Charles van Marrewijk: Economic power is shifting, first to the east, then to the south

March 31, 2025

_{This interview was originally written in Dutch. This is an English translation.}

Charles van Marrewijk, professor of economics at Utrecht University, is one of the most innovative economists in the Netherlands. He has conducted research into economic resilience in Europe, the influence of urbanisation and income inequality in the world. How does he view the shifts in world trade, the role of demographics in economic developments and the competitive strength of the Netherlands?

By Harry Geels

You are fourth in the ESB 2023 ranking of the most innovative economists in the Netherlands. Which scientific studies have resulted in this high ranking?

'The ESB ranking of the most innovative economists assesses the innovativeness of a scientific article over a period of five years, specifically how often an article is cited. When other scientists cite an article together with the sources used in it, that article is considered less innovative than when an article is cited as the sole source without the original sources being mentioned again. This implies that in that case the older sources are considered less relevant.

My most frequently cited article is about regional resilience in Europe. Together with other scientists, I researched how the degree of urbanisation helps in the recovery from an economic shock. Our conclusion was that the more people live in commuter areas, as an indication of the degree of urbanisation, the greater the recovery power after a shock.

In addition, I have conducted extensive research with others into the broader patterns and determinants of cross-border mergers and acquisitions. We discovered that mergers and acquisitions are influenced by comparative advantages between countries and that they occur in waves. We showed that companies are more likely to engage in cross-border mergers and acquisitions if they are active in sectors where they have a comparative advantage in their home country. Moreover, the occurrence of mergers and acquisitions in waves suggests that initial mergers can create conditions that make subsequent mergers more attractive.

Thirdly, I have conducted research, again with others, into the relationship between demographic development and the development of income inequality, in which we have also made a prediction of income inequality in the world up to 2050. We expect the long-term downward trend in global income inequality to continue until 2027, thanks in part to the rise of China and India, after which inequality will increase again, partly because Africa will lag behind in economic development.

You are a specialist in Geographical Economics. What exactly is that? What are your most important findings?

'I am indeed a geographical economist. I wrote the book “The New Introduction to Geographical Economics” together with Steven Brakman and Harry Garretsen. The most important finding is that as the costs of interaction decrease, the clustering of economic activities increases. Cities become bigger and bigger and the countryside becomes less and less important. Cities then attract more highly educated people, which can lead to a reinforcing

spiral. This can then be used to examine what that means for the specific trade flows of those cities. It then appears that cities mainly export based on the so-called ‘factor abundance theory’, which means that they mainly export products and services from sectors in which there is a lot of specific knowledge.

The world index is now very skewed, with two-thirds of the weight going to the US and 2.5% to China, while both economies make up about 20% of the world economy.

Incidentally, there is a lot of overlap between geographical economics and international economics, which focuses primarily on interactions between countries. It examines issues such as trade, capital flows, currency markets and international policy issues. The emphasis is on macro-economic issues on a global scale. Geographical Economics, or Economic Geography, looks more at the spatial distribution of economic activities within and between regions. It attempts to understand why certain economic activities are concentrated in specific locations, such as cities or industrial clusters. International Economics often uses abstract models that focus on the balance between countries, in which space (geography) is usually implicit or is neglected. Geographical Economics explicitly integrates space into the analysis. It uses models such as the New Economic Geography (NEG) to examine how transport costs, economies of scale and location choices lead to economic concentration. International Economics is often applied in policy analyses for countries or supranational organisations (such as the WTO or IMF) and focuses on global issues. Geographical Economics is used to analyse local and regional economic dynamics, such as urban planning, transport infrastructure and regional inequality.

There seems to be a shift towards less globalisation, with the major power blocs in the world wanting to become more autonomous. What do you think about this and what role does Donald Trump play in this?

'International economics teaches us that trade barriers destroy prosperity. We can measure the degree of globalisation by relating foreign trade to national income. This indicator has been on a downward trend in the large countries in recent years. The most striking example is China, perhaps contrary to what many people expect, because the country seems to be exporting more every year. But if we relate these exports to the national income, China is also becoming more autonomous. For China, this trend started in 2006-2007. China has therefore become much less open, partly because it has become much richer. Chinese products have become increasingly interesting for the Chinese themselves. They used to buy German cars, now they buy cars made in China. We are starting to see the same developments in India and probably at a later stage in Africa as well.

