. In any event there may be other, more valuable compensations
in unrelated areas—restoring a wetland, cleaning up a river, and so on. Creating a supply
curve of renewable natural capital improvements is a complex undertaking.
Maintaining both types of natural-capital resources requires capital maintenance, to meet

the rule. Capital maintenance is an accounting charge against revenues. It might be ap
plied across all capital assets, or just natural capital. As a provision, its application would
radically impact on national income accounts: economic performance would be net, not
gross as it is currently, of capital maintenance (Mayer, 2013).
This links long-run resources to the concept of sustainable economic growth, which mea
sures the consumption path that can be maintained over time. As future growth depends
on the asset base necessary for production and consumption (resources as factor inputs,
and resources for direct consumption), it follows that the measure of economic perfor
mance that meets this rule is net of capital maintenance.
Currently, gross domestic product (GDP) national income accounts are gross, not net, of
capital maintenance. They treat all income and all expenditure on the same—effectively
cash—basis. Therefore, GDP can be increased by depleting national resources, which
would mean failing to maintain capital assets. A simple example illustrates how this plays
out. Suppose the government decides not to fill in the holes in the road. The costs fall,
Page 11 of 15
and hence the surplus of income over costs goes up. GDP goes up. But at some future
date the state of the roads will require serious attention. Cost will go up and GDP will go
down. The short-term neglect increases GDP and reduces the sustainable growth rate.
This simple example is being played out on a grand scale across the planet. The renew
able and non-renewable capital is being depleted, counted as positive to GDP, but with se
rious long-run detrimental effects. The current generation is having a party at the ex
pense of future generations.
Conclusions
Keynes (1924) once famously remarked, ‘in the long run we are all dead’. Many environ
mentalists think that this may be true not only for the individuals Keynes had in mind, but
also for much of the population. Long-run resource scarcity has been viewed as a check
on population and growth—from Malthus’ on food production to Jevons on coal through to
Hubbert on oil and the Club of Rome on a combination of factors.
It turns out that most, if not all, of these prophets of doom are mistaken in the arena
where they have been looking. There is no serious threat of long-run resource scarcity for
the sorts of non-renewables they primarily focused upon. Not only have the non-renew
able reserves turned out to be much greater for key minerals, but technological progress
has also changed (p. 713) the nature of the constraints. Malthus’ food scarcity has proved
a weak constraint—the seven billion people are now fed and world hunger has not in
creased.
Where long-run resource scarcity matters is elsewhere—with renewable natural capital.

The prospect in this century at current economic growth rates of a sixteen-fold increase
in the world economy (and the associated consumption) does not bode well for the
world’s ecosystems on a business-as-usual basis. Renewables are largely immune from
technological progress, other than by genetic manipulation. Their future bounty is only
unlimited if they are kept above critical thresholds. The current rate of extinction of
species—the key long-run resource—will be a serious limit to growth. But it is not in
evitable. Abiding by the aggregate natural capital rule set out in the chapter is the way to
avoid such an outcome, and ensure economic growth is sustained.
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Notes:
(*) Research contribution by Nevena Vlaykova is gratefully acknowledged. All errors re
main mine.
(1.) See Helm (2015a) for a comprehensive treatment.
(2.) The Brundtland Commission was formally set up in 1984 and published its key report
in 1987 (United Nations, 1987).
(3.) For a more extensive critique of peak oil, see Helm (2011, pp. 68–91).
(4.) For his general approach, see Simon (1981). On the bet, see Ehrlich and Ehrlich
(1998, pp. 100–104).
Page 14 of 15
(5.) The International Energy Agency predicts that the world’s proven coal reserves
would last for approximately 135 years at current production levels, while actual coal re
sources are estimated to be twenty times larger than the known reserves (International
Energy Agency, 2014).
(6.) For a summary of some of the battery options, see Shultz and Armstrong (2014). See
also Helm (2015b, Chapter 11).
(7.) The two rules are formally set out in Helm (2015a, Chapter 4).
(8.) The depletion of non-renewables for the benefit of the current generation is evident
for both these and other assets. See Khan et al. (2014).
Dieter R. Helm
Dieter Helm ([email protected]) is Professor of Economic Policy at the Uni

versity of Oxford, a Fellow of New College, and a Professorial Research Fellow of the
Smith School of Enterprise and the Environment. His main research interests are
utilities, infrastructure, regulation, and the environment, with a focus on the energy,
water, communications, and transport sectors, primarily in the UK and Europe. His
most recent books include The Carbon Crunch: Revised and Updated, Natural Capi
tal: Valuing the Planet, and Burn Out: The Endgame for Fossil Fuels. He is an asso
ciate editor of the Oxford Review of Economic Policy. During 2011, Helm assisted the
European Commission in preparing the Energy Roadmap 2050, serving both as a
special advisor to the European Commissioner for Energy and as Chairman of the Ad
Hoc Advisory Group on the Roadmap. He is Chair of the Natural Capital Committee.
Page 15 of 15
Reconceptualizing Resource Peripheries

Caitlin McElroy
This chapter evaluates how engagement with the periphery in economic geography has
come to intersect with resource geographies. This intersection of resources and the pe
riphery as ‘resource peripheries’ has structured models of economic development that
have had a performative effect on the development strategies of resource-driven
economies. This chapter argues that three emerging trends are challenging this dis
course and there is now a need to reconceptualize our understanding of resource periph
eries. These trends are changes in the resource super-cycle; the increasing exposure of
the periphery to environmental change; and growing expectations of extractive industry-
led development. These new trends illustrate the ways in which resource peripheries are
simultaneously enmeshed in the global economy and well as spaces of distinct vulnerabili
ties and opportunities.
Keywords: resources, development, periphery, economy, resource curse
Introduction
A twelve-hour drive on newly paved roads and dusty dirt tracks brings you from Ulaan
baatar to the booming mining region of the South Gobi Desert. Massive copper, coal, and
gold extraction sites are redefining this arid landscape. The materials are quickly flowing
to China and the revenues hold the promise of re-positioning Mongolia in the global econ
omy. Often synonymous with distant, remote, or ‘out-there’, Mongolia is representative of
the countries where substantial new resource production is taking place. These are coun
tries and regions that have operated on the periphery of the global economy and now, ow
ing to the combined pressures of development and environmental change, are emerging
as ‘new’ resource frontiers. Re-examining these places and our engagement with their re
sources reveals what resources they are bringing to the global market, as well as what re
sources climate change is taking away. This resource dynamic calls for a reconceptualiza
tion of how resource peripheries are understood in economic geography.
Page 1 of 20
Despite modern innovations and growth in the service economy, the environment still
plays a critical role in determining the processes and patterns of economic activity. The
production of extractive resources obtained through mining, oil and gas drilling, and
forestry are some of the most visible examples of this process. Often described as the
foundations of development, these resources provide the raw materials for global growth.
It was an understanding of the relationships and impacts of resource extraction, produc
tion, and distribution that defined global empires and continues, in the power of its actual
materiality, as well as its imagined windfalls (Weszkalnys, 2008), to shape global econom
ic relations. The push to plunder the new periphery is now arguably different from the re
source frontiers of the past. For example, the technology used for resource extraction has
reduced the labour intensity of most extraction processes and opened up new places for
extraction that previously presented physical limitations. The Arctic and the sea floor, in
particular, pose new technical and governance challenges. More imposing yet on this new
frontier is an increasingly global condition of (p. 716) environmental constraint—the very
same confluence of conditions bringing resource extraction to new peripheries is influ
encing the ways this extraction occurs, and altering the approach to resource based de
velopment. Water scarcity, climate change, renewable energy demands, increasing urban
ization, mobility, and even meat consumption not only drive, but also threaten and bound,
resource production in ways never before experienced.
It was over ten years ago that Hayter et al. argued, ‘A truly “global” economic geography
cannot afford to ignore resource peripheries’ (2003, p. 21). In the intervening years there
has been both a global financial crisis and a commodities ‘super-cycle’, and both events
have increased the importance of understanding the role of resource peripheries in the
global economy. The points proposed in this chapter are intended as starting points to re-
examine the assumptions not just of resource peripheries, but to question and learn from
the paths they are building to development and the sustainability of our environmentally
based and determined economy.
This chapter will present how resource peripheries have been conceptualized in econom
ic geography, and what it is about our resource peripheries currently that is different
from previous conceptualizations. Then, the chapter will move on to introduce and dis
cuss three changes that are key in driving the transformations that are requiring our
reconceptualization of resource peripheries. They are: (i) the effects of the rise and fall of
the commodities super-cycle; (ii) the increasing exposure and vulnerability of resource
peripheries to climate change; and (iii) the expectations of extractive industry-led devel
opment. These changes affect resource peripheries in multiple ways creating both oppor
tunities for growth and development, as well as considerable vulnerabilities that affect
the environmental and economic sustainability of these changes.
Page 2 of 20
Geography and Resource Peripheries

Core and Periphery
Resource peripheries are a specific extension of general core-periphery theory. Core and
periphery are used to describe the location, state of development, and influence of states
relative to each other. It refers to the idea of a central or core area of activity serving to
bring together other disparate activities and places. There is often a power dynamic be
tween the core and periphery favouring the core, or even that the power of the core is
contingent on its ability to capture resources from the periphery. It is a concept that is
relative to this chapter as it is applied in traditional economics, economic geography, and
development (Innis, 1930, 1933; Hayter et al., 2003; Krugman, 2011). Each discipline was
trying to explain uneven development, the persistent difference in economic development
between different places (Krugman, 1981; Smith, 1984).
Older research on core–periphery looked at the relationship between nations. It started

with the establishment of global trading firms—such as how the East India Company in
the fifteenth century was based on new networks of trade, rather than production—and
how they started to reorder the global economy (Wallerstein, 1979). This created a global
(p. 717) trading system with nations that were core, semi-peripheral, and peripheral to
trade. Over time this system was carried forward to reflect the degree of industrialization
of the nations participating in this capitalist trade system. Countries that were core were
industrialized, semi-periphery were newly industrializing, and periphery were not indus
trialized (Gereffi, 2005). Such classifications still resonate in terms of developed, develop
ing, and least developed nations. For the resource peripheries we are concerned with in
this chapter, these studies of how and why different spaces participate in the global econ
omy are still critical.
Another factor in the hierarchy of economic development was also a concept of ‘first na
ture’ or the natural resources, climate, and transportation options that define the first
economic potentials of some places. Resource production advantages from these loca
tions were used to explain some uneven development (Ottoviano and Thisse, 2004). How
ever, other aspects of uneven development, and particularly the growth of some non-in
dustrial agglomerations, required further explanation.
Both economic geographers and economists took up this challenge. Within nations the in
terest was to understand the dynamics of regional cores, cities, industrial hubs, and other
forms of agglomeration. Economic geographers sought to understand agglomerations and
uneven development through descriptive and qualitative research (Krugman, 2011). Then
in the early 1990s economists including Fujita (1988), Venables (Fujita et al., 1999), and
Krugman brought the significance of spatiality and geography to mainstream economics.
In 1991 Krugman introduced ‘new economic geography’ in Geography and Trade. Here he
established a new approach to core–periphery in economics. This work focused on the ef
fects of transport costs, economies of scale, and increased manufacturing. He looked to
explain why certain places became cores, and what forces drove this agglomeration
Page 3 of 20
process using more tangible and comparable metrics than economic geographers. Krug
man (2011) sought to model the pull of market size as a ‘centripetal’ force and the pull of
natural resources from dispersed locations as a ‘centrifugal’ force. This work raised con
siderable debate with economic geographers regarding how ‘new’ it was and the limits
and advantages of different methods (Krugman, 2011). However, it did expand the under
standing of geographical significance within economics.
Core–periphery is a broad church theory that has a varied life across the history of eco
nomic development, and the scales of economic activity to which it is applied. It has also
shaped and potentially reaffirmed where research is invested. As Potter (2001, p. 423)
puts it:
… that those who specialize in the core areas, and who deal with what they regard
as the core topics, see work carried out in Anglo Euro-America as theoretically
more demanding and ultimately of greater societal value. In this way, Anglo-Amer
ican geography defines its own disciplinary ‘core’, whilst matters of development
and development geography become part of the ‘periphery’.
Resource peripheries have been defined by the theoretical organizing of core–periphery.

They have also been researched within the biases of being peripheries and therefore of
arguably less dynamism and significance. This chapter highlights how a reconceptualiz
ing of resource peripheries is necessary to challenge the long-standing performative ef
fect of core–periphery theory, and its bias to certain research topics and global locations.
(p. 718) Core–Periphery and Resource Peripheries in Economic Geogra

phy
Core–periphery theory has had a particular relationship with resource peripheries within
economic geography. This relationship has involved interest in uneven development and
agglomerations that drive other disciplines, as well as a specific interest in nature and
the environment. This interest in the environment has had important effects in directing
the attention of economic geographers to and away from resource peripheries at various
points in time.
The early evolving programme of economic geography consistently moved away from a
purposeful incorporation of resource peripheries. Economic geography started this move
away from resources geography in the 1920s as part of the reaction against environmen
tal determinism, and the work that followed from Ellen Churchill Semple (Colby, 1933).
Geographers became wary and critical of the methods and implications of environmental
determinism (Sauer, 1941). As a discipline, geographers moved to examine the opportuni
ties environmental difference created rather than delimited.
During this retreat from environmental determinism, and as a casualty, resource geogra
phy, the work of Canadian geographer Harold Innis was an exception. He wrote exten
sively on resource peripheries in his work on the Canadian ‘staples’ resource economy
(Innis and Drache, 1995). His staples theory described the Canadian political economy of
Page 4 of 20
the 1930s (Innis, 1930, 1933). Staples were the natural resources of timber, furs, fish, and
minerals Canada supplied to Europe in the dynamic of its postcolonial resource economy.
The political and economic relationship between Canada and Europe was entwined in the
perpetuation of Canada as a resource extraction economy. The geographical attributes of
Canada, as well as its population density, bring some contextual specificity to this theory;
however, it applied broadly to many postcolonial resource economies (Innis and Drache,
1995). In this theory the environment, much like labour or capital, is framed as agentive.
In giving the environment this power as an agent, Innis subtly introduced a relationship
between a yet-to-be-formed environmentalism and the economic production and geopoli
tics of resource regions or peripheries. This research defined an early theorization of the
performance of resource economies and their relationships with the larger global econo
my. However, the conceptualization of a resource periphery, and particularly the centrali
ty and agency of the environment, was not revisited for a long-time in economic geogra
phy.
Instead, economic geography came to focus on areas of industry and its labour and capi
tal. Deindustrialization in large American cities was a principle research concern from the
1960s into the 1980s (Scott, 2000). Then as the discipline developed and the power of
labour declined in the late twentieth century, the movement and concentrations of capital
became the dominant interest (Scott, 1992). This focus on capital was biased to the activi
ties of cores—centres of urban growth, trade, and financialization. Resource peripheries,
while a relevant factor to these developments, were largely outside of the frame of analy
sis.
The post-Cold War advance of globalization and acceleration in the speed of capital flow
and accumulation drove global economic change, and refocused economic geography
even more intensely on cores as the growing and diverse urban hubs of a new global eco
nomic system. This growth of cores through globalization created increasingly ‘sticky’
places where agglomerations occurred and the forces of uneven development processes
were particularly (p. 719) visceral (Markusen, 1996; Hayter et al., 2003). By the early
2000s even popular media such as Thomas Friedman’s The World is Flat (2005) were
framing a world with energetic cores and blunted contours of geographical difference.
The significance of the heterogeneity of space was lost to the enthusiasm for the innova
tion produced through the consolidation of the heterogeneity of culture into globalizing
cores.
In contrast, peripheral areas were described as ‘slippery’ (Markusen, 1996) as they are
far away and difficult to research (Potter, 2001). They were considered detached from the
focus of geographers’ studies as much because of their physical locations as for their as
sumed minimal cultural relevance (Potter, 2001). Change, vibrancy, and innovation appar
ently slipped away from the peripheries to global cores. During the Cold War, in ways not
too dissimilar to the structures of colonialism, resource peripheries were captured and
controlled to serve one of the two competing governance and market ideology systems.
The USSR developed resource infrastructures across central and south Asia and the ‘–
Stans’. Europe and North America continued to pull raw materials from both their ‘old
Page 5 of 20
empires’, as well as areas of influence in Latin America and Africa. The end of the Cold
War created opportunities for self-determination for these resource-producing regions.
However, redefining the resource-led relationship with the global economy produced con
flict within these states and from external geopolitical pressures (Le Billion, 2008; Jack
son, 2015). The internal conflicts of cultural identity, indigeneity, and sense of place have
been researched extensively through the work of cultural anthropologists and political
ecologists (Nash, 1993; Bebbington, 2010). It is this later feature of the geopolitical un
certainty of resource peripheries that is re-emerging with new importance owing to envi
ronmental change and continued development. Many of these resource peripheries con
tain some of the world’s largest undeveloped resources. They are also facing the first ef
fects of climate change and the lasting effects of poverty and contested governance. As a
result, rather than a ‘peripheral’ concern, places and networks of resource production are
coming to more significantly influence the dynamics of capital flow, labour power, and the
continuing development of economic cores—the central interests of economic geography.
Core–Periphery Relative to Resource Producer and Consumer Nations
With much of the economic geography research focused on the activities within cores,
economists, development theorists, and anthropologists dominated research on the pe
riphery itself and its relationship with cores. This research has added considerable infor
mation about the contestations between, and individual development of, producer and
consumer nations. One of the most influential discourses about resource peripheries led
by research in economics and development is the resource curse theory. Grounded in the
economics of resource-driven development, Cordon and Neary (1982) developed the eco
nomic model of the Dutch disease. This is a process in which resource-producing coun
tries have a reduced manufacturing sector due to both the increased investment in ex
traction and the changing terms of trade that make exports very expensive. Then, in the
early 1990s, Richard Auty developed what became more formally the theory of the re
source curse or ‘paradox of plenty’ describing the ways mineral-rich economies failed to
achieve or maintain sustainable development (p. 720) (Auty, 1993). Prompting a further
merger of the economic and political development aspects of the resource curse in 1995,
Sachs and Warner (1995) began to publish a series of quantitative economic papers that
evidenced the relative development failure of resource-rich states. These studies cumula
tively created a discourse focused on the challenges of achieving development from re
source wealth (Ross, 1999; Rosser, 2006).
These discourses each address resource economy dynamics in countries and places that
are in some way distinguishable from the mainstream global economy. The colonial and
postcolonial economies of interest to Innis occupy a particular ‘otherness’ partly related
to their resource production. Similarly, the resource-rich countries focused on by the re
source curse, while applicable to the USA, Australia, Canada, and Norway, are mostly de
veloping countries. In particular, it examines those experiencing the negative or resource
curse effects that may be hindering their development. There is arguably a bias in acade
Page 6 of 20
mia towards investigating resource economies as both a stage of development and as oc
curring in places external or periphery to the ‘mainstream’ global economy.
What is sometimes left out of this narrative is the significant changing role of production
networks, competition for international foreign direct investment, or the rise of state-
owned enterprises. The networks involved in the production of mineral resources have
played a considerable role in articulating the ‘peripheralness’ of resource-based
economies (Auty, 1997). These dynamics bring us back to the early core–periphery theo
rizations from global trade systems. In the 1970s, advancing service economies experi
enced declining mineral intensity per percentage of gross domestic product (GDP). Pro
ducing nations sought to improve the capture of declining resource benefits through the
creation of producer cartels and resource nationalization. However, these changes did not
necessarily increase demand for resources or further integrate these producer nations in
to the global economy. The most accessible ores had been exhausted, bulk shipping was
improved, and new discovery of resources in remote regions of Canada and Australia
made up some differences (Auty, 1997). The decolonization of the Global South, and rup
tures from colonial resource networks, did not necessarily improve terms of trade or cap
ture significant benefit to improve additional economic development. Slowly multination
al extractive corporations (MNCs) were reintroduced. In this new wave of international
investment, MNCs were often wary of the stability, potential conflict, and governance of
the countries they were operating within and became prone to create enclave operations
(Auty, 1997). As we will pick up again later, environmental damage and natural capital de
pletion became new issues of contestation.
Other scholars have observed and reacted to this other or ‘peripheralness’ in the way re
source economies are analysed. Some have taken a particular interest in researching
what lies within and makes up this ‘otherness’ of resource economies. Michael Watts has
done extensive studies of conflicts and development surrounding Nigerian oil production
(Watts, 2004). He approaches the governmentality of resource-extraction regions as it is
imposed by the nation state and oil producers, and in the response from those affected by
the extraction process. This approach is specifically attuned to the significance of the lo
cal extraction zone as the frame of interest. Within this local framing the approach is
holistic rather than attuned to one side of the resource binary between resource con
sumption and production. While research such as this plays an important role in under
standing the political economy of resource production, it is bound to the micro-level of
analysis in much the same way the staples trap and resource curse have been tied to
macro interstate comparisons.
(p. 721) Finally, the processes of development and self-determination occurring within
many resource peripheries have been raised to contest the direct relationship between
resource-driven development and a developmental curse (Wright and Czelusta, 2004;
Wick and Bulte, 2006). Despite the often highly sensitive environments of resource pe
ripheries and disproportionate effects of climate change, there are calls for the right to
develop and abuse the environment in much the same way as the global economic hubs
did in the previous century (Rosales, 2008). And further, perhaps the most obvious con
Page 7 of 20
testation that changes the power of these discourses is over the ownership, access to, and
benefits from resources themselves. The struggle for peripheral self-determination has
opened up opportunities for exploitation and fights for control (Bannon and Collier, 2003;
Le Billon, 2008, 2012). It is perhaps the case that in addition to considerations of long-
term development and environmental protection, the currently emerging resource periph
eries have at the forefront of their own concerns the contestation over the rights to the
resources and their benefits.
Exploring the New Emergent Periphery

As the history of resource peripheries in economic geography reveals, certain discourses
in academia, and their enactment in global trade and development policies, have helped
to shape and maintain what makes resource peripheries ‘peripheral’. However, the con
vergence of three particular events—changes in the resource super-cycle; the increasing
exposure of the periphery to environmental change; and expectations of extractive indus
try-led development—presents new vulnerability and opportunities for resource periph
eries. Consideration of these events has the potential to influence how resource periph
eries are conceptualized moving forward.
The Growing Periphery and the Commodities Super-cycle
Taking a step back before describing the significance of the commodities super-cycle for
the re-emergence of resource peripheries, it is important to make a point about the eco
nomic significance of resource peripheries. Resource peripheries are still engines of con
siderable global wealth. For example, resource revenues in 2011 contributed 8.7 per cent
of South Africa’s GDP and 22.5 per cent of Russia’s (World Bank, 2015). Several of the
largest firms in the world are focused on resource production such as Exxon. This Texas
oil firm is the seventh biggest business in the world and competes with Apple for title of
the world’s largest public company. China’s only non-bank in the top-ten biggest business
es in the world is also an energy company, PetroChina. While two more oil businesses
make the top-twenty biggest businesses of 2015—Royal Dutch Shell and Chevron—sever
al of the mining majors such as BHPBilliton and Rio Tinto are not far behind (Forbes,
2015). Each has a market value above US$75 billion, placing them in the top-105 largest
businesses (Forbes, 2015). This scale of global business in the resources sector is not de
clining proportionally to the rise of the alternative sectors. Because of the size and signifi
cance of the resource business, the commodities super-cycle—and related to it the global
financial crisis of 2007—had important effects on resource peripheries.
The commodities super-cycle began in the early 2000s and continued through the
(p. 722)
global financial crisis (Cuddington and Jerret, 2008). Commodities markets are observed
to operate in cycles of growth and decline, or, if you will, periods of boom and bust that
affect the whole of the industry. During a boom the prices for commodities rise, as does
long-term investment in extractive infrastructures. The boom of the 2000s was especially
strong for prices and investments in the metals and minerals industry. Commodity cycles
Page 8 of 20
are generally marked by an upswing of ten to thirty-five years and in twenty to seventy
years have completed their full cycle (Erten and Ocampo, 2012). The demand for re
sources is driven by major developing countries for inputs to industrial production and ur
ban development. The commodities boom of the 2000s was primarily driven by the rapid
growth of China.
The boom of the commodities markets in the 2000s was unprecedented in its growth both
because of how much growth, or how high the boom of the cycle went, and in its duration
(Erten and Ocampo, 2013). The persistence of this cycle through the financial crisis led to
an atmosphere of investment and producer optimism that did not seem to indicate a be
lief that this cycle would end. Rather it came to seem like a new normal for global devel
opment and the commodity sector’s role in economic growth (Radetzki, 2013). The under
standing of and belief in the commodity cycle are important because of how they influ
ence other economic decision-making. Commodity prices are central to policy develop
ment in resource-dependent countries. Estimates of the duration of the cycle influence in
vestment decisions to increase capacity. Further, commodities cycles are tied to global fi
nancial health as portfolio managers use commodities to hedge investments in other sec
tors (Erten and Ocampo, 2012).
Understanding and trying to predict commodity super-cycles has enchanted generations

of economists throughout the twentieth century. The pattern and consequences of nation
al economic growth in resource-consuming nations on commodity prices, and the related
growth opportunities in resource-producing nations, is the complex advancement of early
global systems of trade started in the fifteenth century that established core–periphery
dynamics. Concentration on commodity cycles started with Schumpeter in 1939, who in
troduced cycles as waves of variable durations. These were based on his ideas regarding
creative destruction and different stages of economic development experienced simulta
neously by different trading nations. Following from this was influential work from
Kuznets (1940) and then the Prebish–Singer hypothesis (Singer, 1950, 1998; Prebish,
1950). These waves or cycles have structured expectations for the duration of these
booms. Such cycles indicated that the boom of the 2000s would only be as strong as
growth in China or China’s ability to separate itself from the industrial world and its slow
growth (Erten and Ocampo, 2012).
At an even larger scale throughout the course of this boom, the geopolitics of resource se
curity has changed. The end of the Cold War and the rise of the War on Terror has
changed not only the sites of political resource significance, but made the strategy of se
curing new markets occur through cooperative governance and civil development instead
of through resource-providing state partnerships as was done in the Cold War years. This
strategy has been seen not only by western MNCs, but also by China. Especially in Africa,
Chinese resource peripheries have been new places of influence and inclusion in the larg
er Chinese economic system (Mohan and Lampert, 2013). Even in the absence of the jobs
and total windfall expected of resource production (Weszkalnys, 2008), new infrastruc
ture and transport are transforming small bits of African resource economies’ landscapes.
The overwhelming demand from China brought exploration and investment to new
Page 9 of 20
places, opening (p. 723) up new resource peripheries. Beyond Africa and the central Asian
states these places include the Arctic Ocean and its peripheral nations such as Green
land. Chinese exploration has even led to the ocean floor, where they have purchased sea-
mount claims (Petersen et al., 2016). The shared governance of these places is now test
ed. These new peripheries present challenges for global economic power balances, and as
we will see in the next section, challenges to Earth’s environmental limits.
For other countries like Mongolia, balancing China’s hunger for resources, as well as par
ticipation in free-market capitalist democracy, has been difficult. They have exchanged
the role of communist supply-state to Russia for the global economic dominance of China.
Nearly 80 per cent of Mongolia’s exports go to China, and several of its coal mines are
less than 100 miles from the Chinese border. The fervent Mongolian push for expanded
market options and partial ownership of the largest mines in country are part of trying to
escape this dynamic, and its similarity to the captive role of a resource staple periphery
as described long ago by Innis (Jackson, 2015).
It is now clear in 2016 that the super-cycle did reach its limit, as Chinese growth slowed
and demand for raw materials weakened. This has brought on the collapse of the price of
iron ore from a high of over US$100 a tonne in May 2014 to a low of US$50 in April of
2015 (Statista, 2015). This collapse is also visible in the oil price since late 2014 (Baffes
et al., 2015). The collapse of this boom has led to an inequality of busts. The boom prices
were also raised owing to supply-side constraints, such as overall resource scarcity and
lower ore grades (Erten and Ocampo, 2012). Significant investment capacity is necessary
to extract these ores. Peripheries that benefited from these investments in time will ride
out the downturn differently through a low level of ongoing production to service these
debts. These downturn inequalities will continue to shape the resource periphery nearly
as much as the boom-time growth.
The Peripheral as Vulnerable: Environmental Change
The increasing consideration of, and in effect agency of, the environment has grown with
the significance of environmental change in the twenty-first century. Emerging resource
peripheries are connected to other spaces and global governance through the environ
ment in ways that were unthinkable before the 1970s and for Innis in the 1930s. While
the flight from environmental determinism pushed geographers from resource periph
eries, it is a new form of environmental determinism in environmental change, fragility,
and borderlessness that now pulls geographers back.
As we have seen, scarcity of resources is driving exploration and development to new re
source peripheries. Scarcity and damage to other essential resources such as clean wa
ter, fresh air, and productive agricultural lands is changing the way resource extraction is
accepted and conducted. For example, in Mongolia, the majority of new mining develop
ments are taking place in the arid South Gobi desert. The burden of water use for the in
dustry is enormous compared with the traditional use by herders. Many mines have
drilled boreholes to tap un-potable aquifer water and there is great concern and uncer
Page 10 of 20
tainty over the long-term supply of water and the ability of the aquifers to support further
industrial development (Sternberg, 2013; IFC, 2015). In some sense, water has become
nearly as valuable a strategic commodity as any of the minerals in the ground. Not only
will it perhaps limit (p. 724) the development of industry and future livelihoods in the re
gion, but it is also a geopolitical concern. Mongolia captures little of the rainwater and
snows it receives, and its rivers and mountains feed much of central Asia. Among options
to increase the availability of water for industry have been ideas to capture more of this
water within Mongolia and therefore reduce the availability of this water downstream.
The suggestion of ideas such as this has quickly raised the concern and ire of affected
neighbours (Jackson, 2015).
As resource extraction moves to more remote areas, it is more frequently in regions with
water security concerns. This includes arid areas, as well as areas with communities de
pendent on fragile water supplies for their livelihoods. Resource development of all kinds
from agricultural, to energy, and mineral production is now confronted by increasing wa
ter insecurity. Mining, in particular, has seen an increase in local conflict and interven
tions from powerful international non-governmental organizations (NGOs) related to wa
ter use. Different from contestation over economic benefit and wealth distribution, ir
reparable damage to the environment as a result of resource extraction has a new ur
gency. Work has been stopped or delayed as a result of community protest over water
contamination around the world and notably in South America. For example, Minera
Yanacocha plc in Peru has suspended the exploration of additional mining areas as a re
sult of community water security concerns (ICMM, 2015). Similarly, production was
stopped in Witbank South Africa owing to concerns over water contamination, even if not
directly related to mine use (ICMM, 2015). The power of local actors to stop mining, and
the responsibility of ‘core’-based extraction firms to achieve a Social Licence to Operate,
has never been higher (Prno, 2013). The rise of international watchdog NGOs has made a
difference in granting the environment agency that applies equally in economic cores and
peripheries.
More interesting for our understanding of the ways resource peripheries are changing is
the rise of local environmental resistance and NGOs. They have moved resource conflict
from infighting for control of rents (Le Billon, 2012) to resistance to external and foreign
intervention. While global NGOs have considerable global mobility to travel to and ac
quire knowledge about resource peripheries to challenge MNC networks and local bases
(Soyez, 2002), there is new subtle wariness of the role of these NGOs. In some ways simi
lar to resource nationalism and the rejection of international MNCs, international NGOs
bring with them a similar elite power at a distance. In response, the acceptance and use
of these NGOs has become more strategic, and a greater number of smaller local NGOs
are emerging. The role and power of international environmental NGOs is different in
these emerging peripheries than it has been in the past. Contributing reasons for this in
clude both the experiences of other resource peripheries, the longer contested history of
governance interfering in foreign formal and soft governance in resource peripheries, and
Page 11 of 20
the more direct link between new resource extraction and specific development objec
tives.
There are now at least two notable examples of major mining projects that have been cur
tailed because of their potential for environmental damage. One, the Pascua Lama
project, was planned for high in the Andes on the border of Chile and Argentina by Bar
rick Gold. To conduct this project a portion of a glacier would be destroyed. Local and in
ternational protest was so extensive and organized that Barrick Gold eventually stopped
pursuing the project (Li, 2016). Similarly, the Pebble Project in southern Alaska was ar
guably the largest new copper and gold deposit yet to be developed. The site was situated
in the headwaters of the Alaskan sockeye salmon fishing industry. This multibillion dollar
industry is contingent on the environmental sustainability of the fishery and is the prima
ry source of income for the (p. 725) communities including the indigenous Alaskans. Advo
cacy from locally formed and international NGOs, and pressure on the environmental im
pact assessment and approvals process, slowed and delayed the project. Eventually, the
invested firms abandoned the pursuit of the project and gifted the shares of the project to
local organizations (Urkidi, 2010; Restino, 2014). In both instances an internationally rec
ognized sustainable environmental asset won priority over resource extraction. The abili
ty to overcome MNC-driven extraction projects now stands as an example to all resource
peripheries.
Water is one among many environmental issues such as biodiversity loss, dust pollution,
and potential for other contamination that affect the operational level of extractive
projects. However, the uses of the resources extracted, such as coal, are also a serious
environmental problem making its way back to the sites of production in the form of cli
mate change. Coal-producing countries such as Mongolia experience the direct smog and
pollution effects of burning coal, as well as some of the first consequences of global cli
mate change (Sternberg, 2013). Mongolians, like many in resource peripheries, are stuck
in a difficult position between environmental leadership and what many see as fast-track
resource-driven development. This debate between climate change and development has
changed local, national, and international perceptions of resource use and extraction. It
poses the potential for the latest emerging resource periphery countries to be the first to
redefine or step away from certain aspects of resource production in the name of climate
change—a potentially new political power.
The Peripheral as Opportunity: Resource-led

Development
In contrast to the increasing narrative of environmental vulnerability of resource periph
eries, a narrative of opportunity from resource-led development persists. It has recently
been woven together in two parts. The combination of local empowerment for self-gover
nance and rise of the social licence to operate has fuelled belief that the resource curse
can be ‘beat’. Secondly, the global financial crisis reaffirmed the value of tangible assets,
Page 12 of 20
while at the same time increasing the power and size of the secondary markets, or finan
cialization of, the commodities business.
The emerging peripheral regions are engaging with global capital and political power on
two new levels. At the national level, the state is taking an active role in resource owner
ship and production. And, locally, different community groups, especially aboriginal and
first peoples, have a greater voice for their own rights (De La Cadena, 2010). For exam
ple, the Mongolian government has designated several of the largest mineral deposits in
the country as of strategic interest to the nation state. Once a deposit is designated as
strategic, the government has the option to have ownership of the site up to 34 per cent.
The government has acted on this right and taken the full stake in the Oyu Tolgoi mine.
This ownership not only has the potential to provide the country greater revenues from
the site, but also requires them to play a larger role in decision-making and capital invest
ment. Unlike resource nationalism and the creation of state-owned and state-run corpora
tions, this model draws heavily on the financial and knowledge resources of MNCs while
attempting to (p. 726) maintain both the benefits of the owner/operator and receiving
rents and royalties. Few new resource-periphery countries would be unaware of the risks
of the ‘resource curse’, and the stigma of institutional weakness and government corrup
tion it indicates, if there is a failure to achieve development from resource wealth. Conse
quently, new ownership schemes such as in Mongolia look to provide some security
against these outcomes.
For local communities, the question of resource wealth for what development or for
whom has become very significant. As the communities most affected by mine operations,
these communities are more aware of their right to particular compensations and bene
fits. Often, these financial flows are negotiated directly with the operating corporations
and through negotiations for investments from this wealth from the national government.
The map of financial flows because of this activism is looking increasingly different in
emerging resource peripheries. A key force behind this power to get access to these fi
nancial flows is the increased recognition of the long-term costs to local communities for
environmental damage (Owen and Kemp, 2013). In effect, the rise of global environmen
tal activism and environmental constraints has opened new financial pathways from re
source extraction to local development.
In relation to the growing strength of local protest and social licence to operate, corpora
tions are cautious of taking on governance-like roles (Bebbington, 2010). The more limit
ed labour demands of most new mines provide few jobs for local people. Most employees
are fly-in-fly-out experts (Storey, 2001). Therefore, the work to contribute to development
has become more complicated and integrated with national and local government capaci
ty building. The power of these firms in the areas in which they operate is purposely re
duced in terms of local governance and service provision. Historically, mining firms creat
ed paternalistic governance pockets within emerging peripheries. Current activities un
der the banner of community relations and corporate social responsibility struggle to find
the balance between providing the additional services expected of local communities, and
efficiency in enabling operations and community relations, without compromising the
Page 13 of 20
ability for these governance capacities to develop within the resource periphery (Beb
bington, 2010).
The second feature reinforcing the persistence of opportunity in resource peripheries is

the reaction from the global financial crisis of 2007–08. The excessive risk taking in sec
ondary markets and overly complex financial products undermined confidence in the fi
nancial industry (Crotty, 2009). In turn, this created many reactive responses by in
vestors, including a flight from intangible financial products and a return to the concrete
ness of commodities and other resources (Silvennoinen and Thorp, 2013). Outside the cri
sis epicentre in Anglo-America and Europe, several emerging economies, including Chi
na, were experiencing relatively strong economic growth in the years following the crisis
(Overholt, 2010). A critical input to their growth included both the production and con
sumption of the raw materials necessary to build energy infrastructure, new manufactur
ing centres for textiles to the latest gadgets, and transportation. For example, the import
of raw materials by China was 37 per cent of the world’s in 2012, dwarfing the import of
these materials by the European Union, the next largest importer at 13.6 per cent of
world imports (Eurostat, 2015). Further driving investment to commodities and resource
peripheries was the scrutiny of management and new regulations that tightened the mar
ket in post-crisis countries. This created a further contrast between the speed and oppor
tunities to do business in some emerging economies and some countries at the heart of
the financial crisis.
The peak of the commodities super-cycle was aligned with the peak of increasing
(p. 727)
financialization of the mining industry. A prominent example of this is the merger of two
large mining firms: Glencore and Xstrata. Unlike the past mega-mergers of the mining
sector, this merger brought the financial and trading business of Glencore together with
the new acquisition-driven management style of Xstrata. Essentially, different stages of
the mining and market process were purposely becoming integrated (Aversano and Rit
satos, 2014). Where there was previously a focus of one part of the industry on the indus
trial operations of mining and another on the trading and sales of the commodities, these
were brought closer together. This change again adjusted the global relationship between
core and periphery countries.
Conclusion
Framed through the history of economic geography’s engagement with resources and re
source peripheries, the key difference of the peripheral spaces that are now emerging as
a result of resource production is the expansion of resource development into a wide
range of new peripheries, the significance of global environmental constraint and change,
and the persistent and evolving purchase of the opportunity for resource-led develop
ment. This chapter has tried to illustrate and note some of the changes to resource pe
ripheries resulting from these events. The growth of peripheries into new semi-national,
yet uninhabited, spaces such as the Arctic and the deep-sea floor, calls for new approach
es to the collaborative governance of these places. The growth of China that has fuelled
Page 14 of 20
much of the last commodity boom has created a new powerful resource drawing and ag
glomerating core. With this China-centred core and periphery system, its practices and
processes are slightly different and worthy of significant research. Balancing these dri
vers to reframe the scale of our understanding of resource peripheries are new environ
mental concerns that question the long-term value and legitimacy of extractive activities.
Sustainable livelihoods contingent on the protection of water and biodiversity have as
sumed a new political power—a power that has finally taken local roots to connect to the
buzzing discourse within affluent cores. The choice to not participate in the resource pe
riphery dynamic has shown glimmers of possibility in a few cases. Further, the challenges
of climate change unite the historical exploits of industrial development against the cur
rent ambitions of resource peripheries for similar prosperity. Resource peripheries are
frequently the first spaces affected by climate change and are faced with finding both the
leadership and opportunities to pursue non-resource-driven development pathways. And
it is the allure of successfully walking this tightrope between opportunities for develop
ment and possible corruption, economic inequalities, and environmental destruction that
continues to fuel optimism for resource wealth.
These events together present a strong case that the time has come to reconceptualize
resource peripheries within economic geography. The core-periphery dynamic for re
source peripheries must now grapple with newly significant tensions. Further research
should explore how peripheries are simultaneously gaining political power, while becom
ing more distanced from the resource development processes, all as they become more
technologically sophisticated in operations and in their financial networks. Innovations at
the international level of structuring resource peripheries must also be explored, as they
are used in (p. 728) the daily lives of resource-producing communities. The competing nar
ratives of resource peripheries as places of hope or horror each have the power to be per
formative and shape future decisions. Economic geographers should take some responsi
bility in reconceptualizing resource peripheries, as the stakes for global development,
equality, and environmental protection have rarely been higher.
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Caitlin McElroy
Caitlin A. McElroy ([email protected]) is a Departmental Re

search Lecturer at the School of Geography and the Environment and the Smith
School of Enterprise and the Environment, University of Oxford. The focus of her re
search has revolved around the institutional dynamics of private-sector investment in
development. This has included researching the interactions between the mining in
dustry, environment, and development. This has led to a range of projects and part
nerships that address critical issues, such as improving the sustainability and devel
opment of resource-driven economies and the creation of tools to assist corporations
in the management of their environmental and social risks and opportunities. Fur
ther, it has led to her current work to build a research programme titled ‘Sharing Re
source Prosperity’, which continues to research environmental and social sustainabil
ity related to the extractive sector. Also, she is involved in researching environmental
impact investing in the USA and UK. She has published several papers on the gover
nance of extractive industries’ investments for development, and is co-editing a book
titled Food, Energy, and Water Sustainability: Emergent Governance Strategies.
Page 20 of 20
Outside Regional Paths: Constructing an Economic Geography of Energy
Transitions
Outside Regional Paths: Constructing an Economic Ge

ography of Energy Transitions
Susan Christopherson
Moving beyond theories of socio-technical adaptation, a new economic geography of en

ergy transitions is developing that contributes to a deeper understanding of adaptation
and change in energy systems. This new geography of energy transitions draws on con
cepts in evolutionary economic geography but moves beyond regional analysis to recog
nize the nation state as a critical venue for strategic action by firms. The dependence on
the nation state for access to the resource; financing of exploration and production;
favourable regulatory oversight; and the infrastructure to transport the commodity to
profitable markets, make it the essential venue for strategic action. Drawing on the US
case of shale gas and oil extraction, this chapter argues that, despite the emergence of
global production networks in the oil and gas industry, national-scale governance remains
central to understanding energy transitions.
Keywords: energy transitions, path dependence, US shale development
Introduction: The Intersection of Evolutionary

and Energy Geographies
PERHAPS the most influential framework for understanding change over time in energy
economies (production, transportation, markets, and use patterns) builds on the concept
of socio-technical transitions and, within that, of sustainability transitions (Farla et al.,
2012; Garud and Gehman, 2012; Markard et al., 2012; Raven et al., 2012).
In this conceptual framework, the processes behind the transformation of patterns of en
ergy use are social and technical: ‘social’ in that they depend on change in individual be
haviour and the adoption of new social norms regarding energy use, and ‘technical’ in re
quiring the adoption of new technologies for energy production and distribution. Poten
tially disruptive technologies coexist as niche technologies along with dominant technolo
gies. By this way of thinking, wind power and solar power exist as niche technologies in a
Page 1 of 17
Transitions
fossil fuel-dominated global energy system. A socio-technical transition will occur when
the niche technology becomes dominant because of changes in behaviour and norms, and
possibly as a consequence of government policy to support the adoption of the niche tech
nology (Foxon, 2011).
Energy geographers have approached the question of change over time in energy sys
tems from a different perspective because of their concern for the role of space and place
in the way energy transitions are formulated and ‘roll out’ over time (Bridge, 2008; Brad
shaw, 2010, 2014; Coenen et al., 2012; Essletzbichler, 2012; Bridge et al., 2013; Patchell
and Hayter, 2013). In this respect, a critical question facing energy geographers—the
processes behind change in energy economies—is close to that drawing the attention of
evolutionary (p. 733) economic geographers, that of path dependence. Path dependence
refers to the ways in which previous decisions shape or constrain contemporary deci
sions. Economic geographers have made substantial contributions to the conceptual
frameworks explaining change in economic systems by analysing its spatial dimensions
(Boschma and Frenken, 2007; Boschma and Martin, 2010). One contribution emerged
from the recognition of the role of ‘sunk costs’, and how their spatial logic is reflected in
corporate strategies (Clark and Wrigley, 1995). Another contribution has come from theo
retical and empirical work demonstrating that path dependence is place-dependent, tied
to place-based knowledge, experience, and socio-political relations (Clark et al., 2001;
Martin and Sunley, 2006; Martin, 2012).
The concept of ‘energy transitions’ is also concerned with how previous decisions influ
ence future alternatives, describing path-dependent influences on the process of change
to new energy systems, and persistence in the use of existing energy systems. An under
standing of economic and energy change as rooted in decisions made in place and space
challenges the socio-technical innovation or adaptive efficiency approaches that posit a
placeless world of punctuated equilibrium and timeless logical choices between more effi
cient and less efficient alternatives.1
Similar to evolutionary economic geography, the field of energy geography faces theoreti
cal problems in formulating sources of change and persistence (MacKinnon et al., 2009;
Martin, 2010). Their challenge echoes that set out by Martin and Sunley (2006, p. 397):
… the task is not just about applying evolutionary thinking and concepts to eco
nomic geography, difficult enough though that challenge is: it is also about explor
ing and explicating how geography—the role of place and space—influences the
process of economic evolution itself, and thereby how economic geography can
make a contribution to the development of evolutionary economic thinking and the
concepts it employs.
This chapter examines some important features of the economic geography of fossil fuel
production and distribution, utilizing examples from US shale oil and gas development,
the product of a recent technological innovation: high-volume hydraulic fracturing of
shale formations. The goal is to examine the role of space and time in processes of
Page 2 of 17
Transitions
change, a focus common to both evolutionary economic geography and energy geogra
phies (Calvert, 2016), and how the perspectives of those fields can inform one another.
How Geography Matters

A close look at their common critical questions, focused on processes in space and time,
indicates several potential contributions to Martin and Sunley’s (2006) project of under
standing how geography enters into processes of economic evolution. Firstly, an analysis
of energy resource transitions demonstrates that change may need to occur at a different
scale than that at which a path-breaking technological innovation is implemented. Se
condly, it suggests why actors within regions (in this case, extraction regions) may have
little impact on the processes of change if those processes are rooted in firm strategies
and governance regimes emanating from outside the region. Thirdly, the persistent im
portance of the nation (p. 734) state to the profit strategies of fossil fuel energy firms is a
reminder that different spatial scales continue to ‘matter’ in economic geography, espe
cially in analysing the processes of path dependence (Dicken, 2015; Kok, 2016). Finally, it
demonstrates how the material properties of a resource commodity (in this case, its rela
tively undifferentiated nature at extraction, and the fact that it can be obtained only in
certain locations) influence the geography of firm market and non-market strategies with
respect to capital accumulation (Levy and Kolk, 2002; Bridge, 2009).
For the field of energy transitions, this examination of how nation state governance con
structs paths to investment returns, or eliminates the risks that are intrinsic to a highly
speculative industry, illuminates sources of change and of continuity (including sources of
‘lock-in’) that lie outside regional paths. Specifically, it illustrates that a focus on either
the extraction location or the global production network alone is insufficient, and may
lead us astray in our attempts to understand persistence and change in energy systems.
We also need to understand the role of, and locus of, the governance infrastructure re
quired for energy resource development.
A Particular Economic Geography

Shale development is expressed in a particular economic geography, and, superficially,
this geography appears to be the product of a technological change that has opened new
spaces of potential extraction—new shale ‘plays’. However, underlying the emergent ge
ography of shale gas and oil production is a more enduring economic geography. It is
rooted in the sunk costs of a powerful global firm network—in political ties and technical
knowledge, in mineral reserve investments, and in pipelines, rail lines, refineries, and
other infrastructure—that enables oil and gas firms to achieve super profits in a risky,
capital-intensive industry. Within this persistent geography, the territorial ‘place’ most im
portant to oil and gas firm profitability is not the economic region, but the nation state.2
The pre-eminent and persistent role of national governance is based on the fixity of the oil
and gas resource, its economic and political value to national governments, and the ex
Page 3 of 17
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tensive physical infrastructure needed to move oil and gas to markets. Although relation
ships between oil exploration and production firms and nation states have changed over
time, and a global production network led by oil-field service firms has emerged, national
interests and capacities remain central features of the global fossil fuel energy system. It
is at this scale that we see ‘lock-in’: a global fossil fuel economy maintained through both
national political alliances and continual active intervention by a network of global firms
that foster and cement those alliances in the interest of maintaining their profit position.
Although the national scale of governance has been downplayed in the recent literature
on the rise of the region in the global economy (Farole et al., 2011; Storper, 2011) and
that on global production chains (Coe and Yeung, 2015), it remains critical to understand
ing resource industries, and particularly oil and gas industry production and distribution
(Auty, 2001; Bridge, 2014; Dicken, 2015). In the contemporary world, where oil and gas
extraction is risky, difficult, and expensive, firms are ever-more dependent on what Dick
en has described as two major functions of the nation state—infrastructure provision and
favourable regulatory policy:
(p. 735)
TNCs [transnational corporations] need states to provide the infrastructural basis

for their continual existence: both physical infrastructure in the form of the built
environment and also social infrastructure in the form of legal protection of pri
vate property. . … (2015, p. 223).
The importance of national policy and investment is both direct (e.g. regulation of
pipeline construction or energy tax policy) and indirect (e.g. air-quality regulations or
trade policies that may affect energy commodities). In the case presented in this chapter
—that of the so-called ‘path-breaking’ shale development in the USA—policies governing
national financial markets have also been crucial in making a very expensive, risky new
technology economically feasible, at least for a time.
In the exploration and extraction phase, oil and gas companies need to locate where the
resource resides and then deal with the regulatory policy and infrastructure in that loca
tion. But, as will be demonstrated in what follows, the resource is not typically contained
within an already established sub-national jurisdiction. If the geographical boundaries of
a resource ‘play’ do not coincide with sub-national legal jurisdictions, oil and gas firms
must move up scale to the nation state to obtain the infrastructure, regulatory permis
sions, and social licence they need to exploit the resource, get it to global markets, and
realize its potential profitability.
Indeed, with the exception of the headquarters ‘agglomerations’ in Harris County, Texas,
USA or Aberdeen, Scotland (MacKinnon et al., 2004), the economic region as a geograph
ical ‘place’ is a secondary consideration for the oil and gas industry. Oil and gas company
decisions, even those of ‘operating’ companies in the extraction area, are determined by
governance and corporate interventions from outside the extraction region.
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It is striking that the oil and gas production and distribution industry remains rooted in
national territories, even in an era of global networks (Christopherson and Clark 2007; de
Graaff, 2011, 2012; Coe and Yeung, 2015). By contrast with conventional notions of the
transnational corporation as strategically ‘footloose’, oil and gas industry firms remain
tied to national spaces because of the political and economic resources instituted by
those ties. This is particularly true of nationalized oil and gas resources, such as those in
Venezuela, China, and, to some extent, The Russian Federation. But national interdepen
dence is also characteristic of major private oil and gas companies, such as Exxon or BP,
because of their need for the political, economic, and regulatory resources of the state
(de Graaff, 2011, 2012; Bradshaw, 2014; Coll, 2012; Dicken, 2015). These resources pro
vide the global oil and gas company not only with the opportunity to extract and profit
from the resource itself, but also with financial tools and fiscal and regulatory policies
that enable it to weather the boom–bust cycles inherent to resource industries. The abili
ty of US oil and gas firms to defer tax payments over long periods, taking tax write-offs
during periods of low profitability, is only one example of the industry’s ability to use na
tional policy to address risk and volatility.
So, in the case of shale development in the US, national-scale financial market gover
nance and regulatory conditions were critical to the speed of shale development, as dis
cussed in the following sections.
In the next section, the processes operating on the ‘extraction play’ and its regional con
text are counter-posed with taken-for-granted ideas about inward investment and region
al economic development. This difference is best illustrated by reference to the concept
of the ‘resource curse’ as it is manifested in shale gas and oil development regions.
Rather than increasing capacity for economic development, the integration of shale in
vestment spaces (p. 736) into the global oil commodity production chain depletes regional
economic development capacity.
Finally, the case of shale development in the US is used to illuminate some key ways in
which national governance created a framework for change in the fossil fuel regime, en
abling US operating companies to move rapidly to exploit this risky and expensive fossil
fuel.
Differentiating the Subsurface ‘Play’ from the

Surface ‘Region’
The development of fossil fuel energy resources is viewed by key actors, especially the oil
and gas industry, in spatial frames that have little relationship to economic regions above
ground. The development of shale oil and gas in the USA, for example, is discussed with
reference to two geographies.
The primary geography is the shale ‘play’. The ‘play’ refers to a subterranean geological
formation within which shale gas and/or oil are expected to be found, and, by extension,
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the surface territory above it that has been targeted for investment. The term ‘play’ also
implies the speculative nature of exploration and drilling (Energy Information Administra
tion, 2015). On shale maps of the USA, shale plays are large ink-blot territories, some
times with graduated colouring to indicate relative investment potential and profitability
(Energy Information Administration, 2015). The most potentially profitable sites are de
scribed as ‘sweet spots’ or ‘fairways’. Surface features, including cities, nature reserves,
watersheds, and historically important landscapes are invisible, as are potentially con
flicting uses of the land under which the shale resources lie (Elden, 2013). For example,
Rahm (2011) describes the territory of shale-gas development in the USA in terms of
shale ‘plays’—subsurface areas within which shale development may be carried out prof
itably using the available technology—and simply identifies the states within which the
plays are located; for example, Texas has five shale plays.
To the oil and gas industry, ‘the play’—a concept evoking both geophysical characteristics
and profit potential—is the only relevant geography, an area (both horizontal and vertical)
in which investment takes place. Disregard for surface features of the extraction land
scape is illustrated by some models of potential shale development that plot wells per
acre uniformly across the region, without regard to surface features, housing, public fa
cilities, or already developed industries there (Weinstein and Clower, 2009; Christopher
son and Rightor, 2012). Surface population concentrations or the existing economic activ
ity of regions within shale plays are secondary, if not extraneous, to perceptions of ‘the
play’. Instead, the ‘local’ scale within a play is that of the extraction site, the well, and the
profit potential of a shale play is measured in optimum number of wells per acre and their
potential productivity, with little regard for what exists on the surface landscape, whether
cities or wilderness. Because the spatial frame for shale gas and oil extraction is not the
surface economic region but the subsurface ‘play’, consideration of regional externalities
are typically disconnected from the extraction process. These include impacts on housing
prices, retail services, traffic congestion, other industries (particularly tourism and agri
culture), and crime rates (Christopherson and Rightor, 2015).
The second geography relevant to development of this energy resource is that of

(p. 737)
whatever political jurisdiction governs extraction and distribution. In the UK and through
out much of the world, this is exclusively the nation state. In the USA, it is a combination
of the national government and sub-national states, which regulate different aspects of
the energy development process. For example, permission to extract is regulated at the
state level, except on federal lands. However, the infrastructure required to transport oil
or gas—by pipeline, rail, barge, tanker, or truck—is governed at the national level. Na
tional regulation also governs critical environmental arenas, such as groundwater, sur
face water, and air quality, that may be affected by the extraction process. Notably, local
or regional jurisdictions have been excluded from this governance regime in the USA.
This has been based on a rationale that shale development occurs across local and re
gional jurisdictional boundaries (Christopherson and Rightor, 2015; Finkel, 2015), and al
lowing local or regional regulation may impede the benefit to (and profit from) national
and global markets lying outside the extraction region.
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Transitions
By contrast, the public debate over shale development in the USA has been focused al
most exclusively on the extraction site and adjacent community, expressing both the fears
of environmental hazard and the promise of economic benefit. Yet, the economic region
within which the extraction site lies is a geography that is only peripherally relevant to in
dustry decision-making or policymaker concern.
Meanwhile, the national scale has been under-examined in accounts of the shale revolu
tion, despite its central role in facilitating the industry’s supply chain or moving its com
modity to market (Christopherson, 2015).
The Play as a Complex Investment Space

The concept of the shale extraction area as an investment ‘play’ affects the time frame
and spaces of the resource development process, and how oil and gas industry firms think
about creating a profit strategy (Kok, 2016). For example, because by definition shale
plays are arenas for speculative investment, shale operators and their investors may pur
chase significant amounts of land on the surface of the play. These land holdings, as well
as leased subsurface mineral rights, provide an additional form of investment to comple
ment actual production of oil and gas, and ‘flipping’ real estate and mineral rights hold
ings—selling them for more than the purchase price—has become an accepted dimension
of shale oil and gas investment. Indeed, the ability to purchase and trade in land and min
eral rights for subsurface assets was central to many firms’ profitability strategies during
the initial phase of US shale development, between approximately 2009 and 2013.
Such non-extraction-based investment strategies may be time constrained, and produce

unexpected consequences. For example, because mineral rights leases usually specify
that the lease becomes void unless drilling and extraction take place within a specified
time period, maintaining control of the value of those mineral rights requires shale opera
tors to pursue a ‘drill-and-hold’ strategy. Even the development of a single well on each
leased parcel, intended to secure those contracts, can produce a drilling boom big
enough to glut the market and suppress the price of gas or oil. This dimension of develop
ment has become more visible in the US shale ‘revolution’ since 2013:
(p. 738)
Firms that made billions in the early stage of the boom by buying exploration
rights for gas fields and then flipping them are increasingly forced to move into
the more costly business of extracting oil, natural gas and gas liquids like propane
and butane, after increased supply depressed prices for dry gas (Carey, 2014).
The first phase of development, that of reaping returns from the potential of reserves, is
one in which a minimal government role can enhance the speed and volume of private re
turns on investment. Once those investment strategies run their course and extraction be
comes a reality, however, national and regional government support become essential to
investment returns. Access to surface storage and transportation infrastructure—gather
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Transitions
ing lines, pipelines, pumping or compressor stations, roads, and rail links—become criti
cal to supplying the drilling operations and moving the commodity to markets where it
can achieve sufficient profits to justify the expensive, capital-intensive, and speculative in
vestments at the well site.
Thus, favourable national regulation—of financial markets, enabling rapid returns from
investment in reserves, and in infrastructure, to move the commodity to markets or hold
it awaiting higher prices—creates the context within which oil and gas firms can achieve
profits, even in this high-risk enterprise.
While the surface economic region is secondary to the space in which economic invest
ment in fossil fuels is conducted, this does not mean the surface region is irrelevant to oil
and gas firms. What ‘secondary’ does mean is that the time frame and spatial frame for
investment based on a resource below the surface are fundamentally disconnected from
regional development on the surface. The presence of an urban economy, or an agricul
tural economy, or tourism-related activities above the shale ‘play’ is insignificant to the in
vestment decision. This is the source of the resource curse that has historically plagued
resource extraction regions.
The ‘Resource Curse’ Revisited

The disconnect between how oil and gas firms decide where to invest (which lies in spec
ulative investment and in the need to transport the subsurface resource to global mar
kets), and the economic fate of extraction regions, is reflected in a literature that de
scribes the extraction region as a ‘sacrifice’ zone or a ‘victim’ of extraction, and in the lit
erature on the ‘resource curse’ (Humphreys et al., 2007; Bridge, 2011). As Bridge (2008)
has noted, blame for negative economic outcomes in extraction regions is frequently
placed on governance failures, rather than linked to the inherent unpredictability and
lack of sustained regional investment that is intrinsic to oil and gas extraction. In the usu
al resource curse narrative, the way the oil and gas firms derive profits from places is
downplayed in favour of a focus on the accountability of government officials.
In the geography of global oil and gas production and distribution, extraction regions are
occupied temporarily; they are not the focus of long-term investment based on their eco
nomic assets (other than those below ground). Research on the US Marcellus shale play
indicates that the areas where extraction has occurred experience loss of population, and
end up with less diverse economies (Christopherson and Rightor, 2014; Pennsylvania
State Data Center, 2015). The volatility of extraction activity undermines opportunities
for other, (p. 739) longer-term investments in the surface regions above the ‘plays’, and
narrows rather than expands their opportunities for regional economic development.
Whenever the resource is depleted, or if prices decline and the commodity becomes too
expensive to extract profitably, drilling firms rapidly exit the region.
Page 8 of 17
Transitions
While contemporary analysis of the resource curse does recognize the role of governance
in the failure of extraction regions to benefit from the presence of the commodity, that
failure is portrayed almost exclusively as a consequence of government corruption or in
eptitude. Questions of government regulatory capacity or variations in their territorial
control are missing from the conventional depictions of the resource curse; the implica
tions of financial speculation in natural resource assets, or the importance of firm–nation
interdependence in profiting from natural resource assets, are rarely part of the resource
curse discussion.
In the final section, I examine how state–firm interdependence is central to firms whose
past, and chosen future, lie in the continued primacy of fossil fuels as an energy source.
The story of the early entry, boom cycle, and current ‘bust’ in US shale development illus
trates the continuing significance of national territorial governance—in this case, to sup
port higher-risk, smaller-scale oil and gas production.
Why was the USA an Early Adopter of Shale De

velopment?
By many accounts, the US is an exceptional context for the production of gas and oil from
shale formations. According to Sandrea (2014, p. 2), the emergence of the shale oil and
gas boom in the USA is attributable not only to global price increases, but also to a set of
conditions that are facilitated by US financial market governance and regulation of the oil
and gas industry. They include: (i) the availability of capital and credit in the US through
the high-yield or ‘junk’ bond market; (ii) private ownership of mineral rights; (iii) enabling
regulations governing the leasing of those rights and the oil and gas production process;
(iv) the easy availability and inexpensiveness of critical inputs, particularly freshwater; (v)
hydraulic fracturing rig availability; and (vi) authorization to drill a large number of wells
quickly, and to use the experimental technology of high-volume hydraulic fracturing.
Most of these conditions, which explain why shale development was able to take place so
rapidly in the USA, point to the continued importance of the state to the oil and gas indus
try. Many US states where high-volume hydraulic fracturing was approved very quickly
(exemplified by Texas, Louisiana, and Pennsylvania) have limited regulatory requirements
to assess its environmental implications, or to test the technology before applying it at
scale. The approach taken in the USA was one of ‘we will learn what works and doesn’t
work as we drill’. Private ownership of mineral rights made acquisition of those rights
fast and easy, and quelled opposition to the new technology. Private ownership of mineral
rights also made it possible to invest in shale reserve ‘futures’ and to achieve investment
returns by trading in those futures.
Finally, the presence of operating companies such as Chesapeake Energy, and oil field
service companies such as Halliburton, which were well versed in investment plays and
Page 9 of 17
Transitions
well (p. 740) equipped by the drilling of conventional wells that employ hydraulic fractur
ing, allowed rapid development of the new shale oil and gas sites.
By contrast, other countries with shale reserves have been slow to exploit them. Capital is
difficult to obtain to support high-risk oil field company expansion, and regulations gov
erning oil fields are strenuous. The high-volume hydraulic fracturing technology is
banned in France and Germany because of strong popular opposition. Even the excep
tional circumstances that would allow hydraulic fracturing in Germany are covered by
regulatory protections that make utilization of the technology prohibitively expensive.
In the UK, high-volume hydraulic fracturing is legal, but it is subject to extensive testing
and environmental impact analysis that slows the process of well construction. Shale play
development in the USA has demonstrated that, to be profitable, a shale play requires
multiple wells drilled in a short period, so time delays for well construction constitute a
major barrier to shale development. In addition, mineral rights in the UK are owned by
the nation. While this would appear to be an advantage to extraction companies because
they have only one entity with which to bargain, state-controlled mineral rights solidify
opposition in those communities where drilling would take place. Communities have little
to gain from local drilling, and potentially much to lose. And, a major profit strategy that
drove rapid shale development in the USA is missing in the UK and other countries: the
opportunity to ‘flip’ property holdings on the premise that the mineral rights underlying
the property will produce a high investment return for the land purchaser. UK develop
ment relies solely on extraction for profit, and that is a riskier proposition than pre-ex
traction land speculation.
In addition to enabling speculative investment in real estate through private property

markets, US governance of financial markets played another important role in the US
shale boom. The easy availability of capital for shale drilling and oil-field service compa
nies through the high-yield or ‘junk’ bond market enabled rapid expansion of these com
panies at the onset of the boom (Denning, 2015). The USA has the world’s largest debt
market (accounting for approximately half of the global market), and the most active mar
ket in high-risk bonds (Smart and Gitman, 2015). These bonds are highly attractive to in
vestors, including international investors through the ‘Yankee’ market for foreign bonds
issued in US dollars. Although high risk, the value of most of these bonds is transparent
because they are regulated by the US Securities and Exchange Commission (SEC), and
are rated by American ratings agencies such as Moody’s Investors Service and Standard
& Poor’s. However, because of an SEC exemption, a significant portion of the industry’s
high-risk debt issues are largely unregulated, easily obtainable, and not scrutinized by
ratings agencies.
The role of high-risk debt in fuelling the shale boom has become more evident with the
decline in oil and gas prices, and the consequent bankruptcy of highly indebted oil field
service companies (Sider, 2015). Oil and gas company debt constitutes nearly a quarter of
the US $1.2 trillion high-yield and leveraged loan market, and is widely blamed for in
creasing the stress on that market (Fitzgerald, 2015; Linnane, 2015).
Page 10 of 17
Transitions
Faced with the prospect of a crisis in the financial markets brought on by high-risk debt
related to shale development, the US government has stepped in to support the oil and
gas industry, both directly and indirectly. Support has included purchase of oil for federal
strategic reserves, and policies to prop up the high-risk bond market. In the most recent
example, to help alleviate the effects of declining oil prices in North America, US policy
was changed in 2015 to allow oil exports to higher-priced markets. The entire ‘Big Oil’
network promoted this change because, although they compete with each other, they
have a shared interest in (p. 741) such a state policy. In this way, the global production
network led by oil field service firms such as Halliburton and Schlumberger intersects
with national governance of oil and gas production and distribution.
In the USA, it was market governance enabling speculative short-term investment that
made smaller-scale extraction and service operations viable, even when the large global
production firms (e.g. Exxon, BP, and Shell) would not invest in risky exploration and pro
duction at a small scale. At the same time, the emergence of a sophisticated global net
work of oil field service firms gave these small ‘operating firms’ access to the high-quality
technologies and equipment they needed to make smaller reserve extraction a profitable
proposition. And, because of the political power of the oil and gas industry nationally,
there has been considerable protection against market risks for actors at the top of the
global oil and gas production network.
About Energy Transition Processes

