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This paper reviews Paul Krugman's fundamental contributions to new trade theory (NTT) and new economic geography (NEG) on the occasion of his 2008 Nobel Prize. We appraise the impact his work had on the field of regional science broadly defined, and we quantify its influence on papers published in Papers in Regional Science ( PIRS) between 1991 and 2009 (vols. 70–87 and papers in press). We then discuss in more detail a few contributions published in PIRS that extend his original analysis in various directions. Finally, we briefly speculate on where NEG is headed to and which are the research directions that should be explored more thoroughly in the future. Resumen Con ocasión de su Premio Nobel de 2008, este artículo revisa las contribuciones fundamentales de Paul Krugman a la nueva teoría del comercio (NTT, por sus siglas en inglés) y a la Nueva Geografía Económica (NEG, por sus siglas en inglés). Valoramos el impacto que ha tenido su trabajo en el campo de la Ciencia Regional en su más amplia definición, y cuantificamos su influencia sobre artículos publicados en Papers in Regional Science (PiRS) entre 1991 y 2009 (vols. 70-87 y artículos en prensa). A continuación discutimos en más detalle unas pocas contribuciones publicadas en PiRS que amplían su análisis original en varias direcciones. Finalmente, especulamos brevemente sobre adónde se dirige la NEG y cuales son las avenidas de investigación que deberían ser exploradas en mayor profundidad en el futuro. [ABSTRACT FROM AUTHOR]

Bearing in mind that developing countries have less capital and less advanced technologies, this paper theoretically investigates the joint impact of two first-nature forces, Ricardian and Heckscher- Ohlin advantages and the second-nature force on spatial income inequality. We establish a new economic geography model without a traditional sector so that the wages are not equalized. By combining these three kinds of trade forces, we show how spatial income inequality changes with economic integration. Four evolution patterns are obtained which are consistent with diverse empirical results in the literature. [ABSTRACT FROM AUTHOR]

This paper develops an analytically solvable new economic geography model in which not only skilled, self-employed labour is mobile, but also the unskilled labour force. Unskilled labour mobility increases the agglomeration incentive of skilled labour and influences the pattern of agglomeration. At high levels of trade costs, skilled and unskilled labour migration reinforce each other leading to agglomeration of both types of labour in the same region. For lower levels of trade costs, unskilled labour remigrates, whereas skilled labour remains concentrated. [ABSTRACT FROM AUTHOR]

Transportation costs are of central importance in the New Economic Geography literature, though assumptions about transportation costs continue to be simplistic. This paper begins to address these simplifications by assuming that transportation costs for manufactured goods are heterogeneous. Basic results are consistent with standard models showing dispersion of economic activity for high transport costs and eventual agglomeration as transport costs decline. However, several novel features arise too. Many unstable, dispersed equilibria exist for high average transport costs, but converge to a stable equilibrium path as transport costs decrease. Equilibrium paths smoothly transition from dispersion to agglomeration and do so at an increasing rate. Additionally, transport costs directly influence firms' location decisions and firms spatially sort by transport cost. [ABSTRACT FROM AUTHOR]

This paper presents a new economic geography model with distortionary taxation and endogenized trade costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure increases agglomerative tendencies. With respect to the regions' sizes, in the periphery, the price index for manufacturing goods decreases, whereas for the core, the price index is rather high since the distortionary effect of taxes dominates. ‘Free riding’– or, in terms of regional policy, externally funded infrastructure investment – is beneficial for the periphery, which can devote all its tax revenue to local demand support, generating a positive home market effect and driving the catch up process. [ABSTRACT FROM AUTHOR]

The paper analyses the impact of economic integration on individual inequality and regional disparity in a model of endogenous growth and geography. Assuming localised learning externalities and perfect mobility of capital, trade integration of economies yields a trade-off for the policy maker because it increases growth and decreases inequality on the one hand, but geographical agglomeration strengthens on the other. However, a policy that aims to improve trade in ideas does not face this trade-off. El artículo analiza el impacto de la integración económica en la inecualidad individual y la disparidad regional en un modelo de crecimiento endógeno y geografía. Asumiendo externalidades de aprendizaje localizadas y una perfecta movilidad de capitales, la integración de comercio de economías crea un trade-off para el formulador de políticas porque por un lado aumenta el crecimiento y disminuye la inecualidad, pero por otro aumenta la aglomeración geográfica. Sin embargo, una política que trate de mejorar un intercambio de ideas no se enfrenta a este trade-off. [ABSTRACT FROM AUTHOR]

