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Increasing Returns and Economic Geography (1991)
| Venue: | Journal of Political Economy |
| Citations: | 1810 - 7 self |
BibTeX
@ARTICLE{Krugman91increasingreturns,
author = {Paul Krugman},
title = {Increasing Returns and Economic Geography},
journal = {Journal of Political Economy},
year = {1991},
pages = {483--499}
}
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Abstract
This paper develops a simple model that shows how a country can endogenously become differentiated into an industrialized "core" and an agricultural "periphery. " In order to realize scale economies while minimizing transport costs, manufacturing firms tend to locate in the region with larger demand, but the location of demand itself depends on the distribution of manufacturing. Emergence of a core-periphery pattern depends on transportation costs, economies of scale, and the share of manufacturing in national income. The study of economic geography-of the location of factors of production in space-occupies a relatively small part of standard economic analysis. International trade theory, in particular, conventionally treats nations as dimensionless points (and frequently assumes zero transportation costs between countries as well). Admittedly, models descended from von Thunen (1826) play an important role in urban studies, while Hotelling-type models of locational competition get a reasonable degree of attention in industrial organization. On the whole, however, it seems fair to say that the study of economic geography plays at best a marginal role in economic theory. On the face of it, this neglect is surprising. The facts of economic geography are surely among the most striking features of real-world economies, at least to laymen. For example, one of the most remarkable things about the United States is that in a generally sparsely populated country, much of whose land is fertile, the bulk of the population resides in a few clusters of metropolitan areas; a quarter of the inhabitants are crowded into a not especially inviting section of the East Coast. It has often been noted that nighttime satellite
Keyphrases
economic geography transportation cost important role populated country remarkable thing agricultural periphery urban study hotelling-type model international trade theory manufacturing firm von thunen marginal role scale economy core-periphery pattern locational competition national income economic theory simple model standard economic analysis real-world economy transport cost reasonable degree industrial organization striking feature economic geography-of industrialized core small part east coast united state metropolitan area economic geography play dimensionless point treat nation