In this chapter, I have attempted to take Martin and Sunley’s (2006) prescription for a
more geographically informed understanding of economic change seriously. Firstly, I sug
gest that some geographical scales of action are more important than others. The signifi
cance of a particular scale depends on how an industry uses spatially distributed re
sources, and what it requires to exploit those resources. In the case of the oil and gas in
dustry, conventional regional concentrations of resources are not as significant as control
over spatially extensive resources. The rapid development of shale in the USA also illus
trates the important role of national financial market governance, in this case by enabling
access to flexible financing that can adapt to changing costs and risks.
The highly variable progress of shale development across countries suggests that it is at
the national scale that the most decisive interactions between the global oil and gas pro
duction network and regulatory institutions take shape. To obtain legitimacy, influence
regulation over key resources such as transportation networks, and reduce financial risks
for high-risk ventures, firms in the network rely on non-market strategies. In the US case,
these non-market strategies combine: (i) lobbying and campaign funding to effect politi
cal influence on the national regulatory environment; and (ii) the exercise of soft power to
influence the national narrative about the role of energy in the economy and the trade-
offs between environmental protection and energy resource development.
Page 11 of 17
Transitions
An analysis of the oil and gas industry as a variant of path dependent social, economic,
and technological transitions can inform and qualify theories of path dependency in evo
lutionary economic geography in several respects. Most prominently, assumptions about
production spaces and economic regions are up-ended. In oil and gas production, the sub
terranean landscape of investment is disconnected from the surface spaces of already ex
isting economic regions. And, because of their focus on what might be termed the extrac
tion and distribution landscape, oil and gas firms focus on governance at the national
scale. It is at that scale that firms, including self-defined global firms, devise both market
and non-market strategies to influence how the state governs their industry, and hence,
constructs transition paths. What this tells us is that industry specificity—what is being
produced and how it is being produced—varies the geographical story of economic
change.
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Levy, D. and Kolk, A. (2002). ‘Strategic responses to global climate change: conflicting
pressures on multinationals in the oil industry’. Business and Politics 4(3): 275–300.
Linnane, C. (2015). ‘Oil’s slump played havoc in US junk bond market in September’.
Barron’s Market Watch, 2 October http://www.marketwatch.com/story/oils-slump-
played-havoc-in-us-junk-bond-market-in-september-2015-10-02 (last accessed 30
January 2016).
MacKinnon, D., Chapman, K., and Cumbers, A. (2004). ‘Networking, trust and embedded
ness among SMEs in the Aberdeen oil complex’. Entrepreneurship & Regional Develop
ment: An International Journal 16(2): 87–106.
MacKinnon, D., Cumbers, A., Pike, A., Birch, K., and McMaster, R. (2009). ‘Evolution in
phy 85(2): 129–150.
Markard, J., Raven, R., and Truffer, B. (2012). ‘Sustainability transitions: an emerging
field of research and its prospects’. Research Policy 41(6): 955–967.
Martin, R. (2010). ‘Roepke Lecture in Economic Geography: rethinking regional path de
pendence: beyond lock-in to evolution’. Economic Geography 86(1): 1–27.
Martin, R. (2012). ‘(Re)Placing path dependence: a response to the debate’. International

Journal of Urban and Regional Research 36(1): 179–192.
Journal of Economic Geography 6(4): 395–437.
Pasqualetti, M.J. (2011). ‘Social barriers to renewable energy landscapes’. Geographical

Review 101(2): 201–223.
Patchell, J. and Hayter, R. (2013). ‘Environmental and evolutionary economic geography:

time for EEG2?’. Geografiska Annaler 95(2): 111–130.
Pennsylvania State Data Center (2015, 26 March). ‘U.S. Census Bureau releases 2014
county population estimates: Cumberland is the fastest growing county since 2010’
http://pasdc.hbg.psu.edu/sdc/pasdc_files/researchbriefs/
2014_County_Estimates_RB.pdf (last accessed 30 January 2016).
Rahm, D. (2011). ‘Regulating hydraulic fracturing in shale gas plays: the case of Texas’.
Energy Policy 39(5): 2974–2981.
Page 15 of 17
Transitions
Raven, R., Schot, J., and Berkhout, F. (2012). ‘Space and scale in socio-technical transi
tions’. Environmental Innovation and Societal Transitions 4: 63–78.
Sandrea, I. (2014). ‘US shale gas and tight oil industry performance: challenges and op
portunities’ http://www.oxfordenergy.org/2014/03/us-shale-gas-and-tight-oil-indus
try-performance-challenges-and-opportunities/ (last accessed 8 February 2016).
Sider, A. (2015). ‘Fracking firms that drove oil boom struggle to survive’. Wall
(p. 745)
Street Journal, 23 September http://www.wsj.com/articles/fracking-firms-that-drove-

oil-boom-struggle-to-survive-1443053791 (last accessed 30 January 2016).
Smart, S. and Gitman, L. (2015). Fundamentals of Investing (12th edition). Pearson Series
in Finance http://www.downage.org/ebooks-list/fundamentals-of-investing-12th-
edition-pearson-series-in-finance_2ue77.html (last accessed 30 January 2016).
Storper, M. (2011). ‘Why do regions develop and change?: the challenge for geography
and economics’. Journal of Economic Geography 11(2): 333–346.
Weinstein, B.L. and Clower, T. L. (2009). ‘Potential economic and fiscal impacts from nat
ural gas production in Broome County, New York’. Report prepared for Broome County,
NY http://www.gobroomecounty.com/countyexec/broome-county-releases-natural-
gas-economic-impact-study (last accessed 14 July 2010). (p. 746)
Notes:
(†) Deceased
(1.) The concept of energy transitions has taken on a normative dimension among re
searchers who analyse transitions towards sustainable renewable energy systems
(Pasqualetti, 2011; Markard et al., 2012).
(2.) In oil and gas production, the role of national governance could be described in terms
of a spatial ‘fix’ referring to the territorial basis for capital accumulation. A spatial fix can
be expressed in long-term territorial investments that underlie capital accumulation (to
enable mobile capital at other geographical scales). This may include investments in
transportation and communication or in a regional finance infrastructure. Spatial fix can
also refer to temporary movements across geographic spaces to resolve accumulation
crises (see Harvey, 2001; Jessop, 2006).
Susan Christopherson
Susan Christopherson published a series of key articles and a prize-winning book ex
amining how market governance regimes influence regional economic development
and firm strategies. She was a recognized expert in the field of media studies with a
record of research and publication on the media entertainment industries. Professor
Christopherson published more than 100 articles and book chapters on topics illumi
nating the spatial dimensions of economy and society, and served on numerous edito
Page 16 of 17
Transitions
rial boards. Most recently, she was editor-in-chief of the Regional Studies Associa
tion/Taylor Francis Book Series on Cities and Regions.
Page 17 of 17
Green Growth
Green Growth
Cameron Hepburn, Alexander Pfeiffer, and Alexander Teytelboym
Debates about whether limits to economic growth are necessary or desirable have moved
on to discussions about the type and quality of economic growth. The notion of ‘green
growth’ has become widely adopted as a core objective of international institutions and
national governments. The concept of ‘green growth’ is used flexibly and its definition
contested. Green growth is defined as long-run increases in gross domestic product
alongside the enhancement of natural capital. An analysis is undertaken that dismisses
some environmental concerns, and instead leads to a focus on others. Theoretical eco
nomics of green growth are reviewed. The chapter observes that implementation of poli
cies in the real world is far from the theoretical ‘optimal’ in narrow economic models. De
veloping practical green growth policies for the Anthropocene will require a careful and
different approach to technology, markets, and prices, a realistic assessment of political
economy constraints, and an acceptance of pragmatic solutions.
Keywords: green growth, planetary boundaries, Anthropocene, limits to growth, economic growth theory, climate
change, biodiversity, environmental Kuznets curve
Introduction
IF economic growth is to continue for another century or more, it will, in some sense,
have to be ‘green’ to avoid undermining its very foundations. Many international organi
zations, including the World Bank (World Bank, 2012), Organisation for Economic Co-op
eration and Development (OECD, 2011), United Nations Environment Programme (UNEP,
2011), Asian Development Bank (ADB, 2013), European Bank for Reconstruction and De
velopment (EBRD, 2011), and the African Development Bank (AfDB, 2013), have recog
nized this in a multitude of reports. Several initiatives, including the Global Green Growth
Institute and Global Commission on the Economy and Climate, are devoting themselves
entirely to understanding green growth.
Page 1 of 27
Green Growth
Green growth is a cousin of the even more vague and once more popular term ‘sustain
able development’ (Hepburn and Bowen, 2013; Bowen and Hepburn, 2015; Smulders et
al., 2014). The notion of ‘sustainability’ extends well beyond environmental issues to a va
riety of long-term concerns, and the notion of ‘development’ includes health, education,
culture, and, potentially, various other aspects of social and economic policy. By contrast,
the term ‘green’ tends to reflect a more focused emphasis on the environment and natur
al capital and ‘growth’ is considerably narrower than ‘development’, in most cases it is
boiled down to the convenient and politically appealing short-term metric of the rate of
increase in gross domestic product (GDP). Thus ‘green growth’ is a more narrow and fo
cused concept than ‘sustainable development’. As broader issues of inequality, stability,
culture, and institutions are not explicitly captured by the notion of ‘green growth’, these
tend to be brought under the umbrella by the various international institutions noted
above by extended phrases such as ‘inclusive green growth’.
While the precise definition is contested, this chapter follows Bowen and Hepburn (2015)
in defining ‘green growth’ as old-fashioned growth in per capita GDP that is accompanied
by natural capital levels that are non-decreasing. We distinguish two variants. ‘Strong
green growth’ involves no trade-off between growth and natural capital protection, even
in the short term. Under ‘weak green growth’, natural capital protection may reduce
growth rates (p. 750) below business-as-usual growth in the short term, but growth will be
higher in the long term. The strong variant of ‘green growth’ particularly pleases politi
cians and policymakers; the absence of a short-run trade-off between environmental pro
tection and economic growth enables proponents to claim to have it all. For instance, Hal
legate et al. (2012) argue that ‘green growth’ does not even imply any slowing of econom
ic growth compared with business-as-usual in the short term because of immediate posi
tive effects on the economy, such as co-benefits (e.g. reduced local pollution), growth in
new ‘green’ sectors, and less energy price volatility via reduced dependence on fossil fuel
imports. Naturally, the appeal to politicians is strong, as exemplified by Ed Davey, the for
mer British Secretary of State for Energy and Climate Change who, at the Green Growth
Summit in October 2014, remarked: ‘We are not sacrificing our economies to deal with
climate change. Quite the opposite—going green means going for growth’.1
In contrast, many conventional economic analyses appear to consider ‘weak green

growth’ to be more plausible. The Stern Review (Stern, 2007) argued that we should in
cur relatively minor economic costs over the current generation to reduce greenhouse
gas emissions and mitigate climate change, in order for future generations to accrue
much greater benefits in the future. In short, although Stern made the case that the long-
term interests ought to dominate, there is, nevertheless, a trade-off between the short-
term and the long-term.
There are two positions against some form of green growth. In our view, neither is plausi
ble. The first is that there are no serious environmental constraints, and that we can
largely ignore the impacts on natural capital and continue to grow into the indefinite fu
ture. While our analysis of the data, presented in the subsection ‘Limited Mineral and En
ergy Resources?’, suggests that some concerns of environmentalists are not well founded,
Page 2 of 27
Green Growth
it now also appears that we are approaching ‘planetary boundaries’ on a number of di
mensions that will derail economic growth if left unaddressed (Rockström et al., 2009). In
short, a ‘dirty growth’ position is not plausible in the long run—the challenges of protect
ing natural capital cannot merely be ignored.
The second competing position comes from the opposite end of the spectrum—it is ar
gued that these environmental pressures are so severe that we need to stop GDP growth
altogether, and instead focus on ‘prosperity without growth’ (Jackson, 2011). There are
three reasons to be sceptical of this position. Firstly, a billion people remain in extreme
poverty. Growth in per capita GDP at a reasonable rate over coming decades is necessary,
desirable, and likely in many developing countries to lift people out of poverty. Secondly,
the technological progress required to solve many environmental problems, not least cli
mate change, will require innovation and investment. This innovation and investment be
comes practically difficult, if not impossible, in an economy with zero growth (Hepburn
and Bowen, 2013). Thirdly, protecting natural capital by reducing GDP is probably the
most expensive solution possible.2 In conclusion, the no-growth position is neither neces
sary nor desirable.
Consequently, this chapter advances the position that green growth—continued growth in
GDP alongside the protection of natural capital—is almost trivially necessary. The real
challenge, as we see it, is to flesh out precisely what this means and what policies might
work in practice.
This chapter is structured as follows. The next section briefly examines the evidence for
the environmental constraints and so-called ‘planetary boundaries’ that undermine a dirty
growth trajectory in the long run and motivated the focus on green growth. The section
(p. 751) ‘Economic Theory of Green Growth’ reviews the economic theory of green
growth, the different conceptualizations of green growth, the feasibility and optimality of
theoretical growth trajectories, the role of innovation and capital substitutability, and the
relationship to concepts such as weightless growth. ‘Policies for Green Growth’ considers
the set of policies that might support green growth, and argues that any green growth
strategy must recognize a host of political and social constraints. The chapter ends with a
conclusion.
Natural Capital and the Real Environmental

Constraints
Defining Natural Capital
Given that we have defined ‘green growth’ as GDP growth that preserves or enhances
natural capital, it is important to be able to define ‘natural capital’. Natural capital is one
of the six capitals that comprise our stock of wealth (Hamilton and Hepburn, 2014), but it
is not entirely straightforward to provide a tight and uncontested definition. Conceptually,
natural capital is the stock (not the flow) of resources in the natural environment that are
Page 3 of 27
Green Growth
able to produce value for humans. For instance, the stock of natural capital includes our
reserves and resources of coal, oil, gas, minerals, and other subsoil assets, along with
functioning ecosystems, fisheries, forests, biodiversity, and a stable climate. Precisely
what is included, and what is not, is not the focus of this chapter, but a good place to be
gin is with the international System of Environmental-Economic Accounting, developed
jointly by organizations including the United Nations and the OECD, and as discussed and
employed by the World Bank in their work on national accounts (Hamilton, 2006; World
Bank, 2011).
Services from these assets are provided by nature for free. Without human intervention,
for instance in the form of private property rights, markets, or taxes, the flows of services
from the stock of natural capital tend to be excessively consumed (Pigou, 1920; Coase,
1960). Humans have intervened with some forms of natural capital—such as oil, coal, gas,
and minerals—and created property rights to the land that contains these assets, or, in
deed, to the assets themselves, from which functioning markets and resource prices have
emerged. However, other sorts of natural capital—such as biodiversity and a stable cli
mate—tend not to have appropriate rights, markets, and prices. As we shall see, it is the
latter that are the cause for concern.
Limited Mineral and Energy Resources?
Many forms of natural capital, such as fossil fuels, are best described as ‘exhaustible’ or
‘non-renewable’ because they do not renew themselves on human timescales.3 As these
exhaustible resources can appear to be essential inputs in many production processes, it
is not unreasonable to ask what will happen when we run out of them. These concerns
about resource limits and scarcity fuelled publications such as the Limits to Growth
(Meadows et al., 1972). It also motivated the now-famous bet between Ehrlich and Simon
about whether (p. 752) the price of a bundle of natural resources would fall or rise over a
corresponding decade (The Core Team, 2017). Figure 40.1 shows that over the relevant
time period the proponent of abundance, Simon won the bet as prices fell. However, com
modity prices fluctuate around with all sorts of shifts and shocks, and aggregate price
movements over any decade of the last century do not provide an indication of any strong
trend.
Page 4 of 27
Green Growth
Figure 40.1 Commodity Prices Over the Last 100

Years.
WWI, World War I; WWII, World War II.
Source: The CORE Project (2015).
More recent concerns about peak minerals have been somewhat more nuanced. For in
stance, the latest report to the Club of Rome by Bardi (2014) stresses that civilization is at
risk because of increasing extraction costs, rather than because of imminent depletion of
mineral resources. As a result of these increasing costs, the claim is that production of
many mineral commodities is on the verge of decline. Debates have been ongoing for
decades, particularly in relation to oil (Maugeri, 2004; Ehrenfeld, 2005). Serious analysis
suggests that real resource constraints would, in principle, bite, if it is assumed that (i) all
nine billion people impose material demands at the level of currently rich countries; and
(ii) that these demands are met without any technological progress—that is, using cur
rent technologies (Gordon et al., 2006). Using a similar technologically static lens, vari
ous commentators have suggested we might be in peak coal, peak copper, peak phospho
rus, peak gas, peak uranium, and peak oil.4 The core concern to economists of these hy
potheses about resource scarcity is that as resources become scarcer and prices in
crease, economic activity will slow down, potentially asymptotically to zero (Stiglitz,
1974) other things being equal.
However, other things are very far from being equal. The very fact that the scarcity of ex
haustible natural resources is reflected in their market price helps ensure that such re
sources are not exhausted. This is because higher resource prices induce firms to find
substitutes and to invest more in exploring for more resources. A classic example is the
(p. 753) substitution from copper wire in telecommunications to fibre optic, which is both
cheaper and provides a higher-quality set of services.5
Page 5 of 27
Green Growth
Figure 40.2 Forecast Exhaustion Dates of Minerals

Extend into the Future.
Is there any harder evidence upon which to base this optimism that prices and markets
will work to trigger the desired responses? We analyse publicly available data from the
United States Geological Survey (USGS), along with further historical data requested
from USGS, which provides (annual) US prices, US consumption, and the best estimates
of worldwide production and economically extractible reserves/resources since 1957. Fo
cusing on the minerals at risk of depletion, we analysed the top-ten economically impor
tant minerals that, based on present production trends, would be depleted within the next
century. For these minerals, we have a near complete time series. The data were harmo
nized to ensure that all units are consistent across time. For each given past year, a sim
ple linear trend of production was calculated based on all previous year’s data.6 Based on
this production rate, the projected year of exhaustion of each mineral was estimated.
Results of the analysis are shown in Figure 40.2. The horizontal axis shows the year of
analysis, beginning in 1957. For this and each subsequent year, a forecast year of exhaus
tion of each mineral is determined, shown on the vertical axis. The forecast year of ex
haustion is calculated by taking current consumption, projecting this into the future using
the consumption trend, and combining this forecast of future consumption with the re
serves as known in the year of analysis. Figure 40.2 shows that the forecast exhaustion
dates largely follow a trend with angle to the origin of forty-five degrees. That is to say,
for every year that passes, enough additional reserves are discovered (or, with better
technology, more (p. 754) resources become more economically extractible) to push the
forecast date of exhaustion one year into the future.
While the USGS represent the most reliable, comprehensive, and consistent source of
mineral information over time, the estimates should, nevertheless, be taken with some
caution. Reserves data can be very unreliable, especially when the minerals are mined in
conflict regions for which data may not be available for some years. Before the collapse of
the Soviet Union, it was also difficult to verify reserves in former socialist countries.
Page 6 of 27
Green Growth
Nevertheless, the clear result of this analysis is that past concerns about minerals deple
tion have not been well founded. While production may decline, there is little evidence
that we are running out of anything. Moreover, as production of most minerals is grow
ing, our estimates do not support any ‘peak mineral’ theories. Of course, it is true that the
persistent over-pessimism of past forecasts does not necessarily imply that current and
future pessimistic forecasts will not turn out to be correct. And it is logically true that in
definite economic growth for hundreds or thousands of years will eventually exhaust any
finite stock of reserves. However, humans rarely appropriate minerals more than several
kilometres into Earth’s crust (which is five to seventy kilometres deep depending on the
precise location), and the evidence strongly suggests that market and price dynamics
have provided, and will continue to provide, incentives for innovation and substitution.
Concerns about natural resource depletion in the near future appear misplaced.
To be clear, the existence of market prices on minerals and energy sources such as coal,
oil, and gas does not mean that such resources are properly priced, that is, in a way that
is efficient from a societal point of view. Many such resources involve externalities gener
ated by production and consumption that are not fully internalized in the price, leading to
excessive consumption. For instance, consumption of fossil fuels produces carbon dioxide
(CO2), which is inadequately priced around the world—the consequence of the failure to
internalize this externality is that fossil fuels are too cheap. But it does not follow from
this that we are at risk of running out of fossil fuels. Instead, we are at risk of running out
of atmosphere—or, more precisely, the exhaustible resource of the atmosphere’s ability to
accumulate greenhouse gases without giving rise to an unsafe climate for human civiliza
tion.
Natural Capital and ‘Planetary Boundaries’
Environmental problems are often most severe when there are absent, inadequate, or un
clear property rights, whether private or communal rights. Where natural capital is open
access—it can be used by anyone—it is highly likely to be overused with environmental
problems the result. On large scales, such degradation of natural capital can threaten
green growth, and even just growth itself if degradation undermines the conditions for
economic productivity.
The mere fact that a natural resource is renewable does not, of course, mean that there is
no need for concern. For instance, fish stocks can replenish themselves when their rela
tive and absolute population is sufficiently high, and yet global fish stocks are now mas
sively overharvested (Costello et al., 2008). Biodiversity is another example of renewable
natural capital that is under threat (Butchart et al., 2010). Indeed, it is perhaps ironic
that often the natural capital at risk is renewable natural resources rather than the ex
haustible resources.7 By the same logic is that, in the previous section, just as the pres
ence of a market price provides an incentive for innovation and exploration on the supply
side and economizing (p. 755) behaviours and resource substitution on the demand side,
the absence of prices implies the absence of these incentives.
Page 7 of 27
Green Growth
Figure 40.3 Selected Planetary Boundaries Already

Breached.
Source: Rockström et al. (2009).
Sometimes, otherwise ‘common-pool’ or ‘open-access’ resources do have partial implicit

or explicit prices, created by community or government intervention, but the prices con
cerned are too low, leading to socially suboptimally excessive consumption. As noted
above, the most significant greenhouse gas (CO2) is not appropriately priced because
each nation has a partial (short-sighted) incentive to free ride on the efforts of others, ab
sent a multilateral agreement. And some forms of natural capital—such as biodiversity—
frequently are not priced at all. While biodiversity has value as an input into production
(e.g. bees produce honey) and as input in our utility functions (e.g. the pleasure derived
from experiencing a bio-diverse ecosystem), it is nevertheless very hard to measure and
to create markets or other instruments that would give rise to a price. As such, govern
ments have largely failed to create biodiversity prices. And when natural capital is un
priced it is particularly vulnerable to overexploitation.
These various isolated examples of threats to natural capital are, in fact, symptoms of a
broader set of very important environmental problems. With the explosion of the human
population from one billion people to over seven billion people over the last century, there
are now few places on Earth that are untouched by human hands. Geologists have sug
gested that we have now moved geological epoch from the Holocene to the Anthro
pocene, because the evidence of humanity is now to be found in the geological record
(Crutzen, 2006).
The so-called ‘planetary boundaries’ that the human species is bumping up against are
multifaceted. Rockström et al. (2009) proposed nine such quantitative boundaries, each
one permitting some margin for error and the recognition that, in reality, scientists are
unable to provide certainty about the location of system thresholds.8 They concluded that
three such boundaries had already been crossed, as shown in Figure 40.3. While this may
be not necessarily imply disaster—each of these thresholds includes a margin for error—
there is no doubt that the serious environmental challenges lie in the domain of these un
priced, often global or regional, domains of natural capital.
While these are genuinely serious challenges—unlike the natural resource limitations dis
cussed earlier—they do not by necessity imply that further growth in the value of goods
and services that we provide each other is impossible. Indeed, it is arguable that further
economic growth is required to address these challenges (Hepburn and Bowen, 2013).
Page 8 of 27
Green Growth
However, (p. 756) the notion that economic growth in and of itself will lead to us resolving
these problems seems highly complacent at the global level.9 Further theory is required.
Economic Theory of Green Growth

The previous section noted that although economic growth increases pressure on natural
resources and the environment, many of the concerns about peak resources are mis
placed. We are not running out of resources or energy in general. Rather, concern should
be focused on the specific natural capital that is improperly priced—in particular, assets
such as biodiversity, fisheries, climate stability, and so on.
This section reviews the relevant economic theory of green growth, with a view to identi
fying guidance for tackling these challenges. Much of the theoretical research in the area
has been focused on the feasibility of economic growth over an infinite horizon. The sun is
expected to last only another five billion years,10 and a degree in mathematics is not re
quired to observe that this is significantly less than infinity. In short, to some degree the
question of infinite growth has a trivial answer—it is not possible, at least in our solar sys
tem, as we know it. More practically, it is questionable whether humanity will see out an
other thousand years given various risks, including many that we are creating ourselves
(Rees, 2003). And, if humans continue to exist over that time frame, it is far from impossi
ble that we will have been fundamentally changed by technological developments
(Bostrom, 2014). So we do not seek to examine closely whether economic growth is possi
ble through an infinite horizon (Daly, 1997; Stiglitz, 1997) as is often the focus of the eco
nomic models. Instead we seek to tease out the implications of the models for the possi
bility of sustained economic growth over the next century or so.
The Simple Economics of Green Growth with Exhaustible Resources
A simple formulation of the problem of achieving green growth can be set out as a
straightforward optimization problem in the spirit of Ramsey (1928). The objective in
such models is to maximize the discounted flow of utilities of a representative agent sub
ject to some production, environmental, and budget constraints.
Early analysis considered the management of an economy with an exhaustible resource

(Hotelling, 1931). In this model, a resource owner decides whether to leave the resource
in the ground or to extract and sell it. With the obviously incorrect assumptions of no
technological progress or substitution, it emerges that the price of the resource would be
expected to rise at the rate of interest. Observed prices have not risen at the rate of inter
est, but instead been largely trendless, revealing something about the accuracy of those
assumptions (Lin and Wagner, 2007). Nevertheless, the Hotelling model provides the base
case. In the model, extraction occurs at the socially optimal rate and consumption of the
resource falls over time. The core conclusion of the model is very simple: an agent who
only lives off a finite resource is doomed to an eventual decline. While unrealistic in sev
Page 9 of 27
Green Growth
eral important ways, (p. 757) Hotelling’s formalization of the dynamics of optimal use of a
finite resource laid a foundation for much of subsequent green growth literature.
The picture changes dramatically when technological progress is introduced into a model
with production requiring an exhaustible resource. Triggered by the first oil crisis, econo
mists (Dasgupta and Heal, 1974; Solow, 1974; Stiglitz, 1974) extended Hotelling’s model
to incorporate labour supply and saving decisions, as well as (exogenous) technological
progress and population growth. A brighter future is then possible. Stiglitz (1974) shows
that there is a steady state where consumption grows at a constant rate, the saving rate
is constant and the rate of natural resource use declines at a constant rate. Man-made
capital gradually substitutes for the resource as the driving force of production over time.
Moreover, a high saving rate leads to lower short-term consumption but higher long-run
growth rates. Therefore, unlike the traditional Ramsey model, the economy has multiple
steady states and the government (modelled as a putative ‘social planner’) can, in princi
ple, implement any of them. Increasing population competes with production scale and
technological progress to guarantee non-decreasing consumption. However, the ex
haustible natural resource is, indeed, gradually exhausted along any feasible growth
path. In such models, although continued economic growth is possible, green growth is
impossible, simply because natural capital is assumed to be entirely exhaustible, rather
than partially renewable.
In models in which the exhaustible natural capital stock appears directly into the utility
function, in addition to the production function, the agent’s willingness to preserve the ex
haustible resource is increased. The severity of the conclusion is attenuated, but the fun
damental result does not change: continued growth is feasible (and optimal if there is suf
ficient technological progress), but green growth is not—it is also optimal to gradually
draw down the natural capital stock (Krautkraemer, 1985). Incorporating the natural cap
ital stock in both the production and the utility function is plausible for much natural cap
ital. Climate stability is, perhaps, the canonical example—changes to the climate will
harm both production and consumption. And, as the ‘the greatest market failure the
world has seen’ (Stern, 2007), the scale of this particular challenge to green growth is not
trivial. It is precisely the incorporation of potentially substantial environmental damages
directly in the utility function, as well as the production function, that differentiates and
complicates modern models of green growth under climate change.
The production function in some economic growth models also includes ‘energy’ as a fac
tor, along with labour and capital (and occasionally materials).11 The argument for explic
itly incorporating energy as a factor of production is that, for the most part, it cannot eas
ily be substituted for by other inputs (Stern, 2011). Some economic growth models that
include energy further differentiate between renewable energy (e.g. solar and wind) or
fossil fuels generating greenhouse gases. Green growth under these conditions typically
ensures that the total stock of CO2 in the atmosphere is below a certain threshold, such
as one trillion tonnes of carbon (Allen et al., 2009). The optimal transition path depends
Page 10 of 27
Green Growth
on the initial stock of capital (and the corresponding marginal utility of consumption), as
well as on the supply of fossil fuels relative to renewables (Smulders et al., 2014).
In order to achieve green growth in such models, consumption typically has to fall in the
short term, relative to business-as-usual, in order to accumulate investment in clean ener
gy capital. This intuition is similar to the steady-state growth in Stiglitz (1974). Hence,
there is a trade-off between the consumption of the present and future generations
(Nordhaus, 2008). Because of the externality of climate change, environmental policy,
such as carbon pricing, (p. 758) is necessary to implement the optimal transition (Golosov
et al., 2014). The rate at which present and future consumption changes optimally de
pends on the expected damages of climate changes, as well as on a host of normative fac
tors, such as the social discount factor and elasticity of inter-temporal substitution (Sælen
et al., 2009; Heal and Millner, 2014). Many economists subscribe to the ‘weak green
growth’ paradigm and this appears consistent with the outcomes of most integrated as
sessment models (Nordhaus and Yang, 1996; Tol, 1997; Hope, 2006), although these have
come in for significant criticism (Pindyck, 2013; Stern, 2013; Weitzman, 2013).
Strong Green Growth
As Broome (2010) points out, the ‘very most important thing about climate change is …
that the problem of climate change can be solved without anyone making any sacrifice’.
As climate change is an externality, the society must be in an inefficient outcome there
fore it should be possible to move to a Pareto-superior outcome making everyone (every
generation) weakly better off. This suggests that the sacrifice of present generation’s con
sumption in order to guarantee green growth for future generation (see earlier) may not
be necessary.
If the government is able to borrow, it can make the necessary climate investments today
without reducing the consumption of the present generation (Foley, 2007). The following
generations will also be better off (despite having to repay the debt) because they will
benefit from the climate investments and reduced emissions. This optimistic vision of
‘green growth’ has been called ‘strong green growth’ (Jacobs, 2013).
Policies advocated by ‘strong green growth’ proponents usually involve green subsidies,
usually because the first-best of carbon tax is infeasible. This kind of ‘Keynesian’ stimulus
may form a part of responsive fiscal policy in a recession, while reducing the (long-run)
costs of renewables and mitigating climate change. However, green subsidies in absence
of a carbon tax may create perverse incentives for fossil fuel producers. As they expect
the demand for fossil fuels to drop in the future (they are concerned about their assets
becoming stranded), they extract more fossil fuel compared with the no-subsidy baseline
and emit more CO2 causing the so-called ‘green paradox’ (Van der Ploeg and Withagen,
2012).
Page 11 of 27
Green Growth
Technological Change and Green Growth
Irrespective of the specific model of green growth, a major feature is the requirement for
some combination of technological change and substitutability between man-made capital
and finite natural resources in production function. Understanding these further is an im
portant area of research.
As Hepburn and Bowen (2013) observe, the emissions intensity of GDP would need to de
crease by roughly 7 per cent annually in order to achieve an ‘absolute decoupling’ of eco
nomic growth and CO2 emissions—that is, an absolute fall in CO2 emissions despite in
creases in population and output per person. Whether human societies will choose to de
liver these innovations at reasonably low cost, and in time to prevent the worst damages,
remains unclear.
(p. 759)In order to understand how green innovation responds to market forces, it is cru
cial to take into account endogenous technological change (Romer, 1990; Aghion and
Howitt, 1992). Knowledge creates positive spillovers and intuitively, like any public good,
it is likely to be underprovided by the free market. Significant theoretical work has been
done to understand endogenous green innovation (Pittel, 2002) and many integrated as
sessment models now incorporate some element of endogenous technological change
(Gillingham et al., 2008), although such modelling approaches are rarely as compelling as
they might be (Farmer et al., 2015).
Acemoglu et al. (2012) provide a very general formulation of the green innovation prob
lem. In their model, there are clean and dirty energy sectors, both of which are subject to
endogenous innovation. Workers choose which sector they want to work in. There are two
externalities: the environmental externality in the form of CO2 emissions and the knowl
edge externality with sector-specific productivity spillovers. The authors show that the
optimal policy is to subsidize green innovation and tax carbon for a limited period of time
until the clean-energy sector can compete for research talent with the dirty-energy sector
by offering sufficiency high wages. Once that point is reached, no more subsidies or taxes
will be necessary and the environmental disaster will be averted. Interestingly, the results
of this model rely, as the earlier Stiglitz–Solow–Dasgupta–Heal models do, on the substi
tutability between clean and dirty inputs of production. If these inputs are complemen
tary, and hence dirty inputs are absolutely necessary for production, the environmental
disaster cannot be avoided.
The crucial point in the innovation approach to green growth is that the delay is costly be
cause as time passes the dirty sector gains some additional advantage over the clean sec
tor. Certainly, innovation in the fossil fuel sector continues at present, with the advent of
shale oil and gas and notable recent declines in costs. This provides a justification for the
role of government as a long-term planner, especially in infrastructure investment, in or
der to avoid dirty infrastructure lock-in. Green innovation gives some hope to the ‘strong
green growth’ proponents. Aghion et al. (2012) show that spillovers from innovation are
up to 40 per cent greater in the clean-energy sectors.
Page 12 of 27
Green Growth
More Mind, Less Matter
Economic growth is usually associated with greater use of material resources. However,
GDP incorporates both material and non-material products and services. Hepburn and
Bowen (2013) advocate for a shift towards materially lighter, knowledge-based or labour-
demanding sectors. Even if environmental damages affect material production to such an
extent that we can only reach a steady state in the material throughput of the economy
(Stokey, 1998), it should be possible to continue producing non-material goods and ser
vices, thereby increasing GDP. A structural change has already been observed in many
advanced economies since the beginning of the Internet age (Quah, 1997, 1999), leading
to the notion of a ‘weightless’ economy. More weightless economies may even be more
productive. Indeed, using US data, Baptist and Hepburn (2013) show that firms and sec
tors with lower material and higher labour intensity have higher total factor productivity.
This conceptual vision of green growth probably applies only to very advanced
economies, which do not face immediate needs of increasing material consumption of
food, (p. 760) energy, and shelter, and where material recycling rates are edging upwards
as discussion of the ‘circular economy’ increases. Yet, even for advanced economies it is
not obvious to what extent material and immaterial factors of production are substi
tutable.
Policies for Green Growth

Substitutability, Scales, and Time Horizons
Some economists would consider that the role of government is relatively minimal, per
haps only to ‘getting prices right’, provided, of course, that the costs of intervening to im
prove prices are outweighed by the benefits. In this view, there is no role for government
in setting overall economic direction and in determining appropriate growth trajectories.
While delivering ‘correct’ prices is absolutely central, prices at the margin can only be
judged to be correct or otherwise with reference to a broader path of economic develop
ment. The standard marginal (partial equilibrium) cost–benefit analysis that assumes that
prices are fixed after policy interventions may also prove less useful for large-scale inter
ventions to protect natural capital, such as mitigating climate change (Dietz and Hep
burn, 2013).
As such, this simultaneously omnipotent and removed view of the government is poten
tially misleading in understanding how green growth is likely to be brought about. There
are three central elements for policy to consider:
(i) Substitutability: the ultimate objective is to substitute away from dirty energy to
wards clean energy while preserving natural capital.
(ii) Scale: the scope of policy should be commensurate to the geographical and polit
ical scale of the challenges.
Page 13 of 27
Green Growth
(iii) Time horizons: policies and institutions will not succeed in meeting the objec
tives without credibility over long time frames.
We consider each of the three elements in turn.
Firstly, any economic model of green growth rests on the assumed ability to substitute,
over time, for the gradual depletion of exhaustible resources, while simultaneously pro
tecting remaining critical renewable resources (Ekins, et al., 2003). For instance, manag
ing climate change is technically feasible because renewable energy, combined with other
technologies (grid interconnection and balancing, storage, and demand-side responses),
can eventually serve as a substitute for non-renewable energy. Similarly, weightless green
growth can be achieved if non-material factors are substitutes for material factors. More
generally, green growth can be achieved if innovation delivers clean inputs that serve as
satisfactory substitutes for dirty inputs. Therefore, a key policy prescription for green
growth is to set incentives to support the innovation and deployment of clean factors or
reduce production dirty factors.
Secondly, the geographical scale of different environmental constraints has drastically

different implications for the possibility of different policy responses. Pressures on natur
al capital arise on different scales; institutional solutions of appropriate scales are also re
quired (Ostrom, 2009). For example, a Hotelling-type solution might be applied to local
challenges of optimal natural resource extraction, such as the extraction of a locally
abundant (p. 761) commodity. Biodiversity is a problem at a regional scale and it can be
addressed with national or international interventions (Hepburn and Helm, 2014). Car
bon emissions and climate change are, of course, archetypical global problems, and cli
mate change is just one of several ‘planetary boundaries’ that need to be defined and ad
dressed (Rockström et al., 2009).
Thirdly, the costs of different environmental problems and the benefits of solving them
are different at different points in time. Cost–benefit analyses of green growth policies
will, in some cases, be very sensitive to time horizons and scope of policy. For example, in
a case study in Brazil Vogt-Schilb et al. (2014) show that metro, rail, and bullet trains are
not sensible mitigation options if the goal is to reduce emissions by 10 per cent by 2020—
indeed, they have no hope of achieving such a goal. However, they form a critical part of
an optimal emissions mitigation plan if the target is a 20 per cent reduction in emissions
by 2030. Such large infrastructure programmes take a long time, but have large effects,
and hence are appropriate to meet longer-term objectives.
Changing the Game
It is clear that policymakers have faced substantial challenges in getting prices in place
on natural capital such as biodiversity and the climate, where the issues are global and
long term. Carbon prices are too low, and even when economically sensible systems have
been put in place, there is no guarantee that the political conditions will enable them to
be sustained, as was experienced in Australia (de Lemos and Aydos, 2014). Biodiversity
Page 14 of 27
Green Growth
prices barely exist at all, and there is relatively little evidence of what policy interven
tions actually work and why (Miteva et al., 2012; Hepburn and Helm, 2014).
In many cases, these problems are encountered because the problems are global and pol
icymakers find themselves in a game somewhat resembling the prisoners’ dilemma. While
in reality the game is not quite as bad—unlike the prisoners’ dilemma there are repeat in
teractions, communication is possible, and side deals can be constructed—it is clear that
our collective record at playing global natural capital games is relatively poor.
Economic reasoning and analysis suggests, however, that our record need not be quite so
poor. Rather than hoping that the players will ‘see sense’, or that superior negotiators
will forge a deal, or that political pressure will come to the rescue, it may be more valu
able to step back and ask how the underlying structure of the game might be changed.
Changing the structure of the game is likely to lead to different strategies being adopted
by the players and different outcomes.
Along these lines, Nordhaus (2015) suggests the construction of a ‘climate club’—the sim
ple idea is that members should derive more benefit from joining the club than from re
maining outside. Club members would impose trade sanctions on non-members, similar to
the proposal of Helm et al. (2012), except that Nordhaus’ sanctions would be a uniform
percentage tariff on all imports into the club region. A major benefit of club membership
is therefore to avoid such trade sanctions. This benefit needs to be high enough to out
weigh the cost of joining, which would be the requirement that members impose a mini
mum carbon price, and Nordhaus (2015) suggests US$25–50/total CO2.
A somewhat different, but very promising, line of reasoning emerges from research by
Barrett and Dannenberg (2014). They run experiments in which the players can choose
the game before they play it. In their set up, players can play a coordination game or a
prisoners’ (p. 762) dilemma. The maximum possible pay-offs individually and collectively
are potentially higher in the prisoners’ dilemma than in the coordination game, but coop
eration is much harder to sustain and rapidly breaks down. In comparison, the (second-
best) coordination game delivers, in practice, better behaviour and substantially im
proved overall performance. Despite this, experimental results suggest that the players
start by aiming for the ideal, and then fail to achieve it. The disappointing experience of
their failing in the prisoners’ dilemma (a ‘push’ factor) and the expectation of better re
sults in the coordination game (the ‘pull’ factor) leads players to change the game.
Both lines of research suggest that changing the game to a ‘club’ holds out better
prospects for the protection of global natural capital, and hence green growth, because it
helps overcome problems of free-riding. However, Barrett and Dannenberg (2014)
emphasize the importance of simplicity and enforcement in their approach, and hence fo
cus on a club built around technology standards, rather than prices, that are easier to
monitor. An example of such an approach in the climate-change context might be a ban
on coal-fired power generation (Collier and Venables, 2013), or an emissions performance
standard on power plants (e.g. the beleaguered Clean Power Plan proposed by the Envi
ronmental Protection Agency in the USA). In the context of biodiversity, approaches to be
Page 15 of 27
Green Growth
considered include production standards set by creative coalitions of nation states and
corporations, mandating that consumer demand is met by supply chains that do not harm
to specific habitats and species. The challenge with such standards is to design them in
such a way as to discourage rent seeking and government capture (Helm, 2010; Hepburn,
2010).
Sensitive Intervention Points
The economic theory of green growth explored in the ‘Economic Theory of Green Growth’
section focuses on first-best policies to deliver optimal outcomes. In such utopias, social
planners can adjust prices to correct for all the market failures. In reality, of course, gov
ernments are unable to commit to environmental policies (Helm et al., 2003; Brunner et
al., 2012). Behavioural inertia, lock-in, and path dependence may prevent straightforward
implementation of policies (Aghionet al., 2014). Key institutions lack critical scientific in
formation, including about vital thresholds (Barrett and Dannenberg, 2014). Political con
sensus is elusive. Government failure is not uncommon for national problems (Helm,
2010; Hepburn, 2010), and the free-riding problems discussed in the previous section are
prevalent at the international level. Even apparently plausible solutions, such as the cli
mate club of Nordhaus (2015), face significant uphill struggles. Enforcement problems
make implementation of green growth policies difficult. Simply ‘getting the prices right’
is often not remotely possible, or it is at least very difficult, and may not even be a suffi
cient condition for success.
In reality, therefore, governments might be well advised to think less in terms of optimali
ty, and more in terms of system change, seeking intervention points within the system
that are sensitive and could deliver magnified results. Such ‘sensitive intervention points’
require going beyond second-best policies (Hallegatte et al., 2011), and thinking through
unintended consequences, such as the ‘green paradox’ (Van der Ploeg and Withagen,
2012). One example is the quite remarkable social and economic impacts of rapid techno
logical change. In particular, the cost of solar photovoltaic modules has dropped in price
(p. 763) by a factor of over 2000 since 1956. As shown in Figure 40.4, costs have fallen at
around 10 per cent per annum for the last thirty years (Farmer and Lafond, 2015), with
even greater cost declines in recent years. It is not far-fetched that increases in global
public spending on clean-energy research and development, from trivial levels of US$6
billion per annum (King et al., 2015), could have a significant effect on our ability to tack
le climate change at low cost.
Page 16 of 27
Green Growth
Figure 40.4 Progress in Solar versus Coal and Nu

clear.
Source: Farmer and Lafond (2016). ‘How Predictable

is Technological Progress?’, Research Policy, 45:3,
p647-665. This image is distributed under the terms
of the Creative Commons Attribution 4.0 Internation
al Licence (CC BY 4.0). https://creativecommons.org/
licenses/by/4.0/. For permission to reuse outside of
these licence terms, please contact the rights holder.
Consideration of the intervention points that are ‘sensitive’ in this manner is aided by an
awareness of the potential shifts in political and business decisions arising from new com
munication technologies. Heimans and Timms (2014) claim that the conjunction of new
digital and communication technologies is creating new forms of political, social, and eco
nomic power that are more distributed and less hierarchical. For our purposes there are
two key dimensions. Firstly, innovation is moving away from closed research laboratories
and into patent-free spaces, where crowd sourcing can play a large role. Innovation
prizes spur teams to compete with one another to solve socially important problems. In
2014, Tesla set a precedent (and a wise business decision) by making its patents freely
available to the public in order to spur the development of electric vehicle infrastructure
and innovation. In early 2015, Toyota followed Tesla’s example. Secondly, technologies
are enabling people to coalesce more quickly and easily around particular ideals, such
that incremental individual decisions can rapidly become large-scale social movements.
Combined with new distributed energy technologies, and peer-to-peer financing models,
solar and wind power technologies are, at a very small scale, turning households from
consumers to producers of electricity. (p. 764) Additionally, huge amounts of behaviour da
ta allow firms to apply machine-learning tools to help consumers save energy and opti
mize individual resource use. The list can go on. The key point is that these new technolo
gies and trends are shifting the points of leverage in systems that have appeared stub
bornly resistant to efforts to protect natural capital and transition to green growth.
Page 17 of 27
Green Growth
Conclusion
This chapter began by dismissing the two positions against green growth as implausible.
The notion that growth does not need to be ‘green’—that there are no real environmental
constraints—is not borne out by the data on climate change, biodiversity, fisheries, and
other unpriced natural capital. But, equally, these constraints do not imply that we must
halt economic growth. On the contrary, further innovation and technological progress,
along with careful navigation of the politics, will be required to overcome environmental
challenges. This only becomes more difficult in a recessionary or zero-growth environ
ment. As zero-growth is neither necessary nor desirable, green growth is trivially re
quired.
But the fact that green growth is required for long-run human prosperity does not make it
inevitable. Economic theory suggests that provided we have scope for continued techno
logical progress and a degree of substitutability between dirty and clean inputs, green
growth is feasible and in the long-run is even optimal. Such theory prescribes ‘getting the
prices right’ to ensure that the value to be generated from natural capital is maximized as
economic growth continues.
Empirically, however, the trends are adverse, and despite the considerable effort of poli
cymakers to slow them, very little has been achieved for key environmental challenges.
This is because reality diverges rather dramatically from optimal green economic growth
models. The problems are manifold, but perhaps the most fundamental underlying prob
lem is well understood: the incentives of the individual actors (whether nation states, cor
porations, or individuals) are at odds with social good. But although the problem is well
understood, compelling solutions have not, thus far, been forthcoming.
What might work? The two most promising avenues towards green growth lie outside the
optimality paradigm of economics. The first starts from the recognition that for interna
tional natural capital challenges, the problem is the underlying structure of the political
game itself. It is unrealistic suddenly to expect the players to play the same game in a dif
ferent way. Interventions would seek to change the structure of the game, from prisoners’
dilemmas to coordination games, focusing on highly pragmatic policies that are simple
and easy to enforce.
The second avenue is a systems-based approach that involves seeking ‘sensitive interven
tion points’. For instance, rather than attempting to protect natural capital directly by
bans, prices, or other such interventions, policies might accelerate the development of
appropriate clean technology, triggering greater system change. While challenges of gov
ernment capture and failure need to be kept in mind, so too do the emerging methods of
political and social transformation, themselves enabled by new digital technologies.
In sum, there is no compelling alternative for our economic systems other than a
(p. 765)
transition to green growth. It is necessary, feasible, and desirable. But green growth poli
cies for the Anthropocene are likely to require innovative policies that harness technolo
Page 18 of 27
Green Growth
gy, markets, and prices, coupled with a realistic assessment of political economy con
straints, and an acceptance of pragmatic, second-best solutions.
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Notes:
(1.) See https://www.gov.uk/government/speeches/address-to-the-green-growth-summit

(last accessed 13 August 2015).
(2.) Consider reducing greenhouse gas emissions, for instance. The set of current abate
ment technologies includes some that are very cheap—indeed nearly free—and others
that are much more expensive at around $1200/total carbon dioxide (tCO2), these all look
remarkably cheap when compared with cutting GDP. Current global GDP is, very roughly,
US$80 trillion per annum and global emissions are roughly 40 billion tCO2 per annum. On
average, therefore, each tonne of CO2 was associated with around US$2000 of output. An
abatement technology that cost US$2,000/tCO2 would not represent good value for mon
ey.
(3.) Fossil fuels do renew, in the sense that the processes that convert solar energy to bio
mass and then to coal, oil, and natural gas do continue to occur, but the timescales in
volves millions of years. Effectively, these resources are non-renewable, or exhaustible,
on timescales relevant to humans.
(4.) Peak minerals (achieving a maximum rate of production) should not be confused with
mineral resource depletion (elimination of the stock of resources). The former is a flow
concept, the latter refers to the state of the stock. Peak minerals could, in theory, sit
alongside steady-state resources, if discoveries equal production.
(5.) Note that overall demand for copper has continued to increase because of new uses
for copper, including in air conditioning and motor vehicle electronics (Gordon et al.,
2006).
(6.) We have also fitted exponential (growth) trends and the results are largely un
changed.
(7.) There are exceptions: forests are a renewable resource that, in developed countries,
are now increasing in area, arguably because of the merits of good governance and prop
erty regimes. In contrast, the atmospheric ‘sink’ for carbon dioxide is now understood to
be an exhaustible resource on human timescales (Allen et al., 2009) that is clearly under
threat because it is an open-access resource.
(8.) The ‘proposed’ boundaries are best viewed as high-quality early estimates. For in
stance, for climate change it now appears that damage is a function of peak warming,
Page 25 of 27
Green Growth
which is a function of cumulative carbon emissions, rather than atmospheric concentra

tions of carbon dioxide (CO2) or CO2 equivalent and radiative forcing (Allen et al., 2009).
(9.) Country’s per capita GDP and its level of environmental degradation—a so-called ‘en
vironmental Kuznets curve’ (Stokey, 1998; Brock and Taylor, 2010). We think that a robust
relationship that often emerged from theoretical models is unlikely to hold or serve as a
useful guide to policy (Hepburn and Bowen, 2013).
(10.) See http://www-istp.gsfc.nasa.gov/istp/outreach/workshop/thompson/facts.html (last

(11.) Such models are commonly referred to as having a KLEM (Capital (K), Labour (L),
Energy (E), and Materials (M)) production function. See, for instance, Berndt and Khaled
(1979) and Baptist and Hepburn (2013) for an application.
Cameron Hepburn
Cameron Hepburn ([email protected]) is Professor of Environ

mental Economics at the University of Oxford, based at the Smith School of Enter
prise and the Environment and the Institute for New Economic Thinking at the Ox
ford Martin School, and is also Professorial Research Fellow at the Grantham Re
search Institute at the London School of Economics and a Fellow of New College, Ox
ford. He is an economist with expertise in energy, resources, economic growth theo
ry, behavioural economics, and environmental economics. His work has been re
ferred to in publications such as The Economist and The Financial Times, and he has
been interviewed on television and radio in various countries. He has provided ad
vice on energy, environmental, and climate change policy to the UK Government
DECC Secretary of State Economics Advisory Group. He is also managing editor for
Oxford Review of Economic Policy.
Alexander Pfeiffer
Alexander Pfeiffer ([email protected]) is studying for a DPhil in Geography

and the Environment at the University of Oxford with a focus on stranded carbon as
sets and their effects on financial markets. He is also a research assistant for the In
stitute for New Economic Thinking (INET) at the Oxford Martin School. His main re
search interests are stranded carbon assets and the carbon bubble, energy policy, ef
fects of climate policies on financial markets, carbon taxes, and committed emis
sions.
Alexander Teytelboym
Alexander Teytelboym ([email protected]) is the Otto Poon Research Fel

low at the Institute for New Economic Thinking at the University of Oxford. Follow
ing completion of his DPhil in Economics from the University of Oxford, he worked
for one year as a post-doc at the Lab for Information and Decisions Systems at MIT.
His research interests focus on networks, matching markets, market design, and the
Page 26 of 27
Green Growth
environmental economics. He has published several policy papers on climate change,

transport, refugee resettlement, and transition economies.
Page 27 of 27
Pursuing Equitable Economic Growth in the Global South
Pursuing Equitable Economic Growth in the Global

South
Andrés Rodríguez-Pose and John Callum Wilkie
Economic growth is not an inherently equitable process. It has become clear that certain
groups of society are more consistently capable of reaping the benefits of economic
growth and that much of the interpersonal and territorial inequality that is especially per
vasive in the Global South is attributable to the pursuit and achievement of economic
growth in the absence of sufficient concern for notions of equity. This awareness has in
vigorated an interest in the development of a more comprehensive understanding of what
more equitable, inclusive economic growth might entail and how it can be achieved. This
chapter provides a multifaceted exploration of the notion of equitable economic growth
with a specific focus on the Global South. Firstly, it proposes a holistic, employment-ori
ented conceptualization of equitable economic growth. Secondly, it offers basic insights
into the operationalization of equitable economic growth and the suitability of different
strategic approaches for its pursuit and achievement.
Keywords: economic growth, inequality, Global South, local economic development, territorial approaches to de
velopment
Introduction
ACHIEVING economic growth has always been and remains of utmost importance to indi
viduals and policymakers at all territorial scales. It is only recently, however, that this in
terest in economic growth and the ‘quantitative dimensions of development’1 has been
tempered by a concern for more ‘qualitative development’ and for the character of the
economic growth being achieved. That is, policymakers and researchers alike are becom
ing increasingly attuned to the notions of equity and inequality, as well as to the frequent
failure of economic growth to enhance the livelihoods of all members of a given society
(e.g. Sala-i-Martin, 2002; Dunford, 2005; Kanbur and Venables, 2005; Milanovic, 2005,
2009, 2011; Organisation for Economic Co-operation and Development, 2011, 2015; Asian
Development Bank, 2012; Ranieri and Ramos, 2013; Bourguignon, 2015).
Page 1 of 26
A broad consensus is emerging around the need not only to tackle inequality, but also to
address the root of the problem and make economic growth itself more inclusive and eq
uitable (e.g. Asian Development Bank, 2008; World Bank, 2009a; European Commission,
2010; African Development Bank Group, 2013; Organisation for Economic Co-operation
and Development, 2014, 2015). That said, much work remains to be done to advance our
understanding of what more equitable economic growth entails and, more importantly,
how it can be achieved.
The contribution of this chapter is to provide a multifaceted exploration of the notion of

equitable economic growth with a specific focus on the Global South. More specifically,
the chapter pursues a twofold goal. Firstly, it develops a conceptualization of ‘equitable
economic growth’. Secondly, it provides insights into how equitable economic growth may
be achieved in the Global South, focusing specifically on the suitability of territorially spe
cific economic growth strategies.
The remainder of the chapter proceeds as follows: the next section, ‘Understand
(p. 771)
ing the Need for “Equitable Economic Growth” ’ introduces and explores the need for a
more equitable brand of economic growth in the Global South. The section ‘Conceptualiz
ing “Equitable Economic Growth” ’ conceptualizes the notion of equitable economic
growth. ‘Operationalizing “Equitable Economic Growth” in the Global South’ explores is
sues of relevance to the achievement of equitable economic growth in developing con
texts. The final section concludes by introducing avenues to be pursued in future re
search concerning equitable economic growth.
Understanding the Need for ‘Equitable Eco

nomic Growth’
Before formulating a robust definition for ‘equitable economic growth’, the immediacy of
the need for a more equitable brand of economic growth has to be highlighted. While de
livering a detailed exploration of economic inequality is beyond the scope of the chapter,
we aim to provide the foundations for a discussion of the need to conceptualize and oper
ationalize equitable economic growth.
The necessity of a more equitable form of economic growth—in the Global South, in par
ticular—is a product of at least three factors, all closely correlated. Firstly, economic
growth in the absence of a concern for equity has a documented propensity to dispropor
tionately benefit certain geographies and certain segments of society while leaving others
unaffected or even worse off. Secondly, the inherent biases of economic growth con
tribute to interpersonal and territorial inequality that is especially pervasive across the
Global South and in their urban environments in particular. Thirdly, inequitable economic
growth and, more precisely, the economic inequality it breeds have a host of implications,
the most prominent of which is the effect they have on sustained economic growth and
dynamism.
Page 2 of 26
The Inherent Inequity of Economic Growth
The relationship between economic growth and equity has been subject to extensive ex
ploration and debate. On the one hand, it has been stressed that the benefits of economic
growth will, in time, ‘trickle down’ and through the entirety of the socio-economic spec
trum. In turn, the trickle-down effect of economic growth will contribute to the alleviation
of poverty and the enhancement of the welfare of society—including its poorest and most
disadvantaged members and territories (e.g. Kuznets, 1955; Hirsch, 1980; Aghion and
Bolton, 1997). On the other hand, however, concerns have been raised about the extent to
which benefits may actually be realized by the bottom of the socio-economic pyramid (e.g.
Thornton et al., 1988; Arndt, 1983). Increasingly, theoretical and empirical contributions
linking growth to notions of equity and inequality report that economic growth is neither
an automatically equitable process nor does it deliver benefits that permeate all territo
ries and all tiers of society (e.g. Organisation for Economic Co-operation and Develop
ment, 2011; Asian Development Bank, 2012; Cingano, 2014).
Certain groups of society are more consistently capable of reaping the benefits of
(p. 772)
economic growth (e.g. Atkinson et al., 2011; Organisation for Economic Co-operation and
Development, 2011; Cingano, 2014). Wealthy individuals, as Kakwani and Pernia (2000, p.
3) highlight, tend to benefit the most from economic growth. The inherent advantages as
sociated with wealth, including higher levels of education and skills, as well as access to
capital, facilitate the accumulation of wealth in what seems to be an increasingly limited
number of hands (Piketty, 2014). Meanwhile, poorer people are not only more frequently
confronted by social, political, and institutional biases and impediments that bar them
from realizing the benefits from growth, but also suffer as a consequence of the develop
ment and implementation of pro-rich policies (Kakwani and Pernia, 2000, p. 4).
The same can be said of territories. Venables (2005, p. 4) observes that certain—often ur
ban—regions are more favourably positioned to both achieve and benefit from economic
growth as a result of their ‘first and second nature geographies’ and the advantages and
externalities that arise from them.
Examples of the inequitable tendencies of economic growth from the developing world
are numerous. Growing interpersonal and territorial inequality in China and Thailand pro
vide evidence of the failure of even robust, sustained, and seemingly durable economic
growth to benefit or enhance the well-being of the entire country.
China has achieved almost unprecedented economic growth in recent decades. However,
not all members of society have benefited from aggregate economic growth. A rising lay
er of rich individuals, as well as coastal China, have been the winners of this process. But
the majority of the Chinese population and those living in inland China, in particular, have
not profited in equal measure (Rozelle, 1994; Jian et al., 1996; Kanbur and Zhang, 1999,
2005; Yang, 2002; Fan et al., 2011; Knight, 2014). This failure of rapid economic growth
to yield more equal opportunities and ultimately equal benefit across the country raises
questions about the sustainability of the pursuit of pure economic growth without consid
eration for equity or distribution. Similarly, Thailand enjoyed a long period of relatively
Page 3 of 26
high growth based on the dynamism of its capital, Bangkok, which hosts more than 20
per cent of the country’s population. However, this economic growth has been accompa
nied by a level of polarization, which on an interpersonal and especially on a territorial
level, makes Thailand one of the most economically unequal countries in the world (Cis
tulli et al., 2014). Inequitable development has played a significant role in the political
stalemate affecting the country since 2006 and which is now seriously undermining its
growth performance and potential.
In short, it would seem that economic growth is not necessarily an inherently equitable
process. It is, as a result of both socio-economic and institutional factors and influences,
predisposed to benefiting certain segments of society to a disproportionately greater ex
tent, while leaving those who are in greater need unaffected or relatively worse off.
Inequitable Growth and Inequality in the Global South
One of the most immediate outcomes of the inequitable character of economic growth is
the entrenchment or worsening of inequality at various territorial scales. While economic
inequality exists in both developed and developing countries, interpersonal and territorial
inequalities are often especially pronounced and pervasive in developing contexts. (p. 773)
Figure 41.1 Gini Coefficients Among Selected Devel

oping Countries.
Note: ‘OECD’ Average drawn from Organisation for

Economic Co-operation and Development (2011).
Source: World Bank Gini estimates, World Develop

ment Indicators Database.
An indicative examination of Gini coefficients across countries confirms the pervasiveness

of interpersonal inequality in the Global South.2Figure 41.1 depicts the Gini coefficients
for a selection of developing countries. The average Gini coefficient of the generally
wealthier Organisation for Economic Co-operation and Development (OECD) countries is
provided for comparison on the left-hand side of Figure 41.1. It is evident that developing
countries are, on the whole, more unequal than their more developed counterparts. Coun
tries in Latin America, including Honduras (with a Gini coefficient of 0.537 in 2013),
Colombia (0.535 in 2013), Brazil (0.529 in 2013), and Guatemala (0.524 in 2011), and
Page 4 of 26
Africa, including South Africa (0.634 in 2011), Namibia (0.61 in 2009), and Botswana
(0.605 in 2009), stand out as especially unequal.
In much of the Global South, levels of interpersonal inequality (proxied by a country’s re
spective Gini coefficient) have remained more or less constant at or around the levels in
dicated in Figure 41.1, despite relatively high levels of growth between the mid-1990s
and the early 2010s. Sustained increases in levels of interpersonal inequality have, how
ever, been the norm in recent years and decades. The most notable of these is perhaps
China. Between 1987 and 2010 China’s Gini coefficient increased from 0.299 to 0.421,
despite rapid modernization, industrialization, and robust economic growth. Sizeable in
creases in interpersonal inequality have also been observed in, among other countries,
South Africa (0.593 in 1993 to 0.634 in 2011); Nigeria (0.387 in 1985 to 0.43 in 2009);
Bangladesh (0.269 in 1985 to 0.32 in 2010); and Indonesia (0.293 in 1987 to 0.356 in
2010).
Territorial inequalities are equally pervasive across the Global South. Figure 41.2 depicts
levels of territorial income inequality—measured using the second Theil index—across a
(p. 774) sample of developed and developing countries. Developed countries—represented
in darker shades—are generally more territorially equal, with the USA, Australia, and
Canada being among the most so. Developing countries, by way of comparison, display
significantly higher levels of territorial inequality. This is a sign that, like for certain lay
ers of society, certain territories within a country benefit to a disproportionately greater
extent from broader processes of economic growth than others.
Figure 41.2 Differences in Interpersonal and Territo

rial Income Inequalities Among Selected Countries
(Second Theil Index) (Author’s Elaboration and Cal
culation).
Source: Organisation for Economic Co-operation and

Development and various National Statistical Offices;
data for 2010 or closest year available.
As pervasive as inequality may seem at the national level across the Global South,
nowhere is it more pronounced than in developing urban environments. Cities of all sizes
across the industrialized and developing world have, in recent years, evolved into espe
cially dynamic environments (Dobbs et al., 2011). Ample evidence, however, suggests that
urban economic growth, in particular, is far from equitable (Sankhe et al., 2010; Zhuang,
Page 5 of 26
2010; Obeng-Odoom, 2012; Thorat and Dubey; 2012; Gustafsson and Quheng, 2013;
Gustafsson and Sai, 2013; Tripathi, 2013; Turok and McGranahan; 2013) and that this in
equality jeopardizes any potential economic benefits derived from urbanization (Sankhe
et al., 2010).
Cities thus remain characterized by high levels of inequality (income and otherwise),
poverty, and social exclusion. This is especially true for cities in the Global South, where
the emergence and growth of urban areas has, in many cases, been accompanied by the
growth of (and worsening conditions in) informal settlements and slums. This has given
rise to a host of societal challenges, as well as issues related to hunger, food security,
health, physical well-being, and access to education and opportunity, all of which ulti
mately stem from pervasive poverty and economic and social inequality (Baker, 2008;
Moreno et al., 2010). Urban economic growth in the Global South has been pervasively
unequal, benefiting those at the top of the pyramid to a much greater extent than others
and has given rise to galloping (p. 775) inequality often associated with unequal access to
basic services, as well as with social exclusion and societal polarization (Moreno et al.,
2010).
The most pressing question now relates to why, beyond moral imperatives, should we be
especially concerned with the pervasive and often increasing inequality?
The Socio-economic Implications of Inequality
The inequitable tendencies of economic growth are associated with a number of implica
tions and consequences. In the shorter term, inequality imposes serious social, political,
and environmental costs on society. Economic inequality can also jeopardize the mid- and
longer-term economic potential and dynamism of a given territory (Berg et al., 2008;
Sankhe et al., 2010; Berg and Ostry, 2011; Ostry et al., 2014; Cingano, 2014; Organisation
for Economic Co-operation and Development, 2015).
At least two recent empirical investigations have found robust evidence to suggest that
inequality can compromise future economic growth (Cingano, 2014; Ostry et al., 2014).
Ostry et al. (2014, p. 25) examine the relationship between inequality and growth across
a large sample of industrialized and developing countries and reach the conclusion that it
‘would still be a mistake to focus on growth and let inequality take care of itself not only
because inequality may be ethically undesirable but also because the resulting growth
may be low and unsustainable’. Cingano’s (2014, p. 28) investigation of OECD countries
over the last thirty years also revealed a ‘sizeable and statistically significant’ negative re
lationship between inequality and growth. It is on the basis of this finding that Cingano
(2014, p. 28) asserts that ‘focusing exclusively on growth and assuming that its benefits
will automatically trickle down to different segments of the population may undermine
growth in the long run inasmuch as inequality actually increases. Moreover … reversing
the long-run rise in inequality would not only make societies less unfair, but also richer’.
It is therefore plausibly inferred that the rampant interpersonal and territorial inequality
plaguing much of the Global South could evolve into yet another prominent impediment
Page 6 of 26
to the achievement of the growth and, more importantly, socio-economic development

that these countries are struggling to achieve.
While jeopardized economic dynamism is a concern the world over and at all territorial
scales, the prospect of slowing or compromised urban growth due to economic inequality
is of particular concern in the context of the Global South. Cities are increasingly per
ceived as the engines of economic growth and development (Quigley, 1998; Duranton,
2000; Fujita and Thisse, 2002; Glaeser, 2011). While this assertion is by no means univer
sally accepted (Bryceson et al., 2009; Turok and McGranahan, 2013; Fay and Opal, 1999;
Brückner, 2012) and there is some disagreement as to both the extent to which cities and
the types of cities have the capacity to drive economic growth (OECD, 2012; Parkinson et
al., 2012; Roberts, 2014), few dispute that cities of all sizes assume a critically important
role in the functioning of the global economy and do, in fact, influence the growth and de
velopment prospects of the regions and counties within which they are situated. It is not
surprising, then, that cities are often awarded privileged positions in economic growth
and development strategies, be they regional, national, or even supranational (see e.g.
the World Bank’s (2009b) World Development Report 2009). The implications of inequali
ty in developing urban contexts therefore extend well beyond the more intuitive immedi
ate social costs. The failure to (p. 776) address and rectify the aforementioned rampant in
equality in developing urban contexts could thus conceivably threaten future economic
growth and socio-economic development not only in cities, but also across regions and
countries given the ‘catalytic’ role cities play in broader processes of economic growth.
Taken together, the frequent failure of economic growth to deliver proportionate benefits
across the entirety of the socio-economic spectrum; the often widespread inequality it
contributes to; and, most importantly, the adverse effect of inequality on future economic
growth, give rise to an immediate need for economic growth of a more equitable nature
and for policies and strategies geared explicitly towards equity across the Global South.
Conceptualizing ‘Equitable Economic Growth’

The formulation of a robust conceptualization of equitable economic growth is an essen
tial first step not only for future scholarly pursuits in its direction, but also for the devel
opment and implementation of the policies that are and will increasingly be necessary to
promote and achieve economic growth that is more inclusive and ultimately beneficial to
a greater proportion of society. In an effort to provide such a definition, the following sub
section first explores the ways in which researchers and policymakers have contemplated
and assessed the equality and inclusiveness of economic growth through a brief examina
tion of pro-poor growth—a concept that is understood to serve as the foundation for much
of the thinking of equitable (Ranieri and Ramos, 2013)—and inclusive growth. Drawing
upon the reviewed literature, the section then proposes a functional conceptualization of
equitable economic growth.
Page 7 of 26
Pro-poor growth
The most suitable point of departure for an effort to conceptualize equitable economic
growth is pro-poor growth. The notion of pro-poor growth—or, more specifically, an inter
est in pro-poor growth strategies—arose from the recognition that economic growth dis
proportionately benefits certain groups within a population. In the simplest sense, pro-
poor growth is understood to be ‘[economic] growth that benefits the poor’ (Ranieri and
Ramos, 2013, p. 5). More nuanced conceptualizations of pro-poor growth have, however,
drawn a distinction between growth that benefits the poor and growth that benefits the
poor to a greater extent than it benefits the rest of society. Grosse et al. (2008) termed the
former ‘absolute pro-poor growth’ and the latter ‘relative pro-poor growth’.
While definitions inevitably vary in their specificities, distinguishing between absolute

pro-poor growth and relative pro-poor growth is based upon an evaluation of the distribu
tional outcomes of economic growth. Absolute pro-poor growth can conceivably occur in
the absence of an effect on inequality or the distribution of income in society. According
to conceptualizations of pro-poor growth adopting an absolute perspective, growth is un
derstood to be pro-poor if the poor benefit to any extent.
Relative pro-poor growth, however, can only occur if growth disproportionally

(p. 777)
benefits the poor—an outcome that is in opposition to the innate distributional tendencies
of economic growth addressed in the preceding section. As Ranieri and Ramos (2013, p.
5) assert, ‘poor people’s income [must] grow more than wealthier people’s income’ for
growth to be classified as pro-poor in the relative sense.
This distinction is particularly important in a discussion of equitable economic growth.

