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New Directions in Economic Geography

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.
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Chapter 1: New Economic Geography: Some Preliminaries

Bernard Fingleton


Bernard Fingleton 1.1 INTRODUCTION The aim of this chapter is to illustrate important principles underlying ‘new economic geography’ (NEG) as a lead in to the varieties of economic geography on display in subsequent chapters. The classic work on NEG is Fujita, Krugman and Venables (1999), and this should, of course, be consulted for a fuller and more detailed account. The emphasis here is on explaining some of the normally taken-for-granted ideas and assumptions for newcomers to this field. While the theory outlined here is well known, what is new about this chapter is the empirical application of NEG theory to real data for the UK regions, and the way in which the dynamics have been illustrated. 1.2 MICRO ASSUMPTIONS An essential feature of NEG is the way increasing returns to scale emerge from microeconomic foundations. Economists and geographers have long been aware of the significance of increasing returns for spatial differentiation, and it is the basis of dynamic models of cumulative causation that were the precursors to the NEG.1 In elemental versions of NEG theory it is the consumer’s love of variety that is important as the determinant of increasing returns to scale. Our starting point is therefore a utility function in which there are two types of good, which we denote by M and C produced by M industries and C industries. We assume the Cobb-Douglas form, in which M is a composite index of goods produced under monopolistic competition. We use C to denote the consumption...

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