Ryan Avent weighs in over at The Economist:
I find Mr Krugman’s conclusion here rather surprising given his previous work
on the subject. As a principle figure in the development of the new economic
geography, Mr Krugman has written–often–that the forces pulling people
together into economic agglomerations are threefold: there are the benefits of
labour pooling and information spillovers, as he mentions. But he fails to
discuss the importance of forward and backward linkages–that is, the importance
of being near to suppliers and customers in a world where transportation costs
are non-negligible.This is a key consideration, giving rise to a measure called market
potential. One of Mr Krugman’s co-authors on the groundbreaking book The
Spatial Economy, Anthony Venables, co-wrote a similarly seminal
paper (PDF) with Stephen Redding which noted that market potential–the
nearness of a place to other economically vibrant places–can explain quite a
bit of differences in global wealth.This seems very relevant to the mega-region discussion. Why, for instance,
have places like Baltimore and Philadelphia performed much better in recent years
than similar cities in America’s distressed Rust Belt? Obviously, many factors
are at work, but it seems odd to suggest that the nearness of those places to
the dynamic economies of New York and Washington are unimportant. Distance still
matters for the movement of both goods and people. Being in Philadelphia confers
an advantage on firms, who then have fairly good access to nearby economic
centres, and also to the tens of millions of people surrounding them.The density and connectedness of economic activity in America’s northeastern
corridor increases the returns to operations all throughout the region. The Rust
Belt cannot duplicate this market potential, being poorer and more dispersed. I
think Mr Florida is right to call this a factor worthy of policy
consideration.