A standard result on international capital income taxation is that applying the residence principle does not affect industrial location and is therefore more efficient than applying the source principle. However, many countries do in fact apply the source principle. We argue that in a new economic geography framework the standard result needs to be qualified: the size of the market is crucial for industry location and it is changed by taxation and by public expenditures; we show that - for the high tax region - this effect dampens capital losses under the source principle and causes them under the residence principle. The sharp difference between the two taxation principles blurs and, unsurprisingly, both principles are found in taxation laws. [ABSTRACT FROM AUTHOR]

We develop an economic geography model where mobile skilled workers choose to either work in a production sector or to become part of an unproductive elite. The elite sets income tax rates to maximize its own welfare by extracting rents, thereby influencing the spatial structure of the economy and changing the available range of consumption goods. We show that either unskilled labour mobility, or rent-seeking behaviour, or both, are likely to favour the occurence of agglomeration and of urban primacy. In equilibrium, the elite may tax the unskilled workers but does not tax the skilled workers, and there are rural-urban transfers towards the agglomeration. The size of the elite and the magnitude of the tax burden that falls on the unskilled decrease with product differentiation and with the expenditure share for manufacturing goods. All these results are broadly in line with observed patterns of urban primacy and economic development in Sub-Saharan African countries. [ABSTRACT FROM AUTHOR]

The new economic geography (NEG) has become a mainstay of regional science in the last two decades, as signified by the awarding of Paul Krugman, the Nobel Prize. Yet, most American regional scientists and urban/regional economists do not use NEG in determining regional growth patterns. Instead, they rely on factors such as natural amenity migration, whose roots lie back to the work of Philip Graves in the mid 1970s. Conversely, two of the world's leading economic geographers – Allen Scott and Michael Storper – have strongly argued that job availability not household amenities have determined US regional dynamics. Given the disparity of views over the largest developed economy in the world, we hold a competition to determine which of these leading contenders accurately predict US interregional growth dynamics over the last 40–60 years. The runaway winner of the duel is natural amenity led growth with the crown going to Graves. Implications are drawn for both empirical research and EU economic integration. [ABSTRACT FROM AUTHOR]

Trade costs are a crucial element of New Economic Geography (NEG) models. Without trade costs there is no role for geography. In empirical NEG studies the unavailability of direct trade cost data calls for the need to approximate these trade costs by introducing a trade cost function. In doing so, hardly any attention is paid to the (implicit) assumptions and empirical consequences of the particular trade cost function used. Based on a meta-analysis of NEG market access studies as well as on the results of estimating the NEG wage equation for a uniform sample while using different trade costs functions, we show that the relevance of the key NEG variable, market access, depends nontrivially on the choice of trade cost function. Next, we propose an alternative way to approximate trade costs that does not require the specification of a trade cost function, the so called implied trade costs approach. Overall, our results stress that the specification of trade costs can matter a lot for the conclusions reached in any empirical NEG study. We therefore call for a much more careful treatment of trade costs in future empirical NEG studies. [ABSTRACT FROM AUTHOR]

Although the New Economic Geography (NEG) has been used extensively to formally explain the emergence of the American urban system, few studies investigate its success in explaining current population dynamics in a more established urban system. This study explores whether proximity to same–sized and higher–tiered urban centres affected the patterns of 1990–2006 US county population growth. Rather than casting NEG agglomeration shadows on nearby growth, larger urban centres generally appear to have positive growth effects for more proximate places of less than 250,000 people. However, there is some evidence the largest urban areas cast growth shadows on proximate medium–sized metropolitan areas and of spatial competition among small metropolitan areas. Resumen Aunque la Nueva Geografía Económica (NEG, por sus siglas en inglés) ha sido utilizada ampliamente para explicar de modo formal el surgimiento del sistema urbano estadounidense, pocos estudios investigan su éxito en explicar las dinámicas de población actuales en un sistema urbano más establecido. Este estudio explora la posibilidad de que centros urbanos del mismo tamaño y de elevada magnitud afectó a los patrones de crecimiento poblacional en condados de los EE.UU. en 1990-2006. En lugar de proyectar sombras de aglomeración de acuerdo a la NEG sobre el crecimiento cercano, los centros urbanos más grandes parecen tener en general efectos de crecimiento positivos en lugares cercanos de menos de 250,000 habitantes. Sin embargo, existen indicios de que las áreas urbanas más grandes proyectan sombras de crecimiento sobre áreas metropolitanas próximas de tamaño mediano y de competencia espacial entre áreas metropolitanas pequeñas. [ABSTRACT FROM AUTHOR]

