PAUL KRUGMAN Massachusetts Institute of Technology
Since 1990 a new genre of research, often described as the ‘new economic geography’, has emerged. It differs from traditional work in economic geography mainly in adopting a modelling strategy that exploits the same technical tricks that have played such a large role in the ‘new trade’ and ‘new growth’ theories; these modelling tricks, while they preclude any claims of generality, do allow the construction of models that—unlike most traditional spatial analysis—are fully general-equilibrium and clearly derive aggregate behaviour from individual maximization. The new work is highly suggestive, particularly in indicating how historical accident can shape economic geography, and how gradual changes in underlying parameters can produce discontinuous change in spatial structure. It also serves the important purpose of placing geographical analysis squarely in the economic mainstream.
I. INTRODUCTION
The study of spatial economics—of the location of production—has a long if somewhat thin history. Von Thünen’s (1826) analysis of land rent and use around an isolated city was roughly contemporaneous with Ricardo’s statement of comparative advantage; the location analysis of Weber (1909), the central-place theory of Christaller (1933) and Lösch (1940), the regional science of Isard (1956), and the urban systems theory of Henderson (1974) are all old and well-established ideas.
None the less, the simple model developed in Krugman (1991) is widely regarded as having given birth to something called the ‘new economic geography’, and has certainly stimulated the emergence of a new wave of theorizing and (to a lesser extent) empirical work. This approach inevitably has much in common with older approaches. Nevertheless, it
