Economic Geography

part of the local ‘environment’ (to use Porter’s terminology) on which firms
draw in creating and sustaining their competitive advantage. Krugman uses the
term regional fundamentals to refer to key regionally-embedded assets such as a
well educated workforce, the result of a strong tradition of good schooling and
higher education, a local culture of entrepreneurship, modern infrastructure
(physical, social and cultural), and a sustained form of purposive public policy.
These also form part of the local environment that influences the competitive
performance of a region’s firms. He tends to treat these two sources of regional
competitiveness as distinct. In reality, of course, they are likely to be interrelated
and mutually reinforcing: the particular economic clusters and specialisations
that develop in a region are – to some extent – influenced by a region’s funda-
mentals, and the latter will in turn be (re)shaped by those specialisations and the
externalities that emerge around them.
What Krugman calls regional fundamentals are similar to what Camagni
(2003), in his discussion of territorial competitiveness, refers to as regional
‘absolute advantages’, the region-specific sets of socio-institutional and cultural
norms, networks and structures (including social capital) that impact on economic
outcomes (see Granovetter 2005). Such characteristics tend to be relatively
immobile between regions, and hence are sources of both relative and absolute
advantage. Economic geographers now put considerable emphasis on the role of
local ‘institutional thickness’ and social embeddedness in local economic develop-
ment, though demonstrating their importance has proved far from straightfor-
ward. For example, the empirical evidence for the impact of social capital on
economic performance, nationally or regionally, remains somewhat ambiguous
(see, for example, Casey 2004). Nevertheless, the notion of regional fundamen-
tals does at least highlight the way in which a region’s ‘assets’ extend well beyond
its stock of firms, and their traded and untraded interdependencies, and its labour
force, to include a host of social, institutional and cultural features that both shape
regional economic development and serve to some extent to differentiate one
regional economic space from another.
Such considerations suggest, then, that we can think of regional competitive-
ness in at least two, interrelated ways: in terms of a region’s relative attractiveness
as a location for mobile labour, capital and knowledge; and in terms of the rela-
tive range, quality and nature of a region’s externalities and fundamentals that
together constitute a locally-specific environment of resources, capabilities or
assets on which local firms and workers can draw, directly or indirectly. This latter
idea seems to be behind the European Commission’s argument that the idea of
regional competitiveness:
Should capture the notion that, despite the fact that there are strongly
competitive and uncompetitive firms in every region, there are common
features within a region which affect the competitiveness of all firms located
there.
(European Commission 1999: 5)
Economic geography and the new discourse of regional competitiveness
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Of course, a region’s ‘resource environment’ (or ‘common features’) can
impact either favourably or unfavourably on its economic development; and an
environment that was once highly favourable can at some later date become
progressively less favourable, as once positive externalities and fundamentals cease
to be sources of competitive advantage. Indeed, one of the most intriguing aspects
of regional competitiveness is why some regions are able to maintain their rela-
tive competitive advantage over long periods of time, while others lose theirs and
then find it difficult to recreate it. The basic point is that regional competitiveness
is a dynamic process, subject to constant pressures and changes from both with-
out and within. How a region’s economy reacts and adjusts to such changes is
really at the heart of the regional competitiveness issue.