Trade, Transportation and Geographic Specialization

Trade Transportation and Geographic Specialization

Source: Adapted from: E. J., Gauthier H. L. and M. E. O’Kelly (1996) Geography of Transportation.

The evolution of transport systems impacts regional economies in terms of their level of specialization. More connected regions tend to be more specialized, while less connected regions tend to have a lesser degree of specialization and less developed economic systems. The above figure represents a simplified example of how transport changes may impact the specialization of regional economies. At the start, it is assumed that each economy needs to produce five types of goods (A to E).

In a situation of self-reliance (1), there is no efficient transport link between the two regions; the majority of goods cannot be transferred cost-effectively. They are isolated from one another and must satisfy their own needs. Thus, each region tends to be similar in terms of economic output. While regions have different environmental endowments, they must still provide for every basic necessity, such as food. Quantities produced depend on the demand and the industrial capacity.

With a transport link between two regions, specialization can take place (2). Each region develops its respective potential; Product D for the first region and Product E for the second, assuming that they respectively have a comparative advantage for these two products. A range of goods (A to C) can remain unaffected by factors such as high transportation costs, making them less tradable. If Product D is cheaper to produce in the first region, it becomes more efficient to lessen the production of other products and concentrate on Product D. Respectively, the second region can do so for Product E. Therefore, the first region can allocate more resources for the production of Product D and can then sell the surplus (minus local consumption) to the second region. The key to this specialization becomes the difference between the transport costs and the production costs of a product. If the unit cost savings resulting from specialization exceed the unit transport costs, then specialization can take place.

Regional specialization is greatly expanded with international trade (3). By having access to a larger market and a range of products through a gateway, namely a seaport, regions A and B can specialize even more in the production they have respective comparative advantages. They can even cease production in a specific array of products, which are now imported. Under such circumstances, the reliance on transportation increases, even if its relative costs may be declining.