Transport costs and new economic geography

2005 ◽  
Vol 5 (3) ◽  
pp. 305-318 ◽  
Author(s):  
Philip McCann
2011 ◽  
Vol 62 (3) ◽  
Author(s):  
Klaus Schöler

SummaryThe New Economic Geography has two advantages in comparison with the traditional Theory of International Trade. On the one hand, the transport costs are included into the respective models. On the other hand, the factor endowment in the regions or countries is not given in the same way as in the traditional Trade Theory, but it is a result of different transport costs. The New Economic Geography has also great advantages in the field of Regional Economics. It is possible to explain the phenomenon of agglomerations by means of a total microeconomic model with economies of scale in one industry, monopolistic competition and heterogeneous goods. The New Economic Geography completes the traditional theories - Trade Theory and Regional Economics - in important aspects, but does not yet replace these approaches.


Author(s):  
Pascal Mossay ◽  
Pierre M. Picard

New Economic Geography (NEG) provides microeconomic foundations for explaining the spatial concentration of economic activities across regions, cities, and urban areas. The origins of the NEG literature trace back to trade, location, and urbans economics theories. In NEG, agglomeration and dispersion forces explain the existence of spatial agglomerations. A NEG model usually incorporates a combination of such forces. In particular, firm proximity to large markets and the importance of linkages along a supply chain are typical agglomeration forces. Equilibria properties derived from NEG models are very specific to NEG as they involve multiple equilibria and have a very high dependence on changes in parameters. This phenomenon has important implications for the emergence of nations, regions, and cities. In particular, high transport costs imply the dispersion of economic activities, while low transport costs lead to their spatial concentration. The same forces that shape inequalities and disparities between regions also shape the internal structure of cities. Firms concentrate in urban centers to gain greater access to larger demand. The empirical literature has developed several approaches that shed light on spatial agglomeration and estimate the role and impact of transport costs on market access. A key empirical research question is whether observed patterns could be explained by location amenities or agglomeration forces as put forward by NEG. Quasi-experimental methodology is frequently used for such a purpose. NEG theory is supported by empirical evidence, demonstrating the role of market access.


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