Geography, trade and regional development: the role of wage costs, exchange rates and currency/capital movements

Existing theories of geographical specialization and trade can be classified into four groups: supply-side; demand-side; endogenous growth and institutional models. In the recent past, economic geographers have paid little attention to earlier regional economic analysis and concentrated for the most part on detailed examination of production structures, the chains linking upstream and downstream activities into production and value networks, clusters, institutions and more recently, economic evolution. As a result, existing economic geography is ill-equipped to deal with the impact of some aspects of the evolution of costs, exchange rates, trade and capital flows on regional development and pays relatively little attention to economic calculation. Geographical economics includes an underlying theory of trade and micro-foundations, yet its supply-side approach neglects the role of monetary and demand-side (except in gravity models of trade) factors. The aim of this article is to argue for an extension of existing theoretical frameworks to embrace these issues in the light of recent trends in global economic geography and successive financial and debt crises that have stricken the developed world.