Generally speaking, conceptualizations of inclusive economic growth align (explicitly or
implicitly) with either absolute or relative pro-poor growth, in accordance with their view
of levels of and changes in inequality. The conceptualization of equitable economic
growth proposed later in this chapter is associated with a modified conceptualization of
relative pro-poor growth.
Inclusive Growth
Much of the literature on inclusive economic growth assesses what might be considered
as three dimensions of inclusiveness.3
Firstly, a relevant dimension of the inclusiveness of growth relates to who benefits from
(and, as discussed later, participates in) episodes of economic growth. Pro-poor growth
focuses on outcomes specifically for the poorest and most marginalized population groups
and emphasizes the relationship between poverty and economic growth. While some con
ceptualizations of inclusive growth have retained this prioritization of poverty, inclusive
economic growth is increasingly understood to both benefit and engage all of society—re
gardless of the initial level of income—rather than only its most marginalized citizens.
Klasen (2010, p. 2), for example, pointed out that inclusive growth benefits ‘all stripes of
society, including the poor, near-poor, middle-income groups and even the rich’. The ac
Page 8 of 26
ceptance of inclusiveness referring to all of society is reflected in the recent definitions of

inclusive growth adopted by the Asian Development Bank, the African Development Bank,
and the OECD.
In addition to a demographic dimension, conceptualizations of inclusive economic growth

assess it in terms of outcomes or, more accurately, the distribution of its outcomes. Out
comes are often income related. For example, inclusive growth according to Habito
(2009, p. 1) is economic growth (with gross domestic product its proxy) that directly ben
efits the poor and results in decreases in the level of poverty. Inclusiveness in this context
implies that economic growth benefits not only those who are better off, but also the poor
and marginalized of society.
Retaining a focus on outcomes, yet defining outcomes in terms of opportunity rather than
income specifically,4 Ali and Zhuang (2007) indicate that inclusive economic growth is
fundamentally about the creation of opportunities—opportunities in this context referring
to employment opportunities—and facilitation of widespread access to those opportuni
ties. The inclusiveness of economic growth may be measured via a ‘social opportunity
function’, as proposed by Ali and Son (2007). This function reflects both the average num
ber of opportunities available to a population and the distribution of opportunities. In re
taining a focus on the outcome of economic growth but emphasizing opportunity rather
than income, Ali and Zhuang’s (2007) conceptualization of inclusive economic growth rep
resents a significant departure from more traditional pro-poor growth approaches (e.g.
Ranieri and Ramos, 2013).
In addition to assessing the inclusiveness of growth in terms of its outcomes, sev

(p. 778)
eral conceptualizations also consider the inclusiveness of the growth processes. Ian
chovichina and Lundstrom (2009, p. 2) suggest that inclusive growth processes are
marked by their inclusion of and contributions from ‘a large part of the country’s labour
force’. Further reinforcing the importance of the inclusiveness of the growth process, the
authors also note that achieving inclusiveness through redistribution does not constitute
inclusive economic growth.
It thus becomes immediately apparent from a cursory review of the various conceptual
izations of both pro-poor growth and inclusive economic growth that there are several
factors that must be taken into consideration in the formulation of a robust, functional de
finition of equitable economic growth.
Defining Equitable Economic Growth
In the simplest, most intuitive sense, equitable economic growth is economic growth from
which all members, or certainly more members of society, accrue some benefit. The
growth is equitable in the sense that the outcomes of growth are more evenly distributed
across society.
Page 9 of 26
Unlike pro-poor growth, which focuses exclusively on poverty and the poor and marginal
ized segments of society, equitable economic growth—like more recent conceptualiza
tions of inclusive economic growth (Klasen, 2010)—is concerned with the outcomes of
growth as they pertain to society in general. This is not to say that special consideration
should not be made for the most marginalized groups of the population in light of the in
herent disadvantages associated with marginalization and the prevalence of structural
impediments inhibiting their capacity to benefit from economic growth (Kakwani and Per
nia, 2000, p. 3). Equitable growth must permeate all layers of society without harming
overall economic performance.
Merely asserting that equitable economic growth is growth, the outcomes of which are
realized by a broader portion of the population, offers little in the way of how this ambi
tious outcome is achieved. That is, it does not address the mechanisms through which
benefits are delivered.
Benefit, in the context of economic growth, refers to an increase in economic well-being

or income. The capacity to benefit directly from economic activity is understood to be
contingent upon capacity to participate in income-generating activities.5 Participation in
economic activity refers to employment. Thus, if someone is employed and participating
in an economic activity, they are receiving income and thereby benefiting from it.
Equitable economic growth, hence, refers not only to the growth of the economy, but also
to the creation of new employment opportunities, which allow more individuals to capture
directly the benefits of increased economic activity, and the expansion of an economy. The
creation of economic opportunity is not, however, sufficient to constitute equitable eco
nomic growth. Equitable economic growth, following the conceptualization of inclusive
growth forwarded by Ali and Son (2007), must also involve facilitating widespread access
to those opportunities.
The quality of the employment opportunities has also been highlighted as particularly im
portant in several conceptualizations of inclusive economic growth. Ianchovichina and
Lundstrom (2009) emphasize the importance of generating both employment and (p. 779)
productive employment. Similarly, Ali and Zhuang (2007) stress ‘decent employment’, cit
ing problems of underemployment, especially in developing country contexts, as well as
the link between decent work and productivity.
Closely related to the notion of decent employment is that of formality. The acknowledge
ment of and differentiation between formal and informal employment is critically impor
tant for developing an ‘employment-oriented’ conceptualization of equitable economic
growth that is readily applicable to the Global South, given the prevalence of the informal
sector in the developing world (Flodman Becker, 2004; Kessides, 2006). Informal employ
ment is not commonly considered to be or associated with decent employment (Interna
tional Labour Organization, 2002). Accordingly, advocacy for the creation of decent em
ployment as the mechanism through which equitable economic growth is achieved would
imply a focus on formal employment opportunities and the formal sector more broadly.
Page 10 of 26
Job creation in the informal sector in developing contexts, however, cannot be disregard
ed, given its magnitude and prominence.
Kessides (2006, p. 22) observes that ‘the informal economy workforce is estimated to ac
count for 78 per cent of non-agricultural employment in Africa, 93 per cent of all new jobs
created and 61 per cent of urban employment’. This prevalence, coupled with the ab
sence of suitable regulatory frameworks and institutions to promote the formalization of
the informal economy in many developing environments (Chen, 2012), gives rise to the
realization that focusing solely on the creation of formal employment in the pursuit of eq
uitable economic growth in developing urban contexts is not sufficient and neglects eco
nomic and social realities.
The promotion of equitable economic growth must then reflect an awareness of informali
ty and must include explicit measures to both empower individuals who are active in and
reliant on the informal sector, as well as to promote institutional reform and upgrading to
enable the formalization of informal economic activity. Together, such efforts will help to
not only harness the economic potential of the informal economy, but also permit individ
uals to transition from informal employment into formal, decent employment and reap the
socio-economic benefits associated with doing so. It may then be concluded that equi
table economic growth refers to more than the creation of employment opportunities.
More precisely, it is the creation of decent, productive employment opportunities in both
the formal and informal sectors, as well as the gradual formalization of informal econom
ic activity via institutional reform.
There are then, as Ali and Zhuang (2007) observe in their conceptualization of inclusive
economic growth, two requisites for equitable economic growth. The first is long-term
sustainable economic growth. ‘[H]igh and sustainable growth is key to creating produc
tive and decent employment opportunities’ (Ali and Zhuang, 2007, p. 12). The second is
what they term ‘social inclusion’ (Ali and Zhuang, 2007, p. 13), referring to efforts to en
sure that any potential barriers inhibiting individuals’ access to opportunities created via
economic growth are alleviated. Barriers may relate to attributes and abilities of an indi
vidual that would make them either more or less able to realize a newly created opportu
nity (these are addressed principally through investment in education, health, and social
services) or they may be more fundamental institutional or structural barriers (Ali and
Zhuang, 2007).
The creation of employment opportunities that enable more of the population to partici
pate in economic activities ensures that continued economic growth is inclusive not only
in the sense that it benefits a greater proportion of society, but also that the growth is
more (p. 780) participatory in nature (the inclusiveness of the outcomes and the process
are inevitably intertwined). Additionally, it is perhaps more sustainable because increased
employment reflects a more efficient use of local resources (Ali and Zhuang, 2007).
A final point relates to our conceptualization’s alignment with absolute or relative pro-
poor growth or, rather, its view of inequality. In the most literal sense, equitable economic
growth implies that each member of society benefits identically from economic growth.
Page 11 of 26
Such an outcome would however, as Ranieri and Ramos (2013) point out, leave inequality
unaffected and effectively perpetuate and reinforce the patterns of inequality in society.
Inequality and exclusion are, as addressed, widespread in the Global South and in cities,
in particular, presenting a host of challenges and potentially compromising the future
growth of cities and countries. The reduction of inequality must therefore be a feature of
Our conceptualization of equitable economic growth is thus aligned with relative pro-poor
growth. However, as mentioned previously, benefits to the poorest and most marginalized
must not come at the expense of the remainder of the population—gains for one group at
the expense of another would suggest possible inefficiency. Growth must raise all boats,
although it will raise some to a greater extent than others. This stipulation is critical.
Building on previous conceptualizations of inclusive economic growth,6 specifically their

emphasis on broad societal engagement and benefit and on the creation of opportunity in
the form of employment, we define equitable economic growth as:
Long-term sustainable economic growth that creates economic opportunity in the

form of decent and productive employment in both the formal and informal sec
tors that may be accessed by all of society regardless of economic status, gender,
or ethnicity, thus enabling all of society to both benefit directly from and partici
pate in economic activity and future growth.
Equitable economic growth should also benefit the poorest and most marginalized seg
ments in a society to a disproportionally greater extent and thus reduce inequality and ex
clusion, although not at the expense of the rest of the society.
An advantage of this conceptualization of equitable economic growth is that it lends itself

well to quantification. By prioritizing the creation and subsequent accessibility of employ
ment opportunities, both of which are easily measured and monitored, the equity of eco
nomic growth can be assessed more or less quantitatively and objectively. Quantifying eq
uitable economic growth as per the proposed definition will require the collection of data
for various statistical indicators, including indicators of economic performance and
growth (e.g. gross domestic product, gross national product, or gross value added); ag
gregate and industry- or sector-specific employment- and labour force-related indicators
(long-term, short-term, and cyclical unemployment or employment, labour force turnover,
and job creation); wage and income distribution-related indicators; and absolute and rela
tive poverty indicators and indicators of accessibility to basic services (e.g. health care,
education, or sanitation).
Finally, there are three additional points of considerable relevance to our conceptualiza
tion of equitable economic growth that must be emphasized. The first relates to its tempo
ral dimension. The second relates to notions of sustainability. The third to the tensions
and challenges associated with the pursuit of equitable economic growth.
Page 12 of 26
Efforts to promote equitable economic growth must adopt a longer-term perspec

(p. 781)
tive. The time frame for equitable economic growth efforts will vary in accordance with
the contextually tailored policies and strategies developed in light of the opportunities,
challenges, and overall conditions that characterize heterogeneous environments (De
partment for International Development, 2014). Time frames should trend towards the
longer rather than the shorter term.7 A longer-term orientation is necessary because
achieving equitable economic growth entails sustained economic growth, societal trans
formations, and more fundamental structural changes, as opposed to ‘quick fixes’. These
more profound changes can only occur in the medium-to-long terms through a sustained
and conscious effort led by governments, policymakers, and, often in many parts of the
Global South, international organizations (Rodríguez-Pose, 2013; Department for Interna
tional Development, 2014). The outcomes of equitable economic growth-oriented efforts
should therefore only be reasonably expected and assessed with an awareness of the
longer-term nature of equitable economic growth. The failure to adopt a medium- to-long-
term perspective can result in the misdirection of efforts and resources, as well as the
formulation of unrealistic expectations, both of which can undermine the achievement of
Additionally, sustainability must be taken into account. Both urbanization and urban eco
nomic growth can impose considerable costs on the future potential for development of
territories if a concerted effort is not made to address issues of sustainability and a holis
tic perspective that evaluates not only economic, but also social and environmental out
comes is not adopted (Turok and McGranahan, 2013, p. 479). Approaches and efforts de
signed to promote equitable economic growth must factor in sustainability to ensure that
economic growth is viable over the longer term (Department for International Develop
ment, 2014) and that, following the Brundtland Commission (World Commission on Envi
ronment and Development, 1987), it is not achieved at the expense of the future econom
ic growth and socio-economic well-being.
Finally, any discussion of equitable or inclusive economic growth inevitably raises ques
tions concerning the compatibility of the pursuits of equity and economic growth. More
specifically, it is entirely appropriate to consider whether equitable economic outcomes
come at the expense of economic growth or whether there is a trade-off between equity
and growth. It is conceivable, depending on the approach adopted, that equity and
growth are not automatically or immediately reconcilable. Accordingly, policymakers
must be aware of any potential tension between these two objectives and design and im
plement policies and strategies that reflect this awareness.
Within our definition, which stresses the creation of and subsequent facilitation of access
to economic opportunity, equity and growth are not only compatible, but are actually
complementary. In fact, the sought-after equitable outcomes cannot be attained without
robust economic growth (Ali and Zhuang, 2007, p. 12). This perspective is premised pri
marily on the acceptance that equity is not achieved via the ex post redistribution of eco
nomic growth outcomes. Rather, equity is achieved via the mobilization of available (hu
man) resources—in itself consistent with the pursuit of greater economic efficiency—and
Page 13 of 26
by ensuring that opportunity exists (and is readily accessible) for individuals to partici
pate in and therefore directly benefit from and even make a substantive contribution to
economic growth. Increased labour force participation—the main mechanism through
which equity is achieved—ultimately supports and could act as a catalyst for continued,
more economically sustainable growth.
Operationalizing ‘Equitable Economic

(p. 782)
Growth’ in the Global South

With the conceptualization and definition presented in the preceding section in mind, our
focus must now shift towards the operationalization of equitable economic growth in de
veloping and emerging contexts. There are two points of particular relevance here. The
first concerns the suitability of certain types of strategic approaches for the pursuit of eq
uitable economic growth. The second relates to challenges associated with the develop
ment, implementation, and execution of equitable economic development approaches in
the Global South.
Spatially Targeted Approaches for the Pursuit of Equitable Economic

Growth
While differences inevitably exist across the specific policies and strategies adopted in
the pursuit of economic growth and development in heterogeneous territories, most of
these approaches may be broadly classified as either ‘place-based’ (spatially targeted) or
‘spatially blind’ (Barca et al., 2012).8 Both place-based and spatially blind approaches rep
resent a departure from the generally top-down, supply-side-oriented policy approaches
favoured in the past (Barca et al., 2012). That is, however, where the similarities between
the two paradigms stop.
Spatially blind approaches are based on the notion that the processes that shape growth
and development are more or less uniform across space and that identifying the most vi
able opportunities for growth and development is a challenging if not impossible exercise.
This suggests that resources (financial and otherwise) are better spent ensuring that indi
viduals, regardless of where they live, have the capacity to both seek out and ultimately
capitalize upon economic opportunities, wherever they may be. Place-based approaches,
however, focus specifically on territories (and, by extension, the individuals that occupy
them) and are founded on the belief that there is a need to tailor policies and strategies
to address unique contextual conditions and reflect the opportunities, challenges, and re
sources that characterize a given territory’s ability to induce growth and development
that benefits its residents (Barca et al., 2012).9
Either of these policy approaches could be employed in the pursuit of equitable economic
growth—strong cases can be made for the utility of both, as evidenced by the endorse
ment of both practices by various international organizations. That said, spatially target
Page 14 of 26
ed approaches may be the most suitable avenue for the achievement of equitable econom
ic growth in developing and emerging contexts.
The advocacy for territorially specific policies in the pursuit of equitable economic growth
in the Global South is fundamentally based on the heterogeneity of developing environ
ments and the relevance of unique contextual conditions to the outcomes of development
strategies and policies (Pike et al., 2006; Ascani et al., 2012). Developing countries and
regions vary tremendously across a host of dimensions (e.g. economic, social, political,
and institutional), (p. 783) and no two environments are identical. If contextual conditions
shape processes of growth and development—an assertion that is validated by the inca
pacity of traditional, aspatial policies to deliver widespread success across diverse socio-
economic contexts (Pike et al., 2006; Ascani et al., 2012)—policies seeking to impel
growth and development, equitable or otherwise, must account for and, indeed, be tai
lored to the contextual conditions of every place. In that respect, it would seem as though
spatially targeted approaches are the only viable option for the pursuit of equitable eco
nomic growth and for coping with the diversity of contextual conditions that exist across
the Global South.
Within the broader classification of spatially targeted approaches, local economic devel
opment (LED) practices enjoy frequent and increasingly widespread support. There is am
ple evidence that confirms that LED approaches have the capacity to propel both econom
ic growth and more holistic socio-economic development across developing countries (see
e.g. Potter et al., 1999; European Commission, 2008; Rodríguez-Pose and Palavicini-Coro
na, 2013). It is important to note that LED approaches, like any development strategy, are
by no means assured of success. That said, there is cause for cautious optimism about
their potential to affect change and deliver growth and development. Rodríguez-Pose and
Tijmstra (2009, p. 112) capture this view, stating that although LED approaches ‘may not
be the panacea for development, an increasing number of cases are showing that they
may lead to a greater adaptability and sustainability in changing economic conditions’.
There is no universally agreed upon definition of LED (Rogerson and Rogerson, 2010;
Akudugu and Laube, 2013).10 That said, the various conceptualizations of LED tend to
share some similarities, the most notable of which are an implicit or explicit emphasis on
the engagement and participation of stakeholders from all sectors; local leadership and
ownership; the mobilization and (where relevant) sustainable exploitation of local re
sources and a marked territorial orientation (Rogerson and Rogerson, 2010). These defin
ing features lend LED a distinctly different character to both the top-down approaches re
lied upon in the past and to more modern spatially blind policies and make them more
amenable to delivering equitable economic growth in a diversity of developing contexts
than alternative approaches.
From a theoretical perspective, the most prominent reason for the endorsement of LED
strategies, specifically in the context of equitable urban economic growth in developing
environments, is that they mobilize and capitalize upon local potential to create a compet
itive advantage upon which a given territory, and the firms that occupy it, may rely in in
Page 15 of 26
creasingly open and competitive regional, national, and global economies (Vázquez-Bar
quero, 1999; Pike et al., 2006). The centrality of local potential implies that, as Vázquez-
Barquero (1999, p. 85) notes, ‘economic development does not necessarily have to be po
larized and focused in large cities’ or, more broadly, focused only in a handful of select
territories. Because LED approaches rely on the mobilization of local potential and the
development of approaches that are reflective of both this local potential and other local
contextual conditions, they are conceivably viable across territories of various levels of ex
ante favourability—developed and less developed, urban and non-urban. Moreover, it has
been suggested that outcomes of LED approaches may also be more economically sus
tainable or enduring as a result of their embedding of economic activity rather than sim
ply attracting it in a given territory and the extent to which they target, and work within
the confines of, fundamental contextual conditions with a view to ‘[improve] the produc
tive context’ (Vázquez-Barquero, 1999, p. 84).
Executing Equitable Economic Growth Strategies in the Global

(p. 784)
South: Mitigating Challenges and Overcoming Obstacles
The pursuit of equitable economic growth in developing contexts faces considerable chal
lenges in the design and implementation of policies. The nature of the barriers faced by
economic growth and development strategies will vary greatly depending on the starting
conditions of the territories in which they are implemented. There are, however, two re
lated pitfalls to which strategic approaches in developing contexts seem especially sus
ceptible—technical capacity constraints and financial constraints.
There is ample evidence to suggest that technical capacity constraints, that is, a lack of
expertise, practical experience, and knowledge, and financial constraints, that is, a lack
of financial resources attributable to perhaps insufficient political commitment or the fail
ure to establish partnerships in an effort to mobilize financial resources, can undermine
the implementation and, in some cases, even the initial formulation of economic growth
approaches across the Global South.
The African experience perhaps best exemplifies this argument. In South Africa, for ex
ample, the ‘mixed or uneven’ (Rogerson, 2014, p. 215) outcomes of urban growth strate
gies employed across the country are commonly attributed to debilitating constraints in
certain contexts and sufficient availability of necessary resources in others (Nel and
Rogerson, 2007; Nel et al., 2009). In other words, sufficiently capacitated urban areas,
such as Cape Town, Johannesburg, or Durban, have been able to develop and then imple
ment pro-growth, competitiveness-oriented LED approaches that resulted in the achieve
ment of ‘a level of systemic competitiveness that is relatively high, even compared with
other middle income countries’ (Meyer-Stammer, 2008, p. 15). By contrast, as Nel and
Rogerson (2007, p. 6) observe, ‘success appears “sporadic” ’ outside of these sufficiently
capacitated environments.
The detrimental effects of various constraints on the outcomes of urban policies are
equally visible outside of South Africa. In parts of Ghana, the absence of personnel with
Page 16 of 26
sufficient policy knowledge and experience and a lack of funding and inadequate control
over the expenditure of the minimal financial resources available, coupled with chal
lenges associated with aligning the interests of various parties and establishing a single
vision, has severely hampered policy implementation (Akudugu and Laube, 2013). The
consequences of financial constraints are also evident in Zambia, where a lack of finan
cial resources (as well as technical capacity constraints) has inhibited the implementation
of local development strategies and action (Hampwaye, 2008; Hampwaye and Rogerson,
2010).
It is important to note that these constraints can be overcome and that there are several
options for doing so. These include the formation of public–private partnerships that per
mit both the distribution of the financial burden of development projects or initiatives
across more, perhaps better-resourced, actors, as well as the sourcing of technical exper
tise from the private sector where skills tend to be more abundant (see e.g. Gibb and Nel,
2007); the establishment of local economic development agencies composed of sufficient
ly trained personnel with the capabilities and expertise necessary to design and execute
development strategies (Rogerson, 2011; Lawrence, 2013); or capacity-building initiatives
that (p. 785) provide those tasked with overseeing development strategies with the skills
necessary to do so (Rodríguez-Pose and Tijmstra, 2007). Consequently, the identification
of and consideration for contextually imposed constraints as an element of the policy
planning and design process, and the incorporation of initiatives to address them, is es
sential in order to ensure that what may otherwise be a sound strategy is not derailed by
what would seem relatively easily foreseen challenges.
Concluding Remarks: Where Do We Go From

Here?
This chapter forays into the development of an understanding of equitable economic
growth. It has aimed to provide a holistic, employment-oriented conceptualization of equi
table economic growth on the basis of previous research, as well as basic insights into the
operationalization of equitable economic growth focusing specifically on the suitability of
different strategic approaches for its pursuit and eventual achievement. In doing so, it
has further opened the door for subsequent research and exploration.
The chapter also reflects the greater interest in pursuing equitable and/or inclusive eco
nomic growth displayed by various regional institutions and international organizations.
The African Development Bank Group, the Asian Development Bank, the Development
Bank of Latin America, and the European Commission, for example, have all made a con
certed effort to conceptualize inclusive economic growth and have prioritized its pursuit
in their respective strategic plans. Similarly, the OECD, the World Bank, and the United
Nations Development Programme, among others, have engaged substantively with the
notion of inclusive economic growth and have directed time and resources to its study
and promotion. There remains, however, a need for research and investigations of a more
Page 17 of 26
academic nature to complement the robust, but not yet sufficient, work of the aforemen
tioned policy-oriented institutions.
More precisely, further theoretical engagement with the notion of equitable economic
growth will be necessary in order to add greater depth and nuance to our collective un
derstanding of economic development across the world and particularly in the Global
South. Subsequent research should follow the work of Rauniyar and Kanbur (2010),
McKinley (2010) and Klasen (2010), and consider ways in which equitable growth may be
linked to or could promote more equitable or inclusive economic development. Future re
search must also adopt a conceptualization of equitable economic growth that targets
specific goals and leads to viable strategies and measurable outcomes. The conceptualiza
tion provided in this chapter represents a starting-up point and can serve as a base for fu
ture empirical approaches to explore the dynamics of, and the multitude of factors that
shape, processes of equitable economic growth across a diversity of geographic and so
cio-economic contexts. Further theoretical and empirical research of the sorts highlight
ed here will be absolutely essential not only to advance our scholarly understanding of
equitable economic growth, but also, and more importantly, for the eventual formulation
of evidence-based policies that promote a more equitable brand of economic growth in
the Global South and beyond.
(p. 786) Acknowledgements

This chapter draws heavily on the research on equitable economic growth in cities con
ducted by both authors at the request of the Cities Alliance. The findings of this research
can be found in Rodríguez-Pose and Wilkie (2015).
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Notes:
(1.) Pike et al. (2007, p. 1260) distinguish between quantitative and qualitative dimen
sions of development. The former ‘concern numeric measures, for example, a per capita
growth rate of gross domestic product’. The latter ‘relates to the nature of local and re
gional development, for example the sustainability (economic, social, environmental) and
forms of growth, the type and “quality” of jobs, the embeddedness and sustainability of
investments, and the growth potential, sectoral mix and social diversity of new firms’.
(2.) Higher Gini coefficients correspond to higher levels of inequality. The Gini coefficient
is by no means a perfect indicator of interpersonal inequality. That said, it is a useful tool
for shaping indicative insights into patterns of inequality to inform the remainder of this
chapter).
(3.) Recent definitions of equitable, inclusive, and/or sustainable growth have tended to
prefer the term ‘inclusive’.
(4.) Opportunity and income, however, are intimately related, as addressed in the next
sections.
(5.) One may benefit more indirectly from economic growth through income redistribu
tion. The achievement of a more equitable or inclusive distribution of the outcomes of
economic growth through redistribution does not, however, constitute inclusive growth
(Ianchovichina and Lundstrom, 2009).
(6.) We have limited the analysis to equitable economic growth rather than adopting a
more holistic perspective that considers equitable economic development. A conceptual
ization of equitable economic development, derived from our conceptualization of equi
table economic growth, follows Rauniyar and Kanbur (2010), McKinley (2010), and Klasen
(2010) in incorporating ‘non-income dimensions’ (Ranieri and Ramos, 2013, p. 8), includ
ing widespread access to basic services. A more robust engagement with the notion of eq
uitable economic development is beyond the scope of this chapter but will likely be an in
tegral part of future equitable economic growth-related efforts and exercises.
(7.) Department for International Development (2014) acknowledges that there are excep
tional contexts and circumstances where a short-term orientation may be appropriate. It
is implied, however, that the short-term focus should evolve into a longer-term one as
conditions improve.
Page 25 of 26
(8.) Place-based policies are most commonly associated with the Barca (2009) report enti
tled ‘An Agenda for a Reformed Cohesion Policy’ and the OECD (2009) report How Re
gions Grow, whereas spatially blind policies are often associated with The World Bank’s
World Development Report—Reshaping Economic Geography (2009b).
(9.) For a concise, comprehensive description and comparison of placed-based and spa
tially blind approaches, see Barca et al. (2012).
(10.) The International Labour Organization (2006, p. 2) defines LED as a ‘participatory

development process that encourages partnership arrangements between the main pri
vate and public stakeholders of a defined territory, enabling the joint design and imple
mentation of a common development strategy, by making use of the local resources and
competitive advantage in a global context, with the final objective of creating decent jobs
and stimulating economic activity’.
Andrés Rodríguez-Pose
Andrés Rodríguez-Pose ([email protected]) is Professor of Economic Geog

raphy at the London School of Economics, where he was previously Head of the De
partment of Geography and Environment. His research interests include regional
growth and inequality, fiscal and political decentralization, regional innovation, and
development policies and strategies. In his areas of expertise, he has regularly acted
as a consultant to several Directorates of the European Commission, the European
Investment Bank, the World Bank, the Cities Alliance, the Organisation for Economic
Co-operation and Development, the International Labour Organization, and the Food
and Agriculture Organization. He has also published more than 150 papers in peer-
reviewed journals, is an editor of Economic Geography, and sits on the editorial
board of twenty-nine other scholarly journals. He is also the author of several books
such as Local and Regional Development (with Andy Pike and John Tomaney), Inno
vation and Regional Growth in the European Union (with Riccardo Crescenzi), and
Technology and Industrial Parks in Emerging Countries (with Daniel Hardy).
John Callum Wilkie
Callum Wilkie ([email protected]) is a researcher at the Local Economic Develop

ment Programme at London School of Economics. His areas of research and exper
tise include regional growth and development; equitable and inclusive economic
growth; regional innovation and innovation policy; and territorial development poli
cies and strategies.
Page 26 of 26
Just Growth: Strategies for Growth with Equity

Karen Chapple
Increasing income inequality and the rescaling of the state have shaped the rise of vari
ous strategies to achieve more equitable and inclusive local and regional growth. The two
basic approaches to growth with equity are increasing regional economic growth and
then redistributing the benefits, or reducing inequality directly by providing a safety net
and/or building new capabilities, in the hopes of spurring growth. The first approach finds
its theoretical underpinnings in regional economic development, while the second grows
more from local and community economic development. Both strategies have proven chal
lenging to implement in practice. With inequality likely to increase, regions will need to
continue developing inclusive growth strategies. Understanding how to develop intention
al strategies for inclusive growth is an important area for comparative research by eco
nomic geographers.
Keywords: inequality, regional economic development, just growth, inclusion, community economic development
The Emergence of Strategies for Growth with

Equity
AGAINST a backdrop of increasing income inequality, accompanied by the ongoing rescal
ing of the state, recent decades have seen the rise of a dizzying array of strategies to
achieve more equitable and inclusive local and regional growth. In response to a chang
ing federal role—most obviously in North America, but also in the European Union, Latin
America, and Asia—actors from civil society, government, and business, working either
through consensus or political conflict, have enacted more inclusive policies and pro
grammes. In some cases, these actors are essentially advancing an agenda for city and
regional competitiveness with the idea that benefits may trickle down to the less advan
taged (Brenner and Wachsmuth, 2012). In others, strategies for inclusion are explicit and
intentional, with efforts often initiated from the grass roots.
Page 1 of 21
This development has in some ways caught economic geography off guard. Through much
of the twentieth century, theories of regional economic development sought to explain
why some regions prosper and others falter. Although points of contention remain, few
would disagree that three keys to growth are a competitive export base, entrepreneur
ship and innovation, and urban agglomeration. Yet, these understandings crystallized dur
ing a bygone period of global development, the post-World War II decades of great pros
perity. In the USA in particular, with the labour-management bargain in place providing a
‘productivity dividend’ for workers, growth meant a burgeoning middle class. But in
today’s context of rising inequality, across both advanced industrialized and developing
countries, these theories fall short in their implied prescriptions for action. While exports,
entrepreneurship, and agglomeration all grow the pie or increased incomes, they have
struggled at incorporating the disadvantaged into the mainstream. This, then, has chal
lenged the field of economic geography itself, which is continually pushed by critical ge
ography to acknowledge these marginalized voices.
This chapter describes two basic approaches to growth with equity—defined here,
(p. 793)
as in most of the literature, as economic inclusion (rather than racial or social justice)—
that cities and regions are adopting, depending on the regional and national context. The
first type focuses on regional economic growth: first growing the pie, and then redistrib
uting the benefits. Strategies for inclusion might seek ways of linking disadvantaged
groups to growth sectors. For example, regions might develop business clusters connect
ed to workforce development programmes, or facilitate real-estate development, but with
community benefits such as construction jobs. Countries guided, in part, by neo-liberal
ideology, like the USA and the UK, tend to follow this model at both the national and re
gional scales.
The second type attempts to reduce inequality directly, with the expectation of ‘just
growth’: the idea is to create a floor for equity by providing a safety net and/or building
new capabilities, which will increase growth at the same time (Pastor et al., 2000; Eberts
et al., 2006; Benner and Pastor, 2012). Inclusion here typically builds on a base of local
participation, supported by a strong national welfare state. These strategies may supple
ment or distort markets, for instance by supporting local entrepreneurs through govern
ment purchasing set-asides, or creating a minimum wage floor. Countries in Europe, par
ticularly Scandinavia, and Latin America tend to adopt this approach, but, increasingly,
regions within advanced industrial countries do as well (Benner and Pastor, 2012).
Although regional competitiveness matters—stronger markets can afford to be more in

clusive—the strategies adopted depend on the unique characteristics that each region de
velops over time based on its economic strengths and institutional environment (Storper,
2013). Interaction processes within the economy—networks, labour markets, knowledge
transfers, and so forth—create a complex web of institutions that shape choices about in
clusion. Increasingly, heightened pressures on disadvantaged communities from global
climate change are also affecting how regions pursue inclusion.
Page 2 of 21
The following first examines the overall context for the emergence of strategies for equi
table growth, that is, the rise of inequality. After providing a brief overview of theories of
regional and local economic development, the chapter describes the two types of strate
gies. A conclusion examines the significance for economic geography and the likely evolu
tion of the field.
Context: Inequality and Growth

Intentional strategies for growth with equity began emerging in developed countries with
deindustrialization, as economies experienced a new surge in inequality. The rise of low-
wage work exacerbated inequality, with uneven effects across regions. With the rescaling
of the state leading to new openings for governance, many cities and regions began ex
perimenting with new approaches to equitable growth. Ironically, the model that many
pointed to came from developing or newly industrialized countries, particularly in Latin
America but also South East Asia, where high growth rates were coupled with a strong
welfare state (Benner and Pastor, 2012). The following looks first at the context for rising
inequality, and then explores the underpinnings of the ‘just growth’ paradigm.
(p. 794) Restructuring and Inequality
As the global economy continually reinvents itself, cities, and regions restructure them
selves, shifting to one economic base from another. When regions succeed in restructur
ing from manufacturing to services, they tend to experience increasing income inequality
(Harrison and Bluestone, 1988). This pattern is particularly pronounced in countries such
as the USA, Canada, and the UK, which have also experienced the retrenchment of gov
ernment in the neo-liberal era.
Deindustrialization first hit the leading manufacturing regions of the USA and other in
dustrialized countries in the 1970s, and now seems to be affecting other areas such as
Latin America, as well, albeit for different reasons (Bluestone and Harrison, 1982;
Kollmeyer, 2009; Brady et al., 2011). By the end of the twentieth century, a new phase of
restructuring had also led to the information age, with a new informational mode of de
velopment (Castells, 1996).
This meant a shift in job quality as well, as regions have experienced a net gain of low-
wage work. Scholars have invoked technological, as well as institutional, explanations for
the shift. The skill-biased technological change perspective argues that the introduction
of new technologies (e.g. computers) resulted in rising demand for college-educated
workers—and real-wage declines for less educated workers (Katz and Murphy, 1992). The
institutional explanation focuses on the transformation of the governance of the labour
market. The so-called Fordist era, roughly 1946–1973, had brought rising real wages, pro
ductivity growth, oligopolistic competition among large firms, and relative labour peace
(Osterman, 1999). Accompanying this was a set of norms shared by employers and a
largely unionized industrial workforce that embraced workplace practices such as inter
nal job ladders and a productivity ‘dividend’ to workers. When these institutions broke
Page 3 of 21
down in the 1970s, following the fall of the Bretton-Woods system, income inequality in
creased. Corporations began regularly shedding large portions of their core workforce,
increasingly relying upon a flexible, contingent pool of workers whose earnings are
forced down by stiff competition, often from abroad (Appelbaum et al., 2003).
Most economists did not anticipate the rise of income inequality. According to the
Kuznets curve, inequality should rise as economic growth accelerates, and then will de
crease as average incomes begin gaining from the new prosperity. From the perspective
of Simon Kuznets—one from the developed world in the 1950s—this seemed like a reason
able hypothesis, and many countries in continental Europe (as well as Japan) have shown
declining income inequality as expected (Alvaredo et al., 2013). But, in reality, countries
have followed a variety of development paths (Stern, 2004). Although the twenty-first
century has brought about declining inequality in many countries with high growth rates,
high levels of inequality have persisted in Latin America, Southern Africa, and, most re
cently, China (Economic Commission for Latin America and the Caribbean, 2010; The
Economist, 2013). Yet in the countries of East Asia, a growing middle class is benefitting
from the reinvestment of capital into programmes that support equality, such as universal
education (Stiglitz, 1996), while the number living in poverty has decreased.
Institutions play a powerful role in shaping income inequality, accounting for the different
rates of inequality among high-income countries with similar development trajectories
(Alvaredo et al., 2013). In the USA and UK, four factors account for high inequality:
favourable tax rates for the rich, generous executive pay, inherited wealth, and capital
(instead of earned) income (Alvaredo et al., 2013). Because of inherited privilege, there is
less (p. 795) intergenerational mobility in the USA than in most advanced industrialized
countries, that is, the children of the rich tend to stay rich, while children of the poor stay
poor (Mishel et al., 2006).
This rising inequality has a price. As income shifts from the bottom to the top, consump
tion declines, as higher-income households save more of their income. This then curtails
government spending, just as additional investment in education, technology, and infra
structure is needed in order to facilitate upward mobility. As a result of the growth in
poverty and loss of the middle class, economic efficiency and growth decline, and soci
eties become more unstable (Stiglitz, 2012).
Economic restructuring benefits some regions and affects others less able to retool their
economies. Uneven development is a key feature of capitalist industrialization, as capital
seeks out greater profits (Storper and Walker, 1989). In the last half of the twentieth cen
tury, plant closings and high unemployment in areas like the Rustbelt in the USA helped
accelerate a shift in population and employment to the South and West, while new com
mand-and-control centres for the global economy emerged in select metropolitan regions
(Sassen, 1991). Although both technological change and global trade influenced these
shifts, the two forces have affected regions differently, with information technology trans
forming jobs in larger cities like Chicago and trade affecting the regions with more
labour-intensive manufacturing plants (Autor et al., 2013).
Page 4 of 21
Uneven development is also resulting from the growth of innovation sectors, such as in
formation technology or biotechnology, in select metropolitan areas—what Moretti (2012)
calls ‘innovation hubs’. Innovation might be described as an epistemological transforma
tion, or new knowledge, that combines resources to create new products or services that
reach markets. Hubs emerge not just because of the classic pattern of urban agglomera
tion—firms clustering in order to benefit from shared knowledge, markets, and inputs—
but also because of the ‘creative class’ dynamic: innovative places attract the very highly
educated workers who are in short supply, in turn attracting more firms (Florida, 2002).
This type of cluster creates particularly high multiplier effects—the growth of tradable ex
port sectors creates new demand for inputs and also goods and services for the workers
and their households (Moretti, 2012).
The overall effect of hubs is to grow the local economy rapidly, driving up local housing
prices and wages. But the metropolitan regions without this innovative upward spiral are
left further and further behind, with negative impacts on regional opportunity structures.
For instance, intergenerational mobility declines with income inequality, lackluster
growth, and poor social capital (Chetty et al., 2013).
Thus, in many regions of the world, increasing inequality accompanies rapid growth. Yet,
most agree that growth itself is necessary for economic inclusion. This creates a new po
litical imperative to ensure that some of the benefits of growth accrue to the less advan
taged. How do we design strategies for growth with equity? A better understanding of the
relationship between inequality and growth gives us some preliminary conclusions.
Inequality, Growth, and the Role of Policy
Research has yielded mixed results on how inequality affects growth, with some finding a
negative relationship and others a positive. Lopez and Servén (2009) suggest that con
flicting (p. 796) findings may be due to the use of cross-sectional versus panel data, differ
ent national contexts, or a non-linear relationship between the two.
Despite these uncertainties, there are indications that adopting strategies to reduce in
equality will have a positive effect on growth. A growing body of evidence from World
Bank and International Monetary Fund research on developing countries suggests that
lower levels of inequality, supported by investment in education, increase the amount and
duration of growth (Birdsall et al., 1995; Berg et al., 2012). It seems that poverty alone—
even controlling for inequality—slows growth, mostly by deterring investment (Lopez and
Sérven, 2009). This raises the intriguing possibility that reducing inequality and/or pover
ty results in higher economic growth at the regional level as well. Only a few studies have
looked at the efficacy of reducing inequality as a growth strategy for regions—but the
preliminary findings are positive. Firstly, higher levels of inequality mean less per capita
income growth, and, secondly, as inequality decreases, higher growth results (Pastor et
al., 2000; Eberts et al., 2006; Benner and Pastor, 2012).
Page 5 of 21
Writing from the national perspective, Stiglitz (2012) points to Brazil under Presidents
Enrique Cardoso and Luiz Inácio Lula da Silva as an example of how to reduce inequality
while still increasing growth. Underlying the transformation in Brazil were cash transfers
to the poor (the Bolsa Familia), aid to alleviate hunger, and state investments in educa
tion, particularly for the poor. Stiglitz makes the case for an array of intentional policies
to reduce inequality, with public investment to help those at the bottom reach their poten
tial.
At the regional level, Benner and Pastor (2012) have led research on strategies for growth
with equity, which they define in terms of economic inclusion. They identify four structur
al factors behind growth with equity: political consolidation (among cities or between city
and county), economic diversity, public-sector employment, and a strong Black/Latino
middle class. With these factors in place, implementation of equitable strategies occurs
via the formation of epistemic communities, processes (or organizations) that convene di
verse stakeholders in a dialogue that builds understanding of diverse perspectives and
priorities, and, ultimately, a shared vision for the region. The regions that are most effec
tive at growth with equity will be those with a stable employment base that form these
epistemic communities, and typically with stable leadership. The question, then, is which
strategies should they pursue? We turn next to the toolkit of local and regional economic
development strategies.
Theories and Strategies for Inclusive Growth

The two basic approaches to growth with equity are increasing regional economic growth
and then redistributing the benefits, or reducing inequality directly by providing a safety
net and/or building new capabilities. The first approach finds its theoretical underpin
nings in regional economic development, while the second grows more from local and
community economic development.
(p. 797) Regional Economic Development: Growing the Pie
Theories about regional economic development abound, with considerable consensus

about how regions grow. Yet, there is still considerable uncertainty about how to grow eq
uitably, that is, to produce high-quality jobs and connect a region’s less advantaged resi
dents to opportunity. Of the many factors behind regional economic development, this
section looks at three—exports, agglomeration, and entrepreneurship—and their relation
ship to equity.
Exports
As Douglass North argued in 1955, regions grow through new exogenous demand for ex
ports, which spurs a cycle of growth. To meet demand, jobs and production must in
crease, from which new sales bring revenue to pay the workers and proprietors. That in
come translates into more local consumption of goods and services from ‘residentiary’ in
dustries (North, 1955). Meanwhile, the growth of the export sector spurs the develop
Page 6 of 21
ment of related local industries, such as production inputs. Regions can influence how
growth occurs by helping to reduce production costs (e.g. through investment in trans
portation or human capital).
Export strategies are not a simple recipe. Some regions never become successful ex
porters, while others export for centuries but become over-specialized, or never manage
to diversify and industrialize. The impact of exports is much weaker for larger regions,
which can grow on the basis of internal trade (e.g. New York City) (Tiebout, 1956). Sup
ply factors in a region—such as government expenditures, non-economic migration,
changing consumption patterns, or local industry structure—will shape how effectively it
responds to export growth (Tiebout, 1956; Chinitz, 1961).
Even if export-driven strategies succeed, there is little guarantee of job quality or fit for
disadvantaged residents. In fact, regions driven by export demand are particularly sus
ceptible to competition from other low-cost regions around the world, the challenges of
keeping pace with technological change, and, in the case of resource-based economies,
the depletion of natural resources (Jacobs, 1984).
Agglomeration
As regions grow, external economies develop to improve their competitive position. With
a number of firms in the same industry, or localization economies, suppliers begin locat
ing nearby to provide ancillary services, such as marketing, access to credit, and legal
services. Workers with specific skills migrate to the area. The proximity of this cluster of
firms leads to knowledge sharing and spillovers, an idea Porter (1998) later adapted to
become his clusters, or geographical concentrations of interconnected companies and in
stitutions that create the specializations that drive regional competitive advantage and
growth.
Another form of external economies is urbanization economies, in which the higher vol
ume of economic activity in an urban area (i.e. urban size) helps to drive down costs as
urban services and infrastructure—as well as the market—expand. By relying on outside
suppliers and sharing facilities, businesses can cope with uncertainty.
Localization economies increase specialization, while urbanization economies in

(p. 798)
crease diversity (Jacobs, 1969). The debate remains whether specialization or diversity is
optimal for economic inclusion; no research has examined how diversity and specializa
tion reshape the income distribution and income inequality (Dissart, 2003). The evidence
suggests that regional economic diversity increases job growth (Glaeser, 2000; Dissart,
2003; Feser et al., 2008; but see Porter, 2003). However, the preliminary evidence on per
capita income growth points to specialization as the means to improving income levels
(Dissart, 2003; Porter, 2003; Pede, 2013).
Thus, urban agglomerations are able to grow the pie and raise regional incomes. In terms
of equitable growth, diverse regions may provide more job opportunities, while special
ized regions may succeed better at raising incomes. The higher levels of accessibility and
interaction that proximity provides may also reduce the barriers that disadvantaged
Page 7 of 21
workers face in competing for jobs. At the same time, the downside of agglomeration is
the higher cost of living; as labour and housing costs rise and congestion increases,
chances for inclusion may diminish.
Entrepreneurship
A related factor in regional economic growth is entrepreneurship. When firms organize to
allow for rapid learning, experimentation, and adjustment, knowledge spillovers—and
thus agglomeration—increase. The paradigmatic example of Silicon Valley shows how
loosely organized networks of actors—buyers, suppliers, competitors, and related institu
tions—can respond to economic changes, allowing the transfer of skills and technology.
Even more importantly, their economic action is not based on individualistic calculation of
costs and benefits, but is embedded into larger institutional and social frameworks (Sax
enian, 1994).
It is not clear, however, how inclusive entrepreneurial networks are. The horizontal net
works of entrepreneurial firms in the Silicon Valley story (and also described by Michael
Piore and Charles Sabel (1984) in the district of Emilia-Romagna) are, indeed, comprised
mostly of small firms, and new firm start-ups and young firms account for a disproportion
ate share of job creation (Haltiwanger et al., 2011; Neumark et al., 2011). Whether large
or small, entrepreneurial firms clearly create jobs. But these opportunities may not be the
most equitable. Start-up firms tend to be undercapitalized and pay relatively low wages;
this is particularly true among immigrant communities who may count on low-cost labour
from network contacts (Bates, 1997; Ong and Loukaitou-Sideris, 2006). If they are high-
tech, they may not offer many jobs to low-wage workers. Also, there are multiple barriers
to entry for lower-income entrepreneurs, including financial insecurity, poor access to
credit, low appetite for risk, and low education and training. In particular, lack of inherit
ed wealth and family assets create disadvantages for entrepreneurship and self-employ
ment (Quadrini, 2000).
Whether looking at the strength of the export base, or the region’s diversity, or entrepre
neurship, as the source of regional growth, there remains one outstanding issue: Who will
get the jobs? Job growth in a region creates a chain of job shifts within and across re
gions. For every 100 new jobs in a metropolitan area, about eighty new workers move in
from outside the region; the higher the skills demanded and wages paid in the new job,
the more in-migration will occur (Bartik, 1993). The twenty remaining jobs will be taken
by local residents, but they are more likely to be underemployed (in terms of hours,
wages, or challenge) than the long-term unemployed. As the workers from both within
and outside the (p. 799) region leave their current jobs, they create openings for others,
and, presumably, down the job chain, the most disadvantaged (or unemployed) worker
will gain an opportunity. But chances are that that opportunity will be in another region,
because of the attraction of in-migrants to high-growth regions. Because of this job-chain
effect, the most equitable approach is to focus on increasing regional per capita earnings
instead of job creation (Bartik, 2011).
Page 8 of 21
Strategies
These theories of regional economic development have shaped the strategies used in
practice. Strategies that attempt equitable growth by growing the pie and then connect
ing the disadvantaged to opportunity typically rely on either business attraction or en
dogenous development. Both approaches may help to increase exports, agglomeration,
and clustering, while endogenous strategies also facilitate entrepreneurship.
In business attraction strategies, cities and states try to attract firms to relocate, typically
via tax incentives, subsidized loans, or simply marketing (Eisinger, 1995; Bradshaw and
Blakely, 1999). In practice, cities, counties, and states still rely heavily on the use of tax
incentives to attract businesses, despite evidence of mixed effects on business location
decision-making and relatively low job creation compared with existing businesses (Pe
ters and Fisher, 2004; Kolko and Neumark, 2007). However, business attraction efforts do
tend to target relatively high-wage firms, such as high-tech manufacturers and exporters
generally. Policymakers typically work very closely with the businesses, in the process of
ten developing strategies for inclusion such as customized training and hiring processes
that can ensure that local residents are prepared for jobs.
With the realization that globalization was diminishing the opportunities for new ‘smoke
stacks’ to chase, cities and states began emphasizing more endogenous development
(Teitz, 1994). This autonomous or demand-side economic development applies the idea of
‘development from within’, targeting businesses sometimes in specific neighbourhoods
but more commonly throughout a city or region (Eisinger, 1988). Endogenous develop
ment focuses attention on the entrepreneurial potential of existing firms, often embedded
within clusters. Thus, these strategies focus on business start-ups, expansion, and reten
tion, typically via revolving loan funds, business incubators, business management assis
tance, and R & D/innovation support.
The importance of start-ups, young businesses, and rapid firm expansions in job creation
suggests that endogenous development strategies will be particularly fruitful for econom
ic inclusion. In fact, Porter (1995) extended his work on clusters to argue that disadvan
taged communities in the inner city could compete endogenously by capitalizing on local
market demand and resources. In theory, endogenous development strategies should re
sult in wage increases, as they increase productivity. But, in practice, results are likely
mixed, as younger firms, in particular, lack the stability to remunerate workers. There is
also no guarantee that local firms will hire locally, and, in fact, locals may have prejudices
about hiring from certain areas that lead to discrimination (Dewar, 2013). In terms of the
potential for inner-city competitiveness, there is little evidence that core locations with
concentrations of disadvantage have connected successfully to regional clusters, as
Porter suggested they could, with the possible exception of health care (Coyle, 2007).
Another set of strategies for inclusion target specific places, with the idea either
(p. 800)
that the benefits will trickle down to local disadvantaged communities, or that the com
munities can capture some of the benefits deliberately through development agreements.
Results are mixed, or even negative. For instance, enterprise zone programmes target tax
Page 9 of 21
credits to disadvantaged areas, but have had no greater success in reducing unemploy
ment or poverty or creating jobs and businesses than comparison areas without zone des
ignation (Greenbaum and Landers, 2009; U. S. Government Accountability Office, 2006).
They tend to underperform in expected job creation and effects disappear quickly (Green
baum and Landers, 2009; Cray et al., 2011).
Another form of place targeting is commercial real-estate development projects by the

public sector, often working in partnership with the private sector. The public sector pro
vides direct financing or various tax incentives with the idea that local communities will
capture the benefits; however, studies to date have not demonstrated significant equity
benefits of public-led commercial development and market-led retail attraction strategies
(Chapple and Jacobus, 2009).
Real-estate development can be more directly inclusive via community benefits agree
ments (CBAs). These CBAs may complement linkage policies, which require compensat
ing side payments for housing and social needs from large-scale commercial develop
ment, and local hiring ordinances, which reserve construction jobs in development receiv
ing public funds for local residents (Molina, 1998; Salkin, 2007). Legally enforceable con
tracts negotiated between a prospective developer and community representatives, the
CBA exacts community economic development commitments from the developer (e.g. lo
cal hires at living wages, affordable housing units, neighbourhood amenities) in exchange
for the community’s support of its proposed development (Gross et al., 2005). The CBA
tends to focus on job quality, perhaps, in part, because of the involvement of labour
unions.
Thus, traditional theories fail to address inequality, and related strategies have attempted
inclusion with limited success. The next subsection turns to strategies that further inclu
sion directly, with the idea of generating growth.
Community Economic Development: Building Capacity
Since the urban fiscal crises of the 1970s, caused by global economic restructuring and
government devolution, cities and regions have actively tried to increase the level of local
economic activity by increasing the capacity of residents, and, in turn, their wealth. Simi
lar dynamics have led to the rise of local and community economic development around
the globe, although in countries with a strong safety net, the pursuit of inclusive growth
is likely less intense. The advent of neo-liberalism in many countries has meant a growing
role for private and non-profit-sector actors in these economic development strategies, in
essence substituting for government; however, in many developing countries and social
democracies, the public sector maintains a dominant role (Anheier and Salamon, 2006).
The idea of reducing inequality and poverty as a growth strategy stems not just from the
work of World Bank economists, but also more broadly from the idea that societies will
benefit broadly from fostering the capabilities of those at the bottom of the economic
spectrum (Sen, 1999). Thus, Stiglitz (2012) recommends intentional policies to reduce in
equality that, in addition to limiting the accumulation of wealth through rent seeking and
Page 10 of 21
tax (p. 801) favouritism, level the playing field by investing in an array of social policies
such as education, health care, asset building, and full employment.
Where national governments fail to support such social investments consistently, and
functions have devolved to the local level, actors at the city and regional level are orga
nizing to ensure that local economic development strategies are inclusive. In the USA,
this has taken the form of community and regional organizing for economic justice, in
what Pastor et al. (2009) call a new ‘social movement regionalism’. Decades of community
battles over redevelopment projects and gentrification have built local organizing capaci
ty and political savvy that have helped to connect marginalized groups and neighbour
hoods to economic opportunity.
The new economic justice movement evolved from a response to the thirty-year advent of
globalization, capital mobility, devolution, and neo-liberalism that was facilitated by local
community development capacity. Deindustrialization had weakened the labour move
ment, and a search for new approaches resulted in new union coalitions with faith-based
and other community organizations. At the local level, these coalitions pressured cities to
adopt linkage policies and developers to sign CBAs that would ensure benefits for the lo
cal community—that is, guaranteeing that some growth would trickle down. But the strat
egy with the greatest potential for reducing inequality has been the minimum or living-
wage movement, which tackles inequality directly with the idea that higher wages will, at
a minimum, not impede growth (Dube et al., 2010). The struggle to improve job quality
began via living-wage coalitions that passed laws in over 140 cities, and has continued via
organizing to raise the minimum wage at the state level (Fairris et al., 2005; Dube, 2014).
The proponents of these economic justice movements are using the region as their strate
gic arena to organize their constituents (Pastor et al., 2009). Over time, strategies are
spreading across the country through the regional networks of national organizations,
many faith based, such as the Gamaliel Foundation, the PICO National Network, and the
Industrial Areas Foundation. Their success at creating community economic development
seems ultimately to depend on their ability to exercise power at higher levels of govern
ment—for instance, by obtaining federal authorization for local-hire ordinances in infra
structure projects (Weir and Rongerude, 2007; Swanstrom and Banks, 2009). In the ab
sence of national initiatives, this kind of multi-level organizing underpins many strategies
for growth with equity. In cities and regions, initiatives may be fortified if they are sup
ported by diverse stakeholders joining in epistemic communities (Benner and Pastor,
2012).
Specific strategies that address inequality and poverty in order to foster growth fall into
three categories: education and workforce development, investing in people through
place, and access to capital.
Education and Workforce Development

Improving educational attainment is fundamental for economic inclusion; the returns to
education are well established, particularly for low- and middle-income countries (Card
Page 11 of 21
and Krueger, 1990; Psacharopoulos and Patrinos, 2004). But both the declining returns
from working and the job instability that characterize the economy today mean that edu
cation alone is not enough to guarantee upward mobility (Bernhardt et al., 2001). Upward
mobility also depends on local labour market conditions, corporate culture, union pres
sure, and other factors (Appelbaum et al., 2003).
Educational reform strategies have long focused on improving the quality of edu
(p. 802)
cation, as well as access to education, at levels from primary school to university (Cooper
et al., 2014). Also, a growing number of strategies are trying to increase labour market
participation through workforce development. The best programmes are workforce inter
mediaries that adopt sector initiatives, targeting specific industry sectors in order to cre
ate a win–win situation by restructuring employment practices in a way that is beneficial
to both employers and low-wage workers (Marano and Tarr, 2004). Some of these pro
grammes also try to address long-term upward mobility through career-ladder initiatives,
from increasing the pay of existing jobs to creating new tiers within occupations to using
education and training to advance workers into occupations with better pay (Fitzgerald,
2006).
Investing in People Through Place

