VoxEU Column

Globalisation and the COVID-19 pandemic: A spatial economics perspective

FUJITA Masahisa
Professor, Konan University; Adjunct Professor, Institute of Economic Research, Kyoto University; Former President and Chief Research Officer, Research Institute of Economy, Trade and Industry

For FUJITA Masahisa's full bio,

Faculty Fellow, RIETI

Unlike previous infectious diseases, which tended to be connected to poor environments, the epicentres of the COVID-19 pandemic have been the wealthiest metropolises of industrialised countries. This column argues that the population concentration in large cities has provoked an even more intensive agglomeration of social and economic activities in high-interaction environments, driving urban development but also fostering conditions for the spread of COVID-19. Globalisation further promoted concentration, migration, and inequality, which might hamper the restructuring of the post-pandemic global economy if effective international coordination and a multi-core international regime that values diversity and competition in creative endeavours continue to be threatened.

Contrary to many other infectious diseases, the novel COVID-19 virus does not have a direct connection to poor environments. Rather, the epicentres of the most severe outbreaks until mid-May 2020 were the wealthiest metropolises of industrialised countries.

Urbanisation and globalisation represent civilisational progress and they are highly intertwined with the decrease in the cost of moving people, goods, money, information, reducing transportation costs more broadly. They also allowed for the development of the ‘knowledge creation society’ of today, which is centred around global metropolises. However, this reduction of transportation costs also has facilitated the international spread of viruses, bringing infectious diseases to all of humankind. The current crisis has manifested this inconvenient truth.

We examine the initial phase of the COVID-19 pandemic until mid-May from a spatial economics perspective. First, we show that the initial outbreak centred around the megalopolis (i.e. a compound of metropolises) in the eastern US and the megalopolis centred in the EU. Next, we examine the causes of such a concentration of COVID-19 infections in the two megalopolises. Finally, we discuss the possible impact of the COVID-19 pandemic on the future direction of globalisation.

Geographical concentration of infection

In the early 1990s, Paul Krugman, Anthony J. Venables, and one of the authors of this column (Fujita) set two concrete goals when they started joint research aiming to establish the basic theory of spatial economics (Fujita et al. 1999). The first was to explain why the industrial belt in the north-eastern US, which formed in the second half of the 19th century within the approximate parallelogram outlined by Portland, Baltimore, Green Bay, and St. Louis (Figure 1), continues to thrive even in the current knowledge creation society.

Figure 1. The US Parallelogram
Figure 1. The US Parallelogram
Source: Krugman (1991)

The second was to predict the ‘new economic geography’ when the integration of the EU was to establish the free movement of people, goods, money, and information within Europe. In Figure 2, the darkened areas in the central part of the map, called the ‘Blue Banana’, or the ‘Liverpool-Milan Axis’, show the concentration of the regions with the highest per capita GDP in Europe. This set of cross-border megalopolises forms a curved banana shape from north to south: Liverpool, Birmingham, the London metropolitan areas, Amsterdam, Brussels, Luxembourg, the Rhineland and the southern part of Germany, the Alsace region of France, Switzerland, and the Lombardy province in northern Italy. In fact, the road distance between London and Milan is almost the same as the distance between New York and Chicago, about 1,300 km. Therefore, the spatial area occupied by the European ‘Blue Banana’ is about the same as that of the US parallelogram.

According to the Johns Hopkins University COVID-19 Dashboard, approximately 4.8 million people were infected worldwide by 18 May 2020. The US, which has 4.3% of the world's population, accounted for 31.4% of infected people in the world. Europe (including the EU, UK, Switzerland, and Norway) with 6.7% of the world's population accounted for 28% of infections. Combined, the 11% of the world population living in the US and Europe was responsible for about the 60% of the infected people in the world.

