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We distill the main insights from recent trade models on firms responses to globalisation. Our primary aim is to assess the economic impact and the welfare implications of the resulting reallocation of resources across firms and countries. In so doing, we bring theory into life through the numerical implementation of a theoretical framework calibrated on European data, which encompasses aspects of economic geography, firm heterogeneity, and firms organizational choices. Our final purpose is to provide a comprehensive background for empirical investigations and to stimulate further theoretical research.

We study a Ramsey problem in infinite and continuous time and space. The problem is discounted both temporally and spatially. Capital flows to locations with higher marginal return. We show that the problem amounts to optimal control of parabolic partial differential equations (PDEs). We rely on the existing related mathematical literature to derive the Pontryagin conditions. Using explicit representations of the solutions to the PDEs, we first show that the resulting dynamic system gives rise to an ill-posed problem in the sense of Hadamard (1923). We then turn to the spatial Ramsey problem with linear utility. The obtained properties are significantly different from those of the non-spatial linear Ramsey model due to the spatial dynamics induced by capital mobility.

We develop an economic geography model in which mobile skilled workers choose between working in the production sector or becoming part of an unproductive political elite. The elite sets tax rates on skilled and unskilled workers to maximize its own welfare by extracting rents, thereby influencing the spatial allocation of production and changing the available range of consumption goods. We show that such behavior increases the likelihood of agglomeration and of urban primacy. In equilibrium, the elite may tax the unskilled workers but will never 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 is shown to decrease with product differentiation and, via the tax rates, with the expenditure share for manufacturing goods.

This paper explores the interplay between commodities' transportation costs and workers' commuting costs within a general equilibrium framework A la Dixit-Stiglitz. Workers are mobile and choose a region where to work as well as an intraurban location where to live. We show that a more integrated economy need not be more agglomerated. Instead, low transportation costs lead to the dispersion of economic activities. This is because workers are able to alleviate the burden of urban costs by being dispersed, while retaining a good access to all varieties. By contrast, low commuting costs foster the agglomeration of economic activities.

We extend Krugman's (1980) two-country two-sector model to a setup with arbitrary numbers of countries and sectors. The extended model predicts an adequately defined "home market effect" only after controlling for cross-country differential accessibility through a theory-based linear filter. We bring that prediction to data by running a battery of non-parametric sign- and rank-tests that are closely related to those used in factor proportions theory. When applied to production and trade data on a cross-section of OECD and non-OECD countries, we find support for the presence of "home market effects" in a broad number of industries.

We investigate the spatial distribution and organization of an imperfectly competitive industry when firms may choose to operate more than a single production unit. Focusing on a short-run setting with a fixed mass of firms, we fully characterize the spatial equilibria analytically. Comparing the equilibrium and the first-best, we show that both organizational and spatial inefficiencies may arise. In particular, when fixed costs are low enough the market outcome may well lead to overinvestment and, therefore, to too many multinationals operating from a social point of view. Furthermore, once multinationals are taken into account, the market outcome may well lead too little agglomeration.

We investigate where cities are located in a spatial economy and why they tend to get "locked-in" at particular sites. Building on Fujita and Krugman (1995) we show that geography and/or transportation technology must exhibit some "non-smoothness" for cities to possibly become "locked-in" in location space. Our results establish that no asymmetric monocentric equilibrium can be generically sustained when space is homogenous and transportation technologies are "smooth", whereas it can in the presence of transportation hubs and/or concave transport cost functions. This suggests that cities are drawn to transportation hubs during the early stages of economic development, whereas they can be sustained almost everywhere during later stages.

We develop a two-region population growth model of economic geography and show that a process of urbanization has a substantial impact on the evolution of manufacturing real wages. Whereas real wages decline as the population increases when the spatial structure of the economy is fixed, they actually rise in the long-run when factors are mobile. Agglomeration may hence be seen as a rational response to declining real wages and provides a new explanation of why manufacturing real wages did not decline prior to the Industrial Revolution in England, despite a historically unprecedented population growth.

We investigate how international trade and trade policy possibly affect the regional distribution of economic activities within a country involved in a process of economic integration. Our analysis reveals that the impact of decreasing international trade costs on the spatial distribution of economic activities strongly depends on the structure of trade flows and the value of transport costs internal to the country. Whereas trade liberalization in developing countries with poor infrastructure and mostly autarkic regions may exacerbate spatial inequalities, countries with better infrastructure and larger volumes of interregional trade may experience a more balanced geographical development.

The objective of this paper is to apply different welfare approaches to the canonical model developed by Krugman, with the aim of comparing the only two possible market outcomes, i.e. agglomeration and dispersion. More precisely, we use the Pareto criterion, the compensation criteria put forward by Kaldor, as well as the utilitarian and Rawlsian welfare functions. No clear answer emerges for the following two reasons: (i) except for small range of transport cost values, there is indetermination when compensation schemes are used and (ii) the best outcome heavily depends on societal values regarding inequalities across individuals. In particular, our analysis cautions against the use of utilitarian welfare functions as a foundation for regional policy recommendations.

Peaks and troughs in the spatial distributions of population, employment and wealth are a universal phenomenon in search of a general theory. Such spatial imbalances have two possible explanations. In the first one, uneven economic development can be seen as the result of the uneven distribution of natural resources. This is sometimes called "first nature" and refers to exogenously given characteristics of different sites. However, it falls short of providing a reasonable explanation of many other clusters of activities, which are much less dependent on natural advantage. The aim of geographical economics is precisely to understand what are the economic forces that, after controlling for first nature, account for "second nature", which emerges as the outcome of human beings' actions to improve upon the first one. Specifically, geographical economics asks what are the economic forces that can sustain a large permanent imbalance in the distributions of economic activities. In this paper, we focus on the so-called "new economic geography" approach. After having described some of the main results developed in standard location theory, we use a unified framework to survey the home market effect as well as core-periphery models. These models have been criticized by geographers because they accounts for some spatial costs while putting others aside without saying why. Furthermore, core-periphery models also exhibit some extreme features that are reffected in their bang-bang outcomes. We thus move on by investigating what the outcomes of core-periphery models become when we account for a more complete and richer description of the spatial aspects that these models aim at describing. We conclude by suggesting new lines of research.

In the last ten years the space issue, i.e. the study of the role played by space in economic phenomena, has attracted a lot of interest from many economic fields. The combination of increasing returns, market imperfections, and trade costs creates new forces that, together with factor endowments,determine the distribution of economic activities. Despite their theoretical relevance, there is still little evidence, especially at large scale level, on the effective contribution of these externalities to agents' location decisions. The aim of this work is to estimate a model of economic geography, using a space-time panel data on Italian provinces, in order to both test the empirical relevance of this theory, and try to give a measure of the geographic extent of spatial externalities. Particular attention has been devoted to address rigorously those endogeneity issues that naturally arises when dealing with both structural models and spatial data. Our results are consistent with the hypothesis that product-market linkages, coming from increasing returns and trade costs, actually influence the geographic concentration of economic activities and that their spread over space is, contrary to previous findings, not negligible.

In modern economies, the amount of profits distributed to shareholders is far from being negligible. We show that the way they are distributed among agents matters for the space-economy. For example, the existence of mobile rentiers is sufficient to make the symmetric configuration unstable for all transport cost values and to make partial agglomeration of firms stable. Obviously, to account for profits and for their distribution, the assumption of free entry must be abandoned. So doing, we ignore fixed costs and show that it is imperfect competition more than increasing returns that matters for the formation of agglomeration in economic geography..

We study the effects of a decrease in trade costs on the spatial distribution of industry in a multi-regional economy, when a rise in the regional population of workers generates higher urban costs. We show that high and low trade costs imply that all regions involve a positive share of the industrial sector. When urban costs are linear, there exists a stable equilibrium for almost all values of trade costs. Furthermore, as trade costs fall, there is a path of stable equilibria such that the industry is, first, agglomerated into a decreasing number of regions and, then, dispersed among a growing number of regions. The second phase arises because of the increasing urban costs associated with the process of agglomeration.