Another local strategy for intervening in equity is ‘investing in people through place’ via
strategies that improve neighbourhood economies and quality of life (Giloth, 2007). In
vestment in public goods and services in a place makes economic benefits more accessi
ble and improves life chances for neighbourhood residents. Community reinvestment
builds up neighbourhood markets and land values, and thus helps to protect and grow
family assets. Lowering crime, improving schools, and supporting home improvements all
contribute to stimulating asset appreciation and neighbourhood markets. In the USA, in
particular, a system of community development intermediaries—such as community de
velopment corporations and community development financial institutions—support revi
talization work such as commercial district revitalization, business assistance, social ser
vices, and job training (Yin, 1998). Community-based financial services provide an alter
native credit system for both businesses and individuals, such as savings and checking ac
counts, home loans, micro-loans, and business loans.
Another opportunity to support people in place is leveraging the resources of large an
chor institutions (e.g. universities and hospitals), as well as government purchasing. An
chor institutions are fixed assets in communities and are unlikely to relocate out of re
gions. They purchase an array of goods and services—such as food, laundering, record
disposal, and recycling—which open up opportunities for entrepreneurship. Government
purchasing is another opportunity: in the USA, almost US$100 billion of federal procure
ment dollars goes to small businesses each year, by government mandate (US Small Busi
ness Administration, 2010). Economic inclusion strategies that shift government spending
to disadvantaged enterprises do not create more jobs, but may provide a net benefit by
reducing the need for expenditure on public services (Treuhaft and Rubin, 2013).
Page 12 of 21
Access to Capital
Chronic asset poverty—lacking the accumulated wealth to help subsidize education, hous
ing, or other costs of living—makes it difficult to save and creates a drag on growth. Data
on asset poverty suggest that more than one-fifth of households in the USA—and a dispro
portionate share of minority families—are asset poor, double the rate of income poverty
(Corporation for Enterprise Development, 2005). Dealing with wealth inequality directly,
rather just accommodating the labour market through work supports, is key to address
ing the root causes of income inequality (Oliver and Shapiro, 1995).
Individual development account programmes have emerged as the most direct

(p. 803)
way to build assets, by offering matched savings accounts that can be used to develop
wealth via purchasing a home, obtaining higher education, or starting a small business
(Corporation for Enterprise Development, 2005). When new home or business ownership
leads to improvements (e.g. occupying a vacant structure, renovating a building, or build
ing a successful business), positive externalities result: the changes attract new invest
ment and improve the quality of life for existing residents (if they are able to cope with
rising housing costs and stay in place). To keep communities stable, asset-building pro
grammes can be combined with shared-equity models, which cap the gains from selling
an asset, or require reinvestment of profit in the community (Weber and Smith, 2003).
Another set of strategies for inclusive growth focus on the entrepreneurial capacities of
low-income communities, with the idea that enterprise can supplement the benefits of
more formal jobs (a process often called ‘income patching’) (Edgcomb and Armington,
2013). Although there are mixed results from around the world, some of the programmes
have been startlingly successful, in terms of programme return on investment, business
survival rates, and job growth (about half of microenterprises create jobs) (Banerjee et
al., 2013; Edgcomb and Thetford, 2013). Likewise, minority entrepreneurship pro
grammes more generally can support growth with equity. Despite concerns that such
businesses are overly prone to failure or exploitation, there is some evidence that these
businesses hire disadvantaged local residents who otherwise might not be employed, and
particularly if accompanied by some higher education, can lead to upward mobility
(Bates, 1997; Boston, 2006).
Just as the strategies that attempt to foster inclusion through growth may fall short, so
may the strategies that focus on equity in the hopes of increasing growth. Experimenta
tion with workforce development, revitalization, and access to capital is ongoing, and re
search is only just beginning to establish what works. Even if strategies such as regional
organizing, government purchasing set-asides, community development intermediaries,
and micro-entrepreneurship succeed in creating new markets and jobs, the growth may
not be net new. At best, these strategies may sustain and redistribute growth.
Page 13 of 21
Implications for Economic Geography

Although many countries have succeeded at slowing or reversing the growth of inequali
ty, increasing globalization and technological change continue to put downward pressure
on wages, as the elite benefit. Even where an institutional structure supportive of inclu
sion is in place, an economic downswing can erase its effects. Growing inequality at a na
tional scale tends to exacerbate patterns of uneven development within a country. Rapid
urbanization may also reinforce patterns of inequality, for instance as is occurring in the
Global South where governments are accommodating global capital in increasingly priva
tized cities (Mitra, 2014). Inequality—and fostering inclusive growth—is not only a key
challenge of the twenty-first century, but is likely to become even more salient as climate
change advances. Reducing greenhouse gas emissions will heighten conflicts between
growth and equity, and global warming itself could mean increasing instability, particular
ly in developing countries (Intergovernmental Panel on Climate Change, 2014).
Even though the need for more inclusive growth is here to stay, there is still con
(p. 804)
siderable uncertainty about how to achieve it. Investments in education, infrastructure,

and social welfare clearly pay off at the national level, but effects at the local and region
al level are complex. Strong market regions with competitive advantages may be best po
sitioned for growth in theory, but in practice the extent of inclusion will depend on how
production has been organized historically, and the resultant local institutions and net
works (Storper, 2013). More inclusive political processes may enable community partici
pation in governance even in weaker markets. Yet, more inclusive growth at the regional
level may not mean net new growth in the aggregate: one community or region may suc
ceed at the expense of another.
These regional variations mean that there is no simple recipe for inclusive growth—in
somewhat of a shift from the halcyon days of regional science (and economic geography),
when the question was simply how to generate growth in regions with different industry
structures and resource constraints. Researchers will struggle to identify intentional poli
cies behind inclusive growth through systematic analysis of the processes of change
across a large number of regions, because each region is unique. Pursuing economic in
clusion means developing a better understanding not just of local economic structure and
institutions, but also of variations in human capabilities and aspirations. This then re
quires the sort of deep observation of specific regions that occurs via comparative studies
adopting an exceptionalist or historicist perspective. Understanding growth with equity,
and the intentional strategies that can support inclusion, may, indeed, be a full employ
ment plan for economic geographers.
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Karen Chapple
Karen Chapple ([email protected]) is a Professor of City and Regional Planning

at the University of California, Berkeley. Chapple specializes in housing, community,
and economic development, as well as regional planning. She has most recently pub
lished on job creation on industrial land (in Economic Development Quarterly), re
gional governance in rural Peru (in the Journal of Rural Studies), and accessory
dwelling units as a smart-growth strategy (in the Journal of Urbanism). Her recent
book (Routledge, 2014) is entitled Planning Sustainable Cities and Regions: Towards
More Equitable Development. In 2015 she launched the Urban Displacement Project,
a research portal examining patterns of residential, commercial, and industrial dis
placement, as well as policy and planning solutions.
Page 21 of 21
Policy Through Practice: Local Communities, Self-Organization, and Policy
Policy Through Practice: Local Communities, Self-Orga

nization, and Policy
Jennifer Clark
Economic geography fixes the lens of analysis on both the scale of economic action and
the processes that determine how economic resources are distributed and concentrated
across places. This chapter focuses on institutional intermediaries and how they con
tribute to the evolving practices of self-organizing within local communities through
third-sector strategies. The chapter presents three models of ‘third-sector intermediaries’
in cities and regions across the USA illustrating the ways in which third-sector policy
strategies operate in local and regional economies both through city governments and in
parallel to them. These strategies are the result of variations in the capacities of local
communities to address regional economic challenges and increasingly contribute to that
diverse landscape. The chapter concludes with a discussion of economic policy implica
tions of these modes of policy design, delivery, and decision-making affecting regional
economies and uneven development, local autonomy, institutional intermediaries, city
governance, technology diffusion, and policy innovation.
Keywords: policy innovation, local autonomy, regional intermediaries, cities, technology diffusion, policy design
Introduction
ECONOMIC geography, as a disciplinary practice, fixes the lens of analysis on both the
scale of economic action and the processes that determine how economic resources are
distributed and concentrated across places. In other words, economic geographers study
where the governance and coordination of economic activities occur (national, regional,
or local), and how resources are allocated within and across cities, regions, and nation
states (Clark et al., 2000; Christopherson and Clark, 2007). Consequently, economic geog
raphers track, document, and analyse the dynamic and multiscalar shifts of policy respon
sibilities and authorities between scales of governance, as well as the processes of eco
nomic accumulation and disinvestment that happen in places and over time. Those
processes are heavily influenced by policy choices at the sub-national level (Martin, 2001;
Page 1 of 19
Christopherson and Clark, 2007; Clark, 2013). Economic geographers thus view institu
tions—private and public—as actors and as sites of action in policy processes that shape
variation in the self-organization practices of local and regional communities (Boschma
and Frenken, 2009; MacKinnon et al., 2009).
The first empirical challenge in understanding how these local and regional institutions
operate is defining them. Public policy tends to categorize institutional intermediaries by
legal status: private, public, or non-profit. From an economic geography perspective, how
institutional intermediaries operate within and across markets matters more than their
legal status. And, increasingly, institutional intermediaries operating in the space be
tween established institutions vary significantly in terms of form across cities and re
gions. These ‘third-sector intermediaries’ are not exclusively non-profits, but can also be
for-profits, philanthropies, quasi-public (public–private partnerships), benefit corpora
tions, or public (p. 811) sector entities. They exist both as single-site community-based or
ganizations and as multiscalar networks (vertical, horizontal, or both).
This chapter focuses on these institutional intermediaries and how they contribute to the
evolving practices of self-organizing within local communities. The rapid development of
local ‘third-sector intermediaries’ is directly linked to the combined trends of devolution
and privatization by neo-liberal national governments in recent decades. In the USA, the
UK, and Canada, local governments have faced difficult choices over the last three
decades: (i) pull back from meeting the expanded scope and coverage of service obliga
tions devolved to the local level, or (ii) meet expanded and new obligations leveraging al
ternative revenue strategies. The cumulative consequences of thirty years of these choic
es are now reflected in significant regional variation in the organization and implementa
tion of social and economic policies at the local scale. This variation affects the capacities
of places to provide not only everyday services to citizens, but also longer-term infra
structure investments that influence locational decisions by firms, the crux of regional
economic competitiveness in a global economy. In recent years, this has extended beyond
supports for regional innovation systems to the hard information and communication in
frastructure that enables innovation ecosystems—fibre, wireless, cellular networks. In
creasingly, it has become economically important for cities to produce an urban form that
facilitates the transition to flexible work systems: dense, mixed-use development with
multi-modal transit access.
It is worth highlighting that third-sector strategies bypass the metropolitan regionalism

discourse of the last forty years and focus again on the city as the prioritized space for
political and economic engagement. The examples identified here are characteristic of
this approach of distributed networks organized as multiscalar coalitions promoting inno
vative urban governance and capacity building through policy innovation diffusion mod
els. Common among them is the use of non-governmental networked institutions to influ
ence and seed city-scale adoption of policies characterized through real-time engagement
in multiscalar and cross-regional practice.
Page 2 of 19
What follows is a discussion of the developing ‘third-sector intermediaries’ in cities and

regions across the USA that illustrate the ways in which institutional intermediaries are
operating in local and regional economies both through city governments and by develop
ing new ways to design, implement, and diffuse policy models through new models of im
plementation. The chapter concludes with a discussion of the economic policy implica
tions of these new modes of programme design, delivery, and decision-making for region
al economies and uneven development.
Localizing Policy
Beginning with the significant national economic policy changes of the 1980s, policy re
sponsibilities and authorities shifted significantly between national governments and
their subnational counterparts. National-scale policy reforms since the Reagan and
Thatcher periods prioritized the devolution of policy responsibilities to the local level.
Further, these policy initiatives encouraged privatization of economic activities, particu
larly public-sector services, or services once perceived as more efficiently or equitably
provided by the public sector (Bolan, 1973; Barnes and Ledebur, 1998).
Although much of the critique of privatization has focused on the erosion of social
(p. 812)
services and the dismantling of worker protections in the USA in particular, the privatiza
tion trend covered a vast amount of economic terrain in terms of the affected market do
mains. For example, privatization affected housing markets, labour markets, financial
markets, business services, and social services (from social welfare to automobile insur
ance). The subsequent patchwork of geographically uneven and partial regulatory
regimes has encouraged ‘jurisdiction shopping’ among firms as they make decisions
about the expansion of existing operations and the location of new operations. This patch
work has contributed to greater differentiation in the market institutions across regional
economies—in their coverage, services, specializations, and sophistication (Malecki,
2004; Feldman and Martin, 2005; Christopherson and Clark, 2007). In the USA and Cana
da, the variation between states and provinces in the regulation of some markets (partic
ularly labour markets) can exceed the variation seen across nation states (Clark, 1989;
Finkin, 2001; Peck, 2002a; Stone, 2004; Leigh and Clark, 2010).
In addition to the uneven privatization of formerly public services, the models of policy
programming by the public sector vary from locality to locality. These programme models
diverge in terms of mode of implementation and level and quality of coverage. Devolution
has enabled this flexibility in policy design and implementation and emphasizes the value
of ‘tailoring’ policy for local conditions.
Within some nation states there is significant variation to accommodate. In the USA and
Canada, jurisdictions differ in the size of state and local governments in terms of geogra
phy, population, and markets. Further, the underlying asset and factor conditions be
tween places differ substantially in ways that affect politics and economies, including nat
ural resource endowments (e.g. energy), industrial legacies, rural and urban population
distributions, cultural conditions, and the orientation and character of internationaliza
Page 3 of 19
tion. As a consequence, the density of institutional and governance frameworks vary at

the local scale. Jurisdictions with larger populations and larger economies often have
more capacity to develop and deliver policy programming at the local and regional scale.
In many ways, subnational implementation flexibility and tailoring is necessary, in
evitable, and desirable. This argument has been made by many economic geographers in
the context of regional innovation policies (Gertler and Wolfe, 2002; Clark, 2010). In fact,
there has been a near policy consensus around the rationale for flexibility in regional in
novation and development policies aimed at building competitive local and regional
economies (Clark and Christopherson, 2009). The question of coverage and quality of so
cial services, however, has remained more divisive and ideological.
This chapter focuses on the production of local and regional policy variation within local
communities. The chapter distinguishes between two different ways in which local com
munities have pursued self-organizing in response to the increase in autonomy facilitated
through devolution. Firstly, through existing democratic processes for the purposes of ex
panding public services or increasing the role of the state in the regulation and/or coordi
nation of private market actors. And, secondly, through the expansion of ‘third-sector
institutions’ (local and regional non-governmental organizations) operating within private
market spaces to expand the provisioning of public services and collective goods or en
hance the efficient delivery of new or existing services (often using novel technology) be
yond the boundaries of local government.
Filling the Gaps: What Neo-liberalism

(p. 813)
Leaves Behind
Economic geographers have documented the negative consequences of neo-liberal
trends, and we have noted significant declines in the quality and scope of public services
and the economic disadvantages of the privatization of public goods (Eisenschitz and
Gough, 1996; Peck, 1996; Peck, 2002b; Hackworth, 2007; Birch and Mykhnenko, 2009).
Labour markets have garnered particular attention in the analysis. As a result, labour
markets provide a familiar and compelling illustration of the ways in which local commu
nities have experienced and then used evolving approaches to local organizing through
third-sector intermediaries to tailor policy to localized priorities, conditions, and capaci
ties. The key question then becomes: ‘When the state steps away from mediating market
failures and provisioning public services, what emerges in its place?’
The decline of labour unions, first in the private sector and later in the public sector, cou
pled with the rise of for-profit labour market intermediaries (including various forms of
temporary employment firms) demonstrated the ability of neo-liberalism to erode effec
tive and seemingly embedded institutions (Clark, 1989; Harrison, 1994; Martin et al.,
1996; Doussard, 2013). In other words, the ideological transition from a Keynesian to a
neo-liberal approach to governmental action did not simply change the scope of public
sector activity in markets, but also affected the scope and coverage of third-sector inter
mediaries. In redefining the scope and function of labour-market intermediaries like
Page 4 of 19
labour unions, the transition to neo-liberalism decoupled labour market services from
labour market advocacy. The shift created a new and expanded market for private for-
profit labour market intermediaries while eroding the importance of the advocacy and
bargaining services provided by labour unions (Benner, 2003; Van Jaarsveld, 2004;
Carnoy et al., 1997; Peck and Theodore, 2002).
It is important to recall that the national-scale neo-liberal project championed devolution

and deregulation ostensibly to ‘empower’ localities and promote flexible forms of regional
governance. Conversely, it was largely assumed that the emergent forms of flexible re
gional governance would align with the neo-liberal national model and would lean to
wards a diminished role of the state rather than expanded role. In other words, policy
makers expected that local communities would seek industry partnerships and private
market solutions to intractable issues of infrastructure management and social service
delivery in line with national political priorities. Shrinking budgets would subsequently
force cost savings in labour markets and promote a leaner, more efficiency-based model
for the public sector at all scales. Thus, devolution in the context of neo-liberalism is oper
ationally distinct from arguments about local and regional policy flexibilities for the pur
poses of accommodating differences in regional economic conditions. As a political
process, devolution is often more about the replication of a model across scales, not the
tailoring of programming to accommodate regional variation.
That said, it has been the case that the rise of neo-liberalism at the national scale has led
to waves of privatization of public services in the USA, the UK, and Canada and the devo
lution of those services to state, provincial, and local actors (Peck and Theodore, 2015).
In response to greater responsibilities without a corresponding increase in capacities or
resources, local (p. 814) governments ‘contracted out’ to private market actors everything
from social services to transportation systems (Warner and Gerbasi, 2004). This accompa
nying and necessarily deregulated environment created less rigorous standards for evalu
ation, performance, and efficiency simply because of the lack of capacity to measure,
analyse, and ensure results (Clark, 2013). Devolution shifted the cost of service provision
ing to local governments that were thus faced with either increasing revenues (through
taxes, fees, fines, or borrowing) or cutting the services provided. In the USA, the increase
in the use of fines and fees by local governments for revenue generation is a case in
point. Often, increased economic autonomy, including the authority to generate revenue,
did not accompany the greater responsibility for public services. Services subsequently
declined or failed to expand as technologies changed, leaving a gap unevenly addressed
by private market actors (Ashton et al., 2016).
In response to this policy environment a variety of divergent trends emerged. There has
not been a simple replication of national neo-liberal policies at the local and regional
scale. In part, this is a function of the demand for new and different public services moti
vated by new technologies and expanding markets. For example, the rapid development
and diffusion of information and communication technologies have put pressure on local
governments to consider how to design and deliver an entirely new category of services.
Page 5 of 19
Not surprisingly, when the public sector is slow to provide a public service, other institu
tional intermediaries emerge.
These intermediaries show a great deal of regional variation in coverage, scope, and
form. They often develop from the bottom up rather than the top down, thus making it dif
ficult to differentiate them based on a standardized typology or compare them neatly
across communities. It is possible, however, to categorize them by function. These inter
mediaries are stepping into the spaces as new facilitators for economic activities ranging
from labour to innovation to infrastructure to networked systems. In no place is their
presence more evident than in cities (Clark, 2012, 2014). They are negotiating the porous
boundaries between firms, governments, and formal institutions. And, although they have
evolved in the shadow of neoliberal privatization, they vary significantly in their character
—bottom-up, community-based, and solution-driven (Pastor et al., 2009; Benner and Pas
tor, 2012). In effect, a technology-savvy generation has become a new cohort, re-discover
ing a ‘public’ or ‘civic’ orientation and developing new ways to expand the capacity to act
in the spaces that neo-liberalism left behind.
Local and Regional Responses: Policy Innova

tion as Design Practice
As noted in the previous section, there are several ways in which local communities have
pursued the push towards self-organization that devolution required. The empirical em
phasis in this chapter is on the expanding third-sector strategies and the institutional in
termediaries that implement them operating outside of existing democratic processes to
pursue policy innovations—both in policy design and implementation. In order to discuss
this evolving category, it is necessary to distinguish it from the policy practices operating
within existing democratic processes—city ordinances, referenda, bond issues, state laws,
and advocacy or (p. 815) lobbying coordinated with political parties. Third-sector strate
gies are effectively agnostic about the role of the state in mediating market conditions.
These institutional intermediaries and the strategies they pursue simultaneously accept
the role of the state as given and as dynamic. They emphasize flexibility in policy design
and in the structure of implementing organizations. In this way, their actions parallel po
litical efforts to pursue an increased role of the state, as well as those corresponding ef
forts to pursue a decreased role of the state through increased local and regional autono
my. The functionality of third-sector intermediaries is not contingent on political circum
stances.
Progressive Local Government in the Public Sector
It is important to emphasize the point about regional variation in response to devolution

and disinvestment in the public sector. The ways in which public or collective goods and
services are provisioned from place to place as the state steps back is not fixed. The ques
tion of who steps in to fill these policy gaps—local government, the private sector, tradi
tional non-profits, or no one at all—does remain contingent on place, as well as time. In
Page 6 of 19
some cases, where the public sector pulls back, the work just no longer happens. In some
cases the work is reconfigured to reduce coverage or scope for the goods or services pro
vided. And, in some cases, the work is picked up by intermediaries who find a way to allo
cate public services or collective goods using market mechanisms.
A significant number of local governments have not implemented neo-liberal policy priori
ties in alignment with the shift in national policy towards privatization. Some localities
have adapted to the agency they inherited from the national scale by developing innova
tive tools for implementing policies affecting regional competitiveness from localized
healthcare systems to energy-efficiency programmes through progressive local govern
ments. These policy responses are reactions to the inaction of national governments on
topics ranging from climate change to demographic transition. For example, over 1,000
US city mayors have signed the US Conference of Mayor’s Climate Protection Agreement,
effectively ratifying the terms of the Kyoto Protocol at the local level.1 These actions are
generally affected through traditional policy mechanisms, such as the passage of ordi
nances or laws through city councils. They also often result from political advocacy
aligned with party affiliations. These efforts challenge a ‘taken-for-granted’ political as
sumption that devolution would produce the local replication of national (or even state)
neo-liberal policy priorities. The assumption was that the devolution project would breed
neo-liberal market intermediaries to occupy the space and take up the work of provision
ing public and collective goods and services from the public to the private sector. The re
ality is more complex and nuanced. Instead, policy flexibility has resulted in diversity of
local implementation of policy priorities producing increased variation across policy do
mains. The global recession motivated policy innovation at the local level to expand from
the relatively limited world of environmental advocacy and discussions about sustainabili
ty to an array of economic policy interventions that affect firm strategies, labour markets,
and innovation systems. The result is the development of policy innovations designed to
expand markets that push back on the practices of policy diffusion that originally formed
as top-down processes (Peck and Theodore, 2015). These diffusion models are increasing
ly bottom-up and horizontally networked.
Several decades after the neo-liberal project began, localities have begun to modi
(p. 816)
fy economic policy models and governance regimes, and also to expand the network of ac
tors engaged in policy-making and systems governance at the local-scale (Clavel and
Wiewel, 1991; Clavel, 2010). Handed the reins of regional autonomy, local governments
have begun to engage in intentional acts of localized agency in keeping with the free-mar
ket, deregulatory, and privatization models articulated at the national scale. Increasingly,
however, local actors have found spaces to form distinctively different models and institu
tions under that same umbrella of national policy prescriptions. Frequently those local ac
tors exist in parallel to the public sector stymied by both deregulation and disinvestment.
Page 7 of 19
Third-sector Strategies: New Forms of Local Policy Innovation and

Diffusion
The discussion of traditional uses of local governments to create and maintain policy vari
ation at the sub-national scale highlights what is distinct about the expanding role of
third-sector strategies and the evolution of the institutional intermediaries that promote
them. Firstly, these institutions and the strategies they promote are less transparent than
strategies initiated by local governments. Secondly, they are intertwined with market-
based approaches to technology diffusion, regional innovation, and economic competitive
ness. There is significant emphasis on the use of technology to expand markets, increase
access, and, ultimately, to build out a flexible and networked infrastructure of service pro
visioning that enables many forms of entrepreneurship (social, public, and traditional)
within existing institutions and in parallel to them.
The disinvestment in the public sector has not just affected the provisioning of public and
collective goods and services, but it has also limited the development of policy thinking
about both the processes of policy design and implementation. New technologies have
produced a range of new policy questions, many of which require decisions about the de
sign and adoption of new models. The absence of clarity about best practices leaves poli
cymakers searching for adoptable models, often without the tools to assess the varied and
evolving implications from a public-sector perspective. This issue was recently highlight
ed by Jamie Peck and Nik Theodore:
The modern policymaking process may still be focused on centres of political au
thority, but networks of policy advocacy and activism now exhibit a precociously
transnational reach; policy decisions made on one jurisdiction increasingly echo
and influence those made elsewhere; and global policy ‘models’ often exert norma
tive power across significant distances (2015, p. 3).
The following subsections describes three models of empirical examples from the design
and diffusion of urban innovations in the US context.2 These models illustrate how non-
governmental actors assumed programming responsibilities abandoned by the public sec
tor, as well as the new spaces that emerged in the new economy. These third-sector inter
mediaries underscore significant regional differences in how policy value is developed
through the process of ‘collective’ action and ‘public’ design of policy (as opposed to ‘pub
lic policy’). Notably, just as technology plays a critical role in expanding new services and
capacities to (p. 817) offer old services more efficiently within and across local communi
ties, technology also enables innovative approaches to policy design and diffusion.
These institutional intermediaries also act in a variety of policy arenas or program deliv
ery areas. Principally, there are four types of policy spaces. All four touch on the expand
ed ability to deliver services at the local (almost always urban) scale. Firstly, they work on
provisioning new services through the diffusion of new technologies (municipal wireless,
fibre, small cells). Secondly, they expand on how to provide old services through the diffu
sion of new models (social and human services; labour market reproduction). Thirdly,
they organize access to services to new or emerging populations (ageing, immigrant, ac
Page 8 of 19
cessibility-challenged, and younger generations). Finally, they develop new forms and
mechanisms of ‘democratic engagement’ that, in many ways, substitute formal govern
mental mechanisms of decision-making with civic innovation. The actors involved are us
ing new approaches to urban governance by adopting a technology diffusion model rather
than traditional policy strategies. The approach to policy exchange is flexible and loosely
coordinated. It privileges cities and skips states. This strategy contrasts with traditional
approaches to sub-national policy-making that focuses on statehouse lobbying and devel
oping coalitions among established interest groups (Lowi, 1967).
Each model uses a different strategic approach. The first approach involves seeding self-
organization at the local-scale through direct investments in city governments by exter
nal, national, or international non-governmental organizations. The second strategic ap
proach involves bottom-up organizing using a distributed network. This second approach
often starts as a single-site, community-based pilot of programme delivery that later con
nects/coordinates with a loosely distributed network of similar organizations. The third
approach begins as an intentional national network deployed in multiple sites through or
ganizations operating outside the public sector. A key difference between these three
strategies is in their relationship to city governments. In the first case the strategy oper
ates through the public sector and in the second and third case new institutional forms
emerge to operate in parallel to it. The examples of how these three strategic approaches
operate illustrate the key differences.
Model 1: Strategic Capacity Seeding in Cities
Strategic seeding of self-organizational capacity in cities largely occurs through philan

thropic funding intended to seed new capacity through technical assistance and profes
sional staff placed in city governments. These investments are explicitly urban, made di
rectly to cities, and are deeply connected to technology-led and market-driven approach
es to achieving shared civic-oriented goals, such as urban resilience, sustainability, and
efficiency.
One case of this strategic approach is the Innovation Delivery teams (I-teams) seeded in
Atlanta, Chicago, Louisville, Memphis, and New Orleans by the Bloomberg Philanthropies
in 2011 and expanded to twelve more cities in 2014.3 An additional iteration of the ap
proach is the City Energy Project seeded in ten US cities in 2014 (Atlanta, Boston, Chica
go, Denver, Houston, Kansas City, Los Angeles, Orlando, Philadelphia, and Salt Lake City)
by the Bloomberg Philanthropies, the Kresge Foundation, and the Doris Duke Foundation,
and supported by technical staff in two national organizations, the National Resource De
fense Council and the Institute for Market Transformation.4 The City Energy Project also
funded (p. 818) staff positions to administer the three-year initiative within selected city
governments. The Rockefeller Foundation’s ‘100 Resilient Cities’ project is another exam
ple that involves placing ‘resilience officers’ in city governments and facilitating a net
work of policy exchange. In this model, the philanthropy is seeding self-organization by
Page 9 of 19
providing technical assistance and professionalized staff directly to the recipient city in
line with the philanthropies strategic priorities for urban innovation and sustainability.
Model 2: Bottom-up Best Practices
The second strategic approach follows more closely a traditional community-based advo
cacy approach. Self-organized and mission-driven institutions emerge in order to address
policy gaps or market failures. Increasingly these institutional intermediaries are forming
loose networks for best practice policy exchange. Key examples of this form revolve
around small-firm advocacy and scale up, as well as labour market advocacy and incum
bent worker training. Information exchange about market conditions and strategic ap
proaches to accessing suppliers, materials, and other resources are especially important
to Maker Movement actors, such as Maker’s Row, ADX Portland, SF Made, and the na
tional network formed by some of these intermediaries, the Urban Manufacturing Al
liance.5 A labour market example of a similar model is the New York City-based Free
lancers Union, which supports a network of ‘New Mutualism’ sites.6 Similarly, the Nation
al Domestic Workers Alliance runs advocacy campaigns in multiple cities while simultane
ously using information technology to create national portals to establish certifications,
define market norms, set industry standards, and start up its own domestic worker job-
matching services.7 This model operates outside of city governments. And, because the
institutions are not dependent on local political conditions, they can operate in places
without majority political support for their work.
Model 3: Capacity-building Franchise Arrangements
The third strategic approach to localized policy diffusion, the capacity-building franchise
approach, operates through the private sector rather than city governments, as is the
case in Model 2. However, unlike in Model 2, these institutional intermediaries are mar
ket driven rather than mission driven. Typically, the service or programme provided is de
livered through a purpose-designed new institutional intermediary. The ‘franchise ap
proach’ has evolved with multiple local programmes deployed in tandem across communi
ties to form a networked model from the beginning rather than evolving it over time. In
this way, this model overlaps with Model 1’s commitment to a multiscalar distributed net
work intended to facilitate loose collaborations motivated by best-practice exchange from
the beginning—with the explicit goal of establishing a network of programme implemen
tation.
Because these intermediaries are market driven, they are more often formed as for-profit
rather than non-profit organizations and look more like the occupational, sectoral, and
technology-specific intermediaries that have emerged in policy arenas across regional
economies (Clark, 2014; Bryson et al., 2015).8 Key examples of this model include Tech
Shop, which operates membership-based maker spaces in cities across the USA in order
to provide small businesses and entrepreneurs with access to flexible production spaces
and (p. 819) equipment. Another example is General Assembly, which operates a flexible
technology training model in the USA and the UK to provide technology workers with ac
Page 10 of 19
cess to skill upgrading and networking opportunities. A growing number of co-working

spaces use a for-profit membership model to provide flexible work spaces and shared ser
vices to contract contingent workers. This model ventures further into private-market
spaces than the other two and competes both with more established and larger business
and training services firms (including for-profit universities) with mission-driven non-prof
its in Model 2.
The boundaries between these models are relatively porous. Some third-sector intermedi
aries begin life as for-profits with a social entrepreneurship orientation and later reassess
their organizational structure to become non-profit organizations or re-file as B-corps
(benefit corporations) in places where that legal status is available. Similarly, although
some of these intermediaries originate as a set of networked projects, some evolve from
singles sites into a distributed network. The dynamic nature of these institutional inter
mediaries is one reason to keep them categorized together as third-sector intermediaries
based on their function in mediating markets and filling policy gaps rather than their lo
cation or legal status.
Policy Implications
The role of institutional intermediaries in shaping regional competiveness is not a new
subject of inquiry in economic geography. Most recent theoretical turns in the discipline,
including evolutionary economic geography, emphasized the role of institutions (MacKin
non et al., 2009, Boschma and Frenken, 2009; Gertler, 2010). However, the theoretical lit
erature has yet to develop a body of empirical work with tangible examples illustrating
policy implications to a broader audience. What is clear is that intermediaries defy easy
policy categorization and are explicitly, and increasingly, tied to innovative governance in
city regions rather than nation states.
In the wake of both economic and political transitions—ranging from devolution to the
Great Recession—local communities have adopted varied responses to governance and
self-organization, reorienting their regional economies and the institutions that bind them
together. These responses are uneven, incomplete, and regionally differentiated. Recent
trends towards devolution in the USA, the UK, and Canada have added a new intensity to
discussions about regional autonomy, self-governance, and multiscalar policy frameworks.
There is an active policy debate about how to balance the role of the nation state with the
autonomy of regions and localities in the context of a global economy. These discourses
are simultaneously political and economic, and weave together popular movements for in
creased political autonomy and increased self-determination in sub-national regions with
more explicitly regional economic discussions around privatization, internationalization,
and the role of the state (as well as the appropriate scale of that state) in economic policy
decision making, implementation, and regulation. The debate about scale is about
growth, governance, and the functional alignment of the two. Ultimately, these are ques
tions shaped by economic geographies.
Page 11 of 19
Peaceful and democratic independence referendums in Scotland, Quebec, and Catalonia

underscore the ongoing debates about scale of governance and point to the varied local
ized (p. 820) responses to neo-liberal policies adopted by nation states.9 In turn, questions
about the engagement and disengagement from the European Union by nation states like
the UK and Greece highlight the dynamic and multiscalar character of these discussions
about the role of the nation state in shaping policies for regional communities who per
ceive a distinction between the national policy regimes under which they are governed
and the values of their communities.
For example, following the 2014 Scottish independence referendum and the national elec
tion in the UK in 2015, the First Minister and head of the Scottish National Party, Nicola
Sturgeon, explained the crucial point about fiscal autonomy and scale of action to a US
audience at the Council of Foreign Relations in Washington DC in June 2015:
But we (Scotland) want maximum fiscal powers within the United Kingdom, short
of Scotland being an independent country. Why do we want that? Not for its own
sake, but because the more powers we have, the more fiscal responsibility we
have, the more ability we have to shape things like our system of social security,
the more able we will be to grow our economy, to make sure we’re doing the
things and pursuing the policies that help us to attract investment and create jobs
and grow our economy faster and more sustainably. So its powers and responsibil
ities for a purpose, and we will make those arguments that in the Westminster par
liament as the debate about for the autonomy for Scotland continues over the—the
weeks and months to come.10
And so the distinction between the expansion and contraction of the role of the state
through existing governance mechanisms remains central to the ability of local communi
ties to self-organize, even as the development of and investment in third-sector regional
intermediaries captures attention and resources. Institutional intermediaries operating
outside of the public sector—those operating in the third sector—have the ability to shake
the status quo by reconfiguring essential power asymmetries between scales of gover
nance, notably access to information. However, formal local autonomy is required to de
velop models of fiscal independence capable of supporting a broader array of public ser
vices and to manage the territorial boundaries of the highly differentiated spaces that
emerge on the other side. In other words, institutional intermediaries can pursue some
expanded services and provide some collective goods through the third sector, but, as
Nicola Sturgeon notes, they may not be able to finance those actions over time.
Technological change enables new forms of local organizing in response to shifting mar
ket conditions. Portals and social media platforms have proven effective for rapid infor
mation exchange and knowledge diffusion and. minimize many of the transaction costs as
sociated with building coalitions and coordinating constituencies. Effective portals like
Maker’s Row reduce supply-chain search costs, thus mitigating the costs to individual
small producers and entrepreneurs of finding both suppliers and customers. For places
covered and served by such intermediaries, flexible production systems are more eco
Page 12 of 19
nomically viable. Similarly, effective labour market matching portals like the Freelancers
Union (on the more high-tech side of the labour market) or the National Domestic Work
ers Alliance (on the more low-tech side) increase the availability of labour market infor
mation available both to the workers and employers. In effect, these intermediaries pro
vide the required structure to make flexible labour and flexible production work. Conse
quently, places with a density of these institutional intermediaries are more competitive
in the emerging knowledge economy, regardless of the services provided by (p. 821) the
public sector. Increasingly, it is local organizing through third-sector strategies that pro
duces variations in regional capacity to absorb technology and adapt to new forms of
work and production.
These third-sector strategies highlight innovative approaches to localized self-organizing.

The solutions, however, are highly contingent, and they tend to be territorially bounded in
ways that limit the diffusion of best practices. For example, third-sector institutional in
termediaries often attempt to organize access to services to new or emerging populations
but find that real resource constraints—primarily urban infrastructure investments—limit
access. For example, Internet portals may contain extensive labour market information,
but for workers without reliable Internet access, the information is still inaccessible.
Crowdsourcing strategies that aggregate information on the best bicycle routes across
the city can provide useful information to citizens but they cannot build new bicycle
lanes.
Both policy and market failures produce dynamic spaces for institutions to develop innov
ative models for mediating these gaps. Thus, neo-liberalism produces a range of new ‘val
ue propositions’. These are new spaces for market interventions and revenue generation
to fund collective actions. Social impact bonds or ‘pay for success’ arrangements are just
one innovative financial instrument operating in this space. Pioneered in the UK to use
public monies that would be used to incarcerate reoffending former prisoners, the mecha
nism uses a portion of those funds to pay a third-sector intermediary to provide services
to avoid reincarnation in the first place. The social impact bond arrangement, and other
such arrangements, allows governments to use financing approaches to leverage antici
pated costs to finance early interventions—particularly in public safety, education, and
other social interventions. What is clear from these third-sector strategies is that private-
sector policy solutions are not necessarily adversarial or extractive. In some cases, they
enable the expansion of public services through direct delivery or by expanding the rev
enue opportunities for city governments. They do operate, however, outside of traditional
governance mechanisms (the third sector) and are often less transparent to citizens and
policymakers (complex financial arrangements or unfamiliar or novel technologies). Prior
ities are set whereby revenue can be generated not by what is selected directly by voters
or city councils.
It is well understood among economic geographers that neo-liberalisms often erode the
base of established and effective institutions that mediate power asymmetries between
capital and labour in clear and important ways. However, the core elements of neo-liber
alism—devolution, deregulation, and disinvestment—do not necessarily lead to the same
Page 13 of 19
set of shared, replicable ideologically neo-liberal outcomes across places. Instead, actors,
institutions, and coalitions in local communities pursue a wide variety of strategies to
shape places that reflect local priorities. Through third-sector strategies, local communi
ties have found a way to work around the disinvestment of the public sector. The conclu
sion, then, is that devolution and deregulation lead to new forms of organizing and new
sites of action—not just new markets. Local communities, and specifically cities, are
where that action plays out.
For economic geography, this produces an evolving and complex landscape of actors and
processes that provision collective goods and once ‘public’ services in local and regional
economies. The configuration of these processes and the characteristics of these third-
sector actors are locally tailored, territorially bounded, and contingent across time and
space. In other words, the economic landscape produced is increasingly varied, uneven,
and, in profound ways, unequally equipped and prepared for the challenges of the knowl
edge economy (p. 822) and its new forms of work and production. For economic geogra
phers, this dynamic environment underscores the importance of the core disciplinary
project of tracking, documenting, and analysing the dynamic and multiscalar shifts of pol
icy responsibilities and authorities between scales of governance, as well as the process
es of economic accumulation and disinvestment that happen in places and over time.
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Notes:
(1.) See US Conference of Mayors Climate Protection Agreement: http://www.mayors.org/

climateprotection/agreement.htm (last accessed 27 April 2017).
(2.) This is not to say that these processes and the evolving institutional forms that enable
them are unique to the USA. There are also examples in the UK and Canada, as well as
other countries. See Peck and Theodore (2015) for examples of policy model diffusion
across Latin America.
(3.) See ‘Bloomberg philanthropies expands innovation teams program to 12 new Ameri
can cities’ http://www.bloomberg.org/press/releases/bloomberg-philanthropies-expands-
innovation-team-program-12-new-american-cities/ (last accessed 27 April 2017).
(4.) See City Energy: http://www.cityenergyproject.org/about/ (last accessed 27 April

2017).
(5.) See SF Made at http://www.sfmade.org; Makers Row at http://makersrow.com/how-it-

works, and also The Urban Manufacturing Alliance at http://urbanmfg.org/about (all last
(6.) See the Freelancers Union at https://www.freelancersunion.org and ‘What is new mu
tualism’ at: https://www.freelancersunion.org/blog/dispatches/2013/11/05/what-new-mu
tualism/ (both last accessed 27 April 2017).
(7.) See the National Domestic Workers Alliance at http://www.domesticworkers.org/who-

we-are (last accessed 27 April 2017).
(8.) See Anderson (2013), Miller Center (2014), and Hatch (2013).
(9.) See Toro (2012). See also Bennhold and Erlanger (2015) and Reuters (2015).
(10.) See Council on Foreign Relations (2015).
Jennifer Clark
Jennifer Clark ([email protected]) is Director of Georgia Tech’s Center for

Urban Innovation and an Associate Professor in the School of Public Policy. Dr Clark
publishes work on the development and discussion of urban and regional policies and
their effect on cities and their economic resilience. Her book, Remaking Regional
Economies (with Susan Christopherson), won the Best Book Award from the Regional
Studies Association in 2009. She published Working Regions in 2013 and the Hand
book of Manufacturing Industries in the World Economy in 2015. She has worked on
innovation policy projects with a broad range of organizations, including the OECD
and the Canadian, UK, and US governments. She earned her PhD from Cornell Uni
versity, an MPlan from the University of Minnesota, and a BA from Wesleyan Univer
sity in Connecticut. She is the current chair of the Economic Geography Specialty
Page 18 of 19
Group (EGSG) of the Association of American Geographers and an editor of Regional

Studies.
Page 19 of 19
Innovation Highways and the Geography of Inclusive Growth
Innovation Highways and the Geography of Inclusive

Growth
Anita McGahan and Janice Gross Stein
Important advances regarding the geography of innovation focus on the competitiveness

of cities, nations, and regions through the establishment of innovation clusters and na
tional systems of innovation. In this chapter, this logic is linked with emerging scholar
ship on innovation for inclusive growth, which focuses on entrepreneurialism in resource-
limited settings. By connecting the two streams, the chapter conceptualizes relationships
between communities as ‘innovation highways’. It is argued that economic and public pol
icy seeking to advance both prosperity and inclusiveness would benefit from deeper and
more extensive consideration of collaboration between communities. The chapter argues
that future research on the geography of innovation will take innovation highways be
tween communities as central to prosperity, and consider the governance of these high
ways as a central mechanism of inclusiveness.
Keywords: geography of innovation, innovation clusters, national systems of innovation, inclusive growth, connec
tivity
Introduction
‘INNOVATION for inclusive growth’ (IIG) has emerged as an important concept in the
fields of economic development and health. At the core of IIG is the idea that the objec
tive of growth policy must be to advance the prosperity of all, with special attention to the
implications of growth for the poor (George et al., 2012). The reasoning for the emphasis
on remediating poverty is that the consequences of inequality are widespread: when
some citizens are not engaged, then society leaves fallow important resources, incurs
welfare costs, cultivates political and social disaffection among the marginalized, and suf
fers ethically. An important mechanism for increasing inclusiveness is the encouragement
of entrepreneurialism in resource-limited settings (Radjou et al., 2011). A related idea is
that the maximum return on investment from such entrepreneurialism arises when low-
cost products and services invented in settings of poverty are exported to relatively
wealthier settings (Govindarajan and Trimble, 2011; Kumar and Puranam, 2012). Export
Page 1 of 16
may contribute to local comparative advantage and, eventually, the compounding eco
nomic benefits that arise from trade (Amsden and Chu, 2003). Despite the popularity of
these ideas, the geography of IIG has not been fully considered.
A separate literature on the economic geography of innovation (GOI) deals primarily with
the challenge of improving local prosperity by encouraging the development of local in
dustry—usually in a city or region or nation (henceforth we shall refer primarily to ‘com
munities’ for simplicity, but we mean the range of geographical units). The important sub-
streams of this literature emphasize different mechanisms for achieving prosperity. The
first focuses on industrial clusters, which include groups of firms engaging in similar pro
ductive activities, as well as their suppliers, distributors, financiers, and customers. The
second deals with national systems of innovation (NSIs), which arise from the activities of
universities, patent systems, governmental technology investments, and other institutions
that foster (p. 827) entrepreneurialism and the commercialization of technology in estab
lished firms. While initially dealing with competitiveness at the level of nations, the NSI
framework has also been applied to the level of cities and regions.
In this chapter, we seek to link these literatures. We advance the idea of innovation high
ways as a new construct that links GOI theories on the mechanisms of prosperity with IIG
theories on the mechanisms of inclusion. We argue that governance over innovation high
ways determines their inclusiveness, while the location of and speed on innovation high
ways shape the ways they advance prosperity. We conclude that further study will open
up areas of inquiry regarding Innovation Highway location, speed, and governance to
identify opportunities for improving prosperity and inclusiveness simultaneously, thus
avoiding trade-offs between prosperity and inclusiveness.
Brief Review of Core Constructs on the Eco

nomic Geography of Innovation
The literature on GOI is extensive and has been described elsewhere in this Handbook.
Here, we identify only a few of the major constructs for the purpose of later elucidating
the gains from integration between the GOI and IIS literatures. The unifying idea that we
seek to develop is that the GOI literature, with important exceptions, has focused primari
ly on mechanisms for raising prosperity in a particular community, neighbourhood, city,
region, or nation. The basic logic is that proximity leads to knowledge spillovers, agglom
eration economics, dynamic insights, and specialization (Feldman, 1994; Aoyama et al.,
2011). Collectively, all of these benefits of proximity enable commercializable innovation.
Two primary mechanisms of this enablement have been identified and studied extensive
ly. Scholars including Gertler (2003, 2010), Krugman (1991), and Porter (1990, 2000)
have demonstrated that the co-location of firms and their trading partners in clusters
stimulates competitive innovation, promotes knowledge spillovers, increases agglomera
tion economies (of both scale and scope), and allows for specialization (Feldman, 1994;
Malecki, 1997). Talented and creative personnel seek employment in clusters because of
the opportunities that accompany specialization and scale. As firms in clusters benefit
Page 2 of 16
from local innovation capacity and become known internationally, their advantages com
pound and become reinforced (Spencer et al., 2010). This literature echoes many of
themes in the literature on the microstructure of cities (Jacobs, 1969).
The second mechanism is the NSI. The core argument in the literature on NSIs is that the
institutional environment in a city, region, or nation is critical for enabling innovation
(Malerba, 2004, 2005; Malerba and Nelson, 2011; Malerba and Adams, 2014; Nelson and
Sampat, 2001). Taxation policy, investment incentives, trade policy, universities, educa
tion systems, and policies regarding the private ownership of intellectual property all in
fluence private incentives for basic investments in technology development and the envi
ronment for commercialization of technologies once they are embedded in business mod
els. Broadly, the institutional environment must be sufficient both to support commercial
success and meet the needs of the local community (Rodrik, 2008; Murmann, 2013).
In both traditions, a principal conceptualization of performance is economic pros

(p. 828)
perity, often measured by growth, and the unit of analysis is a particular place. Compar
isons are often drawn by assessing over time and between places the changes that arise
from the implementation of particular programmes or policies designed to improve pros
perity (i.e. such as through differences-in-differences comparisons of places with differen
tial implementation of a policy (Banerjee and Duflo, 2011)). The goal is to identify the
conditions under which agglomeration and the institutional environment give rise to the
economic growth of the community.
Brief Review of the Literature on Inclusive,

‘Reverse’ Innovation
While studies on the effectiveness of economic development policies have long been cen
tral to the fields of economics and political science, the literature on IIG has developed
largely independently of research on the GOI. As a consequence, it differs in several ma
jor ways.
One major difference between the GOI and IIG literatures is in the IIG’s focus on innova
tion rather than growth as the primary target of policy and measure of performance (Lee,
2013). The theoretical conceptualization of ‘innovation’ employed is expansive and in
cludes product innovation, process innovation, and even knowledge creation generally
(Fagerberg et al., 2012). Growth and innovation may or may not be related in the short
run (innovation may be costly or may not generate appropriable benefits), although they
are related empirically in the long run (Adner and Kapoor, 2010; Gates, 2011). Many of
the innovations celebrated in the IIG tradition involve simplifying existing commercialized
products, processes, and technologies for lower cost (Govindarajan and Trimble, 2011).
In some instances, the simplification that lowers costs also improves quality, thus pushing
forward the productivity frontier (Porter, 1985).
Page 3 of 16
A second distinguishing feature of research on IIG is the emphasis on the distributional

consequences of innovation: IIG studies take the remediation of inequality as its primary
objective, and thus stand in contrast with GOI literature’s focus on growth (Cohen and
Klepper, 1991, 1992). Like GOI research, IIG research takes a particular place as the pri
mary unit of analysis, but, unlike GOI research, studies in the tradition of IIG point to
mechanisms of openness as the conduit through which resources flow into and out of a
particular place. The IIG literature stipulates that places in the Global South may be more
innovative than those in the Global North both by necessity and because of the absence of
institutional constraints on creativity (Govindarajan and Trimble, 2011; George et al.,
2012). These claims must, of course, be interrogated to investigate their robustness and
veracity. Yet the examples that have emerged in this literature suggest that, under at
least a range of important circumstances, the innovation capacity of entrepreneurs and
inventors in resource-limited settings is important for remediating local inequality, foster
ing local growth, and improving prosperity in remote, globally established communities
primarily by lowering the costs of established products and services.
In the IIG tradition, three different strands of thinking about mechanisms have devel
oped. The first, in the critical policy domain, focuses on the empirical phenomenon of
(p. 829) increasing inequality and persistent impoverishment in resource-limited settings
despite decades of foreign aid and policy intervention. Critical policy studies (i.e. Easter
ly, 2001, 2006) demonstrate how foreign aid to low-income countries has led to social dis
location, political instability, and even adverse economic outcomes in low-income coun
tries (Moyo, 2010). At the heart of the challenge is the exportation of unaffordable sys
tems even by the standards of high-income countries into settings where infrastructure,
norms of interaction, and complementary assets are not available (McGahan, 2012). Well-
intentioned interventions often have the unintended consequences of centralizing wealth
and exacerbating inequality by displacing local entrepreneurs in poor communities rather
than promoting inclusion. This literature calls for policies and interventions designed pri
marily to advance inclusiveness rather than aggregate growth (McGahan et al., 2013).
A second stream of research in sociological and management studies demonstrates how

‘bricolage’—making do with what’s at hand—in impoverished environments has led to im
portant technological breakthroughs. Bricolage is the hallmark of ingenuity, and is rife in
resource-limited settings, although insufficient to remediate poverty except under the
most unusual of circumstances (Bhatti, 2012; Bradley et al., 2012). Yet several important
breakthroughs based on bricolage have been documented (Lee and Lim, 2001; Ansari et
al., 2012). These have occurred when entrepreneurs have specialized knowledge, fortu
itous access to relevant resources, and awareness of the opportunity for invention. Much
more research is needed to identify when bricolage remediates poverty rather than arises
as an artefact of inequality (Hall et al., 2012).
A third stream emphasizes ‘reverse innovation’ and was inspired by the procedural and
product breakthroughs of institutions such as at the Aravind Eye Hospital in India (Govin
darajan and Ramamurti, 2011; Govindarajan and Trimble, 2011; Stein, 2013). Originally
motivated to offer cataract surgery to anyone who needed it, the hospital developed pro
Page 4 of 16
cedures that radically lowered the cost of care without compromising quality relative to
standards established for resource-rich settings. As the hospital continued operations, the
volume of its services led to improvements in quality even beyond what is commonly
achieved in some of the world’s most prestigious hospitals. As cost reductions compound
ed, the hospital and its approaches became ‘disruptive’ (Bower and Christensen, 1995) to
health systems designed under less stringent circumstances (Topol, 2011). Reverse inno
vation occurs when breakthroughs in resource-limited settings have the capacity to im
prove prosperity in resource-rich countries either by lowering costs or improving quality
or both (Govindarajan and Ramamurti, 2011; Govindarajan and Trimble, 2011; Markides,
2012; Tharoor, 2012). Noting the successes of such organizations, General Electric chief
executive officer Jeffrey Immelt announced that the company would concentrate innova
tion activities in resource-limited environments rather than invest incrementally on tech
nologies developed in high-income countries, where design improvements tend to accu
mulate in unaffordably costly ways (Immelt et al., 2009).
These three streams all emphasize the importance of inclusiveness, and yet are not fully
integrated either theoretically or normatively (see Shane, 1993; Simanis and Hart, 2008,
2009). A reason for this lack of integration is each stream’s reliance on phenomenological
and empirical observation to point to critical gaps in standing theory. The emphasis in
critical studies and, to a lesser extent, in the reverse-innovation stream is on what’s miss
ing rather than on how to develop more effective interventions. The emphasis in brico
lage and in (p. 830) the reverse-innovation streams is the under-theorizing of established
practices in resource-limited settings. What is needed is to confront these gaps fully.
Integrating insights from these streams is the central agenda of the emerging theory of
IIG (George et al., 2012). As scholars identify the core constructs that characterize and
describe the unique and unifying characteristics of inclusive entrepreneurship in re
source-limited settings, hypotheses emerge about how the poor are enfranchised and ulti
mately become successfully integrated into the framework for growth in their communi
ties. Robust theories of inclusive innovation must account for the ex ante distribution of
the risks and costs of innovation, as well as of the benefits (Schumacher, 1974;
Thorsteinsdóttier et al., 2004; McGahan et al., 2013). When the benefits of commercial
ization are pursued without consideration for the vulnerability of the poor to the risks and
costs of failed innovation (e.g. see Prahalad, 2004), commercialization itself loses legiti
macy. The literature on IIG cannot develop theory until it considers the ex ante criteria
that describe effective and fair policy rather than the ex post distributional consequences
(McGahan, 2012; McGahan et al., 2013; Stein, 2013).
A central problem in the practice of reverse innovation is the exportation of risks of devel
opment into resource-limited settings, such as when pharmaceutical trials are conducted
on impoverished patients. When those patients that bear the risks of failed innovation are
not enfranchised in the benefits of successful innovation, then the distribution is not truly
inclusive (McGahan, 2012). In other words, inclusive innovation must enfranchise the
poor into opportunity for success, as well as of failure. Such enfranchisement is robust
only when the poor have governance rights. The literature on democracy suggests that in
Page 5 of 16
clusive innovation requires enfranchisement of the poor in governance, as only the en
franchised are capable of asserting and claiming their rights to the benefits of inclusivity
(Pierre and Peters, 2002; Kooiman, 2003; Klein et al., 2011; McGahan, 2012).
Enfranchisement occurs with engagement in the processes by which innovation is gov

erned. Governance in this instance includes decision rights, property rights, and manage
rial rights associated with the selection of relevant economic opportunities, the deploy
ment of resources in pursuit of the opportunities, the distribution of the risks from fail
ure, and the distribution of the gains from success (Rhodes, 1996, 1997; Skelcher, 2005;
Klein et al., 2011).
Recent studies suggest that the governance adaptation that characterizes inclusive inno
vation is successful only under certain conditions. Firstly, governance must clearly specify
the constituencies included in the governance process while allowing for engagement of
specialized experts and consultation with non-governing stakeholders (Ostrom, 1990;
Ansari et al., 2012; Rezaie et al., 2012). Governance for inclusive growth fails when insti
tutional structures are so strict that outside experts are effectively barred from offering
advice (consider the risks of building roads without engineering expertise); similarly, it
fails when institutional structures are ill specified to the point that consultation of stake
holders becomes so extensive that governance decisions are bogged down in bureaucra
cy; it also fails when the marginalized have no voice from the beginning over the distribu
tion of potential risks and benefits. Success in achieving inclusiveness depends, in large
part, on clarity about boundaries (Libecap, 1989; Ostrom, 1990).
Secondly, the results of innovation must be distinguished from the process of governance.
Innovation is risky and may fail, and yet those enfranchised in the governance of innova
tion must not be excluded because of the failure of the innovation (Libecap, 1989; Os
trom, 1990; Klein et al., 2011). Consider the pharmaceutical industry, where the success
rate on new drug (p. 831) development is as low as one in 10,000. Robust IIG requires that
an outcome of failed drug discovery does not constitute grounds for judging the process
of governance as failed, or for disenfranchising the poor (or any other constituency) from
governance processes. Effective governance over innovation must specify rules ex ante
for distributing the risks of failure and allocating the fruits of success (Libecap, 1989; Os
trom, 1990; Rezaie and Singer, 2010; Klein et al., 2011).
The tension between democratic governance and the unilateral leadership authority re
quired to manage innovation processes effectively must be calibrated. Adaptation in gov
ernance is critical as the types of decisions, allocation processes, and risk-management
issues change over time as technology advances (Piore and Sabel, 1984; Libecap, 1989;
Klein et al., 2011). Robust governance institutions are designed to resist change and to
insure against failure, yet improvements in the technology of decision-making, resource
allocation, and risk management must be accommodated for governance structures to re
main relevant. A critical tension arises as leaders charged with responsibilities for imple
menting well-governed initiatives confront obstacles in the governance process designed
for enfranchisement. In such situations, inclusiveness demands not only continued en
Page 6 of 16
gagement of the poor, but also a process for negotiating the transition to updated gover
nance approaches (Klein et al., 2011). This can be a challenging and demanding process
that can consume time and resources, but is fundamental to a fair distribution of risks
and benefits.
In the next section, we suggest that integration of ideas, constructs, and relationships
from the GOI and IIG traditions requires considering governance of both communities
and of technological advance. The GOI and IIG streams each assess performance by mak
ing claims that explicitly or implicitly rest on the boundaries of the governable unit.
• The GOI’s cluster tradition emphasizes inbound and outbound trade from the cluster
as a primary indicator of economic prosperity. The performance of a cluster is often as
sessed relative to that of other clusters on the volume, value, and terms of trade.
• The GOI’s NSI tradition points to the global competitiveness of a nation, region, or
cluster as a central objective of public policy. The performance of the geographical unit
is evaluated through assessment of its integration into the global financial institutions
and global supply chains.
• The IIS’s critical tradition suggests that, when a portion of the population is disen
franchised from economic opportunity, then the prosperity of the community is blunted
relative to its potential. The community underperforms. This tradition points to trade-
offs between local economic activity and inequality that can be broken through rela
tionships between the geographical unit and external trading partners.
• The IIS’s bricolage tradition points to underutilized fixed resources as the building
blocks of invention. This literature emphasizes human ingenuity and problem solving—
informed by imported insights regarding technological opportunity—as the keys for un
locking invention. In this line of research, the templates for invention reflect globally
available knowledge, frameworks, and prototypes.
• The IIS’s reverse-innovation literature suggests that low-cost innovations in re
source-limited settings represent commercializable inventions that may be globally
competitive. Through outbound trade, inventors may prosper even in local settings.
Recent research in this stream suggests that the realization of the benefits of such
trade depends on the availability of receptor facilities in remote markets for locally in
vented goods.
(p. 832) Each of the traditions contains elements of logic that describe how prosperity—ei
ther through contemporaneous economic performance or innovation—depends on the re
lationships between activity in a community and outside actors (Prahalad and Mashelkar,
2010). Yet relatively little is known about the structure of these connections, how they are
created, and how they are governed.
Page 7 of 16
Innovation Highways: Enabling Prosperity

In this section, we introduce the metaphorical construct of the innovation highway as cen
tral to the relationships between the GOI and IIG literatures, and more generally to the
study of economic geography. Innovation highways are conceptualized as connecting a
community to other communities and to global systems. A community’s highways—the
pathways by which knowledge, transactions, and other economic assets flow across the
community’s borders—contribute to resource creation, market opportunity, and, perhaps,
most importantly, collaboration opportunities. We argue that how a highway is governed
will affect the distributive consequences of innovation.
Examples of innovation highways include:
• Trade agreements that enable transactions between economic actors in different

communities. The World Trade Organization (WTO) was formed in 1994 as the result of
the Uruguay-round of negotiations under the General Agreement on Tariffs and Trade.
The rules of the WTO were negotiated by representatives of member nations, each
charged with governance responsibility in their jurisdictions. The WTO’s policies on in
tellectual property arrangements were immediately criticized for arising from gover
nance processes that did not fully consider the interests of the poor in member coun
tries. The rules governing trade in intellectual property were subsequently amended
after more extensive consultation with constituencies that represented the interests of
the poor. These amendments have been fundamental in enabling reductions in the
price of critical medications that are essential to the treatment of diseases of the poor.
Here the link between governance and the distribution of benefits from innovation is
clear.
• Economic relationships between emigrants in a destination country and family mem
bers in the home country. In Canada, new rules are emerging to govern the gifting of
money from emigrants in Canada to their family members in the home country. The
new rules consider that emigrants are often sponsored by their families because of the
economic opportunities available in Canada. When emigrants start businesses, they of
ten return payments to their families in originating countries; in other words, the re
turns to entrepreneurship are shared across jurisdictional boundaries. The new rules
are designed to govern such transactions.
• Contractual relationships between companies in a particular geography and those in
remote areas. Over the last decade, the outsourcing of important innovation activities
by corporations across international jurisdictional boundaries has grown significantly.
Pharmaceutical companies, semiconductor manufacturers, software developers, and a
range of other high-technology businesses frequently write contracts that stipulate
(p. 833) desired innovative outcomes, as well as the terms on which such outcomes are
paid. Governance over these contracts is often subject to informal processes rather
than enforceable arrangements. As a result, subcontractors may either not be paid or
may be underpaid for the innovations that they generate.
Page 8 of 16
• Student exchanges that occur regularly across universities located in different com
munities. Students from Harvard University in Cambridge, Massachusetts, regularly
travel to the Great Lakes University in Kisumu, Kenya, in an educational exchange.
The transfer of knowledge and the cultivation of relationships between the Cambridge
and Kisumu communities enable innovation that could not otherwise occur: students
collaborate to form non-governmental organizations and start businesses, which must
operate by the jurisdictional rules of the communities in which they are formed. Incor
poration in Cambridge eases the burden on donors from the USA who seek documenta
tion regarding non-profit status to support the tax deductibility of contributions. Incor
poration in Kisumu enables the employment of workers on site.
To begin our analysis, we take the innovation highway as dyadic relationship between
communities. A community’s network of innovation highways includes its system of
dyadic relationships. We conjecture that the dyadic highway, as well as a community’s
network of highways, is important to economic prosperity.
The metaphor of a highway suggests a number of important corollaries. The capacity for
exchange in each direction on the highway represents the amount of innovation that oc
curs through collaboration by the partners. The balance of bilateral volume represents
the character of the knowledge that may be exchanged (e.g. students from Cambridge
bring relatively greater formal disciplinary training to Kisumu; students from Kisumu rel
atively greater understanding of the institutional environment for development to Cam
bridge). The speed of travel reflects the readiness for translation of critical innovation in
puts across the communities. Tolls represent the transactional costs. Entry and exit points
suggest that innovation exchange between two communities may be augmented or imped
ed en route. The infrastructure in each community for accepting and distributing the
transferred knowledge is akin to distribution centres for trafficked goods and services.
The allocation of responsibilities for repairing and maintaining the highways reflects the
robustness of community commitment to the relationship and the nascent governance
system.
Although much more development of this idea is needed, we stipulate that the concept of
the innovation highway between communities is important for understanding the perfor
mance of the communities on criteria that are central to both the GOI and IIG literatures.
GOI research describes the factors that drive the prosperity of communities, but has
tended to refer primarily to internal characteristics of the community rather than to the
relationships between the community and outsiders and how these relationships are gov
erned. IIG research deals primarily with outside relationships and internal equity, but al
so does not pay explicit attention to governance. The innovation highway accommodates
both perspectives and offers an approach for integrating insights from the two streams
through an analysis of governance mechanisms. We consider that innovation highways
are the institutions of exchange between communities, and that to function they must be
governed.
Page 9 of 16
The Governance of Innovation Highways:

(p. 834)
Enabling Inclusiveness
Inclusive governance demands that the poor have a direct and immediate voice in deci
sion-making about the pursuit of innovation opportunities, the allocation of scarce re
sources, the distribution of the risks and costs of innovation, and the distribution of the
rewards to innovation. This voice must be represented not only internally, such as during
elections, but also in governance over external arrangements with other communities.
Enfranchisement also means that the poor participate in the opportunities created by the
construction of innovation highways, and in the resolution of disputes between communi
ties over how innovation between them will be governed. Representatives of the poor, in
other words, have a direct voice in rule-making about the innovation highway and the
risks and benefits that innovation may bring into their communities.
A conversation about governance of this kind is currently ongoing in Canada, where com
panies propose to build new pipelines to move oil to foreign markets, and aboriginal com
munities who claim rights to the land along the route insist on a voice in the governance
of the risks that new pipelines may bring to their communities, as well as an agreement
ex ante on the share of benefits they will receive once the pipeline is built. These conver
sations have been long and difficult, in part because no meta-governance arrangements
are in place to regulate these conversations and the parties will consequently turn to slow
judicial processes to resolve differences. Here a governance deficit is blocking progress.
Inclusiveness demands that all members of society are enfranchised in the processes for
determining which innovation highways will be constructed, and whether and how such
highways will be opened to participation across the community. IIG stipulates inclusive
ness over the terms of trade, investment, and other inter-community transactions. Cru
cially, the poor must be enfranchised in consideration over how risk is governed and so
cialized so that the poor benefit directly (not through second order redistributive mecha
nisms) from innovation. This conceptualization challenges those who argue that
economies will grow through innovation, and the poor will benefit indirectly from greater
prosperity.
At the same time, the GOI literature on agglomeration demands that innovation highways
be constructed to contribute to local advantages that accumulate comparatively across
the involved communities. The communities on both ends of the innovation highway must
benefit comparatively from the exchange in the sense of classical theories of comparative
advantage. Innovation highways must be constructed to make the partnering communi
ties globally competitive. As the interlocked communities become integrated, then their
mutual performance reflects their joint competitiveness in the global economy.
As innovation highways develop, many of the most important opportunities for innovation
involve the creation of public goods. These public goods must be governed in ways that
account for their public character. The risk from poor governance is underinvestment, un
fair allocation of operational risk, and the channelling of profits in ways that deplete mu
Page 10 of 16
tual performance. Harmonization of governance rules across the interlocked parties be
comes central to the mutual performance of the communities. For example, harmoniza
tion of drug-approval processes, institutional review boards, and so on, across jurisdic
tional boundaries requires enfranchisement of poor nations in drug-approval processes
over pharmaceuticals (p. 835) that may be sold primarily in poor communities. As the con
nections between communities strengthen—that is, as the innovation highway between
them becomes central to their performance—then governance over the innovation high
way requires integration, negotiation, and, ultimately, harmonization of rules across the
communities.
Conclusion
The GOI and IIG literature, developed independently, each point to the importance of re
lationships between communities, as well as to the internal characteristics of communi
ties. The GOI points to the importance of internal agglomeration economies and support
ing institutions, while the IIG emphasizes internal equity and external relationships. In
this essay, we suggest that both internal and external facets of communities are central to
their prosperity and inclusiveness, and propose the construct of the ‘innovation highway’
as analogous to the cluster for understanding inter-jurisdictional relationships. The gover
nance of the innovation highway, itself an outcome of negotiation between participating
communities, may be crucial to the effective performance of each participating communi
ty on both growth and inclusiveness dimensions. The system of innovation highways cre
ated by a community may put significant demands on the community’s governance capa
bilities, and yet may also offer unprecedented opportunities for prosperity.
Our analysis raises a number of questions about the robustness of governance over inno
vation highways for future research. Inclusiveness in the process of governance over in
novation highways carries the promise of removing economic, political, and ethical barri
ers that have plagued community exchange. Design of appropriate governance systems
for innovation highways is central not only to their immediate contributions to the perfor
mance of linked communities, but also to the eventual integration of the communities for
mutual benefit. Future research will need to examine alternative governance mechanisms
and the impact of these mechanisms and processes on inclusive innovation and growth.
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cines in China, India and Brazil’. Nature Biotechnology 30: 923–926.
Rezaie, R. and Singer P.A. (2010). ‘Global health or global wealth?’ Nature
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Studies 44: 652–667.
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ivity, and Accountability (Buckingham: Open University Press).
Rodrik, D. (2008). ‘Second-best institutions’. American Economic Review 982: 100–104.
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Topol, E.J. (2011). ‘Medicine needs frugal innovation’. MIT Technology Reviewhttps://
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Anita McGahan
Anita M. McGahan ([email protected]) is a Professor of Strategic

Management at the Rotman School of Management at the University of Toronto. She
has also served as the Associate Dean of Research at the Rotman School. Her re
search is focused on industry change, sustainable competitive advantage, and the es
tablishment of new fields. An area of particular interest to her is global health and
the diffusion of knowledge across international boundaries. She has authored and co-
authored more than fifty-five articles in refereed journals and three books, including
How Industries Evolve: Principles for Achieving and Sustaining Superior Perfor
mance. She is a member of the editorial boards of several journals, such as Academy
of Management Discoveries, European Management Review, and Strategic Organiza
tion.
Janice Gross Stein
Janice Gross Stein ([email protected]) is the Belzberg Professor of Conflict Man

agement in the Department of Political Science and the founding Director of the
Munk School of Global Affairs at the University of Toronto. She is a Fellow of the Roy
al Society of Canada ↵and a member of the Order of Canada and the Order of On
tario. Her main research interests include intelligence, international security, negoti
ation processes, and behavioural explanations of decision-making. She has published
more than 100 articles and several books, including Digital Diplomacy and a forth
coming article on loss aversion and the end stage of negotiation.
Page 16 of 16
Shocking Aspects of Regional Development: Towards an Economic Geogra
phy of Resilience
Shocking Aspects of Regional Development: Towards an

Economic Geography of Resilience
Ron Leonard Martin
Over the last decade the notion of resilience has attracted increasing attention from eco
nomic geographers, as part of an interest in the impact of shocks and disruptions to the
process and pattern of regional development. But increasing popularity is no guarantee of
profundity, and the application of the idea in economic geography raises a range of issues
and questions, concerning not only the meaning and conceptualization of the notion of re
silience in an economic-geographical setting, but also about the relationship of both
shocks and resilience to the very process of uneven regional development itself. Clarify
ing these definitional, conceptual, and analytical issues is necessary given that the notion
has assumed growing prominence in urban and regional policy-making arenas.
Keywords: shocks, resilience, regional development, regional development theory, building regional resilience
The Rise of ‘Resilience Thinking’

EVERY now and again a concept emerges within the academic literature that, for some
reason or other, suddenly spreads out from the specific field(s) in which it originated into
a whole variety of disciplines and applications. Typically, such concepts have a certain
‘generic’ character, in the sense that they capture a feature or process that is thought to
be applicable to, or can be adapted so as to be rendered applicable to, quite diverse con
texts. But as they travel across disciplinary boundaries such concepts inevitably require
some degree of re-specification or re-interpretation relevant to the particular context in
question, and this itself can both enrich the concept and raise significant theoretical and
methodological issues concerning its meaning and relevance (Wimmer and Kössler,
2006).
One notion that has undergone this sort of intellectual journey is that of resilience. The
use of this concept can be found in early-1970s’ ecology, as part of the study of the stabili
ty and persistence of ecological systems in response to natural (environmental) and hu
man-induced disturbances and perturbations (see the pioneering study by Holling, 1973).
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phy of Resilience
It also emerged at about the same time in psychopathology and developmental psycholo
gy studies, to help understand how individuals (especially children) cope under adversity
(Garmezy, 1971, is one of the first such studies). Over the last two decades or so, both of
these fields have directed renewed attention to the notion, elaborating it considerably in
the process (e.g. Luthar and Becker, 2000; Luthar, 2003; Folke, 2006; Walker and Salt,
2006; Masten, 2014). But at the same time, the idea of resilience has also attracted grow
ing interest from several other disciplines, including management studies, organizational
science, urban planning, (p. 840) comparative politics, development studies and policy,
and environmental science, particularly studies of the impact of climate change (Adger,
2000; Sheffi, 2007, 2015; Seville, 2009; Pelling, 2011; Lee et al., 2013; Evans and Reid,
2014; Caniglia et al., 2016). Even a new journal, Resilience, has been established. And ac
cording to two key contributions (Zolli and Healy, 2012; Rodin, 2015), resilience is pre
cisely the sort of analytical tool we need in order to understand and confront what they
argue is an increasingly uncertain and risk-prone world.
Given this disciplinary diffusion of the concept, it is not too surprising that it should find
its way into economic geography and regional studies, and over the last decade the litera
ture concerned with the resilience of city and regional economies has grown apace (see
e.g. Bristow, 2010; Cambridge Journal of Regions, Economy and Society, 2010; Hassink,
2010; Hudson, 2010; Pike et al, 2010; Simmie and Martin, 2010; Fingelton et al., 2012,
2015; Martin, 2012; Boschma, 2015; Martin and Sunley, 2015, ). Of course, the increasing
popularity of a notion is no guarantee of its profundity, and the use of the concept of re
silience in economic geography inevitably raises as many questions as answers. Does the
notion aid our understanding of (uneven) regional development under conditions of insta
bility, uncertainty, and risk? Does the process of (uneven) regional development aid our
understanding of resilience? Some geographers query whether the notion has any value-
added, and is just another term for ‘competitiveness’ or ‘sustainability’ (see e.g. Bristow,
2010; Hudson, 2010).1 But as Scott (2013) points out, the value of the concept of re
silience relative to the notions of competitiveness and sustainability is its explicit empha
sis on shocks, disruptions, and unknowable perturbations (Tompkins and Adger, 2004),
and how such disruptions interact with processes of gradual and incremental change
across temporal and spatial scales (Folke, 2006). As I have argued elsewhere (Martin,
2012; Martin and Sunley, 2015), while the notion of resilience certainly attracts debate,
and is characterized by several as-yet-unresolved issues—not least its precise meaning
and how it should be theorized—it nevertheless helps to stimulate new ways of thinking
about change in the economic landscape. My purpose in this chapter is to set out what
this new way of thinking involves, what is distinctive about an economic geography of re
silience, and what it might contribute to our understanding of uneven regional develop
ment.2
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phy of Resilience
Regional Development as a Shock-prone

Process
The first defining feature of a ‘resilience perspective’ on the economic landscape is a
recognition that uneven geographical development itself is not some smooth or slowly
changing phenomenon, but an inherently shock-prone process, subject to all sorts of dis
ruption, perturbation, and interruption. To be sure, many of the main forces shaping the
economic landscape are slow and incremental, or perhaps are phase-like in evolution. But
historical experience—and, indeed, recent events (not least the global financial crisis of
2008–09)—indicate that sudden and unexpected events and dramas frequently disturb
and punctuate the momentum and direction of economic growth and development
(Ormerod, 2010). It is in this context that the notion of resilience takes on potential rele
vance. The idea of resilience is intended to capture and describe the extent to which and
ways in which an entity or system (p. 841) is able to withstand or recover positively from a
shock or disturbance that has disrupted the ‘normal’ position, state, behaviour, or func
tioning of that entity or system.3 Applying this idea to the study of regional development
immediately raises the question of what we mean by ‘normal’ and ‘shock’.
To some extent the answer to this question depends on the spatial and temporal scales of
our analysis. Despite what some spatial economists might assume, the economic land
scape is never in equilibrium but in constant flux: old firms, products, jobs, and technolo
gies are continually disappearing, just as new firms, products, jobs, and technologies are
continually emerging. According to Joseph Schumpeter it is this ongoing process of what
he called ‘creative destruction’ that drives the evolution of the economy, ‘incessantly de
stroying the old one, incessantly creating a new one’ (Schumpeter, 1942, p. 83). At an ag
gregate scale, such as the level of a national economy, the net result of this ongoing
process of ‘mutation’ (as Schumpeter called it) may appear as a relatively slow and steady
rate of structural–technological change. But at the micro-level, it involves a multitude of
‘local disruptions’, as individual firms in particular places close or contract and workers
are laid off. For the individual workers concerned, such local events may well constitute
adverse personal shocks. Whether such events disturb a locality’s employment or growth
path as a whole will depend on the scale of the firm closure or contraction and whether
other offsetting local employment opportunities are available or created. There is no
guarantee that the positive side of ‘creative destruction’, the opening of new firms and
creation of new jobs, will occur precisely in those places where firms and jobs are de
stroyed. It is when local firm closures or contractions assume a scale such that there is an
identifiable net negative effect on that locality’s employment or growth path, that it be
comes possible to talk of a local economic ‘shock’. Thus, for example, the loss of a major
or dominant employer locally, perhaps because of a move to another location, or because
of closure following a post-takeover ‘rationalization’ by a new non-local parent company,
can be highly disruptive, leading directly, and via various negative multiplier effects on
other firms and workers, to a rise in local unemployment, a reduction in local gross do
mestic product (GDP) per capita, reduced household incomes, and greater dependence on
welfare. While such ‘idiosyncratic’ locally specific shocks may be hardly noticeable and
Page 3 of 32
phy of Resilience
appear as mere ‘noise’ at the level of the national economy as a whole, and are part of the
‘normal’ workings of capitalism, they can, nevertheless, pose significant challenges for
the individual localities and communities concerned.
Sometimes, such disruptions take on a multi-locational character, affecting several loca

tions more or less simultaneously. For example, an entire national industry may undergo
intense contraction, or even disappear totally, perhaps because of the rise of major com
petitors elsewhere, or the closure of several spatially distributed branches of a major
company, or the rationalization of a public-sector industry, with the result that adverse
‘destructive’ shocks are imposed on several places more or less at the same time. A
graphic illustration is the coal mine privatization and closure programme in the UK in the
1980s and 1990s. In 1983 there were 170 coal mines across the UK. A relentless process
of closure and abandonment then ensued. By 2000 almost 150 collieries had been closed
down, some 25 in 1985 alone, literally decimating the industry. In many of the localities
concerned, mining was a major or significant employer. The large number of jobs typical
ly lost from a local pit closure itself, together with the knock-on effects on other local
trades and firms, represented a serious and negative shock to the local economies con
cerned. It proved difficult for the unemployed coal miners to find new employment locally,
and most redundant miners faced (p. 842) significant geographical and occupational im
mobilities. How does a local economy affected in this way respond and recover? How long
does it take for other types of activity to create jobs to compensate for those lost by the
closure? The recovery of employment in the pit closure areas has varied considerably,
with those localities most dependent on coal for their job base (e.g. Easington, Bolsover,
and Newark), experiencing the slowest subsequent growth of employment, while others
much less dependent (e.g. Selby, Rotherham, and Doncaster) faired much better. In the
worst affected areas, local employment had still not returned to pre-closure levels two
decades after the shutdown (Ormerod, 2008). The similar rationalization of the UK’s steel
plants, also in the 1980s and 1990s, involving a number of major plant closures, is anoth
er example of an industry-wide, multi-location shock.
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phy of Resilience
Figure 45.1 Differing City Responses to the Great

Recession in the USA, 2007–09: New York, Chicago,
Atlanta, and Phoenix Compared.
Note: GDP, gross domestic product.
Source:https://research.stlouisfed.org/
And then, at an aggregate level, there are major ‘macro-level shocks’, such as recessions,
financial crises, political crises, technological upheavals, wars, and so on, that disrupt
whole national economies, or even much of the global economy (Briguglio, 2004;
Briguglio et al., 2009). These may occur relatively infrequently, but tend to be widespread
and severe in their effects, with few, if any, localities escaping their consequences. How
ever, the precise impact is likely to vary from place to place. As an example, consider Fig
ure 45.1, which shows how the Great Recession of 2007–09 in the USA affected per capi
ta GDP in the cities of New York, Chicago, Atlanta, and Phoenix. Three distinctive fea
tures are immediately apparent. Firstly, the impact of the recession was clearly much
greater proportionately in the cities of Phoenix and Atlanta than in Chicago and New
York: the cities differed in their resistance to the downturn, as measured in terms of the
fall in per capita GDP. Secondly, the cities also varied in the speed and extent of their re
coverability. In New York, per capita GDP had recovered to its 2007 pre-shock level by
2011. In Phoenix, by contrast, even by 2014 per capita GDP was still 13 per cent below its
2007 level. In fact, thirdly, the data for these four cities suggest that the more severe a
city’s downturn in per capita GDP in the recession—the lower a city’s (p. 843) resistance—
the slower its subsequent recovery has been. Indeed, in the case of Phoenix and Atlanta
the effect of the recession may well turn out to have been not merely transient in nature,
but involving a permanent downturn shift in the growth path of per capita GDP.
A basic question is thus what determines such differential impacts and why some places
recover more rapidly than others.4 With such events, the ‘memory’ or ‘remanence’ effects
in some localities and places can be long lasting, lingering on long after the shock itself
(Blanchard and Katz, 1992; Simmie and Martin, 2010; Fingelton et al., 2012; Doran and
Fingleton, 2013; Evans and Karecha, 2014; Cowell, 2013; Cellini and Torrisi, 2014; Fingle
ton et al., 2015). Research has found that national economies that are more prone to fre
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phy of Resilience
quent or major shocks tend to have lower overall long-run rates of growth (Cerra and
Saxena, 2008; Cerra et al., 2009); that is, shocks can have permanent effects. An immedi
ate issue is whether and to what extent this outcome also applies at the subnational scale.
Do localities, cities, and regions that are much more susceptible to idiosyncratic shocks,
or much more severely affected by nationwide and general disruptions, tend also to have
lower long-run growth paths as a consequence? And does slow growth itself increase a
locality’s, city’s, or region’s vulnerability or susceptibility to shocks (Martin, 2012; Augus
tine et al., 2013; Hans and Goetz, 2013)? In other words, is there a two-way recursive in
teraction between shocks and underlying long-run growth? If so, the notion of resilience
becomes highly relevant for understanding uneven regional and city development.
Typically, in most applications of resilience across various disciplines, shocks are seen as
sudden, often unexpected, events, and usually as negative in nature and impact; hence,
the interest in how well the system of interest copes with and recovers from the shock. In
principle, however, a ‘shock’ may be of a positive kind. (Winning the lottery might possi
bly be so described, certainly for the lucky individual concerned, and it could well lead to
a major adjustment in that person’s outlook and lifestyle!) In an economic–geographical
context, positive ‘shocks’ would include a major increase in the demand for a locality’s,
city’s, or region’s products or services, the opening of a major new employer, a substan
tial new infrastructural investment, or a major technological advance, for example one
that boosts the competitiveness of an area’s industries or leads to the emergence of new
and novel activities. Events of this kind certainly require adjustments in the local econo
my in question, and may lead to pressures on existing infrastructures and resources, such
as housing, public transport, and local skills. And unless these infrastructures and re
sources are upgraded and extended, local supply constraints could emerge that dampen
and even undermine the positive nature of, and opportunities afforded by, the ‘shock’. But
whether we include adjustments to ‘positive shocks’ under the rubric of resilience is per
haps open to debate. Responding to a major local developmental opportunity seems
rather different from recovering from a negative disruption that undermines or destabi
lizes a local economy. What is relevant is that a positive shock in one locality or region,
because of, say, a local technological breakthrough, may have distinctly negative conse
quences for the industries and jobs based on an old technology in other localities and re
gions. An example is the widespread introduction of highly efficient automatic loom tech
nology in the US textile industry in the first two decades of the twentieth century. This
presented the erstwhile world-leading textile firms of Lancashire, UK, with a major tech
nological–competitive shock, to which they were extraordinarily slow to respond, result
ing in the failure and closure of literally thousands of factories across the towns and cities
in the region (Aldcroft, 1968).5 What such occurrences suggest, again, is that the geogra
phies of shocks and of local reactions to them are integral to the process of (p. 844) un
even regional development: what is a major positive economic boost or development in
one region or locality (possibly at a significant geographical remove) may well give rise to
a negative shock in another.
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phy of Resilience
In addition to these various types of shock, some writers have queried whether the notion
of resilience should be restricted to the analysis of the impact of sudden unpredictable
adverse disturbances, or whether it is also applicable in relation to how firms, workers,
and institutions react to and cope with ‘slow burn’, that is, incrementally increasing,
processes, pressures, and changes. This is not a straightforward issue. Many of the
processes that drive economic growth and development are ‘slow burn’ in the sense that
they occur continually, are ongoing, and even quasi-predictable in nature. Firms continu
ously face pressures arising from constantly shifting competition, technology, and the
like, and have to respond, adjust, and adapt accordingly if they are to survive and pros
per. One could argue that this need to remain ‘dynamically competitive’, to adapt continu
ally to and anticipate constantly changing market and technology conditions is a pre-req
uisite of resilience, and that whether a firm has successfully built resilience is only re
vealed at those junctures when shocks occur. Unless the notion is restricted to actually
occurring sudden shocks, the concept would have little distinctive or incisive meaning. In
effect, the term could be used in relation to almost any form of change, and hence as a
consequence would lose its explanatory value.
Having said this, however, slow-burn processes need not be unrelated to shocks. For ex
ample, certain pressures, although slow and incremental, may build up cumulatively, and
eventually reach a ‘tipping point’ or threshold at which they trigger a distinctive ‘shock’
event. One example might be the emergence and rise of more productive, cheaper, or
technologically advanced competitors that slowly but progressively capture existing
firms’ market share (the Lancashire textile firms referred to earlier fit this situation). The
original firms may ignore or decide not to adjust (e.g. by re-equipping to increase efficien
cy) in response to this growing pressure. But this may eventually lead to situation where
the original firms can no longer operate profitably, and are forced to close down, with
possibly damaging effects on their specific localities. Sudden shocks, in other words, can
be ‘a long time in the making’.
But all this is not to suggest that ‘resilience’ is simply a property of an economy (or any
type of system, for that matter) that is only present or ‘happens’ when a sudden shock oc
curs. It may become particularly evident—become ‘revealed’—at such junctures, but it is
a feature that is continuously produced and reproduced over time as part of, and latent
in, that economy’s development and functioning. Further, and this is a crucial point, re
silience is not some unchanging characteristic: rather, it may evolve—increasing or de
creasing—depending on the nature and direction of a region’s developmental path. It is
the changing ability of a regional economy—its firms, workers, and institutions—to adapt
over time that embues that economy with the resilience to minimize its vulnerability to
and ability to recover successfully from shocks. Other things being equal, failure to adapt
will gradually erode resilience, so that the economy becomes increasingly vulnerable to
shocks and less likely to recover from them when they occur. Yet again, this highlights the
need for a ‘developmental perspective’ on regional resilience, with implications for how
we theorize the notion. In considering that task, however, we need to consider what we
Page 7 of 32
phy of Resilience
actually mean by resilience when applied in a regional or local context, and how we mea
sure it.
Responding to Shocks: The Notion of Re

(p. 845)
gional Economic Resilience

Despite the long-established use of the notion of resilience in ecology and psychopatholo
gy, even in those fields there is still debate over how to define and operationalize the con
cept, and over how it differs from other seemingly similar ideas, such as stability, home
ostasis, persistence, dynamic robustness, elasticity, and the like (Grimm and Vissel, 1997;
Luthar and Becker 2000; Brand and Jax, 2007). According to Brand and Jax, as the con
cept of resilience has spread not just across ecology, but also other related disciplines, so
it has acquired multifarious meanings and confusions, perhaps to the point at which its
‘conceptual clarity and practical relevance are critically in danger’ (2007, p. 1). In their
view, the ‘success of the concept in stimulating research across disciplines on the one
side, and the dilution of the descriptive core on the other, raises the fundamental ques
tion what conceptual structure we want resilience to have’ (Brand and Jax, 2007, p. 2).
This question applies no less in economic geography than in other fields.
It was perhaps inevitable that economic geographers should turn to ecology for defini
tions of resilience: after all, the concept has attracted an extensive literature in that disci
pline (see Gunderson and Pritchard, 2002), and human interaction with ecosystems has it
self been a recurring theme in geographical enquiry. Early on, the eminent ecologist
Holling distinguished between ‘engineering’ and ‘ecological’ resilience (Holling, 1996).
The former, which is the closest to the etymology of the term resilience, from the Latin re
silire, ‘to regain form and position elastically’ (following a disturbance), emphasizes the
self-restorative bounce back of a system or entity to its pre-shock state or position follow
ing a disruption (Table 45.1). The focus of attention is not so much on the scale or nature
of the shock or disruption, but on the speed with which the system or entity returns to its
‘normal’ (typically assumed to be its ‘equilibrium’) state or trajectory. Shocks, in other
words, are assumed be transitory in their impacts, with no permanent or remanent ef
fects.
Most ecologists, however, prefer to work with the second definition of ‘ecological re
silience’, which is interpreted as ‘the magnitude or scale of disturbance that can be ab
sorbed before the system changes in structure by changes in variables and processes that
control its behaviour … Resilience is this context is a measure of robustness and buffering
capacity of the system to changing conditions’ (Berkes and Folke, 1998, p. 12). The focus
of attention here, then, is on the absorptive capacity of a system, on its dynamics when
pushed ‘far from’ its ‘normal’ (again typically interpreted as ‘equilibrium’) state or posi
tion; or, more precisely, how far it can be pushed from that state by a shock before it is
unable to return to it.
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phy of Resilience
But this version of resilience is not unproblematic. For example, a system may be pushed
beyond its ‘absorptive capacity’ by a shock and end up permanently in a different (new
‘equilibrium’) state as a consequence. But what if that new state is more favourable that
the old one, measured on some performance or sustainability criterion, for example? The
issue here is not one of absorbing the shock and stability of structure, but one of shock-in
duced positive adaptation to a superior structure and state. This is surely as much (if not
more) an indication of resilience than if the system had managed to absorb the shock and
resumed its former (but actually less favourable) position. (p. 846)
Table 45.1 Different Conceptions of Regional Economic Resilience: From Bounce Back
to Adaptive Development
Conception Interpretation and features
Resilience as Shock produces self-correcting and autopoietic processes that

‘self-restorative restore the economy back to its pre-shock state or path: focus is
‘bounce back’ on speed and extent of ‘bounce back’; assumes shocks are
from shocks merely transient events, with no permanent or remanent ef
fects.
Resilience as The size of a shock that an economy can absorb or tolerate

‘ability to ab without undergoing any significant change in structure or iden
sorb’ shocks tity. Focuses on stability of structure and functionality. If the
shock exceeds the economy’s ‘absorptive capacity or ‘threshold’
it may not be able to return to its pre-shock state or path, and
may move to an alternative, typically less favourable, state or
path.
Resilience as Capacity of an economy to restructure, reorientate, and trans

‘adaptive devel form its structure, function, and identity in a positive direction
opment’ in re so as to emerge from the shock on a favourable path. This may
sponse to, or an be its pre-shock path or involve ‘bounce forward’ to an alterna
ticipation of, tive superior path.
shocks
Now both of these two definitions or concepts of resilience can be given economic–geo
graphical interpretations. Thus, we find Hill et al., for example, defining regional econom
ic resilience as ‘the ability of a region to recover successfully from shocks to its economy
that either throw it off its growth path or have the potential to throw it off its growth
path, but do not actually do so’ (2008, pp. 4–5). This is essentially the self-restorative
bounce-back interpretation of resilience. This idea is shown schematically in Figure 45.1,
where a stylized regional growth path a–b is disrupted by a shock at point b, experiences
Page 9 of 32
phy of Resilience
contraction b–c, but then recovers to point d, which is where it would have been in the ab
sence of the shock, and then resumes its pre-shock path (d–e).
Pendall et al. suggest that this interpretation can also be given an equilibrium connota
tion as ‘regional growth in output and population, or rates of unemployment, poverty or
labour force participation, poverty, can be considered at least partly equilibrium phenom
ena’ (2010, p. 73). This interpretation is open to question, however. Not only does it imply
that each regional economy is always and everywhere tending towards an equilibrium
growth path, but also that there are automatic self-correcting forces and mechanisms
that are activated by shocks and which serve to restore that equilibrium path. This is wor
ringly close to subscribing to a neoclassical view of the socio-economy, with its assump
tions of free market forces, free mobility of factors of production, rational behaviour on
the part of agents, and self-correcting dynamics. As argued earlier, regional and local
economies are rarely in equilibrium. In fact, the assumption of equilibrium is not neces
sary. The ‘canonical’ bounce-back model of resilience could still be invoked under the less
stringent assumption that a regional economy has some sort of long-run (or ‘normal’) un
derlying growth path (set by, for example, the region’s workforce base, its productivity
growth rate, and the like) of the sort traced out by the line a–b–c–d–e in Figure 45.1, so
that while in the short run the rate of recovery from a shock can exceed that long-run
rate (c–d), when the regional economy approaches (p. 847) the full employment of its re
sources, growth is once again limited by the long-run (‘normal’) rate. This is essentially
the assumption made by Friedman (1988), who interprets business fluctuations as move
ments downwards from, and recoveries as movements back to, a long-run upward-sloping
‘maximum feasible growth ceiling’.
Figure 45.2 Stylized Reactions of a Regional Econo

my to a Shock.
Likewise, the ‘ecological’ model of resilience can be given an economic counterpart. Most
economists, even of a mainstream persuasion, now assume that an economy might have
multiple equilibrium states or paths, and that if a shock is sufficiently severe such an
economy may be unable to return to its original equilibrium state or path, and instead is
moved to an alternative equilibrium position, in which case ‘hysteresis’ is said to have oc
curred. Thus, Romer defines hysteresis as a situation ‘where a one-time disturbance per
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manently affects the path of an economy’ (Romer, p. 471), the implication being that the
economy is shifted from one equilibrium to another. Again, however, the assumption of
multiple equilibria is not crucial to this idea of alternative economic time paths, only that
there are certain forces that make for the reproduction or reinforcement of a particular
path which when given a particularly severe shock might give rise to or be replaced by a
new pattern that then becomes similarly reproduced and reinforced, until such time that
another disruptive occurs.
Consider again Figure 45.2. Instead of bouncing back to point d, and thence resuming its
pre-shock growth path, a regional economy may be unable to absorb the shock, such that
the disruption leaves it with a weakened or depleted productive structure or workforce,
and the economy emerges on a less favourable growth path—either one where the pre-
shock growth rate is resumed but with a smaller productive base, c–f, or even one where
the rate of growth is also lower, c–g. Such a region would be deemed to lack resilience.
However, the outcome of a shock need not be negative in nature. A deep shock may, in
fact, leave a region’s basic economic structure more or less intact, but stimulate major
productivity-enhancing investments and practices within its firms. In this case the
region’s economy might undergo (p. 848) a one-off upward shift in its growth path, say to
i–h, and then resume its pre-shock growth rate, or, if the improvement in productivity can
be maintained, it might move to a much improved path, such as i–j. In each case, the
region’s economy can be said to have experienced a shock-induced ‘bounce forward’ to a
new path, even though its structure is largely unchanged, and thus to display resilience.
However, once we abandon any necessary commitment to equilibrium the way is open for
conceptions of resilience that may be much more dynamic, and realistic. Economies satis
fy many of the properties that characterize and define complex adaptive systems (Krug
man, 1994, 1996; Beinhocker, 2006; Martin and Sunley, 2007; Bristow and Healy, 2015).
Such systems need never be in equilibrium, are self-organizing, highly open, with spatial
ly distributed components and dynamics, and agents (firms and workers) that display
adaptive behaviour. Further, in recent formulations of the theory of complex systems the
notion of ‘robustness’ is used not to signify the stability or stasis of system structure in
the face of shocks, but to denote the ability (or even the necessity) of a system to undergo
changes in structure and identity precisely in order to preserve or regain certain core
functions and performances (Jen, 2003; Kitano, 2004; see also Janssen and Anderies,
2007). Robustness is therefore a form of adaptive resilience, as the system undergoes
positive (and possibly purposive) adaptation in anticipation of or in response to perturba
tions or disruptions. In an economic setting, core performances and functions would in
clude such obvious features as full employment (or low unemployment), a favourable eco
nomic growth rate, rising real incomes, and the like. In fact, a certain degree of structur
al change and adaptation may well be required for a region simply to ‘bounce back’ to its
pre-shock growth path, and will almost certainly be involved in those cases of ‘bounce-
forward’ resilience (Dissart, 2003; Lang, 2012).
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One of the interesting trends in resilience research in behavioural psychopathology is
that of linking resilience to individual development (O’Dougherty Wright et al., 2013;
Masten, 2014). Resilience in this work refers to the process of, capacity for, and outcomes
of successful adaptation. An individual’s capacity to adapt in the face of adversity is to be
understood in terms of that individual’s development, and by recognizing that the latter is
itself shaped by that capacity. The focus is on an understanding of the processes leading
to resilience in development. This approach draws on developmental systems theory, and
rather than asking the question why an individual is resilient, the emphasis is on the de
velopmental pathways and trajectories, the multiple-level interactions and relational net
works, and the wider resources that influence that individual’s resilience as it changes
and develops over time. Context and history therefore assume importance, and how these
influence risk, vulnerability, and resistance to shocks, on the one hand, and adaptive re
covery, on the other. And all this is used to help inform the issue of intervention, of foster
ing and building an individual’s adaptive resilience. These ideas would seem to resonate
closely with the issue of regional economic resilience. The resilience of a regional or local
economy is also about successful adaptation. Likewise, resilience is also inextricably in
terwoven with the process of regional development, and the particular pathways that that
development takes, with the local and extra-local resources available to firms and work
ers, and with local context and history.6
Resilience is thus not some singular static attribute of a regional or local economy, but a
multifaceted developmental process (see Figure 45.3) comprising four distinct but interre
lated dimensions or stages: risk or vulnerability, resistance, reorientation or reorganiza
tion, and recoverability. In broad terms, the vulnerability of a regional or local economy
refers to those conditions, features, and attributes of that economy which influence its
risk of being (p. 849) destabilized or disrupted by adverse events or forces arising without
or within that region. It refers to the region’s susceptibility to or degree of exposure to
shocks. Resistance refers to the scale of impact of a shock on a region’s economy. We
know, for example, that different regions react differently to a national recession or crisis
(Martin, 2012; Martin and Sunley, 2015; Fingleton et al., 2015; Martin et al., 2016 (see al
so Figure 45.1)), and this resistance will again be shaped by a region’s economic develop
mental or evolutionary pathway: some aspects of that pathway may make for resistance,
others may weaken the region’s resilience. The key point is that the inherited structural
features and functions of a region’s economy, moulded by its developmental trajectory up
to the time of a shock will influence and condition its vulnerability and resistance to that
shock. But, at the same time, the impact of the shock itself may result in or set in motion
various changes to those features and functions. What matters is how far and in what
ways a region’s inherited structures and functions are adaptable, and to what extent such
adaptation and reorientation is needed for the region to emerge on a favourable recovery
path.
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Figure 45.3 Regional Economic Resilience as

Process.
Source: Martin and Sunley (2015).
Once we think about resilience as a process of the sort depicted in Figure 45.3, two impli
cations would seem to follow. Firstly, that resilience is both a consequence and a possible
determinant of the ongoing evolution of a region’s developmental pathway. Secondly,
what this, in turn, suggests is a need to embed the idea of regional resilience in a theory
of (uneven) regional economic development, not simply as some sort of ‘add-on’ to that
theory, but as integral to it.
Embedding Resilience in Explanations of (Un

even) Regional Development
The immediate challenge here, of course, is what sort of theory of (uneven) regional de
velopment? The issue is that we do not have a single theory that commands general
(p. 850) agreement or acceptance. Rather, what we have is a range of explanatory frame
works, concepts, and perspectives. In fact, if anything, over the last two or three decades
economic geographers and regional studies scholars have shied away from the idea of
constructing an encompassing or general theory of the development and evolution of eco
nomic landscape. Instead, much of the intellectual effort in these disciplines has been di
rected at adding to an ever-expanding plethora of concepts, partial theories, and ac
counts, resulting in what Barnes and Sheppard (2010) have called ‘intellectual solitudes’,
which emphasize this or that aspect or determinant of regional development, or which fo
cus on this or that type of regional economy. However, notwithstanding this current array
of often only loosely connected (and sometimes competing) ideas and approaches, it is
nevertheless possible to distinguish between various broad perspectives, even if these are
more ‘ideal–typical’ characterizations than coherent paradigms. Of interest is not only
how each of these might see the role of shocks, but also what interpretation is put on the
idea of resilience (Table 45.2).
While many economic geographers may not subscribe to the so-called ‘new economic
geography’ (NEG) or ‘new spatial economics’ that has developed over the last three
decades, and notwithstanding its several limitations (see e.g. Garretsen and Martin, 2010;
Martin, 2010a), this body of theory has been highly influential in policy circles, and thus
Page 13 of 32
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is worth noting here. While NEG does not expressly refer to the idea of resilience, it does
include discussions of how hypothetical (and highly simplified) economic landscapes
might respond to shocks. In NEG models, resilience would be interpreted as the stability
of an equilibrium spatial pattern of economic activity in the face of major shifts in trans
port costs, in trade barriers, policy interventions, and the like. In such models, a shock
above a critical threshold (defined by the parameters of the model in question) induces a
shift to a new equilibrium spatial configuration. The shift is assumed to happen instanta
neously, and to exhibit path dependence (that is to say, is dependent on the initial, pre-
shock, spatial equilibrium). Essentially, then, NEG theory can be used to investigate—in
the abstract if not empirically—both straightforward ‘bounce back’ and ‘absorptive’ types
of resilience, with the latter admitting the possibility of shock-induced hysteretic shifts to
alternative equilibrium spatial configurations.
Arguably, the attraction of NEG models is that they can be used to explore ‘what if’-type
questions, and this might be useful in resilience studies, and even possibly in analysing
alternative policy interventions in response to shocks. But their usefulness is limited. One
problem in these NEG models is that the multiple equilibria they ‘allow’ are assumed to
be somehow ‘latent’ in the system of interest; indeed, the different alternative spatial
equilibria are built into the structure of these models ab initio. Furthermore, and, critical
ly, these models provide highly incomplete explanations of regional development. In fact,
they are not really about development at all, but rather about comparative statics—com
paring (hypothetical) economic landscapes before and after shocks: there is no real histo
ry.
In complete contrast as an approach to the study of uneven regional development, geo

graphical political economy types of perspective do claim to take history seriously, in the
sense of interpreting the long-run evolution of economic landscapes as inextricably bound
up with the instabilities and contradictions that characterize the dynamics of capital ac
cumulation. Shocks, and particularly major periodic over-accumulation crises, are seen as
inherent to the capitalist system. The specific origins of such crises can vary, and they can
occur at various spatial scales (from the local to the global), but they almost invariably
lead (p. 851) to disinvestment of capital and job losses in certain sectors and locations,
and possible shifts of production and jobs to others, as firms search for some sort of ‘fix’
by which to recover profitability and market share (Harvey, 2006). Under this perspec
tive, the issue of the resilience of a local economy would depend on the nature and extent
of this ‘fix’. Firms may respond by in situ restructuring and reorganization, or by pursuing
a strategy of technological upgrading, or even by relocating spatially. Conceptually and
empirically, then, the question of local resilience would thus be situated both within a
wider geographical context (which can be global), and recognized as involving potential
conflicts between capital and labour. Indeed, this perspective would approach the whole
issue of resilience in terms of ‘resilience for whom?’ (Hudson, 2010). What may assist the
resilience of a firm (e.g. reorganizing the labour process, slimming down the workforce,
or in extremis abandoning one location for another, more profitable one), can be at the
cost of severe disruption of local jobs and incomes. A geographical political economy per
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spective on regional resilience would thus necessarily emphasize the social and distribu
tional aspects and consequences of different resilience strategies on the part of capital.
Table 45.2 Embedding Resilience in Regional Development Theory? Some Possibilities
Theory Role of shock/implied interpretation of resilience?
New eco ‘Resilience’ as stability of an equilibrium spatial pattern of economic

nomic geog activity in the face of shocks. A shock above critical threshold in
raphy theo duces shifts to new spatial equilibrium pattern.
ry
Geographi Shocks as major over-accumulation or competitive crises that set in

cal political train the search by capital for radically new ‘technological and spa
economy tial fixes’. ‘Resilience’ of regions depends on balance between local
in situ technological fix and flight of capital to more buoyant or
cheaper locations. Shocks exacerbate tensions between capital and
labour.
Evolution Shocks as ‘gales’ of creative destruction and ‘competitive selection’.

ary-Schum ‘Resilience’ as regional economic ‘fitness’, and ‘positive re-orienta
peterian tion’ of a region’s industrial–technological system. Innovation and
theory sectoral diversity assumed to improve regional resilience.
Path-depen In standard path-dependence theory over time technological and

dence theo structural lock-in reduces regional resilience; externally originating
ries shocks serve to ‘de-lock’ established regional development paths. In
path-dependent positive adaptation theories, regional resilience can
be continually renewed/maintained; shocks may stimulate the emer
gence of or branching into new regional development paths.
Institution Institutions (both formal and informal, local, and extra-local) and
alist ap governance arrangements and priorities can shape regional resis
proaches tance to and recoverability from shocks. Stickiness of outmoded in
stitutions can reduce regional resilience, while supportive and
proactive institutional interventions can assist recoverability.
Evolutionary economic geography also seeks to take history explicitly into account, albeit
from a rather different point of view. Although here, too, resilience itself is not a key
concept or consideration, an evolutionary perspective can give valuable insight in
(p. 852)
to the idea. The key interest in evolutionary economic geography is on how firms, indus
tries, and local economies evolve and adapt through time. This links with those defini
tions of resilience that define it in terms of positive adaptation. For evolutionary econom
ic geographers, as for evolutionary economists, the Schumpeterian idea of ‘creative de
Page 15 of 32
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struction’ mentioned earlier is never far below the intellectual surface. Shocks and dis
ruptions to the economy—whether of a general or locally specific nature, and arising from
a variety of sources—would be seen as leading to local or more generalized bouts of cre
ative destruction involving processes of ‘competitive selection’ (Metcalfe, 1998). What
matters during such disruptions is the (competitive) ‘fitness’ of individual firms, as that
shapes their ability or otherwise to resist and recover from the disruption. Given that
technological change plays a key role in economic evolution, innovation takes on a partic
ular significance as a determinant of a firm’s, industry’s, or regional economy’s ability to
resist and recover from shocks (Clark et al., 2010; Boschma, 2015). Thus, this perspective
would emphasize how the mechanisms that are believed to drive economic evolution—
such as the creation of new novel forms of economic activity and growth (new technolo
gies, products, firms), and the competitive market selection from these new forms—in
turn shape the resilience of firms, industries, and regions. So an evolutionary economic
geographical approach could well be used to throw light on the recursive nature of un
even regional resilience and development referred to above.
One particular version or aspect of evolutionary economic geographical thinking that pos
sibly merits separate mention as being of relevance to regional resilience is that of path
dependence (Martin and Sunley, 2006). Despite its frequent (and often uncritical) invoca
tion, this concept is far from straightforward. Essentially, it refers to the ways in which
and extent to which, at any point in time, the structural, technological, organizational,
and institutional forms of an economy inherited from its past development shape, con
strain, or enable its future development (Martin and Sunley, 2006). Most applications of
the path-dependence idea use its narrowest interpretation, or expression, namely that of
‘lockin’ to a particular developmental path, attributed to the self-reinforcing effects of
various increasing returns mechanisms (see Martin and Sunley, 2006). So construed, path
dependence would equate with the progressive rigidity of spatial economic structures and
configurations.
Now, whether this rigidity or lock-in makes for resilience—as a high degree of ‘lock-in’
would imply a high degree of stability in the face of shocks—or whether, on the contrary,
it renders the ‘locked-in’ form and pattern of regional development increasingly vulnera
ble to shocks because of its inflexibility and lack of adaptability is an open empirical ques
tion. Much may well depend on the particular type of regional development path in
volved. A region that becomes ‘locked’ into an economic structure centred around heavy,
capital-intensive industries, such as steel production, is likely over time to become in
creasingly vulnerable to shocks, and less resilient to them. Indeed, in this type of path de
pendence it takes a shock to ‘unlock’ a regional economy from its existing and inherited
path. There is a parallel here with the so-called ‘adaptive cycle model’ used in ecology
(Simmie and Martin, 2010; Martin and Sunley, 2011). Here, in the early stages of develop
ment of an ecosystem its resilience increases, but as the system approaches maturity and
a steady state, and resources become locked into a particular stable pattern and use, so
rigidity increases and resilience declines (Gunderson and Holling, 2002). If an external
shock then disturbs the ecosystem, it (p. 853) may not be able to absorb the disruption, re
sources are destroyed and released, and recovery to the original type ecosystem may not
Page 16 of 32
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be possible, leading to a shift in its form and function. A not dissimilar scenario can be en
visaged for certain types of local and regional economies (for an application, see Simmie
and Martin, 2010).
In contrast, a region ‘locked’ into a mode of development based on information and com
munication technology-type activities, which by their very nature are more flexible and al
low greater scope for branching into related and complementary fields, may exhibit high
and sustained resilience. In fact, this latter possibility links to a more expansive, evolu
tionary form of path dependence which permits ongoing, yet still path dependence-condi
tioned economic adaptation (see Martin, 2010b). Under this conception, a highly innova
tive economic base will encourage more or less continuous branching, adaptation, and
mutation, a high new firm formation rate, and hence a constant renewal of variety, all fac
tors that are likely to make for high resilience to shocks. A path-dependence perspective
thus allows for different resilience outcomes and dynamics.
A further possible framework, or vantage point, for theorizing and studying regional re
silience is that of institutional economic geography. In recent years, increasing attention
and emphasis has been given to the role of social, legal, political, and other institutions,
both formal and informal, in mediating, moulding, and regulating patterns of regional
economic growth and development. An institutional perspective on regional economic re
silience would focus on both how institutions can serve to foster or hinder economic
adaptability, and on how resilient and adaptable institutions are themselves. Both vantage
points can be found in the literature dealing with the role of institutions in the resilience
of socio-ecological systems, for example (Handmer and Dover, 1996; Harrison, 2003; Her
rfahrdt-Pähle and Pahl-Wostle, 2012). On the whole, institutions tend to change more
slowly than the economies in which they are embedded and which they tend to support
(Setterfield, 1997). This can be a feature that makes for regional economic resilience,
since as such, stable institutions—both formal, such as local and central government, and
informal, for example social capital (local community conventions and networks of coop
eration and mutual support)—reduce uncertainty, promote trust, and allow confidence in
longer-term decision-making. In this way, institutions can help to stabilize a local or re
gional (or indeed national) economy, and provide resources and structures that contribute
to that economy’s resilience to shocks.
In fact, some built-in formal institutional arrangements are activated automatically in re
sponse to certain types of economic disruption. A national unemployment benefit system,
for example, will operate to channel income support to communities severely hit by a re
cession or by locally specific economic disruptions, such as a company closure, while at
the same time the tax burden on such areas will fall. There is a degree of automatic spa
tial redistribution and stabilization—in effect ‘risk sharing’—at such times, albeit limited
in scale. Or central states may intervene with targeted measures and support in the case
of cities or regions hit by adverse local events, for example in the form of investment sup
port to local firms, local infrastructural projects and the like. Financial institutions can al
so play a formative role. How they choose to respond to the indebtedness of local firms
and households at times of economic recession or crisis can either mitigate or intensify
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the impact of such events. At the other end of the scale, local specific institutions, such as
local regional governments, development agencies, business associations, employment
agencies, and community organizations, may help local firms, workers, and households
weather shocks.
However, institutions can themselves become ‘locked-in’, and increasingly rigid

(p. 854)
and even dysfunctional, and to that extent may undermine a region’s economic resilience,
and may even be the source of disruptive shocks. Institutions are inherently conservative,
frequently bureaucratic and self-serving. They can, over time, become increasingly mal-
aligned with the needs of the economy, and be slow or unable to respond at times of eco
nomic disruption. How institutions themselves change, and how they can become cap
tured by particular dominant power groups, elites, and their associated political and ideo
logical dispositions can be instrumental in both generating and ameliorating shocks. The
general movement within many nation states over the last thirty years towards neo-liber
al policies of deregulation, privatization, and, most recently, fiscal austerity, has arguably
intensified the inherent instability of global capitalism and exposed many regions and
cities to increased risk and vulnerability. The dismantling in many countries of much of
the regulatory and supervisory frameworks that controlled financial systems is a striking
example. The deregulation of banking and financial markets permitted an historically un
precedented level of speculative financial activity and indebtedness, and contributed in
no small measure to the consequential banking crisis that broke in 2007, which triggered
in its wake the deepest recession for more than eighty years. How different types of insti
tutions, local, national, and even global, impinge on the evolution of the space economy is
an ongoing area of research. But what is clear is that institutional arrangements can ex
ert an important influence on local and regional resilience, both positive and negative.
‘Building’ Regional Economic Resilience

Even if the idea of resilience is a relatively recent one in the social, management, and re
lated sciences, it has quickly spiralled off into the policy realm. The literature already
abounds with policy discussions and suggestions of how to ‘build’ resilience in organiza
tions, businesses, cities, and local communities, and numerous bodies, both local and na
tional, have sprung up concerned with this task (see e.g. Tompkins, 2007; Denhardt and
Denhardt, 2010; World Bank, 2012; Biggs et al., 2015; 100resilientcities.org). How a re
gional or local economy’s resilience can be improved and supported is obviously a valid
task for policymakers to address. But as the forgoing brief discussion suggests, while our
understanding of what makes for such resilience is beginning to take shape, we are far
from having a coherent and universally agreed conceptualization and explanation of the
notion, of exactly how it relates to economic development, or what its precise determi
nants are. While there is something in the adage that ‘too much analysis can lead to poli
cy paralysis’, the lack of such a commonly agreed understanding means that policy pro
grammes and strategies aimed at ‘building’ local economic resilience may rush ahead of a
Page 18 of 32
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thorough appreciation of what, precisely, it is that they are supposed to build, and how
this aim can best be achieved.
Some international policy and consultancy bodies have identified what they believe to be
the key ‘characteristics’ or ‘qualities’ of resilient cities and regions that by implication
should therefore be the foci of measures and actions aimed at ‘resilience building’ (see
Table 45.3). But such ‘characteristics’, while logical enough, tend to be rather vague and
generic. In order to become specific policy objectives they would need to be translated in
to what they mean in terms of the determinants of economic development. Put another
way, the determinants of (p. 855) resilience are themselves the potential policy levers by
which resilience can be strengthened, and those determinants are closely linked to those
that make for successful regional growth and development more generally. However, as
we have seen, there are different theories of regional development, each emphasizing dif
ferent types of key factors, forces, and processes. It is not straightforward, therefore, to
distil clear policy messages from across these—and indeed other—theories and perspec
tives. Nevertheless, some key foci can be suggested.
Table 45.3 ‘Characteristics’ of Resilience: The Key Qualities Identified by the Rocke
feller Foundation and the United Nations
Rockefeller/Arup United Nations
Reflectiveness Situational awareness
Resourcefulness
Robustness Self-regulating
Diversity
Flexibility
Integration Adaptability
Integrated
Redundancy
Inclusiveness
Sources: da Silva (2014); Rodin (2015); www.cityresilienceindex.org.
From a policy perspective, responding with new policies and measures following a major
disruption is less effective than seeking to reduce the vulnerability of a locality or region
to shocks in advance of any such disruptions (Robb, 2000; Hamel and Välikangas, 2003;
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Marcos and Macaulay, 2008; MacKinnon and Derickson, 2013). Policy, in other words,
should focus on building ‘anticipatory’ adaptive resilience. This means that, on the one
hand, local development and policy organizations need to identify the likely future chal
lenges and shocks that could impact and disrupt their economies, firms, workers, infra
structures, and other key assets, and, where possible, encourage or promote a form of de
velopment that reduces the local economy’s vulnerability or exposure to such possible
shocks. On the other hand, it also means encouraging and promoting those features,
structures, and conditions that make for local economic adaptability, so that the locality
can successfully re-orientate its activities and structures as the wider economic, techno
logical, and competitive environment changes. As mentioned earlier, these twin aims
seem to underpin much of the policy debate and discussions around building resilience
against climate change. But similar imperatives apply in thinking about improving an
area’s economic resilience.
At a very broad level, at least three such sets of local features and factors can be identi
fied as potential arenas for policy intervention (Figure 45.4). Of key importance is a re
gional economy’s ‘dynamic competitiveness’, the ability of its firms to respond to and
compete (p. 856) successfully in constantly shifting and changing markets (Martin, 2006).
This, is turn, will depend on a range of structural characteristics that define the region’s
developmental path and its associated externalities. Diversity of economic activities and
export markets, the flexibility of the supply chains used by local firms, a high propensity
of those firms to innovate and invest in new products and technologies, the production of
a highly educated, skilled, and creative workforce (which, in turn, depends on a high-
quality local educational system), a modern local infrastructure, and a ready access to in
vestment finance—all these are likely to increase the resistance of a regional economy to
shocks and to speed up its recovery from them. Supporting innovation, investment, and a
vibrant local industrial ecosystem (so as to ensure the creation of economic diversity)
would seem a particularly important element of any policies aimed at increasing and
maintaining local economic resilience.
Page 20 of 32
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Figure 45.4 Some Potential Policy Foci for ‘Building’

Regional Adaptive Resilience.
A second set of characteristics that bear upon regional resilience, and which are associat
ed with the region’s economic performance, are what might be grouped under the term
‘business confidence’, this, in turn, having to do with the local business climate, the exis
tence of a vibrant entrepreneurial culture (and thence high new firm formation rate), a
positive ‘can-do’ outward-looking but locally committed attitude within the business com
munity, and a willingness to network, and share knowledge and awareness. A confident,
entrepreneurial business community drives successful economic growth and develop
ment, and the latter, in turn, reinforces that confidence. Under these conditions, even if
disrupted by a major shock, (p. 857) a buoyant and confident regional economy is much
more likely to recover quickly and successfully than a region in which firms lack competi
tiveness, growth is slow, and business confidence is correspondingly weak: a confidence
in the underlying strength of a region’s economy encourages investment and innovation,
which reinforces that strength and further boosts confidence. The converse circular
process is likely to operate in a slow-growing, weakly performing region. We are begin
ning to understand how local economic conditions can affect the psychology of individu
als, their outlook, attitudes, and behaviour (Rentfrow et al., 2008; Rentfrow, 2010, 2013),
and how once formed such local traits tend to persist and may feed back to reproduce
those same local economic conditions. The influence of local differences in psychological
factors on local economic resilience is thus a topic that warrants further research.
The extent to which and ways in which policymakers might help influence and shape
these two sets of interrelated factors is itself bound up with the nature of economic gov
ernance, both locally and more widely (Lebel et al., 2006). While governance is far from
easy to measure, it has become increasingly recognized as a formative driver of local eco
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nomic development. Just as national ‘varieties of capitalism’ can be distinguished by their
different models of economic governance and management (Hall and Soskice, 2001), and
these different forms have been shown to influence national growth and performance
(Schneider and Paunescu, 2012), so both national-level and local-level forms of economic
governance and institutional structure may well influence the geographies of resilience to
shocks. The national-level system of economic (and political) governance can exert con
siderable influence over the ability of individual localities, cities, and regions to recover
from major shocks. For example, how a national state decides to react to a major reces
sion may help or hinder particular regions. National fiscal or monetary policies do not
necessarily affect every region or city equally, or even in the same direction. Particular
forms of stimulus may benefit certain areas and assist their recovery while doing nothing
or very little to help others. The reaction of states to the recent financial crisis, and espe
cially the imposition of fiscal austerity programmes, illustrates this point. In the UK, for
example, while many predicted the banking crisis of 2007–08 would impact most heavily
on London, the nation’s financial centre, the scale of the UK government’s support for the
financial sector (reckoned to be as much as £1 trillion in direct bailouts of banks, capital
guarantees, and quantitative easing) helped London to escape the worst of the recession
and has fuelled its strong subsequent recovery. Meanwhile, the same government’s fiscal
austerity cuts to welfare programmes and grants to local governments have fallen dispro
portionately on the less prosperous northern cities and regions struggling to recover from
the crisis (Beatty and Fothergill, 2014).
While the national-level system of economic governance is thus important, local forms of
governance are also critical. A supportive and synergistic nexus of local institutions (e.g.
from local government to business and trade associations to labour organizations to local
finance bodies) that are willing to cooperate and collaborate, can provide leadership, co
ordinated and proactive policy-making, and a common commitment to an agreed long-
term vision for the regional economy. As such, potentially they can play a formative role
in shaping a region’s or city’s economic resilience. Local institutions—especially, of
course, local or city governments, through their tax-raising and public-spending powers,
and their control over utilities, planning, and infrastructures—bear both directly and indi
rectly on the competitive success of the local economy, and hence on local economic
adaptability. A key issue here is the territorial organization of government and political
power. Is a highly centralized (p. 858) structure (of the sort found in the UK, for instance)
more or less conducive to local economic stability and resilience than a decentralized and
devolved system (of the sort found, say, in Germany or Canada)? This is especially impor
tant in relation to fiscal powers. On the one hand, the more that local public spending on
utilities, infrastructure, education, skills training, business support, and the like depend
on funding from central government (and the degree of such dependence varies signifi
cantly from country to country—see e.g. Slack, 2017), the more restrictive the room for
independent local strategic manoeuvre is likely to be. On the other hand, the greater is
local fiscal autonomy, the more potentially vulnerable is a local economy to disruptions to
its tax base and other local income streams, possibly arising from a major negative shock
to its economy. This issue of the degree of devolution of fiscal and related powers to local
Page 22 of 32
phy of Resilience
states and authorities has become a key topic of political and academic debate in recent
years, the more so given the general context of fiscal austerity (see e.g. Cambridge Jour
nal of Regions, Economy and Society, 2010). Not surprisingly, the more successful is a
city or regional economy, the more likely it is to desire greater fiscal and spending auton
omy, so as to determine it own priorities and its own destiny. Less prosperous cities and
regions, with less favourable local tax bases are likely to be less enthusiastic. The implica
tions of local fiscal and political devolution for the issue of local economic resilience is a
subject in need of detailed investigation.
The sets of local economic factors around which policies for ‘building’ resilience might be
focused that are shown in Figure 45.4 are by no means exhaustive: far from it. Rather
they merely indicate the complexities faced by any policymaker with this aim in mind.
Three points are worth emphasizing. Firstly, ‘building resilience’ should not be viewed as
an independent policy activity: it has to be seen as inseparable from the more general
task of promoting stable—and sustainable—local economic growth and development. And
this takes us back to the fundamental challenge of how we explain (uneven) regional de
velopment. Secondly, ‘building resilience’—like promoting successful local economic de
velopment more generally—is ultimately about agency: about mobilizing business talent,
the skills and creativity of workers, and the commitment and support of key institutions,
all around shared goals and values. And, thirdly, ‘building resilience’ it is not a ‘one-off’
activity: resilience, like development, has to be continually renewed and ‘rebuilt’.
Regional Resilience: Fad or Fundamental Fea

ture?
An obvious question is whether the notion of ‘resilience’ is just another faddish addition
to the extensive collection of analytical constructs and concepts that now populates eco
nomic geography, or whether it captures a fundamental dimension of regional develop
ment and merits serious attention as such. There is no doubt that the concept has swept
into all sorts of academic enquiry in recent years, and has even become part of everyday
journalistic and popular discourse, often without any clear or precise definition attached.
And it may be that this widespread invocation of the concept has been stimulated by the
belief that socio-economic life has become more uncertain, risky, and unpredictable. If
‘resilience thinking’ is merely a fad, then like all fashions, it will, in time, become unfash
ionable. But the fact is that (p. 859) ‘shocks’ have always been a feature of capitalism, an
inescapable part of its very nature and dynamics. Regional development is an inherently
shock-prone process. The idea of ‘resilience’ provides a potentially valuable way of think
ing about the impacts and implications of this instability, of the role of shocks in economic
development, and, correspondingly, acts as a stimulus to thinking about ways to allay
their worse effects—social, economic, and environmental.
This is not to argue however, that the concept of resilience is unproblematic. Several is
sues remain to be resolved. One such issue is how we measure resilience. Scanning the
economic geography literature reveals a range of approaches, from descriptive case stud
Page 23 of 32
phy of Resilience
ies, to simple indices and indicators, to statistical time series methods, to causal explana
tory models (see Martin and Sunley, 2015). Common to all these different approaches,
however, is the underlying problem of comparing the actual outcome of a shock to a re
gional or local economy with what the developmental or growth path of the region would
have been in the absence of the shock—in other words, the problem of the ‘counterfactu
al’. A further issue is the need to theorize the notion, not as an independent feature or at
tribute of the economic landscape, but as part of the very uneven development of that
landscape. The question of why resilience varies from one locality or region to another is
inseparable from the question of why economic development itself varies across geo
graphical space. And this need to increase our understanding—both theoretical and em
pirical—of the causal processes and factors that promote or hinder the resilience of local
and regional economies is all the more pressing given the increasing reference to the no
tion in policy discourses. There is nothing worse than policy based on fads rather than
fundamentals.
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Notes:
(1.) For more general critiques see e.g. Hanley (1998), Kaplan (1999), and Davoudi and
Porter (2012).
(2.) A much longer exposition of the notion of regional economic resilience, on which this
chapter draws can be found in the paper by Martin and Sunley (2015).
(3.) The qualifier ‘positively’ is important, as it emphasizes that the key interest is in
favourable outcomes and responses, and not in what might be called ‘perverse’ re
silience, that is the resistance to change of an adverse or dysfunctional state of affairs
(e.g. an oppressive political or military regime).
(4.) For studies of the spatial differences in the impact of the Great Recession in the USA,
see Doran and Fingleton (2013), Balland et al. (2015), and Doran and Fingleton, (2015).
Likewise, the spatial impact of the crisis in Europe has also varied substantially across re
gions and cities: see Fingleton et al. (2015) and Brakman et al. (2015).
(5.) As such, this collapse is another example of the industry-wide, multi-locational shock
referred to earlier. The reasons why the Lancashire firms were slow to both anticipate
and respond to the new competition from US firms have been much debated. Both
Frankel (1955) and Tyson (1958) suggest that technological ‘interrelatedness’ and ‘lock-
in’ to an obsolete nineteenth-century technology within the Lancashire firms were re
sponsible for their slow switch to automatic looms. This lock-in turn is attributed to the
high degree of horizontal specialization (and hence interrelatedness) across the Lan
cashire cotton firms, which meant that the introduction of new weaving technology re
quired complementary changes in spinning and other stages of production, creating sub
stantial problems of coordinating technological change across numerous independent
firms.
Page 31 of 32
phy of Resilience
(6.) It is in this context that the frequent use of the term ‘resilience’ takes on meaning in
the debate and discussions surrounding the impact of climate change and global warm
ing. Responding to climate change is often stated as requiring two kinds of (interrelated)
action: mitigating climate change by reconfiguring our forms and processes of economic
growth so as to reduce the emission of greenhouse gases; and adapting to climate
change, that is, altering the organization of physical, infrastructural, and spatial forms of
the economy so as to be able to operate under a different climate from that of today. Miti
gation can be seen as action intended to reduce the build up of the likely eventual shock,
and adaptation as action intended to reduce its impact.
Ron Leonard Martin
Ron Martin ([email protected]) is Professor of Economic Geography, University of

Cambridge, UK, and holds a Professorial Fellowship at St Catharine’s College. He is
also a Research Associate of the Centre for Business Research, Judge Business
School, and leads the Centre for Geographical Economic Research, at Cambridge. He
has been awarded the British Academy’s ‘Thank-Offering to Britain’ Senior Research
Fellowship, 1997–8; a Leverhulme Major Research Fellowship, 2007–10; and a Lever
hulme Emeritus Fellowship for 2015–17. He is an Academician of the Academy of So
cial Sciences (2001), a Fellow of the British Academy (2005), and President of the Re
gional Studies Association. In 2016 he was ↵awarded the Royal Geographical
Society’s Victoria Medal for outstanding contributions to the study of regional eco
nomic development. His research interests span: work, financial systems, regional
economic development, evolutionary economic geography, and public policy. He cur
rently leads a major Economic and Social Research Council project on city economic
evolutions.
Page 32 of 32
Author Index
Author Index

