2 - Regional Specialization

ucla | GEOG 4 |

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Table of Contents

• Regional Specialization
• Summary

Regional Specialization

• Adam Smith suggested the division of labor in the 1770s - (1) skills are specialized and (2) require education to hone:
  • comparative advantage - David Ricardo of the early 1800s
  • factor endowment - Hecksher-Ohlin model of 1940s
  • competitive advantage - Michael Porter in 1980s
• Comparative Advantage
  • there is an incentive to trade bc countries have a comparative advantage of production due to limited resources (even if there is an absolute advantage)
  • so countries specialize to make the most efficient use of their resources
  • However, specialization is not always good - fluctuating demand, need for elf-sufficiency in basics
• Factor Endowments
  • suggests countries specialize due to the land, labor, and capital the country possesses relative to other countries e.g., large plain areas have wheat farming, cattle ranching
  • thus, regions specialize based on resources e.g., high-end labor in the Bay specializes in tech, large populations of labor in China specialize in assembly
  • However, governments regulate regions/resources through subsidies, tariffs, etc., that can limit factor endowments
• Competitive Advantage
  • a more political explanation suggested by Porter is that there is an uneven playing field - capital accumulates in some places rather than others. govt invest in infrastructure, while others don’t
  • so over time, these countries specialize in what they’re good at through time - “new trade theory” suggested by Paul Krugman
  • Elements
    • imperfect competition across businesses in countries - not equal playing field, others are “catching up”
    • national economies of scale and agglomeration economies - large domestic market or elsewhere allows you to decrease prices per production unit (competitive advantage), and being located close to other competitors gives the specialization you need to produce more effectively
    • economic crises shift advantages - wars, pandemics, and financial crises can cause shifts in resources and specialization e.g., tech cities become too expensive (loss of skilled labor locally)

Summary

• of the 3 explanations of Smith’s regional specialization, competitive advantage seems the most intuitive and realistic
• factor endowments complement competitive advantage, while comparative advantage justifies political action to invest or impose tariffs