5. Spatial Economics: Theoretical Framework

This chapter evaluates the theoretical framework within which analysis can be conducted by examining various regional development theories, including work by Myrdal and Friedmann; leading to Paul Krugman’s ‘New Economic Geography’ [NEG]. It became apparent that the NEG had not been used to analyse infrastructure development in any developing country. This was despite its legitimate claim has a suitable framework for such an analysis; leading to understanding the growing income disparities between China’s interior and its interior hinterland since the reforms of 1978. However, it was also established that Paul Krugman’s NEG did not account for the agglomeration economies resulting from knowledge linkages arising from the micro foundations of knowledge creation, despite accounting for the agglomeration economies arising from manufacturing related activities. A link exists between the NEG and the rise of Modern China through the ‘islands of Capitalism in an ocean of central planning’ paradigm. The ‘islands of capitalism’ being represented by the SEZ’s.