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Industrial Location Economics

Edited by Philip McCann

Because space is not homogenous, economic activities occur in different locations. Understanding the reasons behind this and understanding exactly how industries are spatially organized is the central theme of this book. Industrial Location Economics discusses different aspects of industrial location behaviour from a variety of theoretical and empirical perspectives. Each of the analytical traditions provides insights into the nature of industrial location behaviour and the factors which can influence it.
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Chapter 3: Geographical Grids in ‘New Economic Geography’ Models

Dirk Stelder


Dirk Stelder University of Groningen, The Netherlands 1. INTRODUCTION As Fujita (1999) has recently assessed it, the new economic geography (NEG) is still in the Wright brothers phase of learning how to fly. Despite its honorary title, most if not all NEG literature so far deals with theoretical extensions of the basic model of Krugman (1991a) with empirical implementations hardly off the ground. The relevance of the current theoretical debate on model refinements such as introducing congestion costs, multisector specifications, the housing market, population growth and so on is not questioned here. Instead, in this chapter it is argued that a major empirical shortcoming of most NEG models is their use of very abstract one-dimensional economic spaces like a circle or a horizontal line. Surprisingly, to my knowledge all new economic geographers so far have overlooked the first and most obvious thing to do: apply the model in two-dimensional space. It is shown that if we do so, even the basic model can produce complex hierarchical city distributions that are less far from reality than we would expect from such a simple model. In Section 2 the basic model and its main problems are introduced for readers who are not familiar with the NEG literature. Section 3 discusses the way in which a two-dimensional economy can be introduced into the model. As an example it is shown what equilibria in a square grid of locations with simple Euclidean distances look like and how they react to a change...

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