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Adding Geography to the New Economic Geography

  • Maarten Bosker
  • Steven Brakman
  • Harry Garretsen
  • Marc Schramm

For reasons of analytical tractability, new economic geography (NEG) models treat geography in a very simple way: attention is either confined to a simple 2-region or to an equidistant multi-region world. As a result, the main predictions regarding the impact of e.g. diminishing trade costs are based on these simple models. When doing empirical or policy work these simplifying assumptions become problematic and it may very well be that the conclusions from the simple models do not carry over to the heterogeneous geographical setting faced by the empirical researcher or policy maker. This paper tries to fill this gap by adding more realistic geography structures to the Puga (1999) model that encompasses several benchmark NEG models. By using extensive simulations we show that many, although not all, conclusions from the simple models do carry over to our multi-region setting with more realistic geography structures. Given these results, we then simulate the impact of increased EU integration on the spatial distribution of regional economic activity for a sample of 194-NUTSII regions and find that further integration will most likely be accompanied by higher levels of agglomeration.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2038.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2038
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  1. Behrens, Kristian & Thisse, Jacques-Francois, 2007. "Regional economics: A new economic geography perspective," Regional Science and Urban Economics, Elsevier, vol. 37(4), pages 457-465, July.
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  13. Brakman, Steven & Garretsen, Harry & Schramm, Marc, 2005. "Putting new economic geography to the test: free-ness of trade and agglomeration in the EU regions," CCSO Working Papers 200502, University of Groningen, CCSO Centre for Economic Research.
  14. Matthieu Crozet, 2004. "Do Migrants Follow Market Potentials? An Estimation of a New Economic Geography Model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00096277, HAL.
  15. Diego Puga, 1996. "The rise and fall of regional inequalities," LSE Research Online Documents on Economics 20643, London School of Economics and Political Science, LSE Library.
  16. Krugman, Paul, 1998. "What's New about the New Economic Geography?," Oxford Review of Economic Policy, Oxford University Press, vol. 14(2), pages 7-17, Summer.
  17. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  18. Fujita, Masahisa & Krugman, Paul & Mori, Tomoya, 1999. "On the evolution of hierarchical urban systems1," European Economic Review, Elsevier, vol. 43(2), pages 209-251, February.
  19. Robert-Nicoud, Frédéric, 2004. "The Structure of Simple 'New Economic Geography' Models," CEPR Discussion Papers 4326, C.E.P.R. Discussion Papers.
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