Yener Kandogan, Ph.D.
Associate Dean and Professor of International Business
(Article by Kim Laux)

While international trade and investment play critical roles within specific companies, their effects can be much greater—in some cases affecting entire markets.

In his article, “The effect of foreign trade and investment liberalization on spatial concentration of economic activity,” accepted for publication in the International Business Review (November 2013), Yener Kandogan, Ph.D., associate dean and professor of international business for the School of Management, examines data from 168 countries to examine the impact of globalization (and other factors) on economic activity.

“Countries have long been liberalizing their international trade and investment; some globally under the World Trade Organization, while some took the economic integration deeper regionally,” said Kandogan.

“After writing a previous article on the shifts in economic center of gravity towards Asia, I was curious whether these integration efforts would lead to mega cities. For example, China has been benefiting greatly from globalization and economic development, and we observe such very large cities being built in very short periods of time. I wondered if this was caused by globalization only and what factors would cause such high concentrations of economic activity.”

As part of his study, Kandogan studied the varying responses of countries to foreign trade and direct investment liberalization on spatial concentration of their economic activity by considering moderating factors such as market size and level of economic development. His conclusions were based on data from 168 countries over the past 30 years.

“What I found is that international liberalization alone (the process of globalization) does not necessarily cause economic agglomeration or the the development of mega cities. Other factors, such as the size of a market and its level of economic development, also play significant roles,” he said. “The results suggested that less developed countries with small markets tend to have more concentrated economic centers, and that globalization leads to more concentration for developed and smaller countries.”

One of the key lessons businesses can learn from Kandogan’s work is the value of location and how specific factors are changing markets geographically.

“Location decisions are one of the most important decisions for multinationals as it affects their efficiency, production costs, competitiveness, access to markets, key resources and strategic assets,” Kandogan explained. “Some of these factors are associated with agglomeration of economic activity, and revealed that multinationals prefer existing centers of economic activity as their operation center for more developed and smaller countries.”