(p. 865) Author Index

Aalbers, M. B.,9, 540–1, 543–4, 546, 551, 614, 618
Aarland, K.,272, 274
Abernathy, F. H.,433
Acemoglu, D.,67, 99, 230, 233, 521, 759
Acs, Z. J.,262
Adams, J. D.,255, 335–6
Adams, P.,827
Addo, K. A.,671
Adger, W. N.,667, 672, 840
Adler, P. S.,531
Adner, R.,828
Adorno, T.,305
Agarwal, R.,272, 287, 297, 300
Aghion, P.,150, 250, 759, 762, 771
Aglietta, M.,115, 471
Agnew, J. A.,169
Agrawal, A. K.,275, 279, 333, 359
Aguiar, L.,277
Ahlbrandt Jr, R. S.,541
Ahmed, S.,667
Ai, C.,654
Ainslie, G.,202
Aitken, R.,616, 619, 623
Ajibade, I.,672
Akerlof, G. A.,657, 658
Akudugu, J. A.,783, 784
Alacer, J.,332, 334–5, 337–9, 348
Albouy, D.,509
Aldcroft, D. H.,843
Aldrich, H. E.,215
Alexander, N.,428, 432, 435
Alexander, P.,83
Page 1 of 53
Author Index
Alfaro, L.,348
Alford, M.,456
Ali, I.,777–81
Ali-Yrkkö, J.,332
Allen, F.,658
Allen, J.,183, 185, 328, 454, 647–8
Allen, M.,757, 765
Allsopp, C.,657–8
Almenberg, J.,196
Alvaredo, F.,49, 794
Ambachtsheer, K.,597
Amin, A.,172, 186, 230, 291, 296, 312, 471
Amsden, A.,25, 29, 826
Anderies, J. M.,848
Andersen, K. V.,318
Anderson, B.,277, 488
Anderson, C.,5, 276, 822
Andersson, Å. E.,501
Ang, A.,593, 601
Ang, S.,416
Anheier, H. K.,305, 800
Ansari, S.,829, 830
Anthony, S.,579
Antràs, P.,399
Aoyama, Y.,11, 576, 827
Appadurai, A.,307
Appelbaum, E.,528–30, 794, 801
Applebaum, H. A.,522–4, 529
Appleyard, L.,543, 620
Appleyard, M. M.,255
Appold, S. J.,217
Apte, U.,409
Arce, A.,454
Armington, M. M.,803
Armitage, S.,640
Armstrong, R. C.,713
Arndt, H. W.,771
Arndt, S. W.,399
Arnott, R.,603
Arora, A.,272, 337, 414
Arrighi, G.,566
Arrow, K. J.,150, 202, 220, 251, 252
Arthurs, H. W.,252, 486, 491
Arzaghi, M.,347, 356
Ascani A.,376, 782, 783
(p. 866) Asheim, B. T.,218, 222, 235, 392
Ashton, P.,546, 814

Asmussen, C. G.,412
Page 2 of 53
Author Index
Athey, S.,279
Athreye, S.,408–9, 420
Atkinson, A. B.,40–1, 772
Attewell, P.,521
Au, C.-C.,85–7, 92
Audia, P. G.,215, 325, 334
Audretsch, D. B.,259, 325–6, 331–2, 337, 348–9, 368, 399
Auerswald, P. E.,xxxi, 245, 250–1, 255, 261
August, B.,314
Augustine, N.,843
Authers, J.,8
Autor, D. H.,67, 69, 273, 278, 511, 795
Auty, R. M.,170, 719–20, 734
Aversano, N.,727
Avnimelech, G.,148
Aydos, P.,761
Azoulay, P.,336
Bachher, J. S.,597, 605–6
Bacolod, M.,506, 511
Baffes, J.,652–4, 657, 723
Bai, C.,86
Bailey, I.,686, 688
Bailey, R. G.,247, 253
Bailey, T.,529
Bair, J.,383–4, 389, 394, 396, 449–50, 452, 454
Baker, J. L.,774
Baker, W. E.,510
Bakija, J.,54
Bakker, G.,310, 311
Bakker, K.,170, 683
Balasubramanian, S.,276
Baldwin, C.,332, 338, 369, 419
Baldwin, R.,375, 399
Balland, P. A.,218–19, 859
Ballas, D.,50
Banerjee, A. V.,104, 803, 828
Banerjee, M.,97
Banks, B.,801
Banks, J.,286
Banks-Leite, C.,254
Bannon, I.,721
Bansal, P.,685–6, 699
Baptist, S.,759, 765
Barca, F.,782, 786
Bardi, U.,752
Barley, S. R.,522
Barnard, H.,307
Barnes, T. J.,11, 161, 163–5, 167, 169, 171–2, 234, 239, 396, 470–1, 672, 850
Page 3 of 53
Author Index
Barnes, W. R.,811
Barnett, A.,667, 671
Barnett, C.,616
Baron, J.,200, 205
Barrett, S.,761, 762
Barrientos, S.,453
Barrios, S.,671
Barro, R. J.,145, 499, 503
Barrowclough, D.,306
Barry, A.,658
Bartik, T. J.,155, 798–9
Bartlett, C. A.,186
Barton, D.,592
Barua, A.,672
Basak, S.,654
Basco, S.,278
Bassens, D.,618
Bassett, T.,668
Bates, T.,798, 803
Bathelt, H.,xxxi, 9, 179–80, 182–7, 189–90, 205, 208, 218, 238, 299, 309, 312, 328, 338, 383, 604
Batt, R.,529
Battilana, J.,221, 419
Baum-Snow, N.,511
Baye, M.,276
Bayus, B. L.,419
Beatty, C.,857
Beaverstock, J. V.,187, 376
Bebbington, A.,719, 726
Bebchuk, L. A.,598
Becattini, G.,325
Bechky, B. A.,294, 296
Beck, T.,545
Becker, G. S.,196, 208–9, 499, 501, 509–10
Becker, J.,115, 120, 131, 133, 845
Behrens, K.,347, 353
Beinhocker, E. D.,848
Belk, R. W.,456
Bell, A. M.,337
Bell, D.,276, 501, 575
(p. 867) Bell, M.,217, 277, 338
Bell-Masterson, J.,254
Belussi, F.,216
Benartzi, S.,204
Benfratello, L.,372
Benner, C.,488, 793, 796, 801, 813–14
Bennhold, K.,822
Beramendi, P.,64
Berchman, M.,523
Page 4 of 53
Author Index
Berg, A.,31, 775, 796

Bergene, A. C.,475
Berger, S.,332
Bergmann, L.,165
Berkes, F.,845
Berman, E.,68
Berndt, C.,167, 454
Berndt, E.,765
Bernhardt, A.,528–9, 801
Bernstein, P. L.,566
Berry, B. J. L.,3
Berry, C. R.,503, 511
Berry, M.,xxxi, 19, 24–5
Bertram, R.,597
Bertrand, O.,412
Berube, A.,73, 74
Besky, S.,452, 454
Besley, T.,99, 104, 544
Beugelsdijk, S.,338
Bezemer, D.,99
Bhattacharjea, A.,552
Bhattacharya, B.,102
Bhatti, Y. A.,829
Bianchi, C.,437–8
Bicchetti, D.,654–5
Bier, Susanne,314
Biggs, R.,854
Billo, E.,451
Binz, C.,220–2
Birch, K.,813
Birdsall, N.,796
Birkenholtz, T.,668
Birkinshaw, J.,375
Birtchnell, T.,53
Bishop, P.,220
Black, D.,88, 509
Blackburn, R.,611
Blackler, F.,291
Blakely, E. J.,799
Blanchard, O.,843
Bleakley, H.,362
Blinder, A. S.,278, 407, 409
Block, F.,151
Blomley, N.,169
Blömstrom, M.,372
Bloom, N.,250, 263, 273, 334
Blowfield, M.,448–9, 451–2
Bluestone, B.,68, 466–7, 470, 794
Page 5 of 53
Author Index
Blum, B.,277, 506

Boddy, M. J.,468, 541
Boden, M. A.,305
Bodie, Z.,647, 649
Boeckler, M.,167, 454
Boero, R.,670
Bogers, M.,286
Bohle, H.,668
Böhm, S.,683
Bok, R.,437
Bolan, R. S.,811
Bolt, J.,99
Bolton, P.,771
Bor, D.,209
Borghini, S.,187
Borjas, G.,521
Bos, J. W. B.,646, 655, 660
Boschma, R. A.,xxxi, 2, 9, 12, 116, 165, 188, 213–18, 220–3, 230, 238, 260, 331, 733, 810, 819,
840, 852
Bosello, F.,669
Bosker, M.,90
Boston, T. D.,803
Bostrom, N.,756
Bosworth, T.,101
Botts, H. A.,604
Boudreau, K.,330
Bourdieu, P.,487
Bourguignon, F.,770
Bouvard, V.,605
Bouwer, L.,667–8
Bowen, A.,749–50, 755, 758–9, 765
Bower, J. L.,829
Bowman, A.,478
Boyer, R.,115, 234, 472
Boykoff, M. T.,665
Bradford, C.,541, 546
(p. 868) Bradley, S. W.,829
Bradshaw, M. J.,665, 732, 735

Bradshaw, T. K.,799
Brady, D.,794
Brady, M.,669, 675
Brady, T.,288
Brailly, J.,188
Braithwaite, J.,566, 638
Brakman, S.,172, 859
Brand, F.,845
Brando, C.,451
Brandth, B.,488
Page 6 of 53
Author Index
Branscomb, L. M.,255
Brass, D. J.,188
Brassett, J.,620
Braun, B.,170
Braverman, H.,522
Breau, S.,54
Breiger, R. L.,187
Breman, J.,101
Brenner, N.,169, 792
Brenner, T.,216
Breschi, S.,188, 218
Bresnahan, T. F.,271, 273, 330, 335
Bridge, G.,170, 665, 683, 732, 734, 738
Briguglio, L.,667, 842
Brillo, B. B.,437
Brinks, V.,287, 289, 291, 297–8, 300
Bristow, G.,840, 848
Brito Henriques, E.,313
Brittan, S.,544
Brock, W. A.,765
Broekel, T.,218
Broome, J.,758
Brown, C.,209
Brown, J.,219
Brown, J. R.,271
Brown, T.,291–2
Brown, W.,216, 477
Brownell, A.,360
Brückner, M.,775
Brunner, S.,762
Brunsson, N.,420
Brusco, S.,235
Brusoni, S.,420
Bryan, D.,648
Bryceson, D. F.,775
Bryden, R.,339
Brynjolfsson, E.,275–7
Bryson, J. R.,818
Buchanan, J. M.,633
Bucholz, D.,71
Buckley, P.,368
Budish, E.,578
Buenstorf, G.,216
Bulkeley, H.,683
Bulloch, G.,419
Bulte, E. H.,721
Bumpus, A. G.,170, 665, 686
Bunyaratavej, K.,412
Page 7 of 53
Author Index
Burawoy, M.,522, 531

Burgess, R.,104
Burnham, M.,672
Burroni, L.,235
Burt, R. S.,188
Burt, S.,439
Burton, G. M.,603
Burton, R.,667
Busch, L.,454
Butchart, S. H. M.,754
Butler, J.,486
Büyükşahin, B.,654
Byatt, D., ix
Bygrave, W. D.,601
Caerlewy-Smith, E.,208
Cai, F.,81, 83, 90–2
Cairncross, F.,270
Caletro, J.,53
Çaliskan, K.,167
Callon, M.,167, 287, 298, 454, 684, 686
Calvert, K.,733
Calvo, G. A.,545
Campbell, C. J.,705
Campbell, J. C.,207
Campbell, J. Y.,597
Caniglia, B. S.,840
Cantner, U.,219
Cantwell, J.,186, 312, 367, 370, 375–6
Capone, G.,222
Card, D.,67, 801
Cardoso, President E.,796
Carey, D.,738
Carlin, B. I.,595
(p. 869) Carlino, G.,339, 348, 510
Carmel, E.,416
Carmody, P.,396
Carnoy, M.,813
Carpenter, J. N.,598
Carr, D. L.,373
Cartier, A.,79
Casale, M.,667
Cashin, P.,654
Casper, S.,155
Cassis, Y.,566
Castaldi, C.,220
Castellani, D.,370
Castells, M.,576, 580, 794
Castranova, E.,580
Page 8 of 53
Author Index
Castree, N.,2, 170, 466, 474–5

Castronova, E.,580, 583, 585
Cattaneo, O.,382, 399
Caves, R. E.,305–6, 308, 310–11, 313, 372–4, 509
Cavoli, T.,27–8
Cellini, R.,843
Cerra, V.,843
Chacar, A. S.,336, 338
Chamberlin, E.,629, 635
Chaminade, C.,313
Chan, A.,83
Chan, C. K-C.,456
Chan, K. W.,xxxii, 78, 80–4, 86–93
Chandler, A.,336
Chandra, K.,109
Chang, H. J.,29
Chang, S. D.,92
Chant, S.,97
Chapple, K.,xxxii, 792, 800
Charlot, S.,271
Chatterjee, M.,672
Chatterji, A.,360
Chatty, R.,168
Chautard, A. ix
Chen, B.,91
Chen, M.,348
Chen, M. A.,779
Chesbrough, H.,419
Cheshire, P.,152
Chetty, R.,795
Chinitz, B.,333, 353, 360, 797
Choi, J.,276
Chor, D.,399
Christaller, W.,499–500
Christensen, C. M.,829
Christophers, B.,168, 614, 648
Christopherson, S. ,viii, xxxii, xxxiii, 9, 234, 309, 313, 452, 486–7, 499, 501, 577, 647, 732, 735–8,
810, 812
Chu, W.,826
Chung, P.-P.,92, 334
Chuprinin, O.,596
Churchill Semple, E.,718
Churchill, W.,631
Cingano, F.,771–2, 775
Cistulli, V.,772
Clapp, J.,650
Page 9 of 53
Author Index
Clark, G. L.,ix, xxi, xxxii, 1, 3, 8, 58, 129, 159, 168, 180, 182, 190, 196–7, 200–8, 238, 338, 391,
396, 449, 466, 468, 542–3, 546, 569, 572, 577, 596–8, 603–6, 614, 616, 623, 634, 649, 658, 684,
699, 733, 810, 813
Clark, J.,xxxiii, 735, 810, 812, 814, 818, 852
Clark, J. R. A.,577, 593, 683
Clark, P. B.,596, 601
Clark, T. N.,509
Clavel, P.,816
Cliff, D.,579
Clower, T. L.,736
Coase, R. H.,250, 629, 634, 683, 751
Cobble, D. S.,522
Cochrane, A.,468
Coe, N. M.,xxxiii, 1, 10–11, 181, 307–8, 312–13, 383–5, 387, 389, 391–6, 399, 427–8, 432, 434,
436, 452–3, 466, 474–5, 478, 486, 488, 491, 561, 612, 621, 623, 734–5
Coenen, L.,223, 732
Cohen, D.,503
Cohen, W. M.,335–6, 828
Cohendet, P.,186–7
Colby, C. C.,718
Cole, A.,54
Coles, A.-M.,253
Coll, S.,735
Collier, P.,146, 762
Collier, S., ix,721
Collins, S.,58, 101
Combes, P.-P.,91, 172, 347–9, 359
Cook, A. C. G.,551
(p. 870) Cook, I.,454
Cooke, P. N.,116, 214, 222, 235, 306, 383

Coomes, O. T.,670
Cooper, B. S.,802
Cooper, K.,57
Coppock, S.,618, 620
Corbridge, S.,xxxiii, 102, 107–8, 551
Corden, W. M.,719
Corfee-Morlot, J.,675
Cornell, B.,606
Corpataux, J.,543, 551
Cortes, P.,521
Cortright, J.,339
Costello, C.,754
Couto, V.,408–9, 411
Cova, B.,286
Coval, J. D.,596
Cowell, M.,843
Cowen, D.,163, 172
Cowen, T.,40
Page 10 of 53
Author Index
Cox, K.,116
Coyle, D. M.,799
Crandall, R.,274
Cranford, C. J.,487
Cray, A.,800
Crescenzi, R.,152, 216, 371–2, 377
Crespo, N.,372
Crevoisier, O.,181
Cribb, J.,42
Crotty, J.,726
Crouch, C.,189, 236
Crutzen, P. J.,755
Cruz, A.,671
Cuddington, J. T.,722
Cunningham, S.,305
Currah, A. D.,313, 434–5
Currid-Halkett, E.,42, 312, 505
Curry, L.,166
Cusmano, L.,222
Cutler, A. C.,637–8
Cutler, T.,616, 618
Cutter, S.,668, 670, 672, 676
Czelusta, J.,721
da Rocha, A.,434
da Silva, J.,855
da Silva, L. I. L.,796
da Vinci, L.,255
Dabla-Norris, E.,55
Daft, R. L.,280
Dahl, M. S.,215, 325, 337–8
Dakora, E. A. N.,438
Dales, J. H.,683
Daly, H. E.,318, 756
Dani, D.,245
Dani, L.,xxxiii
Dannenberg, A.,761–2
Darwin, C.,247
Das, R.,102
Dasgupta, P.,145, 757, 759
Datu, K.,377
Davenport, T.,408–9, 417, 421
Davenzati, G. F.,230
Davey, E.,750
Davidson, J.,582
Davidson, L.,73
Davidsson, P.,599
Davies, A.,288
Davies, R.,649
Page 11 of 53
Author Index
Davies, S.,116
Davoudi, S.,859
Dawley, S.,220
Dawson, J.,436
De Cian, E.,669
de Graaff, N.,735
De Groot, H. L. F.,219
De La Cadena, M.,725
de la Fuente, A.,503
de Landa, M.,170
de Lemos, E.,761
de Ruyter, K.,289–90, 292
de Sherbinin, A.,669
De Vaus, D.,189
de Vries, J.,563
Dean, M.,453
Defever, F.,376
Delgado, M.,xxxiii, 181, 324–6, 330–5, 337–9, 348, 353
Dell, M.,665, 667
DeLong, B.,102
Demirbag, M.,412
Deng Xiaoping,24
Denhardt, J.,854
Denhardt, R.,854
(p. 871) Denike, K.,166
Denning, L.,740
Dépelteau, F.,187
Derickson, K.,855
Derrida, J.,169
Dertouzos, M. L.,332
Desilver, D.,73
Desrochers, P.,220
DeVerteuil, G.,41
Devi, R.,108
Deville, J.,614, 618, 622
Dewar, M.,799
Dholakia, N.,298
Diamond, D. W.,545
Diamond, R.,511, 512
Dib, L. A.,434
Dicken, P.,12, 68, 181, 183, 185–6, 312, 382–3, 385, 391, 393, 399, 558, 561, 734, 735
Dietz, S.,760
DiNardo, J. E.,67
Ding, W. W.,25, 275
Dissart, J. C.,798, 848
Dixon, A. D.,35–6, 168, 391, 543, 550, 572, 597–8, 606, 634
Djellal, F.,184
Dobbs, R.,774
Page 12 of 53
Author Index
Dodge, M.,581, 585

Doeringer, P. B.,522
Doh, J.,412
Doherty, B.,456
Doherty, M. E.,205, 428
Doig, J. W.,634
Dolan, C. S.,449, 451–4
Dollar, D.,105
Domanski, D.,651–2
Dombos, T.,456
Domenech, R.,503
Domm, P.,579
Donaghey, J.,420
Donahue, S. M.,310
Donald, B.,486
Donaldson, J.,106
Donnelley II, E.,605
Dorado, S.,419
Doran, J.,843, 859
Dore, R.,611, 618
Doreian, P.,188
Dorling, D.,xxxiv, 39–41, 46, 51, 53–5, 57, 59
Dorn, D.,278
Dornbusch, R.,655
Dörry, S.,392
Dosi, G.,213
Dossani, R.,407, 409, 411
Douglas, I.,672
Doussard, M.,466, 528, 813
Dovers, S. R.,853
Dow, K.,668
Downes, T.,272
Drache, D.,718
Drahos, P.,566, 638
Dranove, D.,273
Dreber, A.,196
Dreger, C.,68
Dreze, J.,106
Driffield, N.,372
Drucker, P.,501
Du Bry, T.,527
du Gay, P.,612, 623
Dube, A.,801
Dubey, A.,774
Duflo, E.,828
Dumais, G.,337, 347
Duménil, G.,165, 612, 648
Dunford, M.,115, 770
Page 13 of 53
Author Index
Dunne, T.,335
Dunning, J. H.,186, 335, 367–8, 370, 372, 377
Dupuis, M.,617
Duranton, G.,xxxiv, 11, 153, 172, 271, 274, 332, 337, 339, 347–9, 352–4, 359–60, 376, 503, 775
Dybvig, P. H.,545
Dyer, S.,486
Dymski, G. A.,xxxiv, 168, 539, 542, 550–2, 612, 614, 620
Dynarski, S.,57
Eakin, H.,667, 671–2
Easterlow, D.,203
Easterly, W.,99, 101, 145, 197, 829
Eastwood, R.,104
Eaton, J.,509, 545
Eberts, R.,793, 796
Ebner, A.,235
Eckstein, Z.,509
Economy, E. C.,710
(p. 872) Edgcomb, E.,803
Edlund, L.,509
Ehrenfeld, D.,752
Ehrlich, A. H.,713
Ehrlich, P. R.,707, 713, 751
Einav, L.,277
Einstein, A.,764
Eisenschitz, A.,813
Eisinger, P. B.,799
Elberse, A.,310–11
Elbing, S.,236, 239
Elden, S.,736
Eliashberg, J.,310–11
Elizabeth II, Queen,544, 551
Ellis, C. D.,598, 605
Ellison, G.,276–7, 324–5, 331, 354, 360
Ellison, S. F.,276–7
Elms, D. K.,382, 399
Elton, E. J.,592
Emirbayer, M.,187
Emmitt, S.,522
Endo, G.,436, 438, 444
Engelen, E.,546, 550, 611, 623
Engels, A.,687
Engels, B.,xxxiv, 19
Engels, F.,504
England, K. V. L.,476
Enright, M.,335
Eppinger, S. D.,332, 338
Epstein, G. A.,539, 647
Ericson, R.,250
Page 14 of 53
Author Index
Erlanger, S.,822
Erlich, M.,524–5
Ernst, D.,383
Erramilli, M.,416
Erten, B.,722, 723
Erturk, I.,61–18, 620
Essletzbichler, J.,165, 214, 216, 220, 261, 732
Ethiraj, S.,40–10, 414
Ettlinger, N.,185–6
Evans, R.,840, 843
Evenson, R. E.,263
Everitt, B. S.,326
Ewers, R. M.,254
Fagerberg, J.,255, 262, 828
Faggio, G.,360
Fairris, D.,801
Falck, O.,509
Fallick, B.,351
Fama, E. F.,544, 599
Fan, S.,655, 772
Fang, L. H.,596, 606
Farla, J.,732
Farmer, J. D.,759, 763
Farole, T.,233, 734
Farrigan, T.,75
Fattouh, B.,653, 655, 657–8, 660
Faulconbridge, J.,181, 185, 189, 287, 295, 297, 299–300, 546, 603–4, 623
Fawcett, E.,148
Fay, M.,750, 775
Fearon, J.,97
Featherstone, D.,169, 490
Feenstra, R. C.,399
Fehr, E.,208
Feldman, M. P.,ix, xxi, xxxiv, 1, 116, 143–4, 147–9, 151, 153–5, 221, 259, 262, 324–6, 331–2, 334,
337–8, 348–9, 368, 812, 827
Ferguson, N.,567
Fernández, V. R.,398
Fernández-Macías, E.,47
Ferrari, P., ix
Feser, E. J.,325–6, 506, 798
Fiaschetti, M.,209
Fielding, D.,99
Fik, T. K.,167
Fine, B.,159
Fine, J. R.,529
Fingleton, B.,260, 843, 849, 859
Fink, L.,570
Finkel, G.,523
Page 15 of 53
Author Index
Finkel, M. L.,737
Finkin, M.,812
Finlayson, A.,616–18
Fiol, C. M.,215
Firebaugh, G.,64
Fischer, M. M.,503
Fisher, G. M.,64
Fisher, P.,799
Fitzgerald, J.,802
Fitzgerald, W.,740
Fjeldstad, Ø. D.,183, 419
Flamm, K.,272
(p. 873) Fleming, L.,219
Flew, T.,305
Flodman Becker. K.,779
Flohr, S.,300
Florida, R.,xxxv, 64, 73, 309, 413, 499–502, 504–6, 508–11, 795
Flyer, F.,334
Fogelman, C.,668
Folbre, N.,476
Foley, D. K.,758
Folke, C.,839, 840, 845
Foray, D.,223
Forbes, B. C.,14
Ford, J.,675
Ford, President G.,524
Forde, C.,486
Forman, C.,xxxv, 269, 270–3, 275–7
Fornahl, D.,216, 220
Fors, G.,370
Fort, T. C.,278, 332, 338
Foster, D. P.,598
Foster, L.,250, 263
Fothergill, S.,857
Foucault, M.,169, 616
Fourcade, M.,187
Fowler, C. S.,172
Foxon, T. J.,732
Francis, A.,418
Franke, N.,295
Frankel, J. A.,653
Frankel, M.,859
Franks, D.,671
Franz, M.,453
Franzen, D.,208
Frazier, T.,669–70, 675
Frederiksen, L.,308–9
Freedland, M.,493
Page 16 of 53
Author Index
Freeman, C.,222, 261

Freeman, R.,409
Freidberg, S. E.,454
French, K. R.,599
French, S.,547, 550, 603, 611, 615–17, 619, 622, 646
Frenken, K.,xxxv, 9, 213–21, 230, 261, 325, 339, 733, 810, 819
Freund, C.,277
Fried, J. M.,598
Friedman, M.,448, 585, 847
Friedman, T. L.,270, 277, 413, 508, 719
Friedmann, J.,376
Froebel, F.,501
Frohlich, T. C.,72
Froud, J.,611, 612
Frydman, C.,54
Frynas, J. G.,448–9
Fuchs, E.,332
Fudge, C.,468
Fudge, J.,486–7, 490
Fujita, M.,146, 717, 775
Fuller, A. T.,666
Funder, D. C.,200
Furman, J.,63
Füssel, H.-M.,672
Gabe, T. M.,505–6
Galbraith, J. K.,31–2, 34, 36, 548, 568
Gambardella, A.,330, 335
Gandhi, I.,101
Gandhi, M.,107
Gandhi, R.,101
Gans, J.,338
Garcia Haro, M. A.,286–7
Garcia-Perpet, M.-F.,167
Garmezy, N.,839
Garretsen, H.,172, 850
Garsten, C.,688
Garud, R.,220, 732
Garzik, J.,583
Gaspar, J.,271, 274
Gates, B.,505, 828
Gates, G.,510
Gavrilets, J.,245, 251, 256, 264
Geels, F. W.,253
Gehman, J.,732
Geif, A.,199
Geisst, C. R.,566
Genus, A.,253
George, G.,826, 828, 830
Page 17 of 53
Author Index
George, L.,276
Georgescu-Roegen, N.,165
Gerbasi, J.,814
Gereffi, G.,186, 375, 383–4, 393, 396, 399, 451, 717
Gerrans, P.,209
(p. 874) Gerschenkron, A.,551
Gertler, M. S.,ix, xxi, 1, 116, 182, 222, 230, 232–5, 238–9, 309, 338, 466, 471–2, 568, 576–7, 604,
812, 819, 827
Getz, C.,453
Ghandnoosh, N.,529
Ghani, E.,360
Ghauri, P. N.,368
Ghemawat, E.,413
Ghose, A.,277
Ghoshal, S.,186
Gibb, M.,784
Gibbon, P.,383, 396, 452–3
Gibbons, M.,299
Gibson, R.,187, 189
Gibson-Graham, J. K.,1, 171, 474
Giddens, A.,162, 305
Gigerenzer, G.,200–1
Gilad, S.,638
Gilbert, E.,618
Gilbert, W. S.,634
Gillett, S.,274
Gillingham, K.,759
Giloth, R.,802
Ginsburgh, V. A.,305
Girard, M.,288
Giroud, X.,336
Gitman, L.,740
Giuliani, E.,187, 217–18, 413
Glaeser, E.,11, 146, 152, 219, 259, 271, 274, 309, 324–6, 331, 333, 335, 347, 352–3, 360, 500,
502–3, 506, 509, 511, 775, 798
Glaister, K.,412
Glasmeier, A. K.,xxxv, 41, 63, 67, 216, 671
Glassman, J.,169, 398
Gleeson, B.,171
Glückler, J,xxxvi., 9, 179–80, 182–6, 188–90, 205, 208, 219, 604
Glyn, A.,568
Gobillon, L.,348
Godley, W.,549
Goerzen, A.,376
Goetz, S. J.,843
Goger, A.,449
Goldfarb, A.,xxxvi, 269–70, 272, 275, 277
Goldmanis, M.,277
Page 18 of 53
Author Index
Goldring, L.,488
Goldsmith, J.,586
Golfetto, F.,187
Golledge, R.,197
Golosov, M.,758
Gomberg-Muñoz, R.,527
Goodman, L.,71
Goodwin, J.,187
Goolsbee, A.,271–2, 277
Gordon, I. R.,182, 309
Gordon, R. B.,752, 765
Gordon, R. J.,5
Gornick, J.,49–50, 52
Gorse, C.,522
Gorton, G.,650
Gospel, H.,409
Gottlieb, P. D.,509
Gottschalg, O.,598
Gough, J.,813
Govindarajan, V.,826, 828–9
Grabelsky, J.,524–5
Grabher, G.,xxxvi, 116, 182, 188, 205, 216, 218, 235, 286–7, 289–96, 299–300, 308–9, 383
Graeber, D.,41
Graf, H.,219
Graham, J. R.,596
Graham, M.,576
Graham, S.,603
Granovetter, M.,154, 205
Graves, B.,523
Graves, P. E.,509
Gravner, J.,251
Green, A. E.,488
Green, M.,466
Greenbaum, R. T.,800
Greenhut, M. L.,167
Greenstein, S.,xxxvi, 269, 271–3
Greenwood, B. N.,279
Greenwood, R.,599
Greer, R. J.,649
Gregson, N.,392
Griffith, D. A.,412
Grigg, D.,170
Grillitsch, M.,235, 239
Grimm, V.,845
Grimshaw, D.,530
Grindle, M.,102
Gripaios, P.,220
(p. 875) Grönroos, C.,286
Page 19 of 53
Author Index
Gross, J.,800
Grosse, M.,776
Grossman, G.,147, 374, 399
Grote, M.,577, 578
Grove, K.,668
Gruber, D. A.,307–8
Gruber, M. J.,592
Grubesic, T. H.,272
Guarin, A.,456
Guenther, C.,220
Gulbrandson, I. T.,294
Gunderson, L.,253, 257, 845, 852
Gurley, J. G.,551
Gustafsson, B.,774
Guthman, J.,448, 451, 593–4, 601, 617
Guy, F.,369
Guzman, J.,337–8
Gyourko, J.,511
Haalboom, B.,451
Haberly, D.,563, 567
Habito, C. F.,777
Hacker, P. M. S.,208
Hackworth, J. R.,813
Haefliger, S.,287, 300
Hagan, J.,519
Hagerman, L. A.,601
Hagerstrand, T.,197
Haigh, N.,419
Haldane, A.,207, 649
Hall, B.,356
Hall, J.,829
Hall, P. A.,188–9, 222, 234, 237, 239, 699, 857
Hall, S.,543, 547, 611, 622–3
Hallegatte, S.,666, 670, 750, 762
Halpin, S.,672
Haltiwanger, J.,798
Hamel, G.,855
Hamilton, G. G.,427
Hamilton, K.,751
Hamlin, K.,91
Hammer, I.,183
Hammermesh, D. S.,275
Hampwaye, G.,784
Handmer, J. W.,853
Haniotis, T.,652–4, 657
Hanley, N.,859
Hans, Y.,843
Hanson, S.,466, 472, 476
Page 20 of 53
Author Index
Haraway, D.,170
Harcourt, G. C.,163
Harden, C. P.,675
Hardie, I.,620
Hardoy, J.,672
Hargadon, A. B.,294, 296
Harker, C.,486
Harris, R. S.,596
Harrison, B.,68, 466–7, 470, 472, 794, 813
Harrison, M.,454
Harrison, N.,853
Harrison, P.,671
Harrison, R. T.,543
Harriss-White, B.,101
Hart, J.,667
Hart, S.,829
Hartley, J.,305
Hartog, M.,220
Harvey, D.,41, 64, 115–16, 162, 168, 170–2, 469, 473, 475, 541, 544, 550, 568–9, 578, 647, 648,
690, 699, 742, 851
Haskel, J. E.,372
Hassink, R.,116, 216, 223, 260, 840
Hatch, M.,822
Hatfield, I.,491
Hau, H.,577
Hausmann, R.,100
Hawley, J. P.,603
Hay, C.,619
Hay, I.,41
Hayek, F. A.,585
Hayes, T. J.,495, 683, 687
Hayter, R.,181, 223, 716, 719, 732
Haythornthwaite, C.,287
Headey, D.,655
Heal, G.,750, 757–9
Health, A.,651–2
Healy, A.,840, 848
Hebb, T.,449
Hecker, D.,337
Heim, B. T.,54
Heimans, J.,763
Helleiner, E.,650
(p. 876) Helm, D.xxxvii, 637, 640, 703, 705–6, 713, 761–2
Helper, S.,333–4
Helpman, E.,147, 399
Helsley, R.,349, 360
Henderson, B. J.,654
Henderson, G.,165
Page 21 of 53
Author Index
Henderson, J.,383, 385, 387, 391–3, 435, 561

Henderson, J. V.,11, 85–8, 92, 273, 334, 336, 347, 349, 356
Hendrikse, R. P.,547, 618
Hendry, C.,219
Henn, S.,185, 299
Hennessey, P.,544
Hennig, B. D.,41
Henning, M.,252, 260–1, 325
Henrich, J.,208
Henry, N.,477
Hepburn, C.,xxxvii, 749–51, 755, 758, 759–62, 765
Herman, A.,454
Hernández Romero, M. A.,527
Herod, A.,169, 392, 466, 473–5
Herrfahrdt-Pähle, E.,853
Hertel, T.,667
Herzog, L.,688
Hesmondhalgh, D.,305, 308
Hess, M.,383, 387, 392, 394, 396
Hidalgo, C. A.,220, 252, 259–60
Hilferding, R.,541
Hill, E.,846
Hindman, D. B.,272
Hirsch, B. T.,771
Hirsch, P. M.,305, 307–8
Hirshleifer, J.,598
Hobday, M.,420
Hochberg, Y. V.,596
Hockerts, K.,419
Hodbod, J.,675
Hodgson, G.,205
Hoffman, A.,419
Hogarth, R. M.,205
Holland, T.,55
Holling, B.,852
Holling, C. S.,245, 253, 257, 260–1, 264, 839, 845
Holman, N.,546
Holmes, J.,475
Holmes, N.,73–4
Hong, H.,202
Hood, N.,375
Hoover, E. M.,500
Hope, C.,758
Hopenhayn, H. A.,250
Hopwood, A. G.,687
Horkheimer, M.,305
Horner, R.,389–90, 394
Horowitt, G.,153
Page 22 of 53
Author Index
Hortacsu, A.,277
Hoskins, C.,309, 311
Hotelling, H.,500, 756–7, 760
Hotz-Hart, B.,399
Hough, P. A.,454
Howells, J.,287
Howitt, P.,250, 759
Howkins, J.,502
Hsieh, C.-T.,263, 352
Huang, Y.,79, 91
Hubbert, M. K.,705–7, 712
Huberman, G.,202
Hudson, R.,181, 312, 393, 840, 851
Hughes, A.,xxxvii, 383, 448–50, 452
Hughes, T. P.,631
Humphrey, J.,383, 396, 415, 436, 438, 452
Humphreys, D.,654, 658
Humphreys, M.,738
Humphries, J.,476
Hurley, S.,197
Hutton Ferris, D.,190
Hutzschenreuter, T.,412
Hwang, E. L.,290, 298
Hwang, V. W.,153
Hymer, S.,368–9, 377
Iammarino, S.,xxxvii, 147, 216, 220, 366, 369–70, 374–6, 413
Ianchovichina, E.,778, 786
Ibañez, J.,671
Ibert, O.,xxxviii, 286–7, 289, 291–5, 297, 300
Ibragimov, R.,596
Ietto-Gillies, G.,368, 371, 375
Immelt, J. R.,829
Inglehart, R.,510
Inkpen, A.,416
Innis, H. A.,716, 718, 720, 723
(p. 877) Irwin, S. H.,653, 655–6
Isaksen, A.,218, 220, 222

Isar, Y. R.,305
Isard, W.,163, 473
Isenberg, D. J.,245
Iskander, N.,xxxviii, 519, 522, 525–7
Ivković, Z.,577, 596
Iyer, B.,417
Jacks, D. S.,655–6
Jackson, M.,101
Jackson, P.,491
Jackson, S. L.,719, 723–4
Jackson, T.,750
Page 23 of 53
Author Index
Jacobs, J.,151, 219–20, 259, 261, 297, 309, 360, 499–500, 509, 797–8, 827
Jacobs, M.,758
Jacobsson, K.,688
Jacobus, R.,800
Jaffe, A.,275, 334, 336, 348
Jäger, J.,133
James, A.,488
Jameson, H.,493
Jank, W.,277
Janssen, M.,848
Jansson, J.,295
Jarecki, H. G.,657
Javorcik, B. S.,372
Jax, K.,845
Jeannerat, H.,286, 298
Jeffcut, P.,306
Jeffers, J.,667
Jen, E.,848
Jenkins, R.,102, 108, 450
Jennings, J.,306
Jennings, W. W.,596
Jensen, J. B.,278
Jensen, P.,409, 412, 420
Jeppesen, L. B.,293–4
Jerrett, D.,722
Jessop, B.,115, 742
Jevons, W. S.,703, 712
Jian, T.,772
Johannisson, B.,183–4
Johns, J.,313
Johns, R.,450
Johnsen, S.,252–3
Johnson, B.,151, 183–4
Johnson, K.,671
Johnson, L.,673, 683
Johnson, N.,579
Johnson, P.,55, 99
Jonas, A. E. G.,472
Jones, A.,10, 53, 181, 185, 542, 672
Jones, B. F.,275
Jones, C.,305
Jones, M.,201
Jordhus-Lier, D. C.,392, 466, 474, 478
Jorgenson, D.,273
Jovanovic, B.,250
Juravich, T.,522
Jurek, J. W.,599
Jurgenson, N.,287
Page 24 of 53
Author Index
Just, S. N.,294
Kahneman, D.,2, 197, 199–200, 202, 205, 207
Kain, S., ix
Kaiser, A., ix,58, 313
Kakwani, N.,772, 778
Kale, S.,107
Kalleberg, A. L.,486, 528–30
Kalnins, A.,336
Kanbur, R.,36, 770, 772, 785–6
Kane, E. J.,545
Kannan, P. K.,277
Kannothra, C. G.,xxxviii, 407, 418
Kant, I.,160
Kaplan, H. B.,859
Kapoor, R.,828
Karch, H.,208
Karecha, J.,843
Kash, D. E.,255
Katz, B.,291, 292
Katz, C.,476, 477
Katz, L. F.,149, 273, 794, 843
Katznelson, I.,541
Kauffman, S. A.,251–3, 263
Kawamura, Y.,297
Kay, J.,649, 657–9
Kearns, J.,263
Kebede, A. S.,669
Keeble, D.,183
Keeley, B.,490
(p. 878) Keen, S.,549
Keith, A.,570
Keller, M. R.,151
Kelly, P. F.,393, 472, 475
Kemeny, T.,152–3, 358
Kemp, D.,726
Kemp, J.,653
Kennedy, J. F.,14
Kenney, M.,407, 409, 411, 415, 501
Kerr, E. T.,347
Kerr, W. R.,xxxviii, 325–6, 331, 333, 335, 339, 348, 353–6, 359–60
Kessides, C.,779
Ketels, C.,330, 338–9
Ketokivi, M.,332
Keynes, J. M.,197, 201, 203, 545, 548–9, 585, 658, 690, 712
Khaire, M.,307
Khaled, M.,765
Khan, J.,713
Khan, M.,596
Page 25 of 53
Author Index
Kiatpongsan, S.,65
Kierzkowski, H.,399
Kim, L.,383
Kim, W. B.,92
Kim, Y.,488
Kindleberger, C. P.,566, 659
King, D.,763
King, R.,120
Kinnel, R.,597
Kirchain, R.,332
Kirilenko A.,579
Kirshen, P.,669
Kislev, Y.,263
Kitano, H.,848
Kitchin, R.,581, 585
Klagge, B.,558
Klasen, S.,777–8, 785–6
Klein, G.,198
Klein, P.,830–1
Klenow, P. J.,263, 272, 352
Klepper, S.,215–16, 220, 347, 828
Kletzer, L. G.,278
Klier, T. H.,374
Kline, P.,153
Klooster, D. J.,683, 687
Kneale, J.,616–17
Knight, E.,684, 686
Knight, E. R. W.,604
Knight, Eric,634
Knight, F. H.,25, 197, 201
Knight, J.,772
Knorr Cetina, K.,291, 296, 298, 684
Knorringa, P.,455–6
Knox, D.,209
Knox-Hayes, J.,xxxviii, 208, 543, 665, 683–7, 690, 692, 699
Kochhar, R.,525
Kogler, D. F.,213, 220, 348
Kohli, A.,101
Kok, I., ix,734, 737
Kokko, A.,372
Kolk, A.,734
Kolko, J.,271, 274, 799
Kollmeyer, C.,794
Kominers, S.,339, 348, 354–6, 359
König, J.,299
Koo, J.,325
Kooiman, J.,830
Koopman, R.,399
Page 26 of 53
Author Index
Kortum, S.,601
Korzeniewicz, M.,186, 375, 396
Kössler, R.,839
Kossoy, A.,685
Kountouris, N.,493
Kozul-Wright, Z.,306
Kraay, A.,105
Krackhardt, D.,188
Krausmann, E.,671
Krautkraemer, J.,757
Kremer, M.,351
Krippner, G. R.,611, 647–8, 659
Krueger, A. B.,801
Krueger, J. I.,200
Krugman, P.,11, 54–5, 70, 146, 159, 166, 172, 253, 324, 545, 716–17, 827, 848
Kruten, T.,49–50, 52
Kumar, K.,411
Kumar, L.,669
Kumar, Nirmalya,826
Kumar, Nitish,109
Kumhof, M.,552
Kuznets, S.,35, 722, 771, 794
Kvande, E.,488
(p. 879) Labban, M.,646–8
Laborie, L.,632
Labrianidis, L.,129
Lacity, M.,418, 419
Laeven, L.,539
Laffont, J. J.,148
Lafond, F.,763
Lafontaine, F.,336
Lagendijk, A.,181
Lagendijk, V.,632
Lai, K. P. Y.,xxxix, 611, 615, 617, 620, 622–3
Laibson, D.,202
Laitin, D.,97
Lakhani, K. R.,295
Lal, P.,671–2
Lal, R.,271
Lall, S.,372
Lam, T. C.,92
Lambooy, J. G.,213, 221
Lampert, B.,722
Landers, J.,800
Landry, C.,501
Lane, C.,35, 396
Lang, T.,848
Langdale, J. V.,306
Page 27 of 53
Author Index
Lange, M.,99
Langley, P.,611, 613–14, 616–18, 620–1
Langner, B.,292
Lansing, D. M.,687
Lardy, N.,81, 82
Larner, W.,612, 615–16
LaRochelle-Côté, S.,491
Larsen, M. M.,xxxix, 407, 411–12, 420
Lash, S.,551
Laube, W.,783–4
Laughlin, G.,579
Laursen, K.,293–4
Lave, J.,522–3
Lawrence, F.,784
Lawson, T.,159, 230
Lawson, V.,466, 477
Lazear, E. P.,360, 603
Lazega, E.,188
Lazzeretti, L.,306
Lazzeretti, R.,306, 309
Le Billon, P.,719, 721, 724
Leamer, E. E.,280, 576
Lebel, L.,857
Leber, C.,579
Leborgne, D.,115
Ledebur, L. C.,811
Lee, A. V.,840
Lee, B.,648
Lee, C.,41, 83, 164, 166, 434
Lee, D. J.,522
Lee, K.,828–9
Lee, R.,277, 391, 474, 546–7, 594, 647
Lee, S.-W.,310
Lee, Y. S.,434
Lefebvre, H.,161, 690
Lehdonvirta, V.,580
Leiblein, M. J.,597
Leichenko, R.,xxxix, 75, 665, 667, 669–73, 675
Leigh, N. G.,812
Leijonhufvud, A.,548–9
Leonhardt, D.,49–50, 52
Leontief, W.,163
Lepawsky, J.,392
Leppälä, S.,220
Lerner, J.,601
Leslie, D. A.,383
Lessard, D.,334, 338
Lessig, L.,585
Page 28 of 53
Author Index
Leuthold, R. M.,656
Levi-Faur, D.,638
Levin, S.,251
Levina, N.,411
Levine, R.,99, 101
Levinthal, D. A.,252, 335–6
Levitt, R. E.,597, 605
Lévy, D.,165, 612, 648
Levy, David L.,686, 734
Levy, F.,150, 530
Levy, S.,584
Lewin, A.,408–10, 412
Lewis, A.,92
Lewis, H,486
Lewis, M.,606
Leyshon, A.,11, 168, 540–3, 547, 550–1, 559, 581, 613–14, 616–17, 619, 622, 650
Li, F.,724
Li, P. F.,182, 187
Li, Q.,83
Li, S.,86
(p. 880) Li, W.,168, 620
Li, X.,80, 85–6, 88

Li, Y.,41, 71, 88, 92
Liang, Z.,82
Libecap, G. D.,830–1
Lieber, E.,270
Lieberman, M.,336, 338
Liecke, M.,313
Lievens, A.,287, 294
Lilley, S.,617
Lillie, N.,452
Lim, C.,829
Lim, K. F.,82
Lin, C.-Y.,756
Lin, J.,362
Lin, J. Y.,83
Lin, S.,31, 79
Lin, Y.,91
Lincoln, W.,353
Linnane, C.,740
Linneman, P. D.,509
Lipietz, A.,115, 120, 133, 471
Lipton, M.,104
LiPuma, E.,648
Lissoni, F.,188, 218
Listokin, D.,546
Littler, J.,450
Liu, J.,79, 86
Page 29 of 53
Author Index
Livanos, I.,488
Liverman, D.,170, 665, 667–8, 671, 675
Lloyd, S.,448, 450
Lo, A.,597
Lo, V.,577
Lobo, J.,252
Lockwood, J. W.,579
Loconto, A.,453, 454
Lohmann, L.,684–7
Long, J.,419
Longino, H.,160, 171
Lopez, J. H.,474–5, 796
Lorenzen, M.,xxxix, 187, 305–9, 312–13, 318, 414–15
Lösch, A.,166, 473, 500
Lotay, J. S.,686, 695
Loukaitou-Sideris, A.,798
Love, M. S.,201
Lovell, H.,687
Lovering, J.,467–9, 471
Low, N.,171
Low, P.,382, 399
Lowe, M.,433, 434
Lowe, N., xl,151, 153, 155, 519, 522, 525–7
Lowi, T.,817
Lu, M.,91
Lubart, T.,504
Lucas, R.,147, 207, 263, 500, 509
Luers, A.,667
Luetchford, P.,454
Lundstrom, S.,778, 786
Lund-Thomsen, P.,453
Lundvall, B. Å.,151, 183–4, 189, 234
Luo, X.,277, 399
Luo, Y.,420
Luthar, S. S.,839, 845
Lüthje, C.,297
Lyautey, M.,14
Lyon, T. P.,449
Ma, L. J.,79
Mabro, R.,655, 657, 660
Macaulay, S.,855
McCabe, M.,280
McCann, P., xl,147, 182, 216, 223, 309, 366–7, 369, 374–6, 413
McCartney, M.,104
McCoy, C.,209
McCubbin, S.,667
McDermott, C. J.,654
McDowell, J.,196
Page 30 of 53
Author Index
McDowell, L.,168–9, 466, 472, 475–8, 486–7

McElroy, C. A., xli,715
McFall, L.,613, 622
McGahan, A. M., xli,826, 829–30
McGill, S., ix, xli,209, 645
McGillivray, M.,145
McGinnis, J.,690
McGranahan, D.,505
McGranahan, G.,669, 774–5, 781
McGrath, C.,188
McGrath-Champ, S.,475
McIlwaine, C.,97
McKinley, T.,785–6
McKinney, K.,279
McNerney, J.,252
(p. 881) McNichol, E.,72
McSweeney, K.,670
MacDonald-Korth, D.,570–1
Mace, G.,710
Macher, J.,275
Machlup, F.,501
MacIntosh, J.,597
MacKenzie, D.,167, 579, 684, 686–7
MacKinnon, D.,214, 221, 223, 237, 389–91, 394, 453, 733, 735, 810, 819, 855
Maddison, A.,21, 25, 143, 147
Maggioni, M. A.,215
Magkilat, B.,408
Mahalanobis, P. C.,104
Mahoney, J.,99
Mahr, D.,287, 294
Maillat, D.,181
Maintz, J.,290
Majkgård, A.,417
Maldonado, J.,672
Malecki, E. J.,576, 812, 827
Malerba, F.,827
Malhotra, A.,492
Malmberg, A.,181–2, 186, 221, 230, 309, 328, 561
Maloney, M.,669
Malthus, T. R.,707, 712–13
Mamdani, M.,99
Mankiw, N. G.,499, 503
Mann, G.,164, 169, 648
Manning, S., xl,407–18, 420–1
Manso, G.,595
Mao Zedong,79, 82
Marano, C.,802
Marcos, J.,855
Page 31 of 53
Author Index
Maré, D. C.,500, 509

Mariani, M.,334, 336, 339
Marino, E.,675
Markard, J.,732, 742
Markides, C. C.,829
Markoff, J.,417
Markusen, A.,169, 325, 373, 576, 719
Marlet, G.,505
Marrocu, E.,505
Marron, D.,613–14
Marshal, J. C.,208
Marshall, A.,146, 215, 220, 245, 262–3, 309, 324, 330–2, 335, 347, 349, 499–500, 688
Marshall, J.,546
Martin, F.,231
Martin, R., xl,9, 12, 64, 115–16, 165, 169, 172, 213–14, 216, 220–1, 223, 232, 237–9, 260, 551,
558, 611–12, 614, 616, 618, 620–1, 665, 733, 741, 810, 812–13, 839–40, 843, 848–50, 852–3, 856,
859
Martin, X.,416
Martinich, J.,672
Maru, Y.,676
Marvin, S.,603
Marx, K.,144, 162–5, 169, 172, 501, 504, 541, 688, 690
Mashelkar, R. A.,832
Maskell, P.,181–2, 186–7, 221, 230, 299, 309, 328, 412
Maslow, A. H.,510
Mason, C. F.,686–7
Mason, C. M.,543
Mason, R.,409
Massey, D.,2, 115, 133, 466–8, 470, 473, 475, 477, 501, 569
Massini, S.,407
Masten, A. S.,839, 848
Masters, M. W.,653
Mateos-Garcia, J.,292, 296
Mathur, V. K.,503
Maugeri, L.,653, 752
Maurer, B.,603, 618
May, R.,207
Mayer, C.,712
Mayer, J.,652
Mayes, R.,451
Maystre, N.,654–5
Mazzucato, M.,148, 151, 230
Meadows, D. H.,706–7, 751
Mechler, R.,667–8
Meegan, R.,115, 467–8
Meisenzahl, R. R.,150
Mellander, C., xli,64, 73, 499, 505, 510–11
Memedovic, O.,338
Page 32 of 53
Author Index
Mendel, G.,247–8
Meng, X.,91
Menzel, M. P.,216
Merton, R. C.,647
Merton, R. K.,190
Mestieri, M.,278
(p. 882) Metcalfe, J. S.,167, 852
Metters, R.,409–10
Meyer-Stammer, J.,784
Michaelowa, A.,685
Michaelowa, K.,685
Michelacci, C.,353
Micheletti, M.,449
Michielsen, T. O.,683
Mikkelson, G.,55
Milanovic, B.,49–50, 52, 168, 770
Milberg, W.,396, 399
Milkman, R.,528–9
Miller, M. H.,646, 648, 656
Millner, A.,758
Mills, B. F.,272, 333
Mincer, J.,503, 509
Minsky, H. P.,13, 540, 547–51, 659
Miozzo, M.,407
Mirowski, P.,9, 159, 170
Mirus, R.,309
Mische, A.,187
Mishel, L.,795
Mishkin, F. S.,558
Mitchell, D.,167, 169
Mitchell, K.,476
Miteva, D. A.,761
Mithas, S.,278, 409, 413, 420
Mitra, S.,803
Mittal family,46
Mobius, M.,275
Modi, N.,102
Moenaert, R. K.,336
Mohan, G.,722
Mokyr, J.,150
Mol, M.,412
Molina, F.,800
Molloy, R. E.,54
Molotch, H. S.,541
Molyneux, M.,476
Monaghan, A.,495
Monk, A. H. B., xlii,543, 572, 577, 591, 596–8, 601, 603, 606, 623, 634, 649–50
Montgomerie, J.,619
Page 33 of 53
Author Index
Montgomery, A. W.,449
Moore, D.,586
Morawetz, N. J.,307
Moreno, E. L.,774, 775
Moreno, K.,40
Moretti, E.,153, 334, 795
Morgan, K.,116, 230, 309, 383
Morishima, M.,160, 164–5
Morrison, A.,222, 563
Morrison, C.,671
Morrison, P.,64, 218
Moser, S.,667
Moskowitz, T. J.,596
Moss, M. L.,271, 280
Mossig, I.,313
Moudud, J. K.,166
Moulaert, F.,115, 184
Mowery, D.,275
Moyo, D.,829
Mudambi, R.,186–7, 307, 312, 318, 368, 375–6, 414–15
Muellerleile, C. M.,646, 659
Mukim, M.,352
Müller, Felix C.,291, 300
Mulligan, G. F.,167
Muneepeerakul, R.,252
Muniesa, F.,298
Murcia, C.,254
Murmann, J. P.,221, 827
Murnane, R.,150
Murphy, D.,605
Murphy, J. T.,10, 181, 185, 392, 396, 542
Murphy, K. M.,599, 794
Murray, F.,330
Murray, J. Y.,412
Musson, D., ix
Mutabazi, K.,672
Mutch, A.,188
Mutebi, A. M.,437
Mutersbaugh, T.,453
Muth, J. F.,251
Muzio, D.,603
Myers, N.,709
Mykhnenko, V.,813
Nabeshima, K.,25–7
Nachum, L.,183–4
Nadvi, K.,450, 452–3, 455–6
Nagar, R.,477
Nageswaran, V. A.,654
Page 34 of 53
Author Index
Nagurney, A.,167
(p. 883) Naidu, C.,102
Nakamoto, S.,584
Nardinelli, C.,503
Narula, R.,367, 372
Nash, J. C.,719
Nathan, D.,396
Naughton, B.,80
Nayyar, D.,19, 22–5, 29, 31, 34–5
Neary, J. P.,373–4, 719
Nebiolo, M.,75
Neff, G.,291, 298
Neffke, F.,216, 220, 252, 260–1, 325–6
Nehru, J.,104, 107
Neil, D.,597
Neilson, J.,383, 396, 398, 452–4
Nel, E.,784
Nelson, R. R.,151, 213–14, 221, 234, 250, 262–3, 827
Neumann, J.,669
Neumark, D.,798, 799
Newberry, D. M. G.,656
Newman, K. S.,528, 546
Nguyen, H. T. H.,437
Nicholls, R. J.,669
Nicolaus, M.,501
Niederman, F.,411
Nieto, M.,412
Nightingale, P.,295
Niosi, J.,420
Noah, T.,70
Nolan, P.,571
Noland, M.,510
Nordås, H. K.,428
Nordhaus, W. D.,499, 757–8, 761–2
Norris, P.,510
North, D. C.,151, 155, 208, 232, 797
Northrop, L.,579
Northrup, D. O.,524
Northrup, H. R.,524
Norton, M. I.,65
Novy-Marx, R.,606
Nowatzki, N. R.,41
Nudds, M.,197
O’Brien, K.,667, 670, 676
O’Brien, R.,168, 541–2, 570, 576
O’Connor, J.,170, 648
O’Connor, K.,577, 604
O’Dougherty Wright, M.,848
Page 35 of 53
Author Index
O’Hern, M.,286
O’Neill, P., xlii,603–4, 628, 632–3, 639, 647
O’Sullivan, D.,648
Obama, B.,55, 63, 72
Obeng-Odoom, F.,774
Ocampo, J. A.,722–3
Ofer, G.,83
Offe, C.,633
Oh, J.,309, 311
Ohlin, B.,500
Okishio, N.,165
Olds, K.,170, 391
Oliver, M. L.,802
Ong, P.,798
Öniş, Z.,75
Ono, Y.,272, 336
Opal, C.,775
Ormerod, P.,840, 842
Orshansky, M.,64
Ortega-Argiles, R.,223
Ostale, E.,437–8
Östensson, O.,651, 653–4, 656
Oster, S. M.,275
Osterman, P.,529–30, 794
Ostrom, E.,760, 830–1
Ostry, J. D.,31, 775
Ottaviano, G. I. P.,166, 510
Ottoviano, G. I. P.,717
Ouma, S.,392, 396, 454, 457, 683
Overby, E.,276–7
Overholt, W.,726
Overman, H.,152, 339, 347, 354
Owen, J. R.,726
Owen-Smith, J.,182–3, 188
Ozcan, K.,286–7, 289, 294
Pacella, A.,230
Pachucki, M. A.,187
Paci, R.,505
Page, S. E.,510
Pahl-Wostle, C.,853
Pai, M.,416
Pakes, A.,250
Palan, R.,561, 567
Palavicini-Corona, E. I.,783
(p. 884) Palladino, G.,523, 524
Palma, J. G.,495
Palmer, D.,586
Palpacuer, F.,449–50, 452
Page 36 of 53
Author Index
Panagariya, A.,101
Pandiella, G.,672
Pandit, K.,509
Pani, E.,546
Panitz, R.,188
Paolisso, M.,672
Papadopoulos, D.,617
Papandrea, F.,311
Pardoe, J.,673
Pariser, E.,585
Parkinson, M.,775
Parr, J.,166, 374
Parrilli, M. D.,383
Parsons, J. E.,649, 655, 657
Pasqualetti, M. J.,742
Pasquali, P.,92
Passmore, J.,170
Pastor, M.,793, 796, 801, 814
Pastor, M. Jr,793, 796, 801, 814
Patchell, J.,223, 732
Pathak, P.,620
Patibandla, M.,409–10, 414
Patrinos, H. A.,801
Pattberg, P.,673–4
Patterson, J. G.,604
Paunescu, M.,857
Pavan, R.,511
Pavlova, A.,654
Payne, B. C.,596
Peck, J., xlii,11, 35, 64, 169–70, 172, 188, 235–7, 383, 391, 465–7, 470–6, 478, 487–91, 528, 568,
699, 812–13, 815–16, 822
Pede, V. O.,798
Peeters, C.,408–9, 412
Pelling, M.,672, 840
Pendall, R.,846
Penning-Rowsell, E.,673
Pennings, J. M. E.,656
Penrose, E.,370
Peoples, S.,667
Peri, G.,510
Perkins, D. H.,92
Pernia, E. M.,772, 778
Perramond, E. P.,684
Persson, H.,372
Persson, T.,99
Peters, A.,799
Peters, G.,830
Petersen, B.,410, 414
Page 37 of 53
Author Index
Petersen, S.,723
Petrovic, M.,427
Pettit, P.,196
Pfeiffer, A., xlii,749
Phalippou, L.,598
Phelps, E. S.,149–50
Phelps, N. A.,186
Phillipson, N.,144
Philo, C.,41
Pickering, C.,671
Pickett, K. E.,41–2, 55
Pickles, J.,389, 396
Pierre, J.,830
Pigou, A. C.,501, 751
Pike, A.,235, 237, 239, 260, 391, 603, 611–12, 649, 656, 659, 782–3, 786, 840
Piketty, T.,5–6, 9, 31, 41, 54, 104, 149, 168, 495, 511, 772
Piller, F.,288
Pincetl, S.,666
Pinch, S.,182
Pinch, T.,297
Pindyck, R. S.,654, 656, 758
Piore, M. J.,246, 456, 499, 501, 522, 529, 798, 831
Pires, R.,456
Pisano, G. P.,332–3, 336
Pischke, J.-S.,521
Piscitello, L.,370
Pittel, K.,759
Plambeck, E. L.,686
Plantinga, A. J.,686–7
Plehwe, D.,170
Pliske, R.,198
Plummer, P.,162, 166
Polanyi, K.,6, 7, 231, 465
Polanyi, M.,280, 576
Pollard, J.,168, 172, 542, 547–8, 603, 611–12, 622, 649, 656, 659, 673
Pollert, A.,493
Ponte, S.,384, 396, 452–3
Ponzetto, G. A. M.,271, 274
(p. 885) Porter, L.,859
Porter, M. B.,246
Porter, M. E.,181, 216, 324–6, 330–6, 339, 349, 399, 499, 508, 797–9, 827–8
Posner, E.,601
Posthuma, A.,396
Potiowsky, T.,328
Potter, A.,215
Potter, J.,783
Potter, R.,717, 719
Potts, J.,286, 305
Page 38 of 53
Author Index
Pouder, R.,216
Powell, C.,187
Powell, W. W.,182–3, 188, 217, 368
Power, D.,169, 295, 306, 309, 580
Prahalad, C. K.,286, 298, 830, 832
Pratt, A. C.,306–9
Pratt, G.,466, 472, 476–7
Prebish, R.,722
Pred, A.,8, 72, 575
Preda, A.,684
Preston, B.,668–70
Price, M.,72
Prieger, J. E.,272
Pritchard, B.,396, 452–3, 454
Pritchard, L.,845
Prno, J.,724
Probert, J.,396
Protsiv, S.,330
Pryce, G.,666
Pryke, M.,623, 647–8, 673
Przeworski, A.,97
Psacharopoulos, G.,801
Puga, D.,153, 274, 332, 337, 347–9, 353, 360, 376
Pulkkinen, R.,221
Puranam, P.,411, 826
Pykett, J.,204
Quadrini, V.,798
Quah, D.,759
Quatraro, F.,220
Quealy, K.,49–50, 52
Quesnay, F.,162
Quheng, D.,774
Quiggin, J.,31
Quigley, J. M.,775
Raco, M.,633
Radetzki, M.,649, 654–8, 722
Radjou, N.,826
Rafferty, M.,648
Rahm, D.,736
Rainnie, A.,392
Ramamurti, R.,829
Ramaswamy, V.,286–7, 289, 294, 298
Ramos, R. A.,770, 776–7, 780, 786
Ramsey, F. P.,756–7
Rani, P.,36
Ranieri, R.,770, 776–7, 780, 786
Rank, M. R.,69
Rankin, W. J.,628, 630–1
Page 39 of 53
Author Index
Rantisi, N. M.,232
Rao, C.,416
Rauch, J. E.,503
Rauh, J. D.,596, 606
Rauniyar, G.,785–6
Raven, R.,732
Ravid, G.,312
Ray, D.,145
Raynolds, L. T.,452
Reagan, R.,148, 467, 524, 811
Reardon, T.,434, 436, 438
Redding, S.,352
Reddy, P.,409
Rees, J. A.,170
Rees, M.,756
Reid, J.,840
Reimer, J.,522–3
Reimer, S.,383
Reinecke, J.,420
Rekers, J. V.,235, 239
Ren, Y.,296
Rentfrow, P. J.,857
Resseger, M. G.,506
Restino, C.,725
Rezaie, R.,830–1
Rhiney, K.,667, 669
Rhodes, R. A. W.,830
Ribot, J.,668, 675
Ricardo, D.,147, 163–4
Rid, T.,586
Rifkin, J.,492
Rigby, D. L.,165, 214, 216, 220, 568
Rightor, N.,736–8
(p. 886) Riisgaard, L.,451
Riles, A.,299
Rinallo, D.,187
Rindfleisch, A.,286
Ritsatos, T.,727
Ritzer, G.,287
Rivkin, J. W.,332
Roback, J.,509
Robb, D.,855
Robert-Nicoud, F.,347
Roberts, B. H.,775
Roberts, J.,291, 296
Roberts, K. H.,296
Roberts, S.,11
Robertson, M. M.,170
Page 40 of 53
Author Index
Robinson, D. T.,598
Robinson, J.,99
Rockström, J.,750, 755, 761
Rodgers, G.,487
Rodin, J.,840, 855
Rodríguez, A.,412
Rodríguez-Pose, A., xlii,230, 770, 781, 783, 785–6
Rodrik, D.,29, 33, 98–9, 150, 161, 208, 230, 233, 827
Rogerson, C. M.,783–4
Rogerson, J. M.,783
Romer, P.,147, 152, 220, 263, 501, 759, 847
Rongerude, J.,801
Rook, D.,209
Rosales, J.,721
Rosansky, V. I.,649
Rose, A. K.,260, 653
Rose, N.,617
Rosen, S.,509
Rosenblat, T.,275
Rosenthal, S. S.,245, 334, 339, 347–8, 354, 358, 360
Ross, A.,477
Ross, M.,720
Ross, N.,41
Ross, R. J. S.,83
Rosser, A.,720
Rosser, J. B. Jr,162
Rossi-Hansberg, E.,399
Rostow, W. W.,630, 633, 640
Rotemberg, J. J.,654
Round, J.,488
Rouwenhurst, K. G.,650
Roy, A.,169
Rozelle, S.,772
Rubenstein, J. M.,374
Rubery, J.,476
Rubin, V.,802
Ruiz, N.,353
Runciman, D.,41
Rutherford, T.,466, 474, 480
Ruwanpura, K.,455
Rycroft, R.,255
Sabel, C. F.,246, 499, 501, 585, 798, 831
Sachs, J. D.,97–100, 109, 720
Sadler, D.,448, 450
Sælen, H.,758
Saez, E.,54, 70–1, 149, 495
Safford, S.,529
Sagoe-Addy, K.,671
Page 41 of 53
Author Index
Sai, D.,774
St John, C.,216
Saiz, A.,500, 503, 510
Sako, M.,407–9, 413, 417
Sala-i-Martin, X.,770
Salais, R.,155
Salamon, L. M.,800
Salkin, P. E.,800
Salt, D.,839
Salzinger, L.,527, 531–2
Samers, M.,168, 476
Sampat, B. N.,827
Sampsa, S.,601
Sampson, R. J.,512
Samuelson, P. A.,499, 579, 633
Samuelson, W. A.,203
Sanders, D. R.,653, 655–6
Sandor, R.,654–5, 657
Sandrea, I.,739
Sandve, A.,451
Sankhe, S.,774–5
Sarvary, M.,271
Sassen, S.,41, 565, 569, 614, 795
Sato, Y.,596
Sauer, C. O.,718
Sautter, B.,216
Savage, L.,466, 474
(p. 887) Saxena, S.,843
Saxenian, A.,235, 259, 312, 325, 330, 334, 337, 348–9, 351, 415, 499, 501, 576, 798
Sayer, A.,41, 170, 180, 190, 469
Scaramozzino, P.,655
Schafran, A.,7
Scharfstein, D.,599
Scheibelhut, T.,597
Schindler, S.,392
Schipper, F.,631, 640
Schmidt, K. M.,208
Schmitz, H.,383, 396, 415
Schneider, M. R.,857
Schoenberger, E.,396
Schot, J.,631, 640
Schrank, A.,151, 154, 456
Schröder, M.,236, 239
Schroeder, S. K.,550
Schumacher, E. F.,830
Schumpeter, J. A.,150, 219, 252, 256, 261, 300, 722, 841
Schwarz, D.,576
Scitovsky, T.,149
Page 42 of 53
Author Index
Scott, A. J.,116, 164, 167, 169, 182, 306, 309, 313, 391, 396, 466, 470–1, 499, 501, 506, 568, 580,
684, 718
Scott, D.,671
Scott, M.,840
Scribner, S.,522
Seamans, R.,279
Sedita, S. R.,216
Seidel, V. P.,292
Seigworth, G. J.,618
Sellers, P.,47
Selwyn, B.,392–3
Selwyn, P.,120
Sembenelli, A.,372
Sen, A.,106, 148–9, 800
Sensoy, B. A.,598
Serafinelli, M.,351
Servén, L.,795
Seto, K.,667
Setterfield, M.,853
Seville, E.,840
Seyfang, G.,594
Shabani, M.,551
Shackleton, R.,435
Shafir, E.,200, 203
Shah, A.,109
Shah, S. K.,287, 295, 297, 300
Shale, J.,45
Shane, S.,829
Shannon, R.,439
Shapiro, J. M.,509, 511
Shapiro, T. M.,802
Sharkey, P.,512
Sharma, D.,417
Sharma, P.,100
Sharma, R., xliii,19, 33, 408, 591, 601, 604, 634, 671
Sharma, S.,97
Sharman, J. C.,567
Sharpe, W. F.,200, 206, 597
Shaver, J. M.,334
Shaw, E. S.,551
Shaxson, N.,567
Sheffer, D. A.,597
Sheffi, Y.,840
Shelton, T.,577, 580
Shen, B.,687
Sheppard, E., xliii,160–7, 169–72, 470–1, 850
Shih, W. C.,332–3
Shiller, R.,40, 657–8
Page 43 of 53
Author Index
Shreck, A.,453
Shu, Q.,86
Shultz, G. P.,713
Sidaway, J. D.,547, 618
Sider, A.,740
Siemiatycki, M.,637
Siggelkow, N.,252
Silva, J.,667, 670, 672
Silva, O.,353
Silvennoinen, A.,726
Silver, M. L.,522–4
Simanis, E.,829
Simmie, J.,223, 840, 843, 852–3
Simon, C. J.,503
Simon, H. A.,2, 197, 199, 204–5, 207, 751
Simon, J. L.,707, 713, 752
Simons, P.,209
Simonton, D. K.,509
Sin, H. L.,451
Sinai, T.,276, 277
Sinclair, D.,605
(p. 888) Singer, H. W.,722
Singer, P. A.,831
Singh, M.,101
Sinha, A.,102
Sinha, K.,409
Sinn, H.,649
Sjoberg, O.,83
Skelcher, C.,830
Skoufias, E.,666, 672
Slack, E.,858
Slater, D.,658
Slater, G.,486
Smart, S.,740
Smith, Adam,143–4, 162, 164, 167, 499, 509, 629–30, 688–9
Smith, Adrian,383, 392
Smith, B. E.,466, 476–7
Smith, F.,488
Smith, J. L.,656, 658, 803
Smith, N.,116, 161, 168, 393, 469, 686, 716
Smith, S.,41, 203, 453
Smulders, S.,749, 757
Snyder, C. M.,280
Soete, L.,261
Soja, E.,161
Sokol, M.,550
Solari, S.,620
Solecki, W.,670
Page 44 of 53
Author Index
Solinger, D.,83, 90
Solow, R.,102, 147, 757, 759
Sölvell, Ö.,330
Somanathan, T. V.,654
Sommeiller, C.,72
Son, H. H.,777–8
Sonderegger, P.,413
Sorenson, O.,215, 218, 325, 334, 337–8, 601
Soskice, D.,188, 222, 234, 699, 857
Sotarauta, M.,221
Soto, M.,503
Soyez, D.,724
Spatareanu, M.,372
Spence, M.,97, 598
Spencer, G.,827
Spencer, H.,246–7, 255, 262
Sraffa, P.,164, 167
Srikanth, K.,411
Stabell, C.,183
Staber, U.,216
Stafford, E.,599
Stam, E.,215
Stambaugh, R. F.,201
Standing, G.,495, 528
Stangler, D.,254
Star, S. L.,159
Stark, D.,188, 288, 291, 298
Starks, L. T.,598
Starosta, G.,393, 398
Starrett, D.,166
Stathakis, G.,120
Steedman, I.,163, 167
Steiger, T. L.,522–3
Stein, J. G., xliii,826, 829–30
Steinmueller, W. E.,292, 296
Stephan, P.,147
Stern, D. I.,757, 794
Stern, J.,637
Stern, N.,6, 750, 757–8; see also Stern Review
Stern, P.,671
Stern, S.,279, 337–9
Sternberg, R. J.,305, 504
Sternberg, T.,723, 725
Stewart, K.,57
Stiglitz, J. E.,29, 31, 55, 198, 656, 752, 756–7, 759, 794–6, 800
Stiles, T.,39
Stiroh, K. J.,273
Stokey, N. L.,759, 765
Page 45 of 53
Author Index
Stolarick, K.,503, 505

