Recently, researchers place the application of the theory of international trade and FDI have begun to include important new theoretical developments, such as the role of chance and dynamics. Randomness plays a critical role in determining the actual structure of world production. For example, Krugman (1991) Traces of the location of the carpet industry inDalton,Georgia, Catherine Evans, who in 1895 accidentally made tufted bedspread as a wedding gift. The veil was considered so beautiful that neighbors began to demand crested points. (Head 1995) From this beginning, with the addition of modern technology, the carpet industry grew and became concentrated in Dalton.
The general theory of location or a trade can not be due to random events that lead to global manufacturing site, such as carpets in Dalton. Rational planning, rather than an historical accident, it would be more consistent with the predictions of their location or the theory of trade.Dalton, (Grimwade 1999)Georgiacarpet industry example shows how random events combined with dynamic factors, such as new or increased demand, technological and infrastructure development and creation of new firms to create a permanent global manufacturing site. Chance and dynamics as in this example, Dalton, because the veil kettle could be born anywhere. (Fujita 1999) In contrast to the agglomeration economies often do not occur randomly, but they have a dynamic component. For example, in San Francisco Bay Area location in Silicon Valley Tech cluster is much less surprising, and random than theDalton,Georgiacarpet place. Bay Area is home to several of the leading research universities in the world and numerous research laboratories of the government. State ofCaliforniahas large and thriving defense industries. Thus, both demand and supply conditions have contributed to the creation of technology cluster ofSilicon Valley. The final new contribution to the literature on the place theory, foreign direct investment and trade literature on hysteresis, or path dependence. Hysteresis arises when the temporary economic shocks such as exchange rate volatility will lead to permanent changes in the global structure of production and trade. For example, many Japanese auto and auto parts manufacturers exported cars in theUnited Stateshas experienced considerable economic difficulties in the 1980’s, (Fujita 2004) when the dollar started to fall.