If we take a closer look at the US and Europe, the US parallelogram and the European Blue Banana both contain the epicentres of the respective COVID-19 outbreaks. In the US, the five states within the parallelogram (New York, New Jersey, Illinois, Massachusetts, and Pennsylvania) which contain less than 20% of the national population accounted for almost the half of all infections in the US. While infections began in early March in the western states of Washington and California, they spread rapidly throughout the US and by mid-May, the main outbreaks in the country were all located within the parallelogram. Even narrowing the focus further, New York County, with only 2.6% of the US population, accounted for the 13.1% of US infections. In Europe, Lombardy, with only 16.6% of the Italian population, accounted for 37.6% of total infections in Italy. This striking geographical concentration of infections in the most prosperous metropolises in the world was a prominent feature of the COVID-19 pandemic during the first half of 2020.

Globalisation with '3C' environments

Why are people still concentrated in big cities, even with the development of ICT? The core activity in the age of knowledge creation is the creation and exchange of new knowledge. Despite technological advancement, face-to-face communications in the 'crowded places, close-contact settings, and confined and enclosed spaces’ (or ‘3C’) environment are still essential in generating synergies based on tacit knowledge, which only resides in people's brains. In this sense, ICT and face-to-face interactions are complementary in a knowledge creation society.

Not only business meetings and scientific research, but also most urban activities such as higher education, live performances, and social gatherings at bars and restaurants require 3C environments. The population concentration in big cities has provoked an even more intensive agglomeration of social and economic activities in 3C environments, driving urban development. But, at the same time, the agglomeration of such urban activities directly backfired as the source of the self-propagating spread of COVID-19.

Adding to this problematic setup was globalisation. The free movement of people, goods, money, and information has promoted greater concentration of economic activities in specific regions of the globe. The US north-eastern parallelogram and the European Blue Banana represent the most notable agglomerations of creative industries. Wuhan is another example, as one of the main manufacturing hubs of China.

As the cornerstones of the global business networks and supply chains, these places are both the source and destination of a high number of international and domestic travellers. Due to this amount of movement, the COVID-19 virus, which reportedly only transfers from person to person in '3C' environments, easily crossed national borders.

Globalisation has also promoted international migration. There are many so-called essential workers supporting New York's financial district and the Italian high fashion industry. Most of these essential jobs are low-paid and largely filled by migrants, including illegal workers. Because of high rent and commuting costs, these workers live in the marginal agglomeration in cramped homes and commute downtown on crowded public transportation. The working and living conditions of these migrant workers also seems to be a feature of the infection-prone 3C environments of the knowledge creation society.

Globalisation in the post-crisis world

Hence, while globalisation represents civilisational progress, it also accelerated the COVID-19 pandemic. Many countries took emergency measures to stop the propagation of the virus by blocking their national borders and restricting the internal movement of people. As a consequence, we are facing a novel situation regarding the movement of people, goods, money, and information. The cost of moving people has risen sharply, and the flow of goods and money has become unreliable, while on-line information exchange is more active than ever. When infection rates decrease, each country will gradually resume economic activity. But will the global economy return to the pre-crisis normal from the current, highly fragmented situation?

Consider two alternative scenarios for the post-crisis global economy. The first is one where the fear of even more acute supply shocks of essential goods motivates rich countries to scramble to hoard such domestically produced goods. Retreating from the global supply chain would represent a setback for globalisation. The second scenario is one where the global economy adjusts to living with the coronavirus. One of the key issues in this scenario is promoting revolutionary ICT in order to reduce face-to-face contact and increase remote meetings without losing effectiveness in communication. Developing a robust global supply system for the medico-pharmaceutical industry is another relevant issue.

It is still too early to judge whether these discussions are temporary or are here to stay. But it is certain that the challenges of living with the virus mentioned above will create opportunities for innovation, which may trigger the reactivation of the global economy. The reorientation of globalisation will be achieved "by responding successfully to challenges" as stated by Toynbee (1946) in the context of the growth of civilisations. Innovative responses to global problems are best promoted through international cooperation under unrestricted pluralism.

Unfortunately, the COVID-19 crisis hit the world precisely at a time when international coordination mechanisms were destabilising. We foresee difficulties in restructuring the post-pandemic global economy if the global community continues to lack effective coordination.

