The contemporary global economy has developed through connections that transcend national borders. As people, goods, capital, and information sweep across the world, market size has expanded, fostering greater efficiency in production activities and promoting technological innovation. These changes have significantly broadened the quality and range of goods and services available in our daily lives, thereby enhancing the overall standard of living across society.

In recent years, I have used the framework of spatial economics to conduct theoretical analyses of how the expansion of market size influences economic activity and locational structures. Spatial economics is a field that seeks to explain how economic activities are geographically distributed and why they become concentrated in particular regions. From this perspective, it becomes clear that market size is a crucial factor shaping firm locations, industrial agglomeration, and even income disparities across regions.

Expanded choices and increased efficiency through integration

A wide range of benefits arise from an expanded market size. For firms, access to a larger consumer base enables economies of scale and makes it possible to reduce production costs. Moreover, the increased ease of recouping investments in research and development facilitates technological innovation. From the perspective of consumers, the diversity of goods and services increases, while prices tend to decline relatively.

These effects cannot be fully realized within the confines of a single nation. Only through cooperation among multiple countries and the integration of markets is it possible to form a larger market where these benefits can be widely shared. Economic integration extends beyond the mere expansion of free trade. It also plays a role in reducing transaction costs and enhancing the predictability of economic activity through the harmonization of institutions and rules.

Economic stability supported by international cooperation

The international economic order after World War II has been constructed on the foundation of multilateral cooperation. By establishing common rules in areas such as trade, finance, and investment, countries have achieved stable growth while remaining interdependent. This framework has contributed not only to improved economic efficiency, but also to the stability of international relations.

From the perspective of spatial economics, such international cooperation expands the market size, enhances the benefits of agglomeration, and elevates the overall standard of living on a global scale. Importantly, these benefits are not confined to a limited number of countries or regions. Indeed, these benefits can be broadly shared under appropriate institutional design.

Growing trend toward fragmentation

However, in recent years, movements that run counter to the trends of cooperation and integration have become increasingly visible in the international community. In some countries, there is a growing tendency to reduce engagement with multilateral international organizations and agreements, while prioritizing bilateral relationships and domestic policies. Such developments have aspects that are politically understandable. For citizens who feel uncertainty due to changes in the economic environment, domestically oriented messages may appear to offer immediate solutions.

However, economic theory indicates that substantial long-term costs are associated with fragmentation. When markets are segmented, market size contracts, firms' incentives diminish, and the pace of technological innovation slows. Increased uncertainty undermines the overall efficiency of the economy. Ultimately, this is highly likely to reduce the standard of living of future generations.

Tax competition and the structure of tax havens

A concrete example illustrating the necessity of cooperation among countries is the issue of tax havens. Some countries and regions attempt to attract firms by significantly lowering corporate tax rates. However, if countries continue to prioritize their own interests and engage in a race to reduce tax rates, the tax revenue base will ultimately be weakened, making it difficult to sustain public services such as education, healthcare, social security, and infrastructure development.

This situation shares a structure similar to the concept of "the prisoner's dilemma" in economics. Choices that appear rational for individual countries can collectively lead to outcomes that are undesirable for all. For this reason, it is essential to establish international rules; for example, the setting of minimum tax rates and the sharing of information through international cooperation.

Balancing the benefits and challenges of integration

Of course, economic integration is not a panacea. The progress of integration produces varying effects across regions and industries, giving rise to adjustment costs and issues of distribution. If such challenges are underestimated, support for integration may erode and the trend toward fragmentation may accelerate.

It is important to calmly analyze both the benefits and side effects of integration and to adjust their impacts through policy measures. In order to achieve sustainable integration, it is essential to support those who face changes. Methods of support include education, retraining, and the development of social security systems.

The intellectual role of universities in an age of fragmentation

Universities have a vital role to play in addressing such complex challenges. They serve as institutions that analyze reality from both theoretical and empirical perspectives and provide society with insights grounded in long-term viewpoints rather than short-term emotional arguments. With respect to issues such as international integration and market size, more constructive discussions can be achieved by aggregating knowledge from diverse academic disciplines, including economics.

We live in an era in which emotionally charged slogans readily attract attention. For this very reason, there is a growing need for measured, evidence-based discourse grounded in academic rigor. Through research and education at Chuo University, I seek to examine the significance of international cooperation and market integration from multiple perspectives, and to propose a better future by disseminating these insights to society.

Dao-Zhi Zeng／Professor, Faculty of Global Management, Chuo University
Area of Specialization: Applied Economics and Spatial Economics

Dao-Zhi Zeng was born in China in 1966. He graduated from the Department of Mathematics, Huazhong University of Science and Technology (China) in 1985. He completed the Master’s Program in the Graduate School of Mathematics, Huazhong University of Science and Technology (China) in 1987. He completed the Doctoral Program in the Graduate School of Engineering, Kyoto University in March 1996. He holds a Ph.D. in engineering from Kyoto University. After serving as Lecturer, Associate Professor, and Professor at Kagawa University, and as Professor at Tohoku University, he assumed his current position in 2025.

His current research focuses on the theoretical development of spatial economics in the digital society and its application to policies. He systematically analyzes how traditional economic activities are transformed in the digital age, aiming to advance new developments in spatial economics. His research has been published in international academic journals across fields such as urban economics, regional economics, environmental economics, development economics, economic geography, international economics, agricultural economics, mathematical economics, and experimental economics. He is also an author of Spatial Economics (Toyo Keizai Inc., 2016).

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