Stone, K. V. W.,486, 491, 812
Storey, K.,726
Storper, M., xliii,116, 143, 152–5, 168, 182, 197, 202, 214, 230, 232, 280, 309, 313, 325, 337, 370,
385–6, 391, 399, 411, 466, 468, 471, 499, 501, 552, 576, 604, 674, 734, 793, 795, 804
Stotesbury, N.,58
Strambach, S.,221
Strange, S.,567, 569, 649
Strange, W. C.,245, 334, 339, 347–9, 354, 358, 360
Strauss, K., xliv,197, 208, 472, 480, 485–7, 491, 616
Streeck, W.,237–8, 611
Stripple, J.,683
Strumsky, D.,252, 255
(p. 889) Stuart, T.,215
Stupnytska, A.,20
Sturgeon, N.,820
Sturgeon, T. J.,383–4
Subianto, P.,34
Subramanian, A.,103
Sugden, F.,673
Suharto, President,34
Suire, R.,216, 217
Sukarno, President,34
Sundararajan, A.,492
Sunley, P.,9, 115–16, 165, 213–14, 216, 220, 223, 232, 237–9, 260, 393, 665, 733, 741, 840, 848–9,
852, 859
Sunstein, C.,198, 205, 207
Sutton, J.,318
Swann, P.,330
Swanstrom, T.,801
Sweeney, B.,475
Swyngedouw, E.,115, 383, 648, 668, 683
Sydow, J.,116
Syverson, C.,263, 270
Taeube, F.,413
Tambe, P.,279
Tamoschus, D.,300
Tan, C. H.,620, 622–3
Tang, A. M.,81–2
Tang, K.,650, 654, 659
Tanner, A. N.,220, 223
Tanner, T.,672
Tansley, A.,246–7, 256
Tapscott, D.,294–5, 297
Tarr, K.,802
Tate, C.,669
Täube, F. A.,312, 318
Taylor, G.,3
Page 46 of 53
Author Index
Taylor, M. J.,392
Taylor, M. S.,765
Taylor, P. J.,551, 561
Taylor, R. S.,370
Taylor, S.,669
Tecu, I.,348
Teitz, M. B.,799
Temin, P.,530
Ter Wal, A. L. J.,188, 218
Terazono, E.,658
Teubal, M.,148
Teytelboym, A., xliv,749
Thaksin Shinawatra, Colonel,34
Thaler, R.,198, 205, 207
Tharoor, S.,829
Thatcher, C.,670
Thatcher, M.,148, 468, 470, 811
Thelen, K.,189, 237, 238, 239, 611
Theodore, N.,64, 169, 188, 235, 237, 472–3, 480, 488–91, 528, 699, 813, 815–16, 822
Thetford, T.,803
Thiel, J.,313
Thisse, J.-F.,146, 166, 717, 775
Thomas, A.,669, 673
Thomas, B.,54, 151
Thompson, P.,504
Thompson, W. R.,500, 503–4
Thorat, S.,774
Thornton, J. R.,771
Thorp, S.,726
Thorsteinsdóttir, H.,830
Thrift, N.,168, 170, 172, 230, 290, 295, 298, 312, 383, 391, 471, 542, 551, 559, 614, 620, 650
Throsby, D.,305
Tian, F.,88
Tickell, A.,169, 172, 383, 471, 568
Tiebout, C. M.,797
Tien, H. Y.,81
Tijmstra, S.,783, 785
Timmons, J.,601
Timms, H.,763
Tindall, T.,637, 640
Tirole, J.,148
Tokatli, N.,396
Tol, R. S. J.,758
Tomaney, J.,230
Tomei, J.,675
Tomlinson, J. B.,307
Tompkins, E. L.,840
Tompkins, J. A.,854
Page 47 of 53
Author Index
Topol, E. J.,829
Topolova, P.,104
Toro, F.,822
Torrance, M.,604, 634–5
Torre, A.,218
Torres, R.,491, 493
Torres, S.,99
(p. 890) Torrisi, G.,843
Toulson, D.,578
Townsend, A. M.,271, 576
Towse, R.,305
Tracey, P.,180, 182
Treanor, J.,418
Treguer, D.,750
Treuhaft, S.,802
Trigilia, C.,235
Trimble, C.,826, 828–9
Tripathi, S.,774
Tripathy, A.,332, 338
Trippl, M.,220
Tripsas, M.,287, 297, 300
Truffer, B.,223
Trump, D.,7, 33
Tsampra, M., xliv,113
Tschakert, P.,668
Tschang, F.,420
Tseng, M. M.,288
Tsui, K. Y.,80
Tucker, C.,277
Tufekci, Z.,417
Tufts, S.,466, 474
Tuomi, T.,307
Turi, P.,299
Turner, B.,676
Turner, M.,352, 672
Turnovsky, S. J.,656
Turok, I.,313, 774, 775, 781
Tversky, A.,197, 199–200, 202, 205, 207
Tversky, B.,203
Tyson, R. E.,859
Ullman, E. L.,503, 508
Urahn, S.,57
Urkidi, L.,725
Urry, J.,299, 551
Urwin, R.,606
Uzzi, B.,183, 188
Vaast, E.,411
Vacas–Soriano, C.,47
Page 48 of 53
Author Index
Valencia, F.,539
Valentine, G.,169
Valenzuela, A. Jr,529
Valiante, D.,650, 651
Välikangas, L.,855
Vallee, G.,491
Van Alstyne, M.,275, 492
Van de Ven, A.,261, 409
van den Berge, M.,220, 223
Van den Bulte, C.,336
van der Molen, M.,646, 655, 660
Van der Ploeg, F.,758, 762
van der Woude, A.,563
van der Zwan, N.,618, 623
Van Gaasbeck, K.,274
Van Jaarsveld, D. D.,813
Van Laak, D.,631
Van Maanen, J.,522
Van Reenen, J.,250, 263
van Woerkens, C.,505
van Zeebroeck, N.,275
Vancura, P.,669, 671
Vang, J.,313
Varoufakis, Y.,34
Varshney, A.,104
Vaughan-Williams, N.,620
Vázquez-Barquero, A.,783
Veblen, T. B.,230, 232, 262
Vedres, B.,188
Veitch, J. M.,542
Venables, A. J.,146, 182, 197, 202, 280, 309, 373, 399, 411, 604, 717, 762, 770, 772
Venkatasubramanian, K.,675
Verma, R.,409, 410
Vernon, R.,332, 368–70, 377, 501
Viceira, L. M.,597
Vicente, J.,216–17
Vilhuber, L.,279
Viner, J.,250
Vinodrai, T.,238–9
Vinterberg, T.,314
Vissel, C.,845
Vitali, S.,562
Vlaar, P.,411
Voelzkow, H.,236, 239
Vogel, H. L.,310–11
Vogt-Schilb, A.,761
von Braun, J.,667
von Hippel, E.,182, 271, 287, 289, 293, 295, 332, 338, 419
Page 49 of 53
Author Index
von Mises, L.,690

(p. 891) von Thünen, J. H.,499–500
von Trier, L.,314

Vorley, T.,306
Vosko, L. F.,486–7
Vural, L.,450
Wachsmuth, D.,792
Wade, R.,29
Wadhwa, V.,510
Wagner, G.,756
Waine, B.,616, 618
Wainwright, T.,170, 546, 551, 594
Waite, L.,486
Waldfogel, J.,276–7
Waldinger, R.,527
Walker, B.,839
Walker, R.,115, 168, 214, 466, 468, 795
Wallace, J.,88
Wallerstein, I.,716
Wallsten, S. J.,245
Walsh, J.,474
Wan, G.,91
Wang, F.,92
Wang, X.,88
Wang, Y.,80
Wanvik, T. I.,454
Warde, A.,469
Warner, A. M.,720
Warner, M.,814
Warren, A.,486
Warren, G.,597
Wasko, J.,307
Waterman, D.,310
Watson, A.,486
Wattal, S.,279
Watts, H. D.,215
Watts, M. J.,668, 720
Webber, M. J.,165, 197, 568
Webber, S.,673, 674
Weber, A.,499, 500
Weber, R. N.,803
Weber, S.,287
Wei, Y. H. D.,41
Weick, K. E.,296
Weil, D.,524, 528, 529
Weinhold, D.,277
Weinstein, B. L.,736
Weintraub, E. R.,207
Page 50 of 53
Author Index
Weir, M.,801
Weisbenner, S.,577, 596
Weissenbacher, R.,115, 120, 131
Weitzman, M. L.,263, 758
Wellman, B.,272
Wells, M.,527
Wells, O., ix
Wenger, E.,523
Wenting, R.,215–16, 221
Werner, M.,389, 394, 454
Weszkalnys, G.,715, 722
Weterings, A.,220, 223
Weyl, E. G.,601
Whatmore, S.,170
Wheeler, T.,667
Whitacre, B. E.,272
Whitaker, J.,278, 409, 413, 420
White, H.,145
Whiteman, J.,197
Whitford, J.,151, 154
Whiting, S.,80
Whitley, R.,234, 308, 386
Whitson, R.,488
Whittington, K. B.,188
Whoriskey, P.,54
Wick, K.,721
Widodo, J.,34
Wiertz, C.,289–90, 292
Wiewel, W.,816
Wildman, S. S.,311
Wilhelm, W.,563
Wilkie, C., xliv,770, 786
Wilkins, B.,40
Wilkinson, R. G.,41–2, 54–6
Williams, A. D.,294–5, 297
Williams, A. T.,603
Williams, C. C.,488
Williams, G.,572
Williams, K.,611
Williams, P.,541
Williams, R.,546
Wills, J.,391, 466, 474, 477, 486
Wilson, D.,20
Wilson, E. O.,709
Wilson, G. A.,688
Wilson, M.,410
(p. 892) Wimmer, A.,839
Winders, J.,466, 476–7
Page 51 of 53
Author Index
Winkler, A. E.,275
Winkler, D.,396, 399
Winter, S. G.,151, 213–14, 250, 262–3
Winters, A.,97
Wiseman, M.,592
Wisner, B.,668
Withagen, C.,758, 762
Witsoe, J.,107
Wojan, T.,505
Wójcik, D.,ix, xxi, 1, 8, 168, 238, 338, 542–3, 551, 557, 560, 562–4, 567, 569–72, 577, 594, 603–5,
660, 699
Wolfe, D. A.,235, 812
Wolpert, J.,197
Wong, K.,529
Wong, K.-Y.,167
Wong, S.,79
Woo, M. Y-en,28
Wood, A.,11
Wood, G.,35
Wood, P. A.,569
Wood, S.,434, 439, 442
Woon, C. Y.,486
Working, H.,656, 657
Worthen, H.,523
Wright, C.,687
Wright, G.,721
Wright, S.,247–9, 251–2
Wright, T. P.,251
Wrigley, N., xliv,11, 427–8, 432, 434–6, 440, 455, 603, 733
Wu, J.,339
Wu, T.,277, 586
Wyly, E. K.,41, 546, 614
Xiong, W.,650, 654, 659
Yadav, L.,107–9
Yamane, A.,668
Yang, D.,81, 491, 772
Yang, Z.,758
Yaqub, O.,295
Yeaple, S. R.,374
Yeung, G.,92
Yeung, H. W.-c., xliv,11, 35, 162, 179, 181, 185, 382–5, 387–97, 399, 416–17, 623, 734–5
Yew, C. P.,88
Yin Yang,634
Yin, J. S.,802
Young, H. P.,598
Yousuf, H.,55
Yudhuyono, President,34
Yusuf, S.,25–7, 97
Page 52 of 53
Author Index
Zademach, H.-M.,313
Zaheer, A.,188
Zaheer, S.,412–13
Zalik, A.,657
Zanfei, A.,370
Zeckhauser, R.,203
Zelizer, V. A.,613, 616, 618
Zentner, A.,277
Zeuli, K.,331
Zhang, J.,82, 235–6
Zhang, X.,772
Zhao, M.,339
Zhou, K.,86
Zhu, F.,279
Zhuang, J.,774, 777, 779–81
Zlolniski, C.,527
Zoller, T. D.,262
Zolli, A.,840
Zook, M. A., xlv,270, 272, 279, 543, 575–8, 580, 585–6
Zucman, G.,70, 71
Zukauskaite, E.,230
Zvan, B.,597
Zwick, D.,298
Zyontz, S.,339
Zysman, J.,542, 551
Page 53 of 53
Subject Index
Subject Index

(p. 893) Subject Index

Aberdeen,735
aboriginal communities,834
Accenture,408, 415–16
accession: of EEC,120, 130–2;
of EU,113;
of World Trade Organization (WTO),437
acquisitions,259, 312, 336–7, 369, 374, 561, 566, 599
adaptability,260–1, 783, 852;
economic,853, 855, 857;
versus adaptation,261
adaptation,116, 154, 189, 198, 214, 216, 222, 246, 249, 260–1, 271, 670, 673–5, 845, 848–9, 851–
2, 860;
economic,853;
governance of,830;
successful,848;
versus adaptability,261
adivasis,107
ADX Portland,818
Aegean,124
aerial differentiation,3–4, 8
Africa,4, 98–9, 408, 415, 419, 433, 565, 719, 722, 773, 779;
African,26, 777, 784;
African, countries,28
African Development Bank,749, 770, 785
agglomeration(s),5, 13, 28, 78, 83, 86–8, 91, 114, 116, 146–7, 152–3, 155, 180–1, 214, 253, 274,
324, 330–2, 336–9, 347–9, 352, 354–6, 359, 361, 370, 374, 568, 717–18, 735, 797–9, 827–8, 834;
advantages,184;
benefits,270, 331, 333–4, 353, 564;
cluster,334;
diseconomies,7;
economies,86, 88, 90, 308–9, 330–1, 333, 335, 337, 347–8, 352, 354, 361, 385, 577, 827, 835;
external,334–8;
Page 1 of 61
Subject Index
geographical,413;
internal,335–8;
models of,349;
perspective,352;
regional,154;
spatial,87, 91, 202, 309;
urban,500, 792, 795
agrarian reform,107
agriculture/agricultural,22, 23, 26, 30, 33, 34, 75, 81, 82, 83, 84, 92, 105, 120, 122, 123, 124, 125,
126, 130, 132, 161, 427, 428, 453, 527, 667, 670, 671, 672, 683, 687, 710, 723, 724, 736;
decollectivization of,82;
dryland,669;
economy,738;
geographers,170;
labour,78
Ahold,429–30, 438–9
Airbnb,492
AJR model,99
Alabama,72
Alaska,669, 724
Alberta,637, 706
Aldi,429–30
Alibaba,441, 570;
Alibaba Group,441
Amazon,276, 429–31, 440–1, 443, 492–3, 570, 709
amenities,500, 506, 509–12;
absent,350;
cultural,630;
neighbourhood,800;
role of,509
American Airlines,410
American dream,66, 69
Amsterdam,563, 565–6, 571
Andes,724
Andhra Pradesh,102, 106
Angola,5, 7
Antarctic,707
Anthropocene,13, 161, 665–6, 674–5, 755, 765
Apple,7, 78, 441, 721
apprenticeship: programmes,525–6;
system,523–4
Aravind Eye Hospital,829
arbitrage,389, 417, 543, 571, 578, 586
Arctic,705, 707, 715, 727;
Arctic Circle,705;
Arctic Ocean,723
Argentina,434, 456, 565, 724
artificial intelligence,255, 411, 417
Page 2 of 61
Subject Index
Asia,4, 19–20, 24, 26–32, 34–6, 97, 408, 410, 433, 441–2, 467, 565, 604, 719, 723–4, 792;
East,27–8, 30, 34, 36, 104, 389, 395, 399, 428, 434, 544–6, 552, 794;
North,28;
South,28, 104, 399, 436, 453;
South East,28, 30, 399, 428, 436–7, 439, 793
(p. 894) Asian,12, 20, 24, 33–5, 134, 390, 408, 434, 571, 777;
countries,20, 22, 31;

development,24, 27;
economies,20–1, 26, 32, 389;
industrialization,25;
industrializers,67;
region,19–21, 27, 32, 35;
tigers,25, 27, 29, 35
Asian Development Bank (ADB),21–4, 31, 34, 36, 399, 749, 770–1, 777, 785
Asian Infrastructure Investment Bank,36
Assam,106
Association of Southeast Asian Nations (ASEAN),27–8, 374, 399
Athens,12, 129, 134
Atlanta,565, 817, 842–3
Atlantic,467, 472, 669, 710;
North Atlantic,73, 172
Attiki,123
Auchan,429, 430
austerity,6, 12, 28, 55, 113–14, 119, 122, 126, 130, 133–6, 149, 455, 490, 550, 857;
anti-austerity,494;
fiscal,113–14, 120, 122–3, 127, 129–30, 133–5, 854, 857–8;
policies,131
Austin,328, 333
Austin–Round Rock,328
Australia,3, 23, 27–8, 33, 49–51, 99, 209, 234, 317, 408, 456, 565, 604, 685, 720, 761, 774
Austria,49, 50, 117
automation,68, 417–18, 467
Avasant Group,419
B2C, 441
Baden-Württemberg,235, 386
Baltic,117, 120
Baltimore,565
Bandra Kurla,107
Bangalore,409, 413, 415, 418, 453, 565, 570
Bangkok,307, 390, 565, 772
Bangladesh,20–3, 26, 30, 32, 89, 455, 773
Bank of Japan,654
bankers,53, 620;
pioneer,595
banking,13, 26, 32, 397, 541, 545, 563, 566, 569–71, 577, 583–5, 615–16, 619–21, 658;
crisis,854, 857;
deregulation of,854;
investment banks,570;
Page 3 of 61
Subject Index
mobile,570;
retail,619;
rural,107;
see also investment
bankruptcy,740;
business,129;
public,119, 133
Baraboo,333
Barbados,410
Barcelona,631
Barclays Bank,53, 571
Barings,566
Barnes and Noble,276
Barrick Gold,724
Bavaria,235
Bayes’ theorem,201, 203;
Bayesian theorists,201
behaviour: competitive,180, 199;
human,196, 198, 202;
individual,199, 205, 207–8, 732;
legitimate,199;
observed,196–7, 199, 204, 208–9, 292;
behaviouralism,197, 199
behavioural,548, 558;
approaches,3, 202;
biases,649;
concept,371;
finance literature,202;
geographies,616;
health,57;
perspective,12;
psychology,200, 203–5;
psychopathology,848;
responses,260;
revolution,12, 199, 202, 204, 207;
scientists,203;
turn in economics,8, 197
Beijing,11, 24, 28, 32, 307, 413, 565
Belgian Congo,99
Belgium,49–50, 131, 430, 490, 563
benchmark cluster definitions (BCD),325–6, 328, 330–1, 339
benefits,44, 47, 56, 59, 75, 81, 83, 90, 151, 202, 273, 332, 488, 505, 601, 630, 692, 710–11, 760,
777, 792, 831;
distribution of,144;
economic,215;
environmental,683;
housing,56;
social,84;
Page 4 of 61
Subject Index
welfare,612
Berkeley,8, 54
Berlin,307, 313
Bermuda,562, 567
Bharatiya Janata Party (BJP),101
Bhojpur,107
BHP Billiton,721
Bhumihar caste,107
Bihar,102, 106–9
biodiversity,55, 683, 697, 699, 710, 727, 751, 754–6, 761–2, 764;
loss,725;
prices,761
biopharmaceuticals,325, 332
biopolitics,617
biotechnology,153, 795
Bitcoin,279, 581–7
BITNET,275
Blackrock,570
blockchain technologies,581–2, 585–7
Bloomberg Philanthropies,817
Boca Raton,565
Boise City,333
(p. 895) Bolivian,1
Bollywood,306–7, 309, 312–13, 315–18

Bolsa Familia,796
Bolsover,842
bonuses,527, 563, 570, 615
boom–bust cycles,648, 655, 659, 735
Borders (store),276
Boston,202, 259, 325, 328, 359, 565, 570, 817
Botswana,100, 773
Brahmin caste,107
Brazil,4, 20, 43, 75, 86, 89, 235, 307, 310–11, 352, 434, 441, 455–6, 562, 565, 650, 685, 761, 773,
796;
Brazilian,456, 544
Bretton Woods,34, 67, 374, 542, 794
Brexit,571
BRIC/BRICs/BRICS,4, 20, 75, 562
bricolage,829, 831
Bridgeport,73, 333
Britain,56, 146, 494, 620, 631, 703;
Victorian,613;
see alsoEngland;
Scotland;
United Kingdom;
Wales
British,40, 99, 315, 470, 494, 551, 616, 619, 705, 711, 750;
colonies,567;
Page 5 of 61
Subject Index
government,620;
workers,490
British Columbia,637
British Petroleum (BP),735, 741
British Virgin Islands,567
Brno,416
broadband,271–2, 274, 279
Brookings Institution,73
Brundtland Commission,704, 713, 781
Brunei,28
Bucharest,413
Budapest,565
Buenos Aires,565
Bulgaria,120, 131
Bureau of Labour Statistics,73
Burlington,333
business process outsourcing (BPO),408, 417
business-to consumer (B2C) industries, 333, 334, 441
Cadbury,449
Calgary,565
California,54, 335, 351
California, University of,548
Cambodia,28
Cambridge, Mass,359, 833
Canada,23, 48–52, 54, 99, 234, 339, 431, 488, 491, 565, 718, 720, 774, 794, 811, 812, 813, 819,
822, 832, 834, 858;
Canadian,54, 134, 232, 495, 509, 718
Canary Wharf,485
Capability Maturity Model Integration (CMMI),420
Cape Town,784
capital: accumulation,81, 102, 107, 151, 251, 477, 629, 633–4, 742, 850;
globalized,115;
gains,64, 71, 75, 621;
investment,64, 66, 71, 75, 543, 580, 725;
mobility,64, 577, 801
capitalism,4, 8, 12, 29, 35–6, 115, 131, 144, 146–7, 159–61, 163–5, 167–8, 171, 450, 466, 472, 495,
541, 544, 549, 558, 580, 592, 596–7, 599, 603–5, 614, 629–33, 640, 648, 841, 859;
agrarian,104;
Anglo-American,238;
casino,649;
Chinese,235;
climate,684;
contemporary,384;
crisis of,6, 35;
crony,149;
finance,99, 612;
finance-led,603, 648;
financial,596–7, 621;
Page 6 of 61
Subject Index
German,238;
global,19, 35–6, 544, 854;
globalized,171, 477;
globalizing,163, 171–2;
knowledge-based,499–500, 508, 512;
modern,699;
national,115;
organization of,469;
patrimonial,511;
regulatory,638;
shareholder,649;
transformations of,236;
variegated,35;
varieties of,188–9, 222, 234–6, 465, 543, 550, 857
capitalist,79, 597;
accumulation,115, 541;
change,623;
cities,629;
countries,467;
crisis,542, 550;
democracies,208;
development,115;
dynamics,395, 548;
economy/economies,34, 144, 146, 159–66, 168–71, 188, 386, 391, 544, 548;
firms,384;
formations,550;
free-market,723;
growth,580;
industrialization,795;
labour process,469, 479;
modes of production,621;
non-capitalist,604;
objectives,448;
production,622;
reproduction,541;
restructuring,479;
social relations,115;
societies,612;
system,144, 468, 540, 591–4, 604, 850;
take-off,630;
trade,717;
transformation,471
capitalization,577, 582
carbon: accounting,684, 686–7; 685, 694, 697;
emissions,5, 683–4, 686–7, 708, 710, 761, 765;
markets,13, 161, 170, 683–9, 694–5, 697–8;
pricing,692, 757, 761;
sinks/sinking,689, 697;
Page 7 of 61
Subject Index
tax,675, 758
(p. 896) carbon dioxide,5, 685, 710–11, 754, 765;
see also CO2

Carbon Disclosure Project,674, 686
Caribbean,410, 561, 567, 794
Caribbean Data Services,410
Carnegie Mellon,199
Carrefour,429–30, 438–40
Casino,430, 440–1
caste system,109
Catalonia,7, 819
Cayman Islands,560, 567, 571
CB Richard Ellis (CBRE),431–2, 442
Central,124
Central America,4, 416, 434
Central Attiki,124
Central Bank of Russia,586
Central Europe,134, 389, 428, 560
Changzhou,28
Channel Islands,560
Chennai,100, 413, 665
Chesapeake Energy,739
Chevron,721
Chhattisgarh,102, 107, 109
Chicago,565, 578, 795, 817, 842
Chicago Board of Trade,655
Chile,434, 437–8, 495, 685, 724;
Chilean,217
China,4–7, 12, 19–36, 41, 66–7, 75, 78–93, 97, 99–100, 104–5, 168, 235, 263, 310–11, 352, 383,
389–90, 408–9, 417, 434, 441, 453, 455–6, 488, 547, 561–2, 565, 572, 645, 650, 653, 685, 687,
705, 710, 715, 721–3, 726–7, 735, 772–3, 794;
Chinese,4, 8, 11, 19, 24–8, 30–4, 79–80, 82, 84–8, 90–1, 235, 456–7, 571, 614, 722–3
China Sea,34
Choices (cooperative community),531–2
Chongqing,235
Cisco Systems,7, 235, 409
Cities Alliance,786
Citigroup,563
City Energy Project,817
city size,78, 85, 86, 87, 88, 349, 351
clean energy,696–8, 757, 760;
clean technology,7, 764
Cleveland,274
climate: change,6–8, 13, 30, 591, 601, 665–76, 683–9, 691–2, 697–9, 705, 715–16, 719, 721, 725,
727, 750, 757–8, 760–1, 763–5, 793, 803, 815, 840, 855, 860;
see also global warming;
economics,665, 671;
shocks,666–8, 670, 672, 675;
Page 8 of 61
Subject Index
stability,757
Club of Rome,706–7, 709, 712, 752
cluster(s),12, 182, 184, 214–19, 246, 256, 307, 315, 318, 324–6, 330–2, 334–7, 347–8, 351–5, 358–
61, 385, 389, 391, 399, 410, 413–14, 501, 577, 797, 799, 827, 831;
agglomerative,348;
analysis,326, 330, 506;
approaches,181, 216, 328;
benchmark,325, 328, 330;
business,793;
connections between,312–13;
cluster(s), creative industry,306–9, 311–12;
cultural industry,309–10;
definition(s),325–6, 328;
development of,352;
entertainment,313–17;
film,311;
geographical,420, 509;
high-tech,353, 413–14;
industrial,213, 236, 376, 499, 501, 826;
IT,418;
liberal,236;
localized,456;
manufacturing,181–2, 184;
multifunctional,471;
multi-linkage,328;
multiple,338, 355;
professional services,184;
regional,182–3, 330, 333;
region-specific,330;
relationships,181, 182;
research,181, 183, 186, 325;
role of,331;
specialized,307, 353;
strong,338–9;
structure of,356;
study of,353, 360;
subregional,28;
talent,504;
temporary,187, 299;
theory,184, 330;
urban,183;
US,332, 333
clustering,146, 181, 215, 222, 306, 308–9, 326, 328, 349, 354, 360, 508, 511–12, 795, 799;
industry,214;
of creative production,308;
of talent,499–500, 502, 509, 511;
spatial,215, 217;
urban,184
Page 9 of 61
Subject Index
CO2, 30, 685–8, 694, 696, 754–5, 757–8, 761, 765;

emissions,30, 687, 758–9;
see alsocarbon dioxide;
greenhouse gas(es) emissions
coal,27, 80, 359, 469–70, 668–9, 675, 703–4, 708–9, 712–13, 715, 723, 725, 751–2, 754, 762–3,
765;
mine closures,841–2;
miners’ strike,469
co-creation,287–91, 294, 298;
definition,286, 299;
geographies of,300;
logic of,289;
mapping,290;
practices,287, 298–300;
situating,289;
spatial logistics of,299;
temporary,299;
types of,291;
typology of,290;
value,286, 287
cognition,2, 197, 199, 204–5, 207–8
cognitive legitimacy,215
CoinMarketCap,582
(p. 897) Cold War,25, 632, 718–19, 722
collective bargaining,493, 520

co-location,12–13, 185, 197, 202, 215–17, 296–7, 325–6, 332–3, 335–6, 409, 416–17, 564, 827;
benefits,349;
cross-border,376
Cologne,11, 236
Colombia,773
colonialism,99, 454, 719;
postcolonial,172, 449, 454, 457, 718, 720
commerce,145, 441, 629, 693–4;
electronic,276–7, 440–3;
net based,471;
patterns of,3
commercialization,255, 261–2, 827, 830;
of Internet,272
commodification,170–1, 673, 687;
of labour,476
commodities super-cycle,716, 721–2, 727
commoditization,410, 413–14, 419, 421
Commodity Futures Modernization Act,650
Commodity Futures Trading Commission (CFTC),656–7
communication(s),7, 64, 154, 161, 163–4, 172, 183, 185, 218, 269–71, 279–80, 293, 299, 312, 371,
374, 390, 394, 338, 411–12, 478, 501, 575, 579, 584, 742, 761, 811;
channels,412;
costs,269–71, 273–5, 277–9;
Page 10 of 61
Subject Index
digital,275, 279;
electronic,270, 278;
fibre-optic networks,560;
global,449, 632;
Internet-enabled,274;
patterns,274;
technology,316;
technologies,185, 375, 763;
transfer,411
communism,6;
rise of,144;
communist,81–2, 102, 630, 723
Communist Party of India,102
community benefits agreements (CBAs),800–1
competition,8–9, 33, 67, 101–2, 131–2, 148, 164, 166–7, 215–16, 252, 259, 297, 311, 314, 349,
390, 415, 432, 438, 470, 478, 542, 569, 621, 637, 669, 720, 797, 844, 851–2, 859;
forces of,635;
imperfect,558;
import,332;
intra-firm,375;
local,418, 434;
oligopolistic,794;
perfect,166, 167;
spatial,97, 166;
status,293
competitiveness,84, 114, 127, 133, 180–1, 219, 330, 391, 512, 568, 811, 816, 827, 834, 840, 843,
857;
cultural,311;
dynamic,855;
firm and regional,324;
global,831;
industrial,542, 544;
inner-city,799;
local,512;
national,398;
pro-growth,784;
regional,792, 793, 815
complexity theory,214
Congo,709
Conlumino,442
Connecticut,72–3
conservation,256–8, 683, 687, 697
consolidation,113, 257, 410, 435–7, 439, 566, 719;
industry,571;
political,796
construction,29, 32, 73, 120, 122–7, 129, 131–2, 135, 356, 434, 457, 468, 475, 491–2, 522–7, 529,
614, 634, 761, 834;
carbon market,686;
Page 11 of 61
Subject Index
industry,522, 526;
jobs,530, 793, 800;
pipeline,735;
tools,526;
well,740;
workers,520, 522
consumerism,24, 580
consumption,1, 3, 5, 24, 27, 33, 55, 59, 83, 91, 102, 113, 131–3, 135, 149, 161, 168, 172, 287, 298,
306, 313, 316, 339, 385, 427, 435, 443–4, 452, 454, 457, 501, 545, 549, 576, 580, 593–4, 601, 611,
613, 616, 619, 628, 690–4, 706, 712–13, 726, 753, 756–9, 795;
consumer behaviour,277, 279;
creative,308–9;
cultural,580;
decline,129;
excessive,754–5;
geography of,287;
goods,349;
growth,104;
household,119;
local,797;
mass,47, 632;
meat,716;
natural resources,591;
of financial products,612;
passive,294;
patterns,182, 398, 797;
personal,613;
post-consumption,397;
private,123, 135, 633;
resource,720
convenience stores,429, 435–6, 439
Copenhagen,306, 313–15
Corbridge, S.,97
core–periphery,113, 115, 117, 120, 126, 130, 133–5, 253, 360, 368–9, 376–7, 717, 727;
contradictions,113–14, 131;
divergence,114;
dynamics,722, 727;
polarization,120;
political economy,115;
research,719;
theory,716–18, 720;
see alsoperiphery
Cornwall,475
corporate citizenship,448;
culture,397, 435, 801;
responsibility,448–51, 455
corporate social responsibility (CSR),13, 411, 419, 449–55, 457, 726
Corporation for Enterprise Development,802–3
Page 12 of 61
Subject Index
corruption,26, 32–4, 97, 100, 154, 727;

government,726, 739
Cosco,134
(p. 898) cost curve,349, 351, 629
Costa Rica,416, 453, 687;

Costa Rican,454
cost–benefit analysis,630, 760–1, 798
Council of Foreign Relations,820
Craigslist,279
creative: class,500, 502, 504–6, 510–11;
class dynamic,795;
destruction,256, 258, 722, 841, 851–2;
industries,8, 13, 215, 305–11, 313, 317, 486, 509
credit: risk,614;
scores,614;
scoring,612–14, 616
Credit Suisse,40, 65
Crete,124
Croatia,118, 120, 122
cronyism,26, 154
crowdsourcing,419–20
cultural hegemony,307, 311;
Western,307
customer,180, 287–91, 408;
base,613;
care,451;
pressures,385;
role of,286;
Schumpeterian,300;
site,293
customer–supplier connections,354;
customer–supplier interactions,349
customization,289, 306;
mass,288
cyber security,7
Cyprus,117, 119, 133, 135, 567
Czech Republic,120, 416, 434, 440
dalit community,107, 109
Danish Film Act,314
Danish Film Institute,314, 318;
Danish, films,315
Dar es Salaam,669
Darwinian,252;
Darwinism,214;
Darwinian, theory,247;
see alsoProvincial Darwinism model
Dayton,333
DCMS,305
Page 13 of 61
Subject Index
debt crisis,113, 131–2, 134, 544;

Latin American,545
decision-making: individual,197, 199–200, 202, 204–6
decolonization,720
deforestation,30
deindustrialization;
see under industrialization
Delaware,561
Delhaize,430, 439
Delhi,24, 89, 100, 107;
New Delhi,101–2
Dell’s Idea Storm Forum,292;
Dell strategy,288
Deloitte,431, 433, 438, 440–1
Denmark,48–51, 120, 306, 314, 489;
Danish313–15
Denver,817
Department for International Development,781, 786
dependency theory,35
Depression,65, 374
deregulation,8, 437, 443, 449–50, 471, 479, 486, 542, 546, 611, 618–19, 813, 816, 821, 854;
financial,650;
see also under financial;
global financial crisis (GFC);
regulation;
reregulation
derivatives,559–60, 563, 566, 646–50, 652, 656, 659–60, 691–4, 696;
commodity,646;
trading,647;
weather,673
desertification,30
deskilling,418, 467;
workplace,468
Detroit,215, 274, 331
deunionization,69;
see also labour/trade unions
Deutsche Bank,547, 563
Deutsche Börse,579
developing countries,5, 63, 66–8, 83, 92, 97, 408–9, 417–18, 436, 720, 722, 750, 772–5, 783, 792,
796, 800, 803
development,12–13, 20, 23–4, 26, 66, 75, 86, 107–8, 115, 135, 144–5, 147–50, 154, 179, 183, 185,
220, 222, 230, 235, 407, 418, 479, 670, 673, 705, 711, 715–17, 719–20, 722–3, 725–7, 734, 736–7,
741, 760, 763, 770, 775, 782–4, 794, 797, 815, 820, 831, 833, 840, 843–4, 849–53;
adaptive,846;
agencies,853;
agreements,800;
benefits,398;
capacity,801;
Page 14 of 61
Subject Index
capitalist,115, 188, 592;

cluster,181, 184, 218, 352;
commercial,134;
community,800, 802;
dimensions of,786;
disparities in,146;
early stages of,66;
East Asian,388;
economic,2, 8, 12, 20, 22, 29, 35, 79, 97, 144–5, 148–55, 188, 190, 199, 221, 233, 300, 305, 307,
352, 366, 376, 383, 395, 398, 418, 427, 433, 473, 499–500, 509, 512, 601, 619, 630, 666, 674,
716–17, 720, 722, 783, 785, 826, 854, 856, 859;
endogenous,799;
energy,734;
equality,728;
financial,623;
foundations (p. 899) of,145;
from within,799;
geographical,144, 168, 236, 317;
geography of,146;
global,722;
industrial,30;
industry-led,716;
inequitable,772;
infrastructure,635, 638, 640;
initiatives,419;
level of,67;
local,394, 784, 801, 855;
local and regional,389, 391;
local economic,857;
long-term,260;
market,397, 622;
model,69;
national,31, 80, 622;
objectives,724;
of Asia,27;
of China,27, 90;
of countries,260;
of privatization,133;
orderly,155;
participatory,787;
paths/pathways,261, 794;
planning,667;
policies,147, 155, 398, 672, 721, 828;
political,720;
pressure of,715;
process(es),288, 290, 292–3, 633, 721, 783;
product,187;
programmes,793;
Page 15 of 61
Subject Index
projects,293;
prospects,26;
real-estate,800;
regional,14, 114, 181, 213, 219–22, 246, 371, 387, 389, 399, 499, 503–4, 506, 561, 623, 699, 735,
738–9, 796, 812, 841, 850, 852, 855, 858–9;
regional and local,793;
resource,724, 727;
resource-based,716;
resource-led,725;
retail,444;
societal,66;
socio-economic,775, 776;
spatial,19, 25;
strategies,92, 782, 784, 785, 796;
studies,383;
sustainable,8, 704, 716, 719, 749, 858;
technology,827;
territorialized,388;
theorists,719;
trajectory,261;
uneven,2, 8, 10, 14, 19, 26, 29, 35, 115, 214, 394, 542, 667, 716–18, 795, 803, 811, 840, 844, 849,
859;
uneven regional,850;
urban,71, 222, 541, 722;
urban and regional,391;
user-driven,291;
ventures,591;
workforce,801–3
devolution,79, 389, 800–1, 811–15, 819, 821, 858
diaspora(s),312, 316;
communities,415;
diasporic connections,313;
Indian,316;
waves,415
dichloroacetic acid (DCA) forum,297
differentiation,2, 7, 169, 180, 189, 246, 550, 684, 779, 812;
axes of,486;
definition,246
digital spaces,580;
new,575, 580–1, 585–7
digitization,309–10, 409, 413
dirty energy,759, 760
disinvestment,435, 469, 810, 815–16, 821–2, 851;
see also investment
Disney,312
diversification,23, 152, 202, 214, 22–1, 331, 373, 594, 596, 603;
international,374;
livelihood,672;
Page 16 of 61
Subject Index
over-diversification,595;
portfolio,596, 650;
regional,222, 260
division of labour,143, 469, 499, 509, 629;
international,114, 133, 367;
new international,25, 35;
social,185;
spatial,13, 67–9, 115, 120, 130–1, 183, 307–8, 311, 317, 466, 469, 475, 480, 501
Dogecoin,581
Doncaster,842
Dongguan,82, 92
Doris Duke Foundation,817
Dow Jones Index,650
dual system (eryanzhi),78, 80, 82–3
Dubai,317, 565
Dublin,565, 571
Durban,784
Dutch East India Company,563, 566, 594
dynamic stochastic general equilibrium (DSGE) model,545, 548, 552
Easington,842
East India Company,716
Eastern Gangetic Plains,673
economic crisis,70, 133, 337, 440;
Asian,434;
global,6–7, 100, 108, 428, 442, 444, 549
economic development: community,801;
equitable,786;
regional,797, 799
economic growth,3, 5, 12, 21–2, 25, 31, 33, 55, 63, 66–7, 78, 80, 83, 92, 97–106, 108–9, 144–5,
147–8, 150, 152, 199, 273, 305, 331, 479, 499, 501–3, 505, 509–12, 539, 544, 550, 557, 580, 620,
629, 649, 666–7, 670–1, 674, 687, 703–4, 706, 711, 713, 722, 726, 749–50, 755–8, 764, 770–7,
779–84, 786, 794, 796, 828, 840, 844, 848, 856, 860;
benefits of,772, 778;
continued,757;
equitable,14, 770–1, 776–86;
in China,772;
inclusive,777–80, 785;
indefinite,754;
inequitable,775;
models,764;
national,722;
rapid,710;
regional,793, 796, 798, 853;
stages of,630;
sustainable,712, 780, 858;
urban,774, 781, 783
economic relations,4, 7, 181;
global,715
Page 17 of 61
Subject Index
economies of overview,184
economies of scale,5, 28, 85, 146, 183, 185, 249, 373, 501, 567, 603, 613, 717;
location-specific,374
economism,161
(p. 900) Ecorys,126
ecosystem(s),13, 153, 245–7, 250, 253–5, 259–62, 628, 669, 674–5, 683, 695–6, 699, 709–10, 712–
13, 751, 755, 811, 845, 852–3, 856;
biological,247, 252, 255;
boundaries,254;
concept,262;
definition,246–7;
development of,256;
disturbed,258;
diversified,261;
economic,246–8, 251–7, 261–3, 510;
entrepreneurial,264;
eframework,251;
interdependencies,258;
mapping,253;
national entrepreneurial,262;
outcomes,261;
resilience,260;
social,257;
structures,258;
succession,255, 256;
view,250
education,25–6, 31, 68, 74–5, 92, 98–9, 104, 122–6, 145, 147, 151, 206, 272, 316, 478–9, 502–6,
509, 519, 521, 614, 628, 630, 749, 772, 774, 779–80, 795–6, 798, 801–4, 821, 827, 858;
access to,419;
consumer,261;
financial,595, 618;
formal,309;
higher,495;
system,630;
universal,794
educational attainment,500, 502–6, 801
Egypt,419
electrification,104;
rural,107
electronic trading,570
email spam,586
emigrants,832;
see also immigrant(s);
immigration;
migrants;
migration
Emilia-Romagna,235, 798
emissions markets,685, 686
Page 18 of 61
Subject Index
employee turnover,234, 561

employment,22, 64, 67–9, 72–3, 82–3, 85–6, 90, 92, 104, 107, 109, 114, 116–18, 120, 122–3, 125–
7, 129, 132, 134–5, 150, 154, 232, 234, 259, 273–4, 326, 330–3, 353, 407, 415, 418–19, 465–8,
472–3, 475, 477–8, 486–7, 489, 494–5, 503, 505–6, 509, 523, 528, 545, 564, 570–1, 615, 669, 671,
777–80, 785, 795, 801, 804, 813, 827, 833, 841, 847–8;
agencies,491, 492, 853;
benefits,490;
collapse,133;
decent,779;
fair,479;
flexible,529;
full,568;
global,418;
growth,219, 273–4, 331, 353;
informal,779;
insecure,527;
insecurity,487;
intermediated,488;
international,312;
markets,107;
non-agricultural,779;
non-standard,492;
norms,472;
part-time,490;
precarious,487, 490–1, 495;
private,126;
productive,780;
protective,528;
public-sector,796;
regulation,493;
relations,469;
restructuring,802;
rights,467, 49–4;
security,472;
self-employment,114, 127, 130–2, 135, 486, 491–2, 798;
specialization,328;
standards,493;
temporary,491;
triangular,493;
women’s,476
endowments,230, 261, 373, 386, 398, 465, 591, 596, 602, 645, 652;
natural resource,812
energy transitions,14, 675, 732–4, 742;
see also thermal energy
England,143, 488;
see also Britain;
United Kingdom
Enron,279
Page 19 of 61
Subject Index
entrepreneurial,13, 24, 31, 102, 113, 116, 126, 130, 135, 149, 153, 184, 223, 245–6, 261–2, 264,
287, 312, 353, 415, 493, 509, 617, 621, 799, 803, 856;
activity,257;
networks,798;
opportunity,258;
potential,257
entrepreneurialism,150–1, 826–7
entrepreneurs,25–6, 32, 98, 153, 155, 185, 215, 220, 246, 250, 252, 259, 261, 272, 300, 338, 353,
504, 506, 577, 601, 793, 798, 818, 820, 828–9;
civic,239;
returnee,415;
user,300
entrepreneurship,100, 114, 120, 122, 127, 130–2, 134–5, 144, 154, 164, 186, 248, 254, 256, 261–
2, 326, 330–3, 338, 348, 353, 360, 398, 415, 470, 504, 792, 797–9, 802–3, 816, 819, 832;
inclusive,830;
social,419
environment,1–3, 5, 11, 21, 40, 80, 91–2, 107, 170, 181, 187, 196, 198–9, 203, 205, 209, 214, 219,
221, 236, 249–50, 252, 257, 289, 296, 299, 324, 334, 370–1, 392, 448, 450, 453, 557, 594–5, 602,
637, 658, 674–6, 689, 703, 715, 718, 721, 723–4, 735, 749, 751, 756, 822, 833, 855;
built,633;
deregulated,814;
financial,616;
global,619;
institutional,793, 827, 828;
natural,687, 689, 694, 697, 698;
policy,814;
regulatory,741;
zero-growth,764
environmental,2–4, 8, 14, 19, 24, 30–1, 33, 55, 80, 98, 152, 161, 172, 199, 254, 349, 392, 398, 420,
437, 448–9, 580, 632–4, 675, 687–8, 692, 694, 697, 716, 718, 720–1, 725, 737, 739–40, 750, 755–
6, 759, 765, 775, 781, 786, 839–40, 859;
advocacy,815;
auditing,451;
challenges,764;
change,715, 719, 721, 723;
conditions,474;
constraints,716, 727, 750, (p. 901) 760, 764;
cycles,686;
damage,724, 726, 757;
degradation,30, 349–50, 683, 765;
determinism,3–4, 8, 172, 199, 674, 718, 723;
diversity,501;
externalities,683;
finance,685, 694–5;
hazards,668, 670, 737;
impact assessment,725;
issues,749;
justice,666;
Page 20 of 61
Subject Index
limits,723;
management,683;
outcomes,639;
policy/policies,757, 762;
pressures,750;
problems,754, 755, 761;
protection,449, 721, 728, 741, 750;
resistance,724;
resources,684, 693;
responsibility,450;
socio-environmental,690–1, 694;
sustainability,557, 594;
systems,687;
vulnerability,725
Epirus,124
equitable growth,785, 793, 798–9
equity capital,636, 640
Erkner,300
essentialism,204, 207
Estonia,118, 131, 491
Ethical Trading Initiative,453
ethical: arguments,66;
barriers,835;
codes,452, 454;
consumers and producers,456;
consumption,452;
issues,456;
labour codes,453–4;
performance,449;
responsibility,450;
standards,449, 452, 455;
trade,452, 455
ethnicity,2, 474, 510, 780
EU24, 129;
EU27, 125–6;
EU28, 117, 120, 127
Eurobank Properties,134
Europe,6, 9, 21, 26–7, 29, 33–4, 47, 59, 67, 113–14, 117, 120, 126, 129–32, 134, 143, 154, 311,
313–14, 408, 410, 433, 441, 456, 491, 493, 519, 565, 570, 604, 620, 631, 685, 687, 708, 718–19,
726, 793–4, 859;
East,389;
Eastern,428, 434, 560;
medieval,558, 594;
Western,311, 315, 467, 471, 488
European,4, 7, 34, 44–5, 48, 53, 55–7, 92, 113–14, 119–20, 122, 126, 130–1, 133, 135, 154, 234,
305, 311, 314–16, 330, 339, 361, 374, 376, 408, 416, 428, 431, 486, 495, 503, 542, 631–2, 770,
783;
countries,489;
Page 21 of 61
Subject Index
Eastern,567;
integration,113, 133, 632;
retailers,443;
Western,306, 310–11, 408, 429
European Bank for Reconstruction and Development (EBRD),749
European Banking Authority (EBA),53
European Central Bank (ECB),113, 115, 119, 135, 581–3
European Cluster Observatory,330, 339
European Commission (EC),113, 115, 119, 126–7, 131, 133, 135, 305, 656, 770, 783, 785;
see also troika (IMF/EC/ECB)
European Economic Community (EEC) accession,120, 130
European Monetary Union (EMU),113, 122, 127, 131–2, 135
European Single Market,374
European Union (EU),34, 44–6, 48, 53, 56, 92, 113–14, 117–18, 120, 122–3, 125–7, 129–35, 154,
374, 376, 488–9, 491, 505, 571, 576, 582, 631, 685, 726, 792, 820;
referendum,7, 571
European Union Emissions Trading System (EU ETS),685, 687
Eurostat,129–30, 396, 398, 488–9, 726
Eurozone,6, 113–14, 119–20, 127, 129, 131–5, 539;
crisis,12, 119, 122;
southern,130
EU-SILC,44–6, 48, 56, 120
evolution,9, 116, 131, 170, 197, 214, 216, 218–19, 234, 237–9, 245–9, 252–3, 255–6, 262, 331,
338, 366, 540, 566, 605, 699, 709, 849–50;
city,353;
economic,733, 852;
of interest communities,297
evolutionary: approach,215, 260, 264, 397;
biology,238, 246–7, 251, 262, 264;
evolutionary economic geography (EEG),9, 14, 213–23, 237–8, 733, 741, 819, 852;
perspective,213, 223, 261, 852;
theory,198, 250
exchange value,689–92, 694–8
exchange-traded products (ETPs),651
exhaustible resources,751, 754, 760
Expedia,582–3
exploitation,30, 83, 85, 183, 256–8, 721, 803;
of knowledge,375;
sustainable,783
exports,23–7, 34, 78, 134, 278, 307, 310–11, 314–15, 373, 398, 719, 723, 740, 792, 797, 799
externality pricing,688, 694–5
Exxon,721, 735, 741
Facebook,7, 335
factory system,143
Fairfax Financial Holding Ltd,134
Fairtrade International,450, 452–4, 456;, standards, 452–3
Far East,316
fascism,144
Page 22 of 61
Subject Index
(p. 902)Federal Reserve Board,54, 71

Federal Reserve System,54, 71, 164, 572, 650
feminism,478
feminist,159, 170, 474;
geography,675;
theory,673
feminization,486–7;
feminized,476–7
fictitious capital,647–8;
thesis,656
finance capital,541;
environmental,693;
see alsoorganic finance
financial: advisors,614–15;
advisors and business services (FABS),558, 561–3, 565–72;
citizenship,542, 619–22;
crisis/crises,4, 28, 32, 36, 122, 127, 129, 134, 207, 392, 455, 486, 494, 539–40, 544–8, 550–1, 618,
620, 622, 645, 694, 722, 726, 842, 857;
deregulation,854;
instability,13, 539–40, 548–51;
markets,6, 9, 168, 197, 201, 433, 439–40, 539–40, 545–6, 551, 568–70, 579, 597, 611–12, 614,
616, 618, 621, 646–9, 653, 655, 658–9, 735, 738, 740, 812;
planning,611, 615–16, 618;
services,53, 325, 331, 542, 544, 558, 561, 563–4, 570, 594–9, 603, 613, 619–21, 699, 802;
financial technology (fintech),7;
see also under deregulation;
global financial crisis (GFC)
financialization,6, 13, 35, 120, 168, 387, 397, 472, 539, 550, 562, 603, 611–12, 614–15, 617–23,
636, 646–9, 652–4, 655–60, 666–7, 673, 718, 725, 727;
biofinancialization,617;
carbon,684;
definition,539;
of everyday life,613, 616;
thesis,647, 657–8
Finland,48–52, 58, 120
fintech,570
fish stocks,30, 754
fisheries,671, 751, 756, 764
fitness landscapes,246, 248–9, 251–3, 256
flash crash,579
flexibility,115, 132, 183, 236, 288, 420, 471, 479, 488, 492, 561, 812, 815, 856;
policy,815
flooding,665, 668, 670, 672
Florida,74
Flower Power movement,8
food industry,592–5, 598, 601;
food security,28, 594, 774
Forbes (list of the world’s biggest companies),721
Page 23 of 61
Subject Index
Ford Motor Company,102, 469

Fordism,471, 486, 567–9;
Keynesian,632;
peripheral,115, 120, 131;
post-,391, 471–2, 568
Fordist,113–15, 120, 127, 391, 469, 471–2, 477, 479, 568;
development,115;
era,794;
post-,466, 472, 477, 501;
semi-Fordist structures,130
foreign,389;
aid,98, 829;
bonds,740;
capital,436–7;
competition,470;
country,368;
domestic worker,485;
exchange,559, 569, 571;
exchange crisis,544;
firms,386, 410, 414;
influence,6;
intervention,724;
investment,101, 445, 667;
laws,561;
markets,432, 444, 834;
operations,433;
ownership,232;
policy,26;
retailers,438;
rivals,416;
sales,440;
sourcing,278;
suppliers,386;
units,411
Foreign Business Act (1999),434
foreign direct investment (FDI),25–8, 65, 68, 80, 85, 92, 132, 134–5, 186, 235, 317, 369, 371–4,
386, 410, 414, 434, 436–7, 439, 562–3, 567, 720;
horizontal (HFDI),373;
outward,374;
vertical (VFDI),373
forestry,671, 683, 697, 699, 715;
carbon,687
forests,30, 247, 628, 672, 692, 696, 698, 751, 765
formalization,435–7, 757, 779
fossil fuel(s),30, 668, 675, 688, 690, 694–5, 697, 705, 708–9, 732–4, 736, 738–9, 751, 754, 757–9;
imports,750
Foucauldian,453
Foxconn,236
Page 24 of 61
Subject Index
fracking,161, 705–6
fracturing,479, 669, 733, 739;
hydraulic,740
France,44, 47–51, 53, 56–8, 86, 99, 115, 310, 430, 433, 441, 489–90, 542, 564–5, 740;
French,14, 47, 99, 311, 452, 631, 640
Frankfurt,565, 571
Fraport,134
Freelancers Union,818, 820, 822
futures,33, 559, 566, 579, 616, 619, 648, 650–3, 655–8, 660;
commodity,655;
contracts,647;
exchanges,645;
markets,653;
oil,648;
shale reserve,739
G7, 24, 34
Gallup–Knight survey,510
Gamaliel Foundation,801
(p. 903) gambling,586, 648
gaming companies,581, 587

Ganges, River,30
Gangetic plains,109
Gansu province,5
Gartner Inc.,580
gas extraction,14, 734, 738;
see also natural gas;
shale
gender,8, 162, 197, 466, 472, 474, 478–9, 487, 546, 622, 672, 780;
norms,472;
relations,465, 469;
roles,673
gene mutation,248–9
General Agreement on Tariffs and Trade,630, 832
General Assembly,819
General Electric (GE),410, 829
geography of innovation (GOI),826–8, 831–5
Germany,25, 42, 44, 47–53, 56–8, 86, 99, 115, 117–18, 120, 131, 234–5, 238, 315, 383, 415, 430–1,
433, 441, 489, 491, 542, 564–5, 571, 740, 858;
German,232–3, 236, 238, 300, 311, 410, 414, 509, 542–3, 547, 614
Ghana,419, 454, 784; Ghanaian, 454, 457
Gini coefficient,2, 39, 48, 86, 773, 786;
Gini index,41;
Gini measure of inequality,51, 490
Glasgow,565
Glass–Steagall Act,650
Glencore,727
global cities,75, 369, 376, 377
global city network (GCN) literature,376–7
Page 25 of 61
Subject Index
Global Commission on the Economy and Climate,749