This article presents a model for developing countries that investigates the factors behind agglomeration of activities in urban giants. First we show that market access to external demand tends to attract entrepreneurs. Second we find that the attractive power of the urban giant can be linked to a lack of democracy, in the sense that by reversing the cost of living effect, democracy allows the reduction in spatial inequality and then the tendency of agglomeration. Finally we analyse how the funds embezzled by a corrupt government vary according to internal and external trade liberalisation. We show that a decrease in the disadvantage of the periphery to trade with the external market can limit the funds embezzled under bad governance. Resumen Este artículo presenta un modelo para países en desarrollo que investiga los factores que rigen la aglomeración de actividades en gigantes urbanos. Primero mostramos que el acceso del mercado a la demanda externa tiende a atraer a emprendedores. A continuación encontramos que el poder de atracción de un gigante urbano puede vincularse a una falta de democracia, en el sentido en que invirtiendo el efecto del costo de la vida, la democracia permite la reducción en la desigualdad espacial y con ello la tendencia a la aglomeración. Finalmente, analizamos como varía la malversación de fondos por gobiernos corruptos dependiendo de la liberalización interna y externa del comercio. Mostramos que una disminución en la desventaja de la periferia para comerciar con el mercado externo puede limitar la malversación de fondos durante un mal gobierno. [ABSTRACT FROM AUTHOR]

This article proposes a simple model of economic geography by which to derive analytical results when jointly considering two centrifugal forces – congestion costs together with the pull demand effect – within the Dixit-Stiglitz-Iceberg framework. In this vein, we develop a unified model with labour mobility that combines some of the features of Tabuchi (1998 ) with those of Forslid and Ottaviano (2003 ). We analytically show that when considering the effects of congestion costs, the dispersion of economic activity is possible not only at high, but also at low transport costs. This result corroborates previous numerical simulations conducted by Tabuchi (1998 ). Resumen. Este artículo propone un modelo sencillo de geografía económica con el que obtener resultados analíticos cuando se consideraran conjuntamente dos fuerzas centrífugas –los costos de congestión y el efecto demanda– dentro del marco Dixit-Stiglitz-Iceberg. Asimismo, desarrollamos un modelo unificado, con movilidad laboral, que combina algunas de las características de Tabuchi (1998) con las de Forslid y Ottaviano (2003). Analíticamente mostramos que cuando se consideraran los efectos de los costos de congestión, la dispersión de la actividad económica es posible no solamente si los costos de transporte son elevados sino también si éstos son bajos. Este resultado corrobora simulaciones numéricas previas realizadas por Tabuchi (1998). [ABSTRACT FROM AUTHOR]

We investigate how alternative ways of modelling trade costs affect the main results of “new” economic geography. In order to do so, we compare the impacts of falling transport costs and decreasing tariffs on the spatial distribution of economic activities. Our analysis reveals that tariffs and transport costs largely play symmetric roles, in the sense that a decrease in either of them favours agglomeration. Yet, tariffs generate rents which, once redistributed or used to finance local public goods, make dispersion sustainable over a larger range of parameter values. Therefore, decreasing transport costs are more likely to trigger agglomeration than decreasing tariffs. [ABSTRACT FROM AUTHOR]

The article examines the performance of two competing non-nested models of regional wage variations in Great Britain, one motivated by the Solow-Swann neoclassical growth model which assumes constant returns to scale, the other by new economic geography theory, which assumes internal and external increasing returns. Both models also include controls for labour efficiency variations across regions. The empirical analysis, which is based on the bootstrap J test, shows that the neoclassical model does not reject the new economic geography specification, but the converse is not true and the model with a basis in new economic geography has significantly superior explanatory power. This adds support to the notion that in order to correctly understand differential regional economic development, we should move beyond neoclassical orthodoxy and that an increasing returns stance is more appropriate. However, the article also highlights some limitations of new economic geography theory. [ABSTRACT FROM AUTHOR]

This article presents an overview of the recent development in the new economic geography (NEG), and discusses possible directions of its future development. Since several surveys on this topic already exist, we focus on the selected features of NEG which are important yet have attracted insufficient attention, and also on the recent refinements and extensions of the framework. [ABSTRACT FROM AUTHOR]