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Paul Krugman and the New Economic Geography - assesment in the light of the dynamics of a “real world” local system of firms

  • Alessia Ruggiero

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    Since the publication of Krugman's paper on "Geography and Trade" in 1991, a burgeoning literature has developed under the heading New Economic Geography. In the following we shall survey the NEG literature and critically evaluate its contribution relative to earlier work on similar topics. More specifically, we will focus our attention on a model that seems to have given new impulses to the introduction of spatial factors into the economic analysis: Krugman’s model. We will proceed with our assesment analysing if and to which extent the features of the model are effective in investigating a real local system of firms: the Etna Valley, an industrial agglomeration specialized in the production of microelectronic components in the area around the Sicilian town of Catania. What emerges from the critical analysis is that the above model results to be extremely simplified. If, on one hand this may be true for every economic model, on the other, we feel that, in our specific case study, the formalization of the processes of local development does not result to be entirely useful. Indeed, great part of the analysis of the industrial district based on the “industrial atmosphere” (Marshall, 1890) remains out of the picture. Therefore, we find more useful the positions of those authors that not drawing on the deductive methods of theorising and analysing employed by Krugman, nonetheless have managed to enlighten mechanisms that seem to be more apt to investigate dynamics taking place in developing areas. More specifically, they seem to offer more useful insights in the context of non stationary economies where markets are not yet stabilized and therefore are not entirely capable of adequately transmitting incentives and information to the actors in the economy.

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    Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa05p273.

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    Date of creation: Aug 2005
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    Handle: RePEc:wiw:wiwrsa:ersa05p273
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    1. Ellison, Glenn & Glaeser, Edward L, 1997. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 889-927, October.
    2. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
    3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
    4. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
    5. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
    6. Redding, Stephen J. & Venables, Anthony J, 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
    7. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
    8. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
    9. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
    10. Breschi, Stefano & Lissoni, Francesco, 2001. "Knowledge Spillovers and Local Innovation Systems: A Critical Survey," Industrial and Corporate Change, Oxford University Press, vol. 10(4), pages 975-1005, December.
    11. Diego Puga, 1996. "The Spread of Industry: Spatial Agglomeration in Economic Development," CEP Discussion Papers dp0279, Centre for Economic Performance, LSE.
    12. J. Peter Neary & Dermot Leahy, 1998. "Strategic trade and industrial policy towards dynamic oligopolies," LSE Research Online Documents on Economics 20246, London School of Economics and Political Science, LSE Library.
    13. Henry G. Overman & Stephen Redding & Anthony J. Venables, 2001. "The economic geography of trade, production, and income: a survey of empirics," LSE Research Online Documents on Economics 3712, London School of Economics and Political Science, LSE Library.
    14. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
    15. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
    16. Ottaviano, Gianmarco I. P., 2002. "Regional policy in the global economy : insights from new economic geography," HWWA Discussion Papers 211, Hamburg Institute of International Economics (HWWA).
    17. Glenn Ellison & Edward L. Glaeser, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," Harvard Institute of Economic Research Working Papers 1862, Harvard - Institute of Economic Research.
    18. 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.
    19. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 857-80, November.
    20. Fujita, Masahisa & Mori, Tomoya, 1997. "Structural stability and evolution of urban systems," Regional Science and Urban Economics, Elsevier, vol. 27(4-5), pages 399-442, August.
    21. J. Vernon Henderson & Ari Kuncoro & Matthew Turner, 1992. "Industrial Development in Cities," NBER Working Papers 4178, National Bureau of Economic Research, Inc.
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