Global Conference on Economic Geography,11, 339
global delivery models (GDMs),416
global finance,168, 186, 542, 546–7, 550, 558, 572, 575
global financial crisis (GFC),6, 8, 20, 23, 25–8, 34–5, 40, 83, 99, 117, 130–1, 134, 440, 455, 551,
612, 636, 645, 649–51, 654, 658, 716, 721–2, 725–6, 840
global financial networks (GFNs),562–3, 566, 570–2, 621, 623;
evolution of,567
Global Green Growth Institute,749
Global Minotaur,34
Global North,443, 450, 452, 454–5, 475, 669, 828
global production network(s) (GPN/GPNs),181, 186, 308, 312–13, 317, 382–96, 397–9, 415, 443,
449, 452–4, 457, 561–2, 567, 571–2;
approach,10, 561
global sourcing,27, 407–13, 417–20, 428, 433
Global South,4, 11, 14, 71, 75, 450, 454–6, 479, 667, 669, 672, 720, 770–6, 779–85, 803, 828
global value chain(s) (GVC/GVCs),13, 186, 369, 375, 382–5, 393–4, 396, 398, 449, 451–4, 457;
see also value chains
global warming,803, 860;
see also climate change
globalization,vii, xxi, xxxix, xliii, xliv, xlv, 3, 5–7, 10, 13, 19, 31–2, 35–6, 64, 66–7, 69, 115, 131,
168, 171, 186, 222, 270, 277, 366, 368, 373–4, 391–2, 427, 429, 431–5, 444, 450, 477, 508, 543,
562, 666–7, 718, 799, 801, 803;
economic,387, 389, 427, 443;
expanding,539;
financial,541, 543;
financial de-globalization,571;
modern,369, 378;
of corporations,449;
finance,547;
processes,428;
research,186;
retail,13, 427–9, 432, 435, 437, 439–40, 443–5;
ruthless,383;
strategies,435
Golden Quadrilateral,100
Goldman Sachs,20, 563, 567, 570, 650
Google,7, 359, 570
Google Books Ngram Viewer,10
GPN1.0, 391–5, 399;
GPN2.0, 383, 395–6, 398–9
Gramm–Leach–Bliley Act,650
Great Lakes University,833
Great Recession,11, 51, 331, 528, 819, 842, 859
Greece,12, 47–50, 52, 113–14, 117–20, 122–7, 129–6, 489–90, 820;
Greek,119, 122–4, 126–7, 129, 130–6, 489–90, 820;
Greek, economy,113–14, 120, 122, 126–7, 129–31, 133–5
greed,40, 55
Page 26 of 61
Subject Index
green growth,14, 749–51, 754, 756–62, 764–5;

definition,751;
strong,758;
weak,750, 758
Green Growth Summit,750
green paradox,758, 762
Green Revolution,104
green technologies,223, 601
(p. 904) greenhouse gas(es),6, 591, 665, 668, 683–9, 694, 698, 754–5, 757, 860;
emissions,6, 591, 665, 668, 683, 689, 698, 750, 765, 803;
see also CO2
Greenland,710, 723
Greenville,333
Guangdong,31, 92, 235
Guangzhou,5, 28
Guatemala,773
guerrilla warfare,109
Gujarat,102, 106, 108
Gurgaon,107, 570
H&M,429, 430–1
Halliburton,739, 741
Hanoi,565
Harris County,735
Harvard University,99, 104, 478, 505, 833
Haryana,106
health,5, 24, 30, 57, 99, 104, 115, 126, 147, 273, 594, 611, 617, 628, 630, 672, 710, 749, 774, 779–
80, 826;
and safety,450, 453;
global financial,722;
healthcare,57, 451, 492, 504, 510, 671, 780, 799, 801, 815;
human,593;
insurance,410, 617;
of ecosystems,246;
products,429, 440;
public,145;
systems,630, 829
hedge funds,560, 563, 596, 602, 645, 652, 653, 655
Hellenic Post,134
Hellenic Republic Asset Development Fund (HRADF),133
Hellenikon,134
Hewlett Packard,410
HFC-23, 687
hidden costs,411–12, 599
high-frequency trading (HFT),578–80, 587
Himanshu,104
Hindi,315–16;
Hindu,101, 108
holey adaptive landscapes,256, 259
Page 27 of 61
Subject Index
Hollywood,307–9, 311, 313–17, 349

Holocene,755
home bias,12, 202, 596
Home Depot,431, 440–1
homelessness,7
homogenization,307, 543, 593
Honduras,670, 687, 773
Hong Kong,5, 25, 28–9, 47, 67, 235, 307, 443, 485, 561–2, 564–5, 567, 570–1
Hope & Co.,566–7
Hotelling model,756, 757
House of Commons,631
housing,8, 24, 510, 512, 541, 611, 614, 674, 736, 800, 843;
affordable,672;
benefits,56;
boom,619;
costs,56, 59, 71, 511, 798, 802, 803;
density,272;
finance,541, 546;
market(s),127, 129, 152, 203–4, 352, 666, 812;
price bubbles,542, 606;
prices,71, 669, 736, 795;
regulations,152;
values,71, 511
Houston,565, 817
HSBC,485, 564
hukou system,78, 80–84, 87–8, 90–2, 352
human capital,13, 25, 65–6, 73, 98, 109, 144, 230, 465, 499–503, 505–6, 508–9, 511–12, 520–2,
525, 530, 704, 707, 711, 797;
local,375;
model,530
Human Development Index,106, 145
human resources,451, 494
human rights,449
Hungary,120, 122, 434, 565
hunger,713, 723, 774, 796
Hurricane Mitch,670
Hurricane Sandy,665, 673
IBM,153;
IBM Global Services,408
Iceland,47
IIS,827, 831
IKEA,294–5, 429–31, 443, 452
immigrant(s),316, 353, 510, 519–20, 525–7, 530, 563;
unskilled,519;
workers,13, 519–20, 525–9;
see also emigrants, immigration;
Latino immigrants;
migrants;
Page 28 of 61
Subject Index
migration
immigration,25, 220, 316, 353, 506, 510, 519–20;
anti-immigrant rhetoric,525, 528;
policy,490, 520;
scholarship,519
impact sourcing (IS),411, 419–20
imperialism,35
income,1–2, 5, 12–13, 21–2, 31, 39–59, 63–5, 67–75, 97–8, 104, 119, 122, 126, 133, 146–7, 149,
154, 197, 272–3, 487, 495, 503, 506, 541, 545, 670, 672, 724, 776–8, 786, 795, 797, 801, 829, 853;
access to,419;
aggregate,144;
contraction,134;
convergence,152;
convergence or divergence of,273;
(p. 905)
definition,69;
differences,279;
disparities,144, 146, 670;
disposable,120;
distribution,31, 39, 41–5, 47, 55, 72–3, 104, 115, 149, 487, 780, 798;
groups,438;
growth,796;
inequality,39–40, 42–3, 46, 48, 55, 57–8, 63, 72–3, 75, 362, 490, 495, 511, 528, 530, 773, 792, 794–
5, 798, 802;
levels,667;
losses,113;
low,529, 803;
national,712;
per capita,143, 145, 147, 150;
polarization,495;
poverty,103–4, 106, 108, 802;
redistribution,786;
tax,46, 75, 115
indebtedness,74, 620, 853–4;
external,101;
over-,614
India(n),4, 7, 12, 20–32, 34, 75, 86, 89, 97, 99, 100–9, 235, 263, 306–7, 310–13, 315–18, 352, 408–
10, 415–17, 419, 436, 453, 455–6, 493, 562, 565, 570, 650, 665, 673, 829;
economy,100;
purchase power,315;
Inditex,430, 431
Indochina,28
Indonesia,20–5, 27–31, 34, 86, 89, 436–9, 565, 685, 773
Industrial Areas Foundation,801
industrial location,467, 501
industrial relations,232, 392, 470, 475;
German,233
Industrial Revolution,20, 144, 147, 150, 501;
Page 29 of 61
Subject Index
Fourth,417
industrialization,22, 24–5, 30, 79–83, 88, 90, 92, 104, 113, 116, 120, 132, 653, 707, 717, 773;
capitalist,795;
deindustrialization,67, 113, 115, 129–30, 467, 470, 528, 542, 718, 79–4, 801;
flexible,115, 127;
re-industrialization,467
industries: local,326, 797;
traded,325–6
inequality,2, 4–9, 12, 14, 31, 36, 39–46, 48, 51, 53–4, 57, 64–7, 69, 71–5, 91, 103, 131, 150, 168,
171, 467, 479, 495, 500, 511, 541, 557, 572, 749, 770–2, 774–7, 780, 786, 792–3, 795, 800–1, 826,
828–9, 831;
deepening,591;
economic,31, 33, 39–41, 43–4, 51, 53, 64, 71, 495, 511, 771–2, 775;
effect on growth,795–6;
geographical,512;
global,47, 392, 394;
growth of,803;
income,12, 39–44, 46–8, 52–6, 58, 63–75, 197, 362, 487, 528, 530, 774, 794–5;
increasing,795, 829;
interpersonal,773;
interpersonal and territorial,771, 772;
of busts,723;
of well-being,512;
reduction,796, 800–1;
regional wage,273;
rise of,793;
rising,511, 792;
social,472;
spatial,5, 105, 108, 168, 511, 620, 670, 674;
territorial,773;
urban,31;
i wage,73, 511;
wealth,55–6, 63–6, 69–72, 74, 802
infant mortality,106–7
inflation,55, 203, 544, 568, 585, 619, 650, 655
informal economy,1, 779
informalization,467, 479
information communications technology (ICT),25–6, 234, 338, 397, 409, 417, 419, 433, 561, 814,
853: see alsoinformation technology (IT)
information flows,575–80, 587;
global,581
information technology (IT),32, 155, 271–5, 277–8, 325, 328, 333, 408–10, 416–18, 435, 558, 561,
570, 586, 613, 671, 795, 818;
enterprise,273;
health,273;
investment,278;
see alsoinformation communications technology (ICT)
Infosys,408, 410, 415–17
Page 30 of 61
Subject Index
infrastructural Europeanism,631
infrastructure,13, 25, 29, 34, 71, 80, 98, 130, 132, 135, 145, 147, 151, 154, 204, 259, 261, 269–70,
316, 352, 359, 361, 371, 390, 408–10, 412, 414, 417–18, 444, 525, 560, 564, 570, 591, 601, 604,
628–40, 650, 665, 668–70, 672, 698, 722, 726, 734–5, 737–8, 742, 763, 795, 797, 804, 811, 813–
14, 816, 829, 833, 856, 858;
governance,734;
investment,759;
politics of,628, 639;
programmes,761;
projects,801;
soft,630;
urban,630, 821
ING Group,571
innovation,5, 7, 11–14, 29, 75, 98, 116, 127, 144, 147–55, 184, 186, 188–9, 217, 219–20, 222, 233–
5, 248, 258, 261, 263, 270, 275, 280, 286–90, 299–300, 325–6, 330–3, 337–8, 351, 360, 367, 370–
2, 375, 389–90, 395, 407, 409, 412, 420, 435, 470, 504, 510–12, 521, 531, 557, 559, 566, 568, 599,
605, 612, 632, 684, 687, 719, 750, 754, 760, 763–4, 792, 795, 799, 814, 816–17, 822, 826–8, 830–
4, 851–2, 856–7;
approach,759;
business model,417, 419;
civic,817;
commercial,275;
cultural product,307;
diffusion of,202;
energy,591;
financial,560, 646;
for inclusive growth (IIG),826–8, 830–5;
geography of,147;
green,759;
highway(s),14, 827, 832–5;
(p. 906)
hubs,795;
inclusive,830;
localization of,275;
localized systems of,245;
networks,399;
policy,811, 815;
producer-driven,294;
product,593, 594;
recombinant,219;
regional,214, 223, 235, 500, 811, 812;
regional innovation system (RIS),222;
resource and infrastructure,591;
reverse,829–31;
role of,751;
service,411;
socio-technical,733;
spatil,287;
Page 31 of 61
Subject Index
spatiality of,298;
structure of,255;
studies,312;
technological,147, 398, 733;
urban,818;
user-driven,300
Institute for Fiscal Studies,55, 59
Institute for Market Transformation,817
Institute for New Economic Thinking (INET),9
Institute for Public Policy Research,492
Institute of Developing Economies Japan External Trade Organization (IDE-JETRO),382, 399
institutional intermediaries,810–11, 814–21
institutionalism,208, 393, 478
institutions, viii,35, 98–101, 103, 116, 145, 150–4, 188, 205, 208, 214, 217, 221–2, 230–9, 246,
259, 275, 318, 324, 328, 330, 335–6, 352, 371, 386, 390, 413, 450, 452, 454–5, 471, 473, 480, 526,
532, 547, 557, 618–20, 623, 634, 654, 760, 762, 779, 793–4, 797–8, 813, 816, 819, 821, 826, 829,
833, 835, 844, 854, 858;
anchor,802;
banking,26, 577, 584;
capital market,234;
China’s,78, 80–1, 91, 235;
complementarity of,236;
definition of,232, 238;
deliberative,188;
democratic,67;
economic and social,238;
evolution of,239;
financial,29, 202, 539, 558, 581, 584, 586, 611, 613–14, 618–19, 622, 647, 650, 654, 686, 802,
831, 853;
formal,530, 814;
formal and informal,2, 97, 231–3, 561, 851, 853;
functions of,232, 238;
governance,831;
government,436, 450;
India’s,100;
international,749, 785;
knowledge-based,500, 511;
labour,529;
labour market,66, 68, 75, 521, 528;
local,145, 214, 216, 222, 236, 309, 386–7, 389, 394, 804, 810, 857;
market,812;
mission-driven,818;
national,231, 236–7, 452;
national vs regional,236, 239, 686;
nature of,231, 854 non-firm, 385, 387;
non-governmental,811;
policy-oriented,785;
political,33, 471, 546;
Page 32 of 61
Subject Index
private,151, 810;
protective,520;
proto-,527, 530;
public,151, 155, 629, 810;
regional,576, 785, 810;
regulatory,741;
role of,151, 213–14, 22–3, 230, 234, 279, 393, 520, 542, 794, 819, 821, 853;
social,387;
specialized,325;
state,230, 392, 456, 478;
structure of,155;
sub-national constellations of,235;
supranational,115, 117, 131;
third-sector,812;
transnational,638
integration, horizontal,373–4;
vertical,367, 370, 372–4, 384, 452
Intel,7
intellectual property (IP),295, 308–9, 317, 580, 586, 827, 832;
rights,311
Intergovernmental Panel on Climate Change,5, 666, 670, 672, 675, 803
intermediation,395, 487, 490, 492, 592, 597, 613–14;
digital,492;
financial,599, 604, 605, 606
internalization,370, 372, 377, 634, 694;
advantages,367;
knowledge,376;
of externalities,694
International Energy Agency,713
International Labor Organization (ILO),398, 451, 453, 487, 779, 787
International Monetary Fund (IMF),4, 24, 28, 47, 55, 63, 66, 74, 113, 115, 119, 131, 133, 135,
434, 545, 552, 601, 630, 796;
see also troika (IMF/EC/ECB)
international production,367–8, 370, 394
internationalization,127, 130, 186, 370, 386, 415, 429, 440, 444, 470–1, 812, 819;
competitive,135
Internet,13, 153, 172, 269–9, 287, 290, 296–7, 299, 353, 374, 417, 419, 428, 440, 485, 493, 543,
575, 584, 586, 821;
access,274;
adoption,270, 272, 275–6, 279;
age,759;
applications,279;
behaviour,277;
diffusion of,275, 278;
investment,273;
market platforms,420;
technology,271, 274
Internet of things,172, 417
Page 33 of 61
Subject Index
internet service providers (ISPs),272;

dial-up,272
Interstellar Kredit,581
investment(s),4–6, 8, 13, 24–5, 27, 29, 33, 36, 44, 64, 68–9, 71, 75, 83, 85, 98, 100, 102, 104, 107–
9, 115, 123, 127, 129, 133–5, 148, 151, 155, 201, 232–3, 269, 273, 310–11, 314–15, 328, 338,
(p. 907) 352, 369, 372–4, 394, 396, 398, 409, 411, 421, 428, 433–4, 437, 439, 466, 468, 501, 520–
1, 543, 549, 558–60, 562–6, 572, 579, 592, 594–9, 601, 604–5, 612, 614–22, 630–1, 634–7, 648–51,
653–4, 659–60, 694, 710–11, 719, 722–3, 726, 735–9, 741, 750, 757, 779, 786, 795–7, 803, 820,
826–7, 834, 843, 847, 857;
banks,351, 564, 565, 567, 650, 652;
capital,597;
climate,758;
community,449;
compensating,712;
development path,372;
direct,382, 386, 817;
equity,389;
finance,856;
financial,612, 615, 621, 646–7, 652–4;
flag-planting,439;
foreign,368–9;
foreign inward,101–2;
government,65, 149;
greenfield,369;
industry,596, 602;
infrastructural,88;
infrastructure,25, 631, 637, 811, 821;
institutional,601, 604–6;
internal,595;
international,720;
Internet,275, 277;
inward,386, 735;
IT,273, 275, 277–8;
large-scale,135, 151;
liberalization of,450;
long-term,601, 696, 722, 742;
mineral reserves,734;
mutual fund,202;
neglect,107;
opportunities,592;
optimism,722;
overseas,470;
passive,652;
patterns,398, 667;
professionals,201;
public-sector,470;
real-estate,127;
retail,434;
Page 34 of 61
Subject Index
returns,734, 738, 740, 826;

risks,594;
short-term,741;
social,630, 801;
speculative,648, 738, 740;
speculatory,135;
state,796;
support,853;
urban,817;
workforce,467;
see alsodisinvestment
invisible hand,29, 167, 298, 688;
of the market,452
Ionian Islands,124
Ireland,48–52, 58, 119–20, 129, 133, 410, 489, 562, 565, 571;
Northern Ireland,488
Israel,5, 48–52, 488, 565
Istanbul,307, 565
Italy,44, 47–53, 56, 58, 113, 118, 120, 130–1, 235, 386, 487, 489, 494, 565–6, 594
Jacobs’ externalities,151, 219–20, 261
Jakarta,89, 565
Jamshedpur,107
Japan,19–23, 25–8, 30, 32, 34, 42, 49–50, 53, 58, 67, 86, 89, 99, 234, 307, 310, 389, 430, 433, 441,
443, 542, 565, 685, 794;
Japanese,25, 27, 36, 50, 311, 432, 542, 571;
Japanese, factories,501
Jersey City,73
Jharkhand,102, 107, 109
job loss(es),67, 123, 125, 129, 407, 467–8, 519, 851
Johannesburg,565, 784
joint ventures,312, 442
JP Morgan Stanley,567
just growth, paradigm,14, 754, 793
Kansas City,817
Karnataka,106
Kenya,419, 456, 833
Kerala,106
Keynesian,115, 470–1, 477, 540, 545, 548–9, 558, 568, 629, 632, 758, 813;
Keynesianism,149, 170, 629;
Keynesians,548;
non-Keynesian,552;
post-Keynesian,230, 549;
see Keynes, John Maynard
Kimberly-Clark,292
Kingfisher,431
Kiribati,674
Kisumu,833
Knight Capital Group,578
Page 35 of 61
Subject Index
Knowledge Capital Model (KCM),373–4

knowledge: economy,144, 187, 488, 492, 500–2, 511, 820–1;
flows,182–3, 185–6, 316, 336, 347, 351, 359, 368, 371;
networks,185, 214, 217–19, 253, 375–6, 577;
production,222, 287, 290–1, 293, 295–6, 299, 413;
services,183, 410, 413–14;
services clusters (KSCs),413–14, 415;
work,409, 413;
workers,501–2
Koeri caste,107
Kolkata,100, 107
Korea,21;
Korean,27, 50;
North Korea,34;
South Korea,20–8, 30, 32, 34, 49–50, 58, 67, 100, 335, 389–90, 434, 436, 440, 443, 565, 685
Kraft Foods,292
Kresge Foundation,817
Kurmi caste,107
Kuwait,47
Kuznets curve,479, 765, 794
Kyoto,683–4
Kyoto Protocol,683–5, 815
labour: migrant,82–3, 90, 92;
relations,69, 119, 134, 389, 465;
rights,456, 491–2;
rural,82, 104
labour market(s),13, 25, 66, 68–9, 108–9, 130, 168, 182, 185, 234, 324, 351, 408, 465–7, 471–2,
476–9, 486–90, 492–3, 495, 500, 511, (p. 908) 519–21, 525–8, 530–2, 564, 666, 602, 793–4, 801–2,
812–13, 815, 818, 820–1;
female,488;
feminization of,472, 478;
flexible,493;
free,164;
internal,490;
local,309;
national,82, 491;
participation,802;
regional,674;
regulation,64, 65, 68, 486, 490;
reproduction,817;
rural,104;
secondary,352;
specialized,185;
UK,488;
urban,90, 197;
US,67–8
labour movement(s),466–7, 474–5, 480, 492, 494, 531, 801
labour power,164, 491, 719;
Page 36 of 61
Subject Index
definition,465
Labour Party,469
labour/trade union(s),68, 168, 233, 385, 392, 450, 453, 465, 474, 487, 490–1, 493–5, 520, 522–6,
529, 568, 800–1, 813;
see also deunionization;
union
Labuan,565
L-advantages,370, 372
Lagos,307, 672
Lahore,316
Lancashire,843–4, 859
Laos,28
Latin America,4, 97, 408, 428, 433, 437, 467, 719, 773, 785, 792–4, 822;
Latin American,29, 544–6
Latino: construction workers,525;
immigrants,520, 525–7;
middle class,796
Latvia,120, 122
Leeds,551
Lego,294, 295
Leibniz Institute,300
Leninist,79
Lewis turning point,83, 92
liberalism,64;
see also neoliberalism
liberalization,101, 103, 147, 449, 450;
banking,621;
market access,434
Liechtenstein,562
Lima,565
Linux (operating system),287, 295, 296
Litecoin,581
literacy,99, 106–7;
financial,206, 595, 616, 618
Lithuania,120, 122
local economic development (LED),783–4;
definition,783, 787
local enterprise partnerships (LEPs),237
localization,146, 217, 245, 308, 330, 334, 390–1;
de-localization,592, 594;
economies,215, 217, 334, 391, 797–8;
of innovation,275;
strategic,435
location theory,160, 377, 499
lock-in,116, 123, 182, 214, 216–17, 238, 670, 686, 734, 759, 762, 851–2, 854, 859;
definition,734
logical positivism,170
London,9, 29, 53, 236, 307, 309, 317, 468, 485–6, 543, 547, 551, 560, 564–7, 570–1, 669, 857;
Page 37 of 61
Subject Index
City of,492, 546, 551, 620;

property market,203
London School of Economics,544
long-term investors (LTIs),591–2, 594–9, 601–5
Los Angeles,155, 548, 565, 817
loss aversion,2, 203
Louisiana,73, 739
Louisville,817
Lund,11
Luxembourg,47, 131, 492, 562–3, 567, 571
Luxembourg Income Study,48
LVMH,430–1
Maastricht Treaty,631
Macao,5, 29
Macedonia,124
McKinsey & Company,123, 591
McKinsey Global Institute,374
Madhya Pradesh,102, 106
Madison,333
Madrid,565
Maharashtra,102, 106
Maker Movement,818
Maker’s Row,818, 820, 822
malaria,98, 295
Malaysia,20–3, 25, 27, 29–30, 32–4, 389–90, 434, 437, 565
Malaysian Institute for Economic Research,400
Malta,118
Malthusian,147, 707
Manchester school of economic geographers,383, 389, 393
Manga (cartoons),313
Manhattan,356, 564, 570
Manila,89, 565
(p. 909) manufacturing,5, 22–3, 25, 27–8, 32–3, 69, 74, 82, 88, 120, 122–7, 129, 131–2, 181, 183–
4, 234, 253, 261, 263, 274, 325–6, 331–7, 339, 353, 361, 369, 382, 384–5, 413, 416, 427, 429, 443,
453, 467, 470–1, 475, 511, 576, 674, 695, 717, 719, 726, 794–5, 822;
capital,99;
clusters,182–4;
firms,292;
process,708;
technologies,232;
textiles,420
Maoists,98, 107, 109
Marcellus shale play,738
marginalized,474, 477, 777–8, 780, 792, 801, 826, 830
market capitalization,7, 582
market economies,79, 145, 146, 477, 633;
coordinated,222, 234–5;
emerging,456, 645;
Page 38 of 61
Subject Index
foreign,373;
German,236;
liberal,222, 234, 235
market failure,26, 148, 520, 592, 689, 757, 762, 813, 818, 821
marketization,6, 7, 167, 171, 449, 667, 673, 683
Marshallian,308;
agglomeration(s),324;
externalities,151, 215–17, 219, 273;
thinking,215;
view,214, 218
Marwaris,102
Marxian,161–2, 164, 166, 172, 468, 473, 541, 544, 558;
crisis theory,540, 544;
Marxism,162, 393, 478, 541;
Marxist,41, 102, 115, 159, 418, 467, 473, 487, 630, 640, 648, 693, 699;
Marxist, tradition,647;
neo-Marxist,487
Massachusetts Institute of Technology (MIT),54, 67, 359, 706
Mediterranean,120
megacities,4, 7, 89, 669
Mekong,709
Melbourne,565
Memphis,817
Menlo Park,335, 356, 565
mentorship,523, 526
mergers,259, 278, 369, 374, 561, 566, 599, 727
Metro,72–3, 429–30
Metro Cash & Carry,453
metropolitan,12, 73, 134, 510–11;
areas,64, 73–4, 86, 89, 184, 254, 275, 508, 510–11, 795, 798;
councils,469;
regions,24, 28, 73, 376, 503, 506, 795, 811;
statistical area (MSA),254–5, 272, 326, 564
Mexico,86, 89, 254, 339, 352, 565, 685;
Gulf of Mexico,706;
Mexican crisis,544;
Mexico City,307, 565
Miami,565, 606
micro-entrepreneurship,129, 135, 803
Microsoft,409–10
Middle East,316
migrants,82–3, 85, 90–1;
in-migrants,675, 799;
migrant workers,82, 90–1, 486;
rights,473, 490
migration,24, 69, 72, 78–9, 81–3, 91, 152, 185, 349–50, 352, 486, 511, 798;
economic,488;
in-,512;
Page 39 of 61
Subject Index
inefficient,352;
internal,352;
non-economic,797;
racialized,476;
restrictions,86;
rural–urban,83, 105;
see alsooutmigration
Milan,307, 565
milieu school,181
Miller Center,822
Minera Yanacocha,724
mineral depletion,754, 765;
mineral rights,737, 739–40
mining,161, 470, 671, 683, 715, 721, 723–4, 726–7, 841;
projects,724;
region,715
Mississippi,72
modernization,108, 135, 428, 470, 631, 640, 688, 773;
ecological,686;
period,470;
modernization, retail,438
monetarism,470;
monetary policy,203–4, 611;
money laundering,567, 569, 576, 586
Mongolia,715, 723–4, 725–6;
Mongolian,723, 725
monopolies,75, 149, 630;
monopolization,635
Montreal,565
Moody’s Investors Service,740
Morgan Stanley,563, 565–7
Morocco,419
Moscow,89, 413, 565
Motorola,409
Mozambique,670
multinational(s),131, 216, 220, 369, 415;
corporations (MNCs),122, 132, 415, 674, 720, 722, 724–5;
enterprise(s) (MNE/MNEs),307, 312, 366–8, 414;
firms,25, 348, 361, 366, 501
multi-sectorality,163, 167
Mumbai,24, 100, 107, 306–7, 313, 315–17, 565
(p. 910) Munich,570
Musahar caste,109
Muslims,107
mutation,214, 247–9, 252, 841, 853
Myanmar,8, 28
N–(8 + 3), 20, 24, 26, 30–3
Namibia,773
Page 40 of 61
Subject Index
Nampa,333
Nanjing,28
nanotechnology,153
Nantong,28
Nasdaq Index,7
Nash equilibrium,166
NASSCOM,408
National Bank of Greece,127, 129
National Domestic Workers Alliance,818, 820
National Resource Defense Council,817
National Rural Employment scheme,101
national systems of innovation (NSIs),826–7, 831
nationalism,6, 9;
resource,724–5;
rise of,144
nationalization,720
natural capital,14, 696, 704, 709–13, 749–51, 754–7, 760–1, 764;
definition,751;
depletion,720;
exhaustible,757;
global,761, 762;
renewable,754
natural gas,33, 669, 675, 705, 738, 765;
see also gas extraction;
shale
natural resources,1, 22, 28, 501, 591, 646, 667, 685, 696–9, 703, 706, 717–18, 752, 756, 758;
depletion of,797;
renewable,710, 754
natural selection,198, 248
Nayak, P.,101
neoclassical,231, 392, 473, 846;
economics,172, 213, 689;
economists,530;
models,544;
production functions,163;
theory,114, 146, 477, 544, 647;
thought,230;
tradition,230
Neo-Europes,99
neoliberal,75, 103, 148, 168, 171, 398, 468, 470–1, 477, 549, 612, 61–18, 621, 667, 811, 813–16,
820;
era,794;
governments,611;
ideology,793;
neoliberalism,34–5, 101, 170, 477, 800–1, 813–14, 821;
hyper-neoliberalism,550;
neoliberal policies,616, 854;
neoliberalization,6, 168, 448, 451–3, 457, 490, 618, 666;
Page 41 of 61
Subject Index
neoliberalized,470, 472, 474, 619;

see alsoliberalism
Netherlands,5, 42, 46, 48–52, 58, 120, 430, 489–90, 505, 543, 546, 560, 563, 565, 567, 571, 594,
622
network: dynamics,218–19, 387–8, 438;
embeddedness,386–7;
theory,188, 393, 454
networking,127, 216, 222, 355–6, 360, 819;
infrastructure,269
Nevada,335
New Deal,467, 629
new economic geography (NEG),19, 35, 147, 214, 368, 374, 552, 717, 850
new growth,115, 804;
markets,616;
paths,219, 220, 223;
platforms,107;
strategies,612;
theories,152, 250;
trajectories,131
New Jersey,570, 634, 673
New Orleans,817
New York,29, 48–50, 52, 72–3, 89, 274, 307, 313, 317, 325, 333, 349, 547, 551, 560, 564–7, 571,
578, 592, 619, 634, 842;
New York City,797, 818
New Zealand,49–50, 99, 456, 685
Newark,73, 333, 842
Newcastle,546
Newtonian,162
Nigeria,86, 419, 773;
Nigerian,485;
Nigerian, oil production,720
Nikonian,295
NK framework,253;
NK model,251
Nollywood,307
non-governmental organizations (NGOs),222, 450, 455, 724–5, 812, 817, 833
non-renewables,703–4, 709, 711–13;
depletion of,711
Nordisk Film,314
North America,19, 21, 26, 238, 316, 317, 433, 456, 467, 471, 488, 493, 706, 719, 740, 792
North American,56, 232, 328, 487
North American Free Trade Agreement (NAFTA),374
North Carolina,525
North Sea,711
Northern Rock,546
Norwalk,73
Norway,49–51, 58, 120, 315, 491, 720;
Norwegian,547
Page 42 of 61
Subject Index
nuclear,675, 705, 708

(p. 911)
Oakland,333, 356
obesity,605;
epidemic,593–4
offshore,13, 311, 410, 416;
financial centres,576;
jurisdictions,558, 560–3, 565, 567, 571;
resources,706;
sourcing,410
offshoring,129, 131–2, 307, 312, 375, 399, 407, 409–10, 415
oil,22, 671, 675, 690, 703, 705, 707–8, 711–12, 715, 720–1, 723, 734–7, 739–40, 751–2, 754, 765;
crises,69, 757;
deposits,708;
extraction,736, 738;
fields,740–1;
firms,738;
foreign,33;
futures,648;
independence,706;
industry,736, 741;
markets,646;
pipelines,834;
price volatility,645;
prices,646, 723, 737, 740;
production,738, 741, 742;
regions,735;
reserves,707;
resources,705;
shock,707;
supply,705–6;
transport of,737;
wells,705
Olympia,333
Oman,100
online shopping,440, 442
Ontario,637
organic finance,13, 592–3, 596, 599, 600–3, 605;
see also finance capital;
organic foods,592–5, 601;
organic investors,592–3, 595, 601
Organisation for Economic Co-operation and Development (OECD),50, 55, 65, 74, 305, 374, 382,
384, 396, 398–9, 428, 442, 488, 490, 494, 567, 633, 635, 749, 751, 770–3, 775, 777, 785–6
Organization of the Petroleum Exporting Countries (OPEC),707
O-Ring model,351
Orissa,106, 107, 109
Orlando,817
outmigration,120, 129, 131, 673–4;
Page 43 of 61
Subject Index
see also migration

outsourcing,270, 338, 375, 384, 386, 390, 394, 399, 408, 410–12, 417–19, 490, 602, 832;
firms,272;
global,415, 418–20;
global service,419;
micro,492
ownership (O) advantages,370–1, 373;
ownership–location–internalization (OLI) paradigm,367, 369–72, 376–7
Oxfam,41, 65, 571
Oxford,11, 634;
Oxford University,58, 339
Oyu Tolgoi mine,725
Pacific,30, 104, 433, 565;
Western,34
Pacific Economic Cooperation Council,399
Pakistan,20–3, 89, 316–17, 453
Palma ratio,41
Palo Alto,356, 358
Panama,567, 571
Paris,54, 221, 222, 307, 565, 571
Paris Agreement,6, 665, 675
Parkinson disease,295
Pascua Lama project,724
patents,98, 333, 339, 348, 355–6, 361, 558, 763;
patent data,361;
patenting,325, 332–4, 337, 339, 354, 356, 359
path dependence/dependency,9, 29, 113–14, 116, 122, 127, 130–1, 133–5, 180, 190, 214, 219–20,
222–3, 237, 261, 387, 393, 577, 670, 687, 733–4, 741, 762, 850–3;
historical processes,214;
process,216;
theories,214, 851
Pax Americana,25
peak oil,752;
theory of,705–9, 713
Pearl River Delta,5, 29
peasants,25, 80–2, 90
Pebble Project,724
Peloponnese,124
Pennsylvania,73, 525, 738–9
pension(s),44, 47, 107, 134, 591, 604, 616;
benefits,456;
defined-benefits,543;
funds,450, 542–3, 591, 595–6, 598, 602, 604–6, 614, 616, 621, 623, 634–6, 645, 649, 652;
occupational,490;
plans,71, 604, 613;
state,201
People’s Bank of China,586
periphery,113–14, 117, 120, 126, 259, 356, 368, 524, 715–16, 721, 723, 725;
Page 44 of 61
Subject Index
centre–periphery,214;
countries,726;
economic,120;
economies,135;
Eurozone,130, 134;
new,715;
peripherality,114, 122–3, 130–1, 133, 135;
peripheralness,720;
resource,14, 726
Peru,565, 724
PetroChina,721
Pew Research Center,65, 70–1
Pforzheim,547
Philadelphia,525–7, 817
Philippines,20–3, 25–8, 30, 32, 34, 89, 317, 408, 436–7, 456, 565, 665
Phoenix,842–3
PICO National Network,801
Pireaus,134
(p. 912) planetary boundaries,750, 755, 761
Poland,130, 434, 436, 489, 491, 565, 708

polarization,13, 120, 133–4, 486, 489, 495, 670, 772;, income, 495;
societal,775
pollution,30, 348, 668, 695, 706–7, 709–10;
air,30, 349;
dust,725;
polluting behaviour,231;
reduced,750;
water,30, 695;
see alsowater
Pope Francis,41
population,3–4, 8, 19, 29, 41–4, 46–7, 53, 69, 72, 81, 84–9, 91, 104, 106, 120, 129, 144, 147, 150,
154, 209, 248–9, 251, 255, 347, 349, 418, 505, 703, 706, 710, 712, 736, 738, 754, 774–8, 795, 831;
changes,254;
Chinese,772;
collapse,707;
data,92;
density,718;
distribution,44;
Earth’s,591;
explosion,755;
growth,83, 601, 670, 707, 757, 846;
growth rate,102;
increases,758;
local,91;
national,88;
rural,81, 90;
size,91;
statistics,92;
Page 45 of 61
Subject Index
urban,81, 83–4, 86–8, 90, 93, 812;

US,273, 331
pornography,277, 586
portfolio theory,592, 594
Portland,328
Portugal,47, 49–50, 58, 113, 119–20, 122, 130–1, 133, 135
poverty,31, 41, 73, 82, 97–8, 104, 106, 114, 134–5, 144, 331, 477, 511–12, 667, 672, 719, 750, 774,
777–8, 780, 794–6, 800–1, 826, 829, 846;
alleviation of,771;
asset,802;
child,57;
income,104, 106, 108;
line,103–4;
rates,666;
reduction,103–4, 107–9, 800;
rising,120;
thresholds,64;
trap,670;
urban,24
Prebish–Singer hypothesis,722
precariat,495;
precariousness,13, 486–9, 493–5;
precarity,46, 478–9, 486, 493, 668
price formation,653, 655, 657–9;
commodity,646, 658;
theory of,204
private sector,603, 638–9, 784, 800, 813, 815, 818
privatization(s),133–4, 470, 477–9, 568, 635–7, 811–16, 819, 841, 854;
uneven,812
privatized,477, 636, 638, 803;
newly,635
producer–customer, interaction,289–90, 299;
vertical relation,291
product differentiation,146, 182, 373;
product life cycle (PLC) model,370
productivity,22–3, 31, 34, 85–7, 90, 98, 115, 127, 135, 143, 150, 152, 161, 163–4, 249–51, 255,
270, 273, 275–6, 334, 347, 349, 352, 411, 468, 500–1, 503, 506, 509–10, 532, 684, 698, 736, 754,
759, 779, 792, 794, 799, 828, 846–8;
asset,638;
benefits,349, 351;
definition,263;
economic,633;
factor,147, 629, 640;
firm,263;
gains,413;
labour,467, 505;
pressures,493;
regional,510;
Page 46 of 61
Subject Index
research,275;
TFP,101
professional services,181, 183, 637;
clusters,184
profits,32, 81, 129, 149, 163–4, 166, 374, 433, 577, 598, 656, 698, 734, 738, 795, 834;
corporate,559;
for-profits,819;
non-profits,810, 815, 819
property rights,100, 103, 105, 107, 145, 232–3, 352, 637, 638, 683, 696–8, 754, 830;
private,751
pro-poor growth,776–8, 780;
definition,776
prosperity,12, 51, 55, 109, 113, 134, 136, 144, 148, 154, 168, 230, 331–2, 455, 727, 750, 764, 792,
794, 826–9, 831–5
prospika system,82
protectionism,6, 65, 80, 87
Provincial Darwinism model,108
public administration,122, 123–5, 148
public sector,6, 74, 148, 151, 154–5, 470, 477, 568, 638–9, 800, 811–17, 820–1;
ownership,639;
public–private partnerships,784, 810
Pune,413
Punjab,102, 104, 106
Purchase,565
Qatar,47
Qinhuangdao,28
Quebec,495, 637, 819
race,73, 162, 197, 474, 477, 487, 511, 541, 546, 614;
racialization,487;
racialized,476–7, 486, 488
Rajasthan,106
Rajput caste,107
Rakuten,441
Raleigh–Durham,525–7
Ranchi,107
rationality,197–8, 207, 209, 616;
bounded,199, 214–15;
external,199;
human,199;
idealized notions of,207;
internal,199;
labour market,164;
levels of,198;
test of,198
Reaganomics,469;
see also Reagan, Ronald
(p. 913) real estate,32, 120, 122, 127, 129, 131–3, 135, 558, 560, 564, 671, 737, 740
recession(s),32, 63, 72, 116, 119, 122, 134–5, 331, 491, 542, 549, 618, 758, 842–3, 853–4, 857;
Page 47 of 61
Subject Index
economic,455, 853;
global,90, 815;
great,6, 64, 70, 73;
national,849;
post-recession,488;
prolonged,113, 127, 130, 134–5
recycling,30, 34, 397, 802;
rates,760
Redwood City,356, 358
regional branching,214, 223;
regional resilience,223, 665, 844, 849, 851–4, 856
Regional Studies Association,11, 495
regionalism, global,369;
metropolitan,811;
social movement,801
regulation,6, 13, 26, 64, 68, 115–16, 131, 133, 135, 148, 236, 277, 312, 392, 437, 439, 443, 448–
51, 453, 456–7, 466, 469–70, 473, 478, 486–7, 491–4, 551, 570–2, 584, 586, 601, 635, 637–8, 659,
696, 735, 741, 812, 819;
financial,557, 567, 587, 622;
government,694;
industry,571;
labour-market,487;
market,739;
national,737–8;
new,570;
of exchange rates,568;
self-,569;
social,471;
social and economic,635;
theories,472
Regulationists,115
regulatory systems,32, 637;
regulatory transformation,465, 472–4
relational,162, 184, 209, 217, 295–6, 383, 385, 392–3, 399, 417, 451–2, 469, 621, 672, 674, 848;
relational, accounts,97;
relational, approach(es),10, 179, 180, 181, 184, 186, 189, 635;
economic geography,9, 205;
know-who,183;
perspective(s),12, 184, 188–9, 428;
positions,188;
research,179;
research design,180, 187, 189–90;
thinking,187
renewables,703–5, 709–11, 757–8;
renewable energy,694, 709, 716, 742, 757, 760;
renewable resources,695, 704, 760
reregulation,437, 438, 443, 479, 493;
see also deregulation;
Page 48 of 61
Subject Index
regulation
research and development (R & D),148, 151, 251, 292, 299, 332, 334–8, 376, 413–15, 469, 709,
763, 799
resilience,9, 14, 114, 116, 127, 132, 136, 223, 246, 260, 263, 296, 331–2, 665, 667, 669–70, 675–6,
817–18, 839–40, 843–5, 847–54, 856–60;
adaptive,855;
building,858;
definition,844–6, 852;
determinants of,855;
ecological,845;
ecological model of,847;
economic,854, 857;
model,846;
perverse,859;
regional economic,859
Resolution Foundation,56
resource curse,66, 720, 725–6, 735, 738–9;
theory,719
resource peripheries,14, 715–19, 721–8
restructuring,13, 113–14, 116, 122–3, 126, 130–1, 133–5, 154, 269, 315, 465–71, 473, 478–9, 794,
851;
approach,470, 479;
capital,475;
corporate,474, 561;
economic,116, 795, 800;
industrial,69, 72, 115, 122, 466, 475;
of retail banking,619;
public services,478;
sectoral,135;
studies,469, 471;
supply network,438;
systemic,256
retail capital,427, 432, 435, 444;
retail revolution,427
retirement,71, 115, 201, 492, 611, 616
Rio Tinto,721
risk aversion,202, 651, 654
risk-taking,151, 154, 203, 612, 616
Riyadh,565
robustness,44, 101, 392, 395, 828, 833, 835, 845, 848
Rockefeller Foundation,419, 818, 855
Romania,120, 122, 415
Rome,307
Rotherham,842
Rothschild,566, 567
Rotterdam,551, 669
Round Rock,333
Route128, 235, 259, 413
Page 49 of 61
Subject Index
Rowntree,449
Royal Academy,544
Royal Bank of Scotland,571
Royal Dutch Shell,721
Ruhr Valley,235
rule of law,26, 100, 233
runaway shops,467, 471
rural migrant workers (nongmingong),82
rural sourcing,418, 419
Russia,4, 20, 75, 86, 89, 561–2, 565, 650, 708, 721, 723, 735;
Russian,163, 544;
see also Soviet Union;
USSR
Sahara,707
Salt Lake City,817
(p. 914) Samsung,335
San Francisco,7, 8, 274, 328, 333, 356, 358, 565, 570

San Francisco Bay Area,7, 155, 356, 531
San Jose,328, 333
San Marino,47
San Precario movement,487
San Ramon,356
Santa Clara,356
São Paulo,413, 565
satisficing,199
Saudi Arabia,565
savings,24–5, 66, 70–1, 545, 549, 586, 602, 604, 612, 614, 617–18, 635–6, 649, 659, 802–3;
and loan crisis,544;
behaviour,208;
savings, cost,412, 813;
labour cost,410
Scandinavia,42, 115, 315, 793
schistosiamsis,98
Schlumberger,741
Schumpeterian,300, 852;
entrepreneurship,248, 256;
momentum,287;
theory,851;
view,150
Schwarz,429, 430
Scotland,143, 488, 735, 819–20;
see also Britain;
United Kingdom
Scottish National Party,820
sea-level rise,665–6, 668–70, 675
Seattle,328, 333;
Battle in Seattle,473
securities,558–60, 563–4, 566, 578, 594, 652, 658;
Page 50 of 61
Subject Index
firms,564–6, 570
Securities and Exchange Commission (SEC),598, 740
securitization,542, 546, 561, 563–4, 604, 612, 614;
insurance-linked,673
segmentation,179, 275, 288, 360, 476, 486;
economic,512;
labour-market,487
segregation,472;
class,511;
economic,512;
geographical,511;
occupational,476;
socio-economic,500;
Selby,842
Seoul,11, 390, 565
Seoul National University,208
service class,504;
service providers,306, 408–11, 413, 415–20, 565, 595;
service sector,22–3, 33, 88, 466, 471–3, 511
Service Employees International Union,529
Seven & I,430, 443
sexual revolution,8
SFMade,818, 822
shale,14, 707–8, 733–9, 741;
boom,740;
development,736–7, 739–41;
extraction area,737;
gas,708, 734–6;
oil,14, 733, 736–7, 739–40, 759;
plays,736–7, 740;
reserves,740;
revolution,737;
see alsogas extraction;
natural gas
Shanghai,5, 24, 28–9, 32, 87–9, 565
Sheffield,215
Shell,450, 741
Shenzhen,5, 28, 82
short termism,604, 649
Sialkot,453
Silicon Valley,152, 235, 259, 325, 328, 335, 349, 351, 353, 356, 358–9, 386, 413–15, 510, 565, 570,
798
Singapore,7, 11, 25, 27, 30, 49–50, 58, 67, 99, 100, 307, 390, 485, 562, 565, 567, 571, 615, 623;
Singaporean,49, 614
skill acquisition,151;
skill development,314, 520–2, 524–7, 529–32;
skill-biased technological change (SBTC),65–8, 75
Slovakia,434, 440
Page 51 of 61
Subject Index
Slovenia,47, 49–50, 120, 489

small and medium-sized enterprises (SMEs),114, 122–7, 129, 131–2, 134, 390
Small Business Act of Europe (SBA),126–7, 129
Smithian,167;
see also Smith, Adam
social: class,166, 169, 316;
cohesion,39, 295;
exclusion,12, 120, 774–5;
mobility,43, 109;
overhead capital,630;
reproduction,393, 476–9;
services,82–4, 90–1, 628, 779, 802, 812, 814
Social Impact Bond,821
socialization,169, 296, 472, 476
software development,25, 408, 410, 413–14, 416
solar,756;
energy,675, 694, 765;
fuels,757;
modules,762;
panels,694, 709;
power,5, 708, 732, 763;
vs coal and nuclear,763
Solow model,102
Sony,78
South Africa,43, 416, 419, 438, 443, 453, 455–6, 562, 565, 721, 724, 773, 784;
Southern Africa,794
South America,416, 724;
South American,26
South Carolina,73
South Gobi,715;
South Gobi Desert,715, 723
(p. 915) South Pacific,669
sovereign: debt,113, 118, 131–4, 552;

funds,591, 596;
wealth funds,168, 572, 614, 623, 635–6, 645, 711
Soviet,82, 86;
Soviet Union,754;
see alsoUSSR
space economy,159, 161–6, 168–71, 189, 854
Spain,7, 44, 47–53, 56, 58, 86, 113, 117–20, 122, 129–30, 133, 135, 430, 485–6, 489, 494, 565,
631;
Spanish,47, 99
spatial,512;
equilibrium,146, 152, 350, 352, 509, 850, 851;
impossibility theorem,166;
spatiality of finance,9, 557
Special United Nations Fund for Economic Development (SUNFED),630
Page 52 of 61
Subject Index
specialization,123, 129, 131–2, 151, 167, 180, 185, 187, 189, 219, 250, 259, 326, 328, 332–3, 339,
409, 798, 827;
dual specialization correlation (DSC),333;
economic,123;
functional,88;
geographical,383;
horizontal,859;
increased,275;
industrial,114–16, 122, 130–1, 134–5, 384;
knowledge-intensive,135;
narrow,249;
of cities,274;
sectoral,126, 130;
shallow,127;
smart,223;
spatial,116, 120;
strong,127;
vertical,390
speciation,246, 256, 261, 264;
industry,261
speculation,32, 579, 647–8, 651, 653, 656–7, 659, 739;
definition,653;
land,740;
thesis,656
Springfield,333
Sri Lankan,455
stabilization,636–7, 853
stakeholders,217, 450, 598, 783, 787, 796, 801, 830
Stalinist,80–1
Stamford,73
Standard & Poor’s,740
standard employment relationship (SER),485–8, 490, 492, 495
State Street,565
status quo bias,200, 203
STEM occupations,334, 337
Stern Review,6, 750;
see also Stern, N.
stock-flow consistent approach,549
Stockholm,565
store expansion,442;
international,444
strategic coupling,10, 383, 385, 387–91, 394, 398, 561
structural adjustment,135;
policies,494;
programmes,434
structuralism,162;
post-structuralism,478
structuration,162, 190
Page 53 of 61
Subject Index
subcontracting,120, 129, 131–2, 352, 384, 390, 471, 529

subprime: credit facilities,620;
crisis,6–8, 12, 540, 544, 546, 550–1, 569–70, 612;
lending,13, 540, 542–3, 546, 551;
mortgage crisis,606, 614
sub-Saharan Africa,419, 436
substitutability,751, 758–60, 764
Summer Institute in Economic Geography,11
sunk cost(s),289, 311, 314, 317–18, 637, 733–4
super rich,39, 42, 45–8
supply and demand,708;
curve,688;
law of,231, 465, 614, 645, 652–8, 688–9
supply chains,432, 453, 469, 561, 666, 671, 762, 856;
domestic,28;
financial,543;
global,25, 236, 278, 420, 449, 451, 454–5, 576, 671, 831;
local,23, 434;
management of,451;
resource,683
sustainability,2–3, 5, 8, 10, 12, 55, 119, 134, 456, 594, 596, 603, 612, 636, 659, 704, 716, 732, 749,
772, 780–1, 783, 786, 815, 817–18, 840, 845;
environmental,724;
social,557;
see also under development
Suzhou,28
Sweden,46, 49–51, 120, 315, 430, 491, 505, 565;
Swedish,452
Switzerland,49–51, 99, 560, 562, 565, 567;
Swiss,543, 614
Sydney,317, 565
T. Rowe Price Group,565
Tacoma,333
Taft–Hartley Act,524
Taipei,390, 565
Taiwan,22, 24–5, 389–90, 434, 440, 565
Tamil Nadu,102, 104, 106
Tangshan,28
Tanzanian,454
tax(es),47, 56, 64, 75, 495, 689, 711, 751, 759, 814;
avoidance,586;
corporate,101;
evasion,569;
favouritism,800;
havens,567, 571;
sales,277
(p. 916) taxation,57, 64, 75, 129, 571, 629, 636, 827;
low,567
Page 54 of 61
Subject Index
Tech Shop,818
Tel Aviv,565
Tennessee,73
territorial dynamics,385, 387–8;
intra-,391
territoriality,7, 395
Tesco,429, 430, 440–2
Tesla,335, 763;
Tesla Motors,335
Texas,410, 561, 721, 735–6, 739
Texas Instruments,410
Thailand,20–3, 25, 27–30, 32, 34, 389–90, 434, 436–8, 444, 565, 671, 685, 772
Thatcherism,469;
see also Thatcher, M.
thermal energy,694;
see also energy transitions
Thessaly,124
Tianjin,28–9
time and space,74, 197, 200, 203, 205–6, 209, 545, 630, 821
Tmall,441
Tokyo,5, 24, 29, 89, 307, 565
Toronto,307, 565
Toshiba,78
tourism,120, 122–5, 132, 134–5, 305, 451, 671, 697, 736, 738
Toyota,763
trade,1, 3–5, 8, 11, 25, 27–31, 33–6, 64, 67, 101, 120, 122–4, 126–7, 129, 131–2, 135, 215, 230,
245, 270, 278, 312, 398, 524, 549, 559, 562, 578–9, 587, 614, 647–9, 652, 654, 656–7, 685, 697,
718–19, 826–7, 831, 834;
agreements,434, 637;
associations,857;
barriers,437, 850;
cocaine,576;
costs,146, 373–4;
credit,566;
cross-border,452;
ethical,452, 454–5;
fairs,187, 189, 218, 299;
flows,74;
free,163, 167;
gains,275;
global,667, 720–2, 795;
in finished goods,394;
in intellectual property,832;
in services,279;
internal,797;
international,373–5, 382, 386, 427, 568;
intra-firm,382;
liberalization,65, 147, 449–50;
Page 55 of 61
Subject Index
mysteries,245, 263;
networks,83, 716;
policies,65, 75, 667, 735;
promotion,324;
retail,123, 124, 125, 135;
sanctions,761;
South–North,427;
South–South,427, 456;
terms of,104;
theory/theories,368, 383;
value-added,396;
wholesale,123, 125, 135
Trans Pacific Partnership (TPP),36
transnational corporation(s) (TNC/TNCs),10, 382, 387, 390, 428, 434–8, 450, 561–2, 567, 735;
retail,431–2, 434–40
transnational retailing,429, 443
Transparency International,32, 100
transport/ation,81, 133, 161, 163–6, 172, 185, 270–1, 309, 312, 349, 356, 359, 416–17, 501, 510,
575, 634, 717, 726, 732, 738, 741–2, 797, 814;
costs,143, 165, 253, 269–70, 276, 278–9, 373–4, 394, 499, 717, 850
trickle down effect,43, 771, 775, 792, 800–1
troika (IMF/EC/ECB),113, 119, 133, 135;
see also European Commission (EC);
European Central Bank (ECB);
International Monetary Fund (IMF)
Tropic of Cancer,99
tropics,98
trypanosomiasis,98
Tulsa,410
Turkey,490;
Turkish,544
Typhoon Haiyan (Yolanda),665
Uber,279, 492
Ukraine,86
Ulaanbaatar,715
unemployment,83, 90, 114–15, 117–18, 130, 132, 134–5, 150, 197, 331, 489, 524, 568, 614, 620,
780, 795, 800, 846, 848;
benefit system,853;
local,841;
long-term,117–18;
youth,114, 118
UNESCO,305
union(s): anti-union,467, 474, 493;
de-unionization,529;
non-unionized,68, 476, 493;
unionism,473–5;
unionization,73;
unionized,524, 794;
Page 56 of 61
Subject Index
see alsolabour/trade union(s)

United Arab Emirates,47, 565
United Front,101
United Kingdom (UK),1, 5, 7, 9, 34, 40–59, 86, 99, 115, 203, 215, 234, 237, 310–11, 315–17, 355,
391, 430, 433, 440–2, 449, 452–3, 455, 467–70, 487–91, 493–5, 541–3, 546, 551, 564–5, 567, 570–
1, 616–19, 622, 637–8, 640, 673, 737, 740, 793–4, 811, 813, 819–22, 841, 843, 857–8
United Nations (UN),5–6, 30, 50, 89, 119, 451, 456, 630, 703–4, 751, 855
(p. 917) United Nations Conference on Trade and Development (UNCTAD),307, 369, 375, 382,
384, 396, 398, 399, 407, 645–6, 648, 650–2, 654–5, 658, 660
United Nations Development Programme (UNDP),65–6, 74, 106, 785
United Nations Economic Commission for Europe,631
United Nations Environment Programme (UNEP),30, 749
United Nations Framework Convention on Climate Change,6
United States Geological Survey (USGS),753, 754
United States of America (US/USA),1, 4–6, 8–9, 12, 25, 27, 29, 33–6, 40–4, 46, 48–55, 57–8, 63–75,
86, 89, 99, 149, 151, 154, 164, 168, 197, 202, 215, 220, 234, 254, 259, 263, 273, 278–9, 306, 310–
11, 317, 325–6, 328, 331–4, 336, 339, 352–3, 355, 362, 383, 408, 410, 413, 415–16, 419, 428–31,
433, 441, 443, 450, 452, 467–8, 470, 489, 492–4, 502, 505, 509–11, 519, 525–6, 531, 541–2, 544,
546–9, 551, 561, 564, 566–7, 570–1, 593, 598, 604, 613, 616, 618–20, 622–3, 650, 653, 665, 668,
672, 684, 694, 705, 707–8, 720, 733, 735–41, 753, 759, 762, 774, 792–5, 801–2, 811–13, 815–20,
822, 833, 842–3, 859
upward mobility,795, 801–3
Urban Manufacturing Alliance,818
urban planning,14, 632, 839
urbanization,4–5, 7, 24, 29–30, 71, 78–9, 83–6, 90–2, 146, 308–9, 314–15, 317, 330, 361, 506, 572,
601, 716, 774, 781, 797, 803;
advantages,184;
economies,798;
hyper-,31;
incomplete,83;
literature,91
Uruguay,832
US Cluster Mapping Project (USCMP),326, 331–2, 339
use value,685, 689–93, 695–9
user–producer interaction,287–8, 293
USSR,719;
see also Russia;
Soviet Union
utilitarianism,149
Uttar Pradesh,104, 106
UTV,312
value chain(s),28, 33–4, 180–3, 286, 298, 332, 335–8, 369, 375–6, 384, 398, 456, 601;
geographical concentration of,275;
linkages,183, 335;
rent theory,453;
see alsoglobal value chain(s) (GVC/GVCs)
value shop framework,183
Vancouver,565
Page 57 of 61
Subject Index
Venezuela,735
venture capital,234, 315, 543, 565, 577, 601;
urban,309;
venture capitalists,543, 596
Vietnam,8, 20–3, 26–8, 30, 33, 34, 437, 453, 565;
Vietnam War,8, 68–9, 707
virtual currencies,575, 580–3, 585, 587
vulnerability,36, 90, 113, 122, 127, 130, 133, 207, 332, 579, 665–8, 670, 674–6, 716, 721, 830,
844, 848–9, 854–5;
climate,666;
definition,675;
economic,114, 125–6, 134–5, 487, 666–7, 672–3;
environmental,725;
household,672;
of Asia,32;
regional,116, 667, 671, 673;
regional economic,668–9;
research,675;
risk of,848;
to flooding,670;
to shocks,843;
to storms,669
wage(s),65, 69–70, 90, 150, 164–6, 168–9, 276, 279, 334, 347, 349, 351–3, 356, 412, 418, 455–6,
465, 472, 476, 485, 503, 506, 512, 520–1, 527–8, 531–2, 669, 674, 690, 759, 780, 793, 795, 798–9,
803;
adequate,489;
adjustments,67, 134, 149;
appropriate,163;
bargaining,567;
better,532;
bill,68;
competition,67;
compression,519;
curve,349, 351–2;
demands,528;
differentials,33;
divergence,31;
falling,68;
fixed,165;
flexible,119, 134;
gains,273;
growth,273;
high,54, 116;
higher,505, 520–1, 523–4, 530, 532;
hourly,164;
increases,799;
industrial,92;
inequality,511;
Page 58 of 61
Subject Index
laws,72;
living,473, 800–1;
local,273;
low,56, 67, 83, 133, 494, 511, 520, 525, 527–33, 672, 794, 798, 802;
medium-level,131;
minimum,64, 68, 72–3, 456, 494, 531–2, 793, 801;
price spiral,568;
rates,27, 67–8, 73, 83;
real,165, 478, 619;
reductions,119;
regional,506;
rising,794;
social,477;
stagnant,65, 75;
undercutting,525;
wage/productivity curve,349, 351, 353;
wage/productivity relationship,351
Wales,488;
see also Britain;
United Kingdom
Walgreens Boots Alliance,429
Wall Street,34, 349, 351, 359, 492, 548, 595, 605
Walmart,276, 429–30, 439–40, 452
War on Terror,722
(p. 918) Warsaw,565
Washington,197, 398, 473;

Washington, DC,565, 820
Washington Consensus,197, 398, 473
waste management,451, 684
water,30, 134, 161, 330, 417, 628–30, 640, 665, 669, 671, 683, 689, 695, 697, 699, 706, 710, 725,
727;
availability,724;
clean,723;
contamination,724;
scarcity,716;
security,330, 724;
surface,737;
see alsopollution
wealth,5–6, 31–2, 40–2, 46, 51, 58, 63–4, 69–75, 144, 147, 168, 273, 331, 477, 506, 511, 599, 615,
668, 751, 800, 802–3, 829;
accumulation,71;
advantages of,772;
creation,612;
definition,69;
distribution of,70–1, 152, 545, 724;
family,560;
geography of,270;
global,721;
Page 59 of 61
Subject Index
inequality,495;
inherited,794, 798;
management,620;
national,656;
polarization,495;
resource,720, 726, 727;
societal,230;
see also under inequality
welfare,14, 56, 81, 84, 85, 114, 120, 152, 198, 450, 470, 479, 616, 771;
agencies,208;
benefits,612;
costs,826;
dependence on,841;
economic,150;
human,145;
policies,620;
programmes,857;
shortages,119;
social,82, 85, 198, 512, 804, 812;
spending,119;
stagnating,149;
state,120, 131urban, 82;
see alsowelfare state
welfare state,471, 477, 492, 568, 618, 793;
see also welfare
Wellington,307
Wells Fargo,7
West Bengal,102, 106
West Conshohocken,565
White House,579
Williams College,54
wind power,5, 732, 763
Wipro,408, 410
Witbank,724
working class,143, 504, 613;
traditional,502
World Bank,2, 4, 11, 30, 33, 36, 41, 91, 104, 106, 120, 145, 152, 374, 382, 398, 545, 591, 630, 710,
721, 749, 751, 770, 775, 785–6, 796, 800, 854
World Economic Forum,65, 417, 418
World Free Zones Organization,399
World Trade Organization (WTO),67, 382, 384, 396, 398–9, 437, 561, 832
World War I,314
World War II,6, 25–6, 67, 311, 314, 495, 567, 632, 707, 792
World Wide Web,269
Wuhan,82
Wuxi,28
Wyoming,74
xenophobia,6
Page 60 of 61
Subject Index
Xi Jinping, President,33
Xstrata,727
Yadav caste,107
Yangzhou,28
Yorkshire, South,215
Zambia,1, 784
zero-hours contracts,487, 495
Zhenjiang,28
Zhuhai,5, 29
Zürich,565
Page 61 of 61

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The New Oxford Handbook of Economic Geography

The New Oxford Handbook of Economic Geography

Print Publication Date: Jan 2018 Subject: Economics and Finance

Great Clarendon Street, Oxford, ox2 6dp,

Oxford University Press is a department of the University of Oxford.

© Oxford University Press 2018

The moral rights of the authors have been asserted

First Edition published in 2018

All rights reserved. No part of this publication may be reproduced, stored in

You must not circulate this work in any other form

Published in the United States of America by Oxford University Press

British Library Cataloguing in Publication Data

Library of Congress Control Number: 2017958294

Print Publication Date: Jan 2018 Subject: Economics and Finance

Print Publication Date: Jan 2018 Subject: Economics and Finance

(p. vii) Preface

The Editors, December 2016

Print Publication Date: Jan 2018 Subject: Economics and Finance

(p. ix) Acknowledgements

Print Publication Date: Jan 2018 Subject: Economics and Finance

(p. xvii) List of Figures

21.1Ambivalent Effect of Service Commoditization on Geographical Cluster Growth

22.1Levels of Cross-border Online Purchases 442

Print Publication Date: Jan 2018 Subject: Economics and Finance

(p. xix) List of Tables

6.2Top Employment Sectors in the Regions of Greece, 2008 124

Print Publication Date: Jan 2018 Subject: Economics and Finance

(p. xxi) List of Editors

Maryann P. Feldman ([email protected]) is the S.K. Heninger Distinguished

Meric S. Gertler ([email protected]) is President of the University of Toronto,

Dariusz Wójcik ([email protected]) is a Professor of Economic Geography in

Print Publication Date: Jan 2018 Subject: Economics and Finance

(p. xxiii) List of Abbreviations

NOHEG New Oxford Handbook of Economic Geography

OHEG Oxford Handbook of Economic Geography

GDP gross domestic product

IMF International Monetary Fund

FDI foreign direct investment

GDP gross domestic product

GFC global financial crisis

IMF International Monetary Fund

SOEs state-owned enterprises

EU-SILC European Union Statistics on Income and Living Conditions

IMF International Monetary Fund

(p. xxiv) Chapter 3

CMSA Consolidated Metropolitan Statistical Area

IMF International Monetary Fund

OECD Organisation for Economic Co-operation and Development

SBTC skill-biased technological change

UNDP United Nations Development Programme

FDI foreign direct investment

GDP gross domestic product

AJR Acemoglu, Johnson, and Robinson

BJP Bharatiya Janata Party

GDP gross domestic product

PPP purchasing power parity

TFP total factor productivity

ECB European Central Bank

EEC European Economic Community