A region's market potential can be seen as an interaction between the demand and its durable location attributes. A region's market potential is the sum of the region's own local market and the external demand for the region's production. The opportunities for enterprises in a region to satisfy demand in other places are determined, on one hand, by production costs and, on the other hand, by the geographical interaction costs. For contact intensive products geographically determined interaction costs are much lower for interaction and exchange within than between functional regions.
The larger the market potential a region captures, the more industries and enterprises can overcome the fixed costs that to a varying degree are associated with all production and the more varied and diversified the production in the region will be. The increased number of enterprises and industries in a region improves the conditions for a more or less spontaneous development of different clusters of industries and enterprises that mutually support each other as they interactively develop different types of economies of scale.
Without scale economies, the enterprises and their production would tend to be evenly dispersed over geographical space.When enterprises have fixed costs they have advantages of and need to have access to a large market. In a world where many industries are characterised by internal economies of scale, many enterprises will choose to locate in the same large market. As long as cumulative effects give rise to a growing market potential, a market place is created for more diversified industries and enterprises with internal economies of scale. Large regions are often home markets for enterprises for a large number of industries and within a wide set of niches.
Internal economies of scale must also be supplemented by another phenomena, namely external economies of scale. When external economies of scale are present, the costs for each individual enterprise in the industry in the region decrease when the number of enterprises in the industry in the region increases. As the enterprises are located close to each other, a number of advantages arises. The enterprises can, for example, share information about markets and technology. It is also normal that a common labour market develops with a labour force that has skills that are specialised for the industry in question.
Here the chain of cumulative causation is also working so that more enterprises are attracted to locate in regions with strong vertical clusters and where the location of more enterprises strengthens the cost and productivity advantages of the vertical cluster.
However, these market driven processes of reinforcing growth do not work in a positive direction in all regions. On the contrary many regions, to a varying degree, face problems with industrial decline, unemployment and out-migration of people. In these cases the positive feedback helps to bring about a negative spiral. Hence, these regions experience a negative chain of cumulative causation.
It is natural to ask the following question: how could regional policies be devised under these circumstances? In particular, it seems vital to better understand how entrepreneurship, firm growth and cluster formation could be stimulated and supported in the new economic geography.
Related topics to the description above highlighted during the Uddevalla Symposium were:
- Firm start-ups, growth and migration
- Industrial clusters and firm networks
- Lock-in effects and path-dependence
- Endogenous growth
- Policies for stimulating entrepreneurship
- Policies for stimulating firm start-ups and growth
- Policies for stimulating and developing industrial clustering
- Policies for guiding R&D-investments
- Policies for stimulating endogenous growth
A hard-back proceeding of the revised papers presented at the symposium has been published by the University of Trollhättan/Uddevalla. For more information about publications from this Uddevalla Symposium as well as from all Uddevalla Symposia (so far) please click here