Knowledge, Truth and the History of Economic Thought
Edited by Stephan Boehm, Christian Gehrke, Heinz D. Kurz and Richard Sturn
Chapter 13: On the new economic geography and the progress of geographical economics
13. On the new economic geography and the progress of geographical economics Stephen J. Meardon The Ônew economic geographyÕ is an offspring of international trade theory whose birth was heralded by Paul Krugman, its initiator and most prominent advocate, as a way to Ôincorporate the insights of the long but informal tradition in [economic geography] into formal modelsÕ (1991: 484). KrugmanÕs methodological view of the role of formal models in economics Ð Ôas a practical matter formalism is crucial to progress in economic thoughtÕ (1998b: 1829) Ð buttresses his advancement of the new economic geography as an exemplar of progress in economics. My purpose in this chapter is to think about the sense in which KrugmanÕs advancement is valid, and the sense in which it is problematic. KRUGMANÕS HISTORICAL NARRATIVE AND APPRAISAL KrugmanÕs view of the progress made between the older literature and the new economic geography is repeated in numerous articles and books, among them Krugman (1991, 1993, 1995, 1998a, 1999) and Fujita, Krugman and Venables (1999). His narrative runs basically as follows: many of the fundamental ideas of the new economic geography were expressed much earlier by authors of international trade theory, spatial economics and development economics, among them Bertil Ohlin, August Lšsch and Gunnar Myrdal. However, these theorists were not able to reconcile satisfactorily a perfectly competitive market structure, which they were accustomed to modelling, with increasing returns to scale, which they knew was necessary to engender Ôcircular causationÕ and the resulting spatial agglomeration...
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