Globalization: Countries, Cities and Multinationals

This paper explores the relationship between the size of a country, the size of its cities, and the importance of economies of scale in the modern era of globalization. In order to do this, it integrates three different literatures, namely the literature on the optimal size of a country, the literature on historical processes of urbanization and the performance of cities, and the literature on the role of multinational firms in the global economy. Using an economic geography perspective, but looking at these issues through the lens of economic history, it is demonstrated that the importance of agglomeration effects, and in particular relationship between city size and the prosperity of the nation-state, has changed over the different eras of globalization. In earlier eras of globalization, the importance of agglomeration was represented by a fairly simple relationship between the scale of the city and the scale of country-empire, whereas during the inter-war years of the twentieth century, this relationship began to change and to evolve into a much more complex set of relationships that are seen today. In the modern era of globalization the role of multinational companies has become critical for the global connectivity of a city-region, and city-regions in turn are seen increasingly to drive national economies. For industrialized countries the size of a city is nowadays much less important than its level of global connectivity, whereas the size of the city is still dominant in newly industrializing countries. As such, the relationships between firms, cities, and countries have in many ways been largely reversed, thereby casting doubt on various institutional economic theories regarding the optimal size of a country.