Geography lost and found in economics

The contribution will consist of two parts. The first part will demonstrate the contrast between the great and increasing importance of geographic factors for economic development and the small and decreasing attention mainstream economic theory paid to spatial aspects until recently. It thereby reveals how much mainstream economic theory cannot explain. The second part will elaborate the geographical innovations of modern economic theory, their under-exposed predecessors and it will try to investigate into the scope of a further approximation. The demonstration of the contrast between the importance of geography for economic development will start with the earliest history: Human settlements developed where the best geographical conditions for human survival existed. As civilisation spread out geographic dissimilarities, especially mineral wealth, induced trade, and for several thousand years the important trading routes dominated the geographical distribution of wealth around the world. The rise of (national) states since the 15th century partitioned the attention of geographic factors into domestic, i.e. regional aspects - central planning to imporve efficiency and strengthen the military potential - and foreign aspects - the importance of an export surplus for acquiring gold, synonymous with national wealth at that time. The dichotomy of geographical influences - regional as different from foreign - persisted until recently. Industrialisation and the steamship, subsequently the railway, enhanced the importance of geography for economics: For the first time a considerable geographical division of labor arose, benefiting from economies of scale, and based on locally available, region-specific factors of production and skill. Neo-classical economic theory nevertheless concentrated on the abstraction of the one-good/two-factor economy, modelled not as an area but as a point in space, and foreign trade theory modelled two such point economies trading with each other, the famous 2-by-2-by-2-case - two countries (points), two factors of production and two goods. The highly abstract neo-classical approach yielded important results, economics came out as a science, but geography was lost en route, for almost a century. Outsiders only dealt with spatial aspects of the economy. Integration in the Post-World War II world enforced a new interest in geography: The slowly increasing de-facto integration of the world economy in the last two decades demonstrated the unrealistic nature of the neo-classical convergence assumptions; why some countries or regions develop better than others got again the honour to be considered as a problem of economic theory. Even more important proved the rapidly increasing integration of Europe: Countries effectively lost their national demand-side policy instruments and a competitive race of regions started. All the old, outside-the-mainstream theories were unearthed, renovated, and marketed in a way, that disguises in many cases how little has actually been added. The second part of the paper therefore will try to collect all the new theoretical attempts to deal with geographic aspects, to investigate into their innovations and to evaluate their explanatory power. Has economics already found all its geographical connections?