New Directions in Economic Geography

New Directions in Economic Geography

New Horizons in Regional Science series

Edited by Bernard Fingleton

This important book explores original and alternative directions for economic geography following the revolution precipitated by the advent of so-called ‘new economic geography’ (NEG). Whilst, to some extent, the volume could be regarded as part of the inevitable creative destruction of NEG theory, it does promote the continuing role of theoretical and empirical contributions within spatial economic analysis, in which the rationale of scientific analysis and economic logic maintain a central place. With contributions from leading experts in the field, the book presents a comprehensive analysis of the extent to which NEG theory is supported in the real world. By exploring whether NEG theory can be effectively applied to provide practical insights, the authors highlight novel approaches, emerging trends, and promising new lines of enquiry in the wake of advances made by NEG.

Chapter 5: Agglomeration and Growth in the NEG: A Critical Assessment

Fabio Cerina and Francesco Pigliaru

Subjects: economics and finance, regional economics, urban economics, geography, economic geography, urban and regional studies, regional economics, urban economics

Extract

5. Agglomeration and growth in NEG: a critical assessment1 Fabio Cerina and Francesco Pigliaru 5.1 INTRODUCTION There are sizeable and persistent per-capita income gaps across states and even across the regions of a rich integrated area such as the EU. With regard to regional inequality, one of the most prominent explanations stems from the idea that regions are highly specialized, and that productivity may differ across sectors. In Kaldor’s influential explanation, trade can drive apart two almost identical regions by causing industry to agglomerate in one location. This mechanism has been modelled in several papers on endogenous growth and trade (for example, Lucas, 1988 and Grossman and Helpman, 1991). However, papers in this tradition do not take geography (that is, transport costs) into account. More recently, the development of the new economic geography (NEG) literature has extended the Grossman and Helpman approach to include explicit mechanisms of agglomeration. In this chapter we will assess the contribution of recent models of agglomeration and economic growth in relation to Kaldor’s proposition. In the first part of the chapter we explain, compare and discuss the new approach. In particular, we: ● ● review how the mechanism leading to (catastrophic) agglomeration of the high-tech sector works and assess the existence of core results across different models; explain and discuss what the economic consequences of catastrophic agglomeration are for the core and for the periphery. In the second part of the chapter we will assess the analytical robustness of some important results that may...

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