Edited by André de Palma, Robin Lindsey, Emile Quinet and Roger Vickerman
Chapter 4: New Economic Geography: The Role of Transport Costs
Miren Lafourcade and Jacques-François Thisse INTRODUCTION Just as matter in the solar system is concentrated in a small number of bodies (the planets and their satellites) economic life is concentrated in a fairly limited number of human settlements (cities and clusters). The main purpose of economic geography is to explain why human activity is unevenly distributed across places and formed a large variety of economic agglomerations. Although using ