To understand subsequent theoretical developments in NEG take another look at Figure 1. (2009, Chapter 4). For one thing, these studies include far more institutional, case-specific and historical details than the basic NEG model as depicted by Figure 1. 5. In this paper we examine the basis for these criticisms, and explore how far and in what ways NEG models might be made more credible with respect to their representation of geography and history, and particularly whether and to what extent the work of geographers themselves provides some insights in this regard. We use cookies to help provide and enhance our service and tailor content and ads. Upon closer inspection, this line of criticism is not primarily a critique of NEG as such, but of mainstream economics (that is neoclassical and general equilibrium economics) as a whole. At the same time, what could partly be seen to be economic geography's modelling answer to NEG, the so-called ‘evolutionary economic geography’ (EEG) approach (Boschma & Frenken, 2006; Boschma & Martin, 2007) is still very much in its infancy. The study of industrial location is an important component. J Econ Geogr 10(6):793–823 CrossRef Google Scholar Brakman S, Garretsen H, Schramm M (2004) The strategic bombing of German cities during WWII and its impact on city growth. Córdoba shows that for Zipf's law to arise, one first needs to have a balanced growth path. Although this subfield is now two decades old, it continues to be known as the ‘new’ economic geography. This assumption will be relaxed in Section 4 below. In an evolutionary process, however, the environment is not pre-prescribed, but is instead ‘open’—it is continuously constructed and reconstructed in the course of the evolution of the system (Setterfield, 1997). Its strengths can be seen in three aspects. The canonical model of the new economic geography was developed by Krugman (1991b) and is now known as the “core-periphery model”.64 In some sense this model is diametrical to the models of trade and migration that we have used above. Spillovers and externalities (and interfirm linkages) are at the center of the debate. However, instability of a symmetric equilibrium is a possibility, not a foregone conclusion. This implies in turn that optimal city size is proportional to the square of the average product of labor. In this two-region model the transport cost parameter is the embodiment of geography. In its simplest form, the model also assumes two regions, which for the present purpose may be seen as our two countries A and B. Fujita et al. Rethinking regional path dependence: beyond lock-in to evolution, Paul Krugman's geographical economics and its implications for regional development theory: a critical assessment, Rethinking the ‘economic’ in economic geography: broadening our vision or losing our focus, Path dependence and regional economic evolution, The place of path dependence in an evolutionary perspective on the economic landscape, Space–time, ‘science’ and the relationship between physical geography and human geography, Transport costs and the new economic geography, Of hype and hyperbolas: introducing the new economic geography, Integration, geography and the burden of history. So where does all this leave NEG models? In this paper we find evidence that the new economic geography approach is able to describe and explain the spatial characteristics of an economy, in our case the German economy. The economic landscape, in other words, is an historical process, and it can only really be understood as such. The seminal Krugman NEG model, as developed in Krugman (1991a) and summarized by Figure 1 above, was quickly criticized and then extended from within NEG itself. Indicates a preference for location in regions with large market access. In effect, if we know the various alternative possible starting states, the array of possible final outcomes to which they may conform becomes determined a priori—as they are in NEG models—and all that remains to be ascertained is which outcome of the possibles will actually be selected. Natural advantages [see Ellison and Glaeser (1997, 1999)] – also known as “First Nature” [Krugman (1993)] and “locational fundamentals” [Davis and Weinstein (2002)] – and the closely related “factor proportions theory” take the geographic distribution of productive resources as exogenous and use it to explain the geographic distribution of production. In terms of Figure 1, in a Krugman (1980) version of NEG the economy is indefinitely stuck at one point of the Tomahawk figure for any given value of T. Any notion of multiple equilibria and path-dependence, however abstract or simple, is then completely out of the window.14. The market size effect indicates that in the two-region setting, firms find it advantageous to locate in the region with more workers, where they can sell their product at no transport costs to the local customers; whereas the cost of living effect indicates that mobile workers want to locate in the region with more firms because of a lower cost of living there (they do not have to import manufactures for which they have to pay transport costs). In fact, and following Sugden (2000), we will argue in Section 6 that when set against the real world NEG models should focus more on the description of construction of credible counterfactual worlds. This enables us to provide analytical proofs to three important and related results in the field. E.J. The model admits a balanced growth path along which growth is positive even if population growth is zero. Indeed, in some cases—such as electronic financial transactions—absolute space in effect is annihilated altogether by relative space, and propinquity can occur without the need for physical proximity. Focusing on manufacturing industries, we can see from Figure 7 that the manufacturing sector in the J-Core had a relatively high labor productively already in 1955, whereas the opposite holds for the J-Periphery. development, and finally economic geography. For an application to the case of EU regions see Bosker et al. In both cases, its real novelty has been questioned. We briefly sketch answers found for either of these two approaches. The crude geometries of pre-given, fixed locations or points used in these models are quintessentially Euclidean, independent of the economic processes that are supposed to operate within and between them. Masahisa Fujita, ... Yoshitsugu Kanemoto, in Handbook of Regional and Urban Economics, 2004. Such a spatial division of labor is restructuring geographical differences in the location of economic activities, thereby contributing to uneven development, even as it links distant places more closely together with the help of IT. A small empirical literature studies the links between FDI and regional inequality directly, particularly for the Chinese case, where FDI has been heavily concentrated in the eastern provinces (Wei et