Globalization in a nutshell

Abstract

The geographical distribution of production is getting an increased amount of attention in economics. Distributed trade opens for production where it is cheapest, which in turn is reinforced by economies of scale. Using a simple agent-based model for the geographical interplay between transportation costs, economies of scale, as well as information costs, we address here the transition between local and distributed economies. The model naturally recapitulates that decreased transportation and information costs favor large companies. This suggests history dependence in the sense that new companies typically reemerge in the vicinity of old ones. Further, it suggests that company stability depends on transport costs, and that the transition from a local economy to a global economy is naturally driven by reduced transportation costs and an increased information horizon.