On the Spatial Dimension of General Equilibrium

Abstract

Problems related to the spatial aspects of economic development are considered within the framework of such scientific disciplines as "regional economy", "spatial economy", "new economic geography", "theory of international trade" mainly from the point of view of partial analysis. The article proposes a "basic model" designed to integrate the spatial dimension into the theory of general equilibrium in relation to a simple exchange economy. Its analysis shows why the choice by economic agents of the place of residence and production activities is as important as the selection of the field of specialization. Key modifications in the functional relationships of the main economic variables linked to the spatial dimension of economic activity are formulated. At the same time, it is shown that the effects of the social division of labor, identified using the "basic model", are potential, since the model ignores huge transaction costs that inevitably accompany the interaction of partially rational economic agents. That is why anchoring in space of the place of transactions, which is the result of experience, becomes a natural way of adapting institutional conditions to the real abilities of economic agents to receive and process information. And these adjustments, in turn, lead to changes in the toolkit of the market mechanism – in particular, adding to it rent by location.