al. Finally, in the J-Periphery, both the share of M-GDP and M-EMP has been steadily increasing since the late 1960s. Brakman et al. With no analytical results to fall back on, simulations have to be used in this case (for the NEG attempts see Combes et al. In this respect, Figure 1 also aptly summarizes the depiction of geography and history in these more recent NEG models. Such ideas have been used to undertake empirical studies of the historical emergence and evolution of industries and technologies across space, the growth and decline of industrial specialisms in specific regions and clusters, and the development and evolution of inter-firm and entrepreneurial networks (for collections of such studies, see Frenken (2007) and Boschma & Martin (2010)). It is for this reason that Krugman (1996b) is able to claim that evolutionary economics is little different to mainstream economics, and by implication, NEG. Figure 1. Even though we will focus somewhat more on the handling of geography and history in NEG and the corresponding critique by PEG or EEG, we do also point out that the treatment of geography and history is certainly not without its problems in PEG or EEG. Maryann P. Feldman, Dieter F. Kogler, in Handbook of the Economics of Innovation, 2010. In recent years, however, this focus on the determination of a unique general equilibrium state has given way to an interest in multiple equilibria, to the recognition that different initial conditions may produce different long-run equilibrium states. Rather than linear, mechanistic metaphors, biological and evolutionary metaphors may capture more accurately the emergence of economic change. A central government decides upon the level and the regional and sectoral allocation In reality, however, where new industrial and technological paths emerge, and the nature of those paths, can be shaped in significant ways by the pre-existing landscape of economic activity. 2 Model of spatial economy An analytically solvable, multi-regional, new economic geography model, which re-places the production function of Krugman (1991) [21] with that of Flam and Helpman (1987) [11], is presented on the basis of Forslid and Ottaviano (2003) [12], as well as Akamatsu and Takayama (2009) [1] and Ikeda et al. Intra-Industry Trade under Perfect Monopolistic Competition. Topics within Economic Geography . By contrast, untraded interdependencies, which are not able to be modeled, are central to much of the current thrust of research by geographers on learning in regions and localities (Pinch and Henry 1999, Storper 1997). Transactional spaces—and the spaces of perceptions (and perhaps expectations)—take on different forms (different ‘metrics’) according to the activity and agents in question. (1999) analyze this issue in detail, suggesting that trade could work to disperse manufacturing industry as a whole, but also lead to the spatial clustering of specific industries. Echoes of this critique of mainstream economic growth theory lament the failure to include technological advance as an essentially disequilibrium process, a theory of the firm in which capabilities and differences across firms are central elements, and incorporation of a richer body of institutions (Nelson 1998). Lancaster, Kelvin. So, faster growth of human capital leads to larger cities, while faster population growth leads to smaller cities. This neglect of geography and history (or time) in the general equilibrium setting raises serious questions concerning the relevance and applicability of this framework. A second case obtains if industry production is according to an AK model, where there is no human capital and production is linear in physical capital, all capital depreciates after production, there is no population growth and productivity shocks are temporary. 17. Section 2 reviews the canonical new economic geography model, the so-called ficore and peripheryflmodel of Krugman (1991a), and discusses other related theoretical models. The aforementioned home market effect, a true cornerstone of NEG, easily ceases to exist in a world of many regions. It is inter alia for this reason that NEG models that are after the policy implications of NEG prefer the two-region model (see for instance Baldwin et al., 2003). (Fujita & Mori, 2005, p. 396). Knowledge spillovers are geographically localized. 6. The important point here is that in the Marshallian dichotomy these economies do not constitute externalities, but are internal to the firm, modeled through a fixed cost of production. Lancaster, Kelvin. Rossi-Hansberg and Wright (2003) use ideas from the system-of-cities theory of Henderson (1974) and its urban growth application of Black and Henderson (1999) to develop a model where the urban structure eliminates local increasing returns to scale to yield constant returns to scale in the aggregate. All places are not equal: urbanization, localization, and diversity. The well-known basic NEG model has become the foundation for a whole family of NEG models (see for example, Baldwin et al., 2003). For one thing, they have questioned whether the formal economic models that are the focus of attention within NEG can adequately capture the full range of factors and forces that help shape the economic landscape, particularly since some of these factors are social, institutional and cultural in nature, and cannot be readily or adequately expressed in mathematical form (a point acknowledged early on by Krugman himself, who argued that such ‘messy’ factors were the province of sociologists (see Krugman, 1995)). We agree. Different components of the production process can then be located worldwide, wherever labor costs, environmental regulations, and agglomeration economies are best suited to that activity, creating commodity chains of global scope. In this paper we find evidence that the new economic geography approach is able to describe and explain the spatial characteristics of an economy, in our case the German economy. This is not to deny that there have been some important exceptions to this general rule. He can both sell himself as the model of progressive virtue and also lord of the world’s fifth-largest economy, home to three of the world’s most powerful and influential companies. In addition, the literature on path dependence economics has also been especially influential (see Martin & Sunley, 2006). Cities arise because of Marshallian externalities and there are no transport costs. As we have mentioned above, the adjustment dynamics of the new economic geography models typically implies that the symmetric equilibrium breaks down once the level of trade costs falls below a critical level. This means that in the J-Core, while the ‘hollowing-out’ of manufacturing continued since the mid-1960s, its growth since then has been led mainly by the growth of service industries having high labor productivity. 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