Outline of New Regional Economics

Author: Liu Dongxun / Song Bingtao / Geng Mingzhai
Publisher:
Publish Date: 2005-05-01
Features: This book comprehensively rewrites regional economics using economic theories, building a brand-new explanatory framework based on market economy theory, comparative advantage theory, division of labor and specialization theory, and transition economy theory. It explains the marketization and industrialization development and evolution paths of closed societies with traditional agriculture as their economic foundation, offering a completely different technical explanation from traditional regional economic theories based on economic geography. From the perspectives of institutional evolution and social development, it provides new development strategy recommendations for developing giants like China, which are based on traditional agriculture. The regional economic development issues in transition countries are an interdisciplinary research field, clearly not the spatial distance-related transportation cost problems and production layout issues studied by location theory. Due to facing economic system transitions, it is also not a simple issue of development economics. (Chapter) This study starts from the discussion of comparative advantage and regional division of labor. Traditional trade theory holds that the resources (primarily not natural resources) of a place determine its comparative advantage in regional division of labor and advocates free trade to achieve efficient resource allocation across countries (or regions). (Chapter) But why is the comparative advantage of many resource-rich countries or regions difficult to manifest? Instead, resource-poor countries like Japan and Israel have become developed nations (Porter's challenge). The key lies in the lack of market conditions to improve resource allocation efficiency, as resources cannot be automatically allocated to the most efficient production directions under the guidance of price mechanisms. Therefore, it is essential to first explain the operational efficiency of market economy systems and the potential benefits of marketization. Adam Smith's "invisible hand theory" and the main task of neoclassical economics lie in explaining the resource allocation efficiency of market economy systems (standard: Pareto standard—the basic requirement under market economy conditions—does not harm others). (Chapter) So, how is marketization achieved? There are two types of marketization: one is the transition from natural economy to market economy, and the other is the transition from planned economy to market economy. The essence of both transitions is institutional change, with the first reflected in new development economics and the second argued by transition economics. (Chapter) Marketization is not the goal; the goal is to increase the speed of economic development (or industrialization). For backward regions, openness and population mobility are the most important driving forces. This is because knowledge is the primary driving force of social and economic development, while openness and population mobility are the main ways to increase information and knowledge. Openness and marketization can reveal local comparative advantages and gradually form self-developing industrial clusters, creating momentum for accelerated growth. (Chapter) The stable economic structure of traditional small-scale peasant economies determined that China could not break free from the vicious cycle of subsistence economy for over 2,000 years without external shocks and social openness. Technological progress and social institutional evolution would be difficult to occur. We believe the success of China's reform and opening-up strategy stems from this. However, unlike the many small and medium-sized countries and regions in the East Asian miracle, the creation and maintenance of the Chinese miracle will adopt a unique model for giants. The hierarchical development between different domestic economic zones will create a broader domestic market and industrial space. (Chapter)