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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. Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," International Trade 0103003, EconWPA.
    2. Henry Overman & Stephen Redding & Anthony J. Venables, 2001. "The Economic Geography of Trade, Production, and Income: A Survey of Empirics," CEP Discussion Papers dp0508, Centre for Economic Performance, LSE.
    3. 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.
    4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
    5. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, vol. 86(1), pages 54-70, March.
    6. Henderson, Vernon & Kuncoro, Ari & Turner, Matt, 1995. "Industrial Development in Cities," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1067-90, October.
    7. Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
    8. 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.
    9. 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.
    10. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
    11. Stefano Breschi & Francesco Lissoni, 2001. "Knowledge spillovers and local innovation systems: a critical survey," LIUC Papers in Economics 84, Cattaneo University (LIUC).
    12. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    13. Gianmarco Ottaviano, 2003. "Regional Policy in the Global Economy: Insights from New Economic Geography," Regional Studies, Taylor & Francis Journals, vol. 37(6-7), pages 665-673.
    14. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
    15. Edward L. Glaeser & Glenn Ellison, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May.
    16. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
    17. Puga, Diego & Venables, Anthony J, 1996. "The Spread of Industry: Spatial Agglomeration in Economic Development," CEPR Discussion Papers 1354, C.E.P.R. Discussion Papers.
    18. Leahy, Dermot & Neary, J Peter, 1998. "Strategic Trade and Industrial Policy Towards Dynamic Oligopolies," CEPR Discussion Papers 1968, C.E.P.R. Discussion Papers.
    19. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
    20. 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.
    21. 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.
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