Economic Geography



2) Historical Path 2.1 Germanic Geometry 2.2 Social Physics 2.3 Cumulative

Causation 2.4 Local Extenal Economies 2.5 Land Rent and Land Use 3) Krugma



1) Introduction

2) Historical Path

2.1 Germanic Geometry

2.2 Social Physics

2.3 Cumulative Causation

2.4 Local Extenal Economies

2.5 Land Rent and Land Use

3) Krugman's model

3.1 What is about

3.2 The formal model

3.3 Summary


4.1 What do we learn?

4.2 Central and periphery in Europe today

4.3 Concluding thoughts


During the 1960's and 1970's International
trade theory was almost entirely dominated by models based on constant
returns of scale and perfect competition. Even the assumption of immobility
of factors had always represented a very distinctive characteristic of
those models. For example lets think of the Hechsher-Ohlin Theory which
we studied during our course of International Trade. It makes of all those
assumptions its fundamental base. This and other models were a sort of"counter culture" in international trade that didn't claim that other forces
explained trade patterns.

Later new models were developed. They made
possible to write down coherent, rigorous and often elegant models of what
the economic and industrial reality was about: increasing returns and imperfect
competition. Both factors gave a new understanding of all trade patterns,
also explaining the role played by fixed costs, demand (domestic and foreign),
taste for variety and transportation costs within the inter-industry and
the intra-industry trade flows. That's why increasing returns were no longer
something to be avoided or assumed away at all costs. Furthermore IRS and
imperfect competition seemed like a natural next step in development of
trade theory rather than a set of disparate alternatives approaches. As
a consequence all the new intellectual opportunities offered by this revolution
in theory had in turn transformed a series of other fields. Specialisation
moved to be based on increasing returns, rather than an effort to take
advantage of exogenous differences in resources or productivity (H-O and

Ricardo theories).

In the last few years the "new economic
geography" has been a movement toward applying the above concepts from
the theory of international trade, in order to analyse the location of
production and industry within countries; or more precisely within economic
units characterised by high degree of labor mobility. The latter concept
is really important, because political and geographic boundaries don't
count anymore in economic geography. Countries are not points. Now factors
mobility and distances matter a lot. That is why in Europe it's wrong to
consider Germany or France as an economic unit. However, is correct looking
at the area including Belgium, western Germany and northern France: that
in fact shows a region with an high degree of factors mobility, inside
trades and, especially, huge manufacturing concentration and specialisation

In order to better understand the importance
of location theory, and even more of its responses and results, let just
give a quick overview of the following figures about the European economic
the richest regions per capita are also
the most populated
the wealthy regions are clustered close
higher wages where the access to the markets
is better

This paper will try to give the basic
answers to those issues.

In conclusion , it's necessary to underline
that market structure assumptions, here in terms of IRS and imperfect competition,
play a key role for location theory, while they are not so relevant for
international trade. Another divergence between the two fields is that,
for years, international trade theorists have almost worked completely
without reference to the idea of location theorists and regional scientists.

This lack in communication is also due to their different approaches, the
first ones dominated by the traditional presence of CRS, while the second
have always taken very seriously the role of economies of scale both internal
and external . That is probably the reason why many economists have supported
that studies in economic geography offer a basic rethinking of the economics.


Even though the entire paper will be based
on Krugman's theory and model, the most recent and well developed model
in economic geography, it will be also important to give an historical
prospective at the issue.

Five are the principal traditions in the
field of spatial economics. Four out of five represent different ways of
looking at the same thing, so they are almost rival alternatives; while
the fifth (von Thunen) largely divorces conceptually from the other approaches.

They are: Germanic Geometry, Social Physics,

Cumulative Causation, Local External Economies and Land rent and Land Use.

2.1 Germanic Geometry

It was born in Germany in the first half
of the century, concerning with a distinctive problem: the geometry of
location on a two-dimensional landscape. It had two traditional subsets:

Weber's analysis on the location decisions of a firm serving one or more
markets and