Economic Geography: A Review of the Theoretical and Empirical Literature

47 Pages Posted: 18 Feb 2009

Date Written: January 2009

Abstract

This paper reviews the new economic geography literature, which accounts for the uneven distribution of economic activity across space in terms of a combination of love of variety preferences, increasing returns to scale and transport costs. After outlining the canonical core and periphery model, the paper examines the empirical evidence on three of its central predictions: the role of market access in determining factor prices, the related home market effect in which demand has a more than proportionate effect on production, and the potential existence of multiple equilibria. In reviewing the evidence, we highlight issues of measurement and identification, alternative potential explanations, and remaining areas for further research.

Keywords: Home Market Effect, Market Access, Multiple Equilibria, New Economic Geography

JEL Classification: F12, F14, O10

Suggested Citation

Redding, Stephen J., Economic Geography: A Review of the Theoretical and Empirical Literature (January 2009). CEPR Discussion Paper No. DP7126, Available at SSRN: https://ssrn.com/abstract=1345652

Stephen J. Redding (Contact Author)

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

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