To understand the difficulties in coordination, we need to tackle two aspects of the collateral effects of globalisation revealed by the pandemic. The first aspect concerns inequality across countries that are integrated into a single region. Immigration and disparities in economic and social conditions were significant causal factors contributing to the explosion of infections in metropolises.

While inequality within the EU (see Figure 2) already existed before the integration process began, it became more pronounced as integration proceeded. Efforts of individual countries to narrow the gap will only have limited effects but coordination in fiscal policy could help foster greater coherence. In July, the EU reached an agreement on the unprecedented proposal by Germany and France to create an EU bond to finance the post-pandemic economic recovery plan, including a substantial grant facility without a repayment obligation. It may advance the integration of the EU around fiscal policy, which was debilitated by Brexit and the rise of populism.

Figure 2. European Blue Banana
Figure 2. European Blue Banana
Source: Author's elaboration based on nama_10r_2gdp/Eurostat and Combes (2008)

The second aspect concerns China-US disputes over hegemonic power. East Asia was the greatest beneficiary of the steady progress of globalisation over the past half-century. Under the current US government, the loss of middle-class manufacturing jobs to China, as the world's factory, has become widely politicised. Some forecasts say that China’s GDP will surpass that of the US between 2030-2060 (Note 1). It is not surprising, then, that the US has become focused on the loss of technological hegemony to China.

Communication in the post-pandemic world hinges on the future of the China-US 5G technology hegemony race. Recently, a Japanese newspaper, the Nihon Keizai Shimbun, reported (Note 2) that an analysis of Huawei's smartphones showed that the usage rate of US-made parts has dropped from about 11% in the recent 4G model to about 1% in the 5G flagship model. In comparison, the usage rate of Chinese-made parts has risen significantly from about 25% to about 42%. That is, since the US government banned Huawei from acquiring technology from US companies without government approval, it made significant adjustments. China is aiming to accelerate the movement to establish its own technology platform.

The digital revolution may eventually revolve around one platform centred in the US and another one led by China. Other countries, such as European and Asian countries, can provide technology, products, and services to both platforms, rather than splitting into two camps. A world with multiple platforms formed in parallel will be more diverse than a world with only a single platform.

In this regard, it is important to remember that the ancient silk road was the most prosperous platform from the 7th to the 9th centuries under its bipolar hegemony, with the Tang Dynasty to the east and the Sassanian Persian empire to the west. Surrounding kingdoms encompassing the six different cultures of Central Asia, East Asia, Southeast Asia, South Asia, the Middle East, and Europe flourished. From a broad perspective, the world in the 7th to 9th centuries may resemble the world of today. History teaches us that a multi-core international regime that values diversity and competition in creative endeavours, with participants connected through trade, who learn from each other and are open to ideas that are not directly in their self-interest, while avoiding the use of force and power struggles, will lead the entire system to prosperity and diversity.

Editor's note: The main research on which this column is based first appeared as a Policy Discussion Paper of the Research Institute of Economy, Trade and Industry (RIETI) of Japan

This article first appeared on www.VoxEU.org on August 16, 2020. Reproduced with permission.

  1. ^ E.g. "US and China to fight for top GDP in 2060 while Japan dips to 5th", Nikkei Asian Review, 1 August 2019.
  2. ^ "Huawei teardown shows US ban made company turn to Chinese parts" (English translation in Nikkei Asian Review, 14 May 2020).
  • Combes, P-P, T Mayer and J-F Thisse (2008), Economic Geography: The Integration of Regions and Nations, Princeton: Princeton University Press.
  • Fujita, M, P R Krugman and A Venables (1999), The Spatial Economy: Cities, Regions, and International Trade, Cambridge: MIT Press.
  • Krugman, P R (1991), Geography and Trade, Cambridge: MIT Press.
  • Toynbee, T, A J (1947), A Study of History: Abridgement of Volumes I-VI, Abridgment by D.C. Somervell, Oxford: Oxford University Press.

August 25, 2020