"The competitiveness of regions or locations can best be explained using trade theory." Discuss

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The lack of a commonly accepted definition is in itself an opposing factor to the concept of macro-economic competitiveness. Significantly, the argument is based on the fact that macro-economic competitiveness is amorphous in nature and possesses knowledge of diverse interpretations and understanding. This is by far dangerous to base economic policies around such a concept. However, one needs to note that competitiveness of regions or locations can be best explained using trade theories. This discussion begins with a review on the limited role that geographical factors have on traditional trade theories in terms of competitiveness. Thereafter, the topic deviates into the emergence of the new economic and trade theories. It also explains as to which of these new theories consider geographical factors as determinants of trade.

Extraits

[...] This approach builds on Porter's theme of corporate strategy and process as a source of competitive advantage for a nation. Investigation of the avantages of the groupment of firms ( Clusters) and the industrials districts shows the complex relatioship between historical, geographical and institutional developments and the evolution of business and social networks that lead to competitiveness. Theses differents factors open up the possibility of gouvernment to develop clusters or industrial areas to attract capital flows and companies. Conclusion Every year, there have been “world competitiveness reports” now for almost twenty years. [...]

[...] Also they anderline that the differents barriers to trade also influences location because firms often locate in country or regional integration blocs, clusters to avoid the cost of disavantages (Example, tariffs, quotas and non-tariff barriers) to supplying markets with exporting from different geographical locations close to large market. That why lot of multinationals and firms changing theirs location near to their large markets when transport costs are high. If the transport is very low, the location is assumed to be the result of old or historical developments that encourage companies to locate in their areas. To resume, traditional trade theories always determine locations of trade by transport costs, the size of market and the trade barriers. [...]

[...] The sources of regional competitiveness may also originate at a variety of geographical scales, from the local, through regional, to national and even international. Therefore, the possibility of isolating the precise effects of any individual factor is limited. This has major implications for the empirical measurement and analysis of regional competitiveness. So the traditional theories have tented to relegate geographical factors to the sidelines and to concentrate on economic variables such, prices, trade barriers, market failure to explain trade; that not totally wrong but we saw that some new theories seems to be more adapted to explain the competitiveness of these locations. [...]

[...] A third is by maintaining competitive position by adressing the determienants of national competitive advantage: by creating factors conditions, having strong local demand for the goods or services that are being produced, having related and supporting industries that are internationally competitive and having a good startegy and structure and domestic rivaly that encourages continued innovation.The New Trade Theory (Krugman, 1981; Grossman and Helpman, 1989) in the 1980s is a methodological, instead of a conceptual, breakthrough in modeling trade. This is so because increasing returns to scale as a factor for trade has been recognized for a long time, along with factor endowments. What the new trade theorists break away from is the assumption of general equilibrium and associated perfectly competitive market in modeling trade. In the new framework, individual firms enjoying increasing returns to scale will grow in size and result in monopolistically competitively market structure. Differentiated commodities facilitate specialization and intra-industry trade. [...]

[...] competitiveness of regions or locations can best be explained using trade theory.” Discuss Introduction The world global market is nowadays a reality, as a matter of fact we consum today products and services from all over the world. The important growth of international trade in goods and services and the increase of financial flows during the last fifty years focused attention of economists and companies on the called “Process of globalisation”. Interest in globalisation is sumulated by a number of developments that appear to be squeezing the world into a large interconnect economic system. [...]