Shifts in Economic Geography and Their Causes

Recent decades have seen momentous changes in the economic geography of the world. Political transitions and economic liberalization have brought formerly closed countries into the world economy. In Richard Freeman’s phrase, this has amounted to a “doubling of the world labor force.” The collapse of communism in the Soviet bloc brings 260 million workers into the world labor force; the opening up of China adds a further 760 million; and Indian liberalization adds 440 million. At the same time, technological change has continued to reduce the cost of interactions within and between countries. Any product that can be digitized can now be shipped at (almost) zero cost. Airfreight accounts for a third of U.S. imports by value, and 25 percent of African exports are now airfreighted. For the United States, the value of time saved by airfreight and containerization has been estimated as some 12 percent to 13 percent of the value of goods shipped (Hummels, 2000).