Localism and trade: does specialization help globals or locals more?

I have always been a bit confused by the “buy local” argument. How local is local? Does my local include San Diego? California? I am never sure.

Of course it’s good to keep your local businesses in business, and supporting local retail is one thing, obvious enough: but keeping the whole of production locally grounded strikes me as rather counterproductive from a macro-economic and regional economic growth perspective.

There are gains to trade, and at least some of those gains are expected to accrue to producers. It’s one of the thornier issues in the world: how are developing economies to gain if they don’t trade with people in economies who have money to trade for their labor/production, unequal though those trades are?

Yes, it’s nicer for taste to have a locally grown mango, but don’t farmers who farm mangos for shipping deserve to make a living, too? This would be a better question in a world where US corporations don’t run around the world buying up land and employing local farmers at low wages and creating monocultures. But then the problems are the corporations and their privileged social and economic protections rather than trades at larger geographic scales.

But the basic question still stands: regions have different advantages, and your locals that you’d like to keep in business are somebody else’s globals, and while you as a buyer may not mind not consuming the goods/services made from afar (a sacrifice for you) or the fact that your sellers have a restricted market because you think the world gets economic gains from not shipping things (a sacrifice for them), there may be potentially large opportunity costs for your sellers who attempt to wedge themselves in local niches rather than opting into regional specializations.

A new manuscript in the American Economic Review goes through to discuss the geographic incidence of trade costs–the burden that the transactions costs exert on regional imports and exports:

Anderson, James E., and Yoto V. Yotov. 2010. “The Changing Incidence of Geography.”American Economic Review, 100(5): 2157–86. DOI:10.1257/aer.100.5.2157

If you don’t belong to AEA, you can probably find this manuscript in working paper form on NBER. They don’t charge that much for downloads.

This is a complicated and difficult manuscript to read, but it’s worth struggling with because it helps us figure out how to understand why local sellers want to play both sides of the globalization/buying local fence while they want buyers to buy local. The model these authors develop enlightens one of the strong factors of globalization–the benefits of regional specialization are tangible, particularly for producers/sellers–as they are able to leverage markets outside of local areas and common pool benefits (such as infrastructure) provided for scale (not covered in the model as far as I understand it.) There is a physical and social infrastructure question when you think about regional specialization and economies of scale in production and logistics.

The locavore/local consumer answer to that is, I suspect, that if it can’t be made economically and sustainably in a local market, then perhaps the good, whatever it is, doesn’t need to be made at all (within reason; we’re not taking the logic to an extreme with things like medicine). I’m not sure what that means, again, from my macro perspective. Growth comes from trade, and while everybody loves to criticize growth, our recent recession should have given us a little perspective on how easy it is to go without growth (i.e., it’s not).

It’s is a bit like people saying to me that USC can only teach kids from southern California; nobody in the localism advocacy world ever says this stuff to white-collar workers because white-collar work is too often assumed to be green. It’s not. My livelihood depends on lots of kids moving to southern California, which may not be green, and lots of flying to and from for holidays, etc.