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Economic Geography: A Review of the Theoretical and Empirical Literature

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Stephen Redding

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Abstract

This paper reviews the new economic geography literature, which accounts for the unevendistribution of economic activity across space in terms of a combination of love of varietypreferences, increasing returns to scale and transport costs. After outlining the canonical coreand periphery model, the paper examines the empirical evidence on three of its centralpredictions: the role of market access in deter- mining factor prices, the related home marketeffect in which demand has a more than proportionate effect on production, and the potentialexistence of multiple equilibria. In reviewing the evidence, we highlight issues ofmeasurement and identification, alternative potential explanations, and remaining areas forfurther research.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0904.

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Date of creation: Jan 2009
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Handle: RePEc:cep:cepdps:dp0904

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Related research
Keywords: New economic geography; market access; home market effect; multiple equilibria;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General

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