In addition to this trend, political arguments for more autonomy have also emerged in recent years. Consider Trump, who started a trade war against China in 2014. Europe, too, increasingly felt the need to become an autonomous economic region, an idea that was reinforced by the coronavirus and an increasingly erratic relationship with the US. Xi Jinping has also made China less open. He wanted to make internal demand a more important part of the local economy, while at the same time reducing sensitivity to external shocks such as wars, international supply shocks and trade restrictions, and import duties from major trading partners.

Three power blocs are indeed emerging. Nobel Prize winner Paul Krugman rightly said that this is actually the worst thing we could have. Not only because, as mentioned, it has a dampening effect on prosperity, but also because regional monopoly power can be exercised, which entails all kinds of risks. Just look at the power games that Europe and the US are playing out over American IT dominance, or that Europe is playing out with the US and China over the climate transition. I find it very difficult to interpret what Trump is really going to do. We can only hope that it is mostly just bravado and that the reality will be less dramatic. Trade restrictions, for example, mainly affect the Americans themselves. Creating even more inflation seems self-destructive. I am concerned about this now that the Republicans have both the Senate and the House of Representatives in their power and he is gathering mainly yes-men around him.

The centre of income is shifting, now from West to East and South, later back to the West and even more to the South.

The possible division of the world into power blocs makes investing partly political: to invest or not to invest in American Big Tech or in China? What are your main thoughts on this?

'It does indeed quickly become about ethical discussions. It seems that the most important lesson of investing, namely diversification, sometimes gets lost. If we go back to the three power blocs – Europe, the US and China – then excluding one of the three does not seem like a good idea from a diversification point of view. In fact, we should ask ourselves whether we should not realise a distribution based on economic factors, such as GDP, instead of stock market values. The world index is currently very lopsided, with the US weighing in at two-thirds and China at 2.5%, while both economies make up approximately 20% of the global economy. The power of American Big Tech is, of course, a problem. In this context, Joe Biden recently spoke of an oligarchy, referring to the similarly great power of the oil and steel companies at the end of the nineteenth century. At the time, measures were taken to break that power. Trump does not seem to want to stand in the way of powerful companies. And I wonder if there are enough investors who dare or are able to exclude them. For the sake of clarity, these discussions are beyond my area of expertise.‘

Is the Netherlands unique?

The Netherlands has a number of unique knowledge regions, for example Eindhoven and the surrounding area with ASML as the leading example. We also have many comparative cost advantages in the agricultural sector. This is one of the reasons we have become a relatively prosperous country. But we are certainly not unique. We see these rich economic clusters all over the world. Although it is likely that prosperity in the Netherlands will continue to grow, we will lose income share compared to the rest of the world because we will make up a smaller portion of the world's population.

My current research is about the relationship between demographic developments and income and trade flows up to the year 2100. The core is that a country experiences relatively favourable economic development when the labour force, expressed as a percentage of the total population, is larger than the world average. This phenomenon first occurred in Europe and the US, then in China, and now applies to India. In the second half of this century, it will also apply to Africa, which currently has a relatively high proportion of young people. If the ratio of the working population to the total population grows by 1%, economic growth increases by 0.173%. In the longer term, this also results in growth-on-growth effects, which can then accelerate rapidly. The message is that the centre of income is shifting, now from West to East and South, later back to the West and even more to the South. We have also asked the Lower House to pay attention to these developments, for example in the context of the trade missions that are being carried out, which should increasingly focus on India now, and later on Africa.

What are your personal ambitions? As a scientist, a person, or possibly in politics?

'Cambridge University Press publishes so-called “Elements” series, a kind of combination of a long article or a short book on a specific subject according to a referee process. This year, together with three colleagues from the Netherlands and the United States, we are starting an ‘Elements’ series as editors on ‘Urban and Geographical Economics’, which focuses on theoretical and empirical contributions to location decisions and politics within and between cities in a national or international context. I will be kept busy with that as an editor and author for the next few years.'