economic geography theories
Written by Waseem Raza

Commercial Geography focuses on theories about distribution of economic activities. Following are the theories in Commercial Geography that are discussed below:

  • Neo-classical approach, location theory
  • Marxist-inspired approaches and uneven development
  • Alternative approaches and new economic geography

Neo-classical Approach, Location Theory

In the Neo-classical approach, the discussion is that the factors of production i.e. (capital and Labour) will move across regions in order to maintain a balanced and efficient pattern of development. The fact in this theory is that in real life the factors of production cannot move freely over different regions, there are various constraints that are involved. For instance, the movement of capital such as machinery, material, or goods over a distant geographical location usually involves cost.

For labors, there is also involved the factor of cost. One of the obstacles that are involved in the free movement of factors of production is the Friction of distant. For manufacturing firms, there is a cost involved in moving raw material storeroom toward factory and there is cost associated with delivering finished products from the factory to ultimate consumers. Thus, for the people and business the strategy for the personal interest and profit maximization is based on the localization. So, the calculation of cost that related with the moving of factors of production in any geographical location forms the basis of Neo-classical location theory. Thus, the obstacle of distant of friction can be eliminating through the element of cost.

Marxist-inspired Approaches and Uneven Development

In this theory the issue of unequal and uneven development will be considered. This theory will include a discussion on wealth, value and circuits of capital. Wealth can be defined as a share of the reward that is generating during the economic process of adding value. The creation of value is therefore general in the economic development and particular in the uneven development. In this theory we learn what is value and how is value created? According to the Marxist theory the value is created through human labour. Value is always created by people or labour. Workers engage in a labour process by applying their labour on raw material in order to produce finished goods and these finished goods create values.

Marxist theory made distinguishes between several types of values. In this theory the key distinction can be made between exchange value and use value. Exchange value is a value for which you need to pay a certain price to buy them that is expressed in money. It is the value of a commodity to the person who uses it. For instance, of drinking a glass of juice. This theory also describes the circulation of value in different circuits of capital. However, for the capitalist the need to make a decision about what to do with the little capital (surplus value) which they create, and the other option is to re-invest their surplus value in the production process.

For instance, the owners of the pen making factory may decide to use the profit to hire a few more workers. Capital is divided into three circuits; Primary circuits involve investing the surplus value in production and continuously putting capital to work with the primary circuit. The secondary circuit involves investing surplus value in fixed capital. Capitalist investing their capital in the secondary circuit (e.g. property and development project) has much expectations of realizing their profit through the rental income and from the future sale price of the building. Tertiary circuit involves investment in science and technology, education, healthcare etc. this will increase the productivity and improving labor capability.

Alternative Approach and New Economic Geography

New economic geography approaches often provide a contrast to both the Neo-classic and Marxist approaches. New economic Geography approach is taking various social, cultural, institutional and other factors. New economic Geography approaches are shedding a new light on the problem of uneven development. For the study of Commercial Geographies many scholars use a combination of various approaches. On the one hand there are some key differences between the Neo-classical and Marxist approaches and on the other hand new Economic geography and the other alternative approaches are introduced for the discussion. By discussing geographical implications among agricultural, stages theory, cycle theories and wave’s theories are the theories that are examined to understand the new Economic Geography concepts.

Stages Theory

Stages theory is look upon the economic development and implication of broad sector stages between agricultural, manufacturing and services. This theory is composed of four sectors.

  • Primary sector related with the agricultural & Extractive activities.
  • Secondary sector related with the manufacturing and production.
  • Tertiary related with the services.
  • Quaternary concerned with the Research & Knowledge intensive activities.

The purpose of Stage theory is that societies and economics move through these stages for their development from agriculture to manufacture to services to knowledge-based form of development.

Cycle Theories

These theories are related with the process of economic evolution. Cycle theories focus on the stages if development through product and profit life cycle. Product life cycle show different location pattern from the conception of new product with an idea of innovation product life cycle theory focuses on the product’s profit stages are associated with the product life cycle theory.

Wave theories, Technical Change& Innovative

Wave theories are focus on the technical change and innovations. These technical changes and innovation are related with the four phases of business cycle i.e. prosperity, recession, depression and recovery. Each wave in the business cycle is associated with significant technological changes with other innovations in the production, distribution and organization and ultimately spread through the economy. Read more

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