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The Economic Geography of Money and Finance

The Economic Geography of Money and Finance

Money and finance are basic to the form and operation of the economic landscape, yet traditionally geographers have accorded relatively little attention to the spatialities of financial systems. One of Ron Martin's research programmes over the past decade or so has been concerned with exploring this underdeveloped area, with constructing a new economic geography of money. This has a key underlying aim: to demonstrate that the spatial structure of the financial system is far from neutral in its effects, but rather influences the allocation or funds, capital and credit across regions and localities. In recent years, financial systems in many advanced countries have been undergoing rapid and transformative change, as globalisation, new technologies and deregulation have combined to stimulate organisational change within and amongst financial institutions (concentration, centralisation, rationalisation, outsourcing), the emergence of new circuits of finance (such as venture capital) and increasing volatility and uncertainty in financial markets. Some have argued that globalisation and new information and communications technologies are increasingly rendering geography and location irrelevant in financial affairs. Much of Professor Martin's research in this field has been concerned to contest such assertions. and to argue - theoretically and empirically - that space and place still matter, possibly increasingly matter, for financial transactions and allocations.

Professor Martin's early work under this task explored the implications of globalisation for the role of geography in finance, and argued strongly against the 'end of geography' thesis. To the contrary, it showed how location remains key to the conduct of financial transactions and markets, and how financial decision-making and the allocation of finance remain concentrated in the major money centres, with the implication that regions and location lacking such centres and remote from them could well be at a disadvantage in accessing finance (at least on the same terms and conditions as regions and location containing financial centres). Associated work showed how major changes in the financial system, such as the privatisation of public utilities and industries, involving the sale of vast numbers of shares to the public, and the operation of pension funds, have benefited regions that contain the main financial markets and institutions.

This theme has also been explored in much more depth in work undertaken, some jointly with colleagues elsewhere, on the private equity (venture capital) market, both in the UK and in Germany. Because of the 'relationship' nature of venture capital, investment, involving close contact between investor and investee, the need to minimise asymmetric information problems, and the risky nature of venture capital investment, this circuit of finance is particularly likely to exhibit 'spatial proximity' effects in its location and allocation of funds. Detailed survey-based research on the venture capital market in the UK and Germany, financed by the Anglo German Foundation (Grant 1346) tends to confirm this thesis, though because important differences exist in the geography of the venture capital industry as between the two countries (see map), the spatial distribution of venture finance in Germany is much less uneven than it is in the UK, where it tends to accumulate around London and the South East, where the venture capital industry is also overwhelmingly concentrated. This raises important questions as to whether regions outside London and the South East are disadvantaged in terms of access to venture finance, and whether this helps to account for their lower rates of innovative enterprise development.

More recent research builds upon these findings to explore the possible implications of decentralised versus centralised financial systems for the allocation of funds across regions, and whether there is a case for local capital markets (including local stock markets). Interestingly, whilst in Germany the traditional regional stock markets are struggling to retain a presence and a role, in the UK there is increasing interest in the 'resurgence' of regional stock markets. Further theoretical and empirical research will focus on this question of the need for and function of regional financial centres in the contemporary era of financial globalisation. Spatial Structure of the Venture Capital Market in Germany and the UK.

Spatial Structure of the Venture Capital Market in Germany and the UK.

Publications

Publications arising from this research programme include:

  1. The Growth and Geographical Anatomy of Venture Capitalism in the United Kingdom, Regional Studies, 23, 5, pp. 389-403.
  2. Money, Power and Space (with S Corbridge and N Thift), Blackwell (1994)
  3. Stateless Monies, Global Financial Integration and National Autonomy: The End of Geography?, Chapter 6 in Money, Power and Space, (with S.E. Corbridge and N. J. Thrift), Blackwell. pp. 152-176 (1994)
  4. Money and the Space Economy, Wiley (1999)
  5. The New Economic Geography of Money, Chapter 1 in Martin, R.L. Money and the Space Economy, Wiley, pp. 3-28 (1999).
  6. Selling Off the State: Privatisation, the Equity Market and the Geographies of Private Shareholding, Chapter 13 in Martin, R.L. Money and the Space Economy, Wiley, pp. 260- 283 (1999).
  7. Taking Risks in Regions: The Geographical Anatomy of Europe's Emerging Venture Capital Market (with P. Sunley and D. Turner) Journal of Economic Geography, 2, 2, pp. 1-30 (2002).
  8. Spatial Proximity Effects and Regional Equity Gaps in the Venture Capital Market: Evidence from Germany and the UK, (With C. Berndt, B. Klagge and P. Sunley) Environment and Planning A, 27 pp. 1207-1231 (2005)
  9. Venture Capital Programmes in the UK and Germany: In What Sense Regional Policies? (With P. Sunley, C. Berndt and B. Klagge), Regional Studies, 39, pp. 255-273 (2005).
  10. Decentralised versus Centralised Financial Systems; Is There a Case for Local Capital Markets? (With B. Klagge), Journal of Economic Geography, 5, pp 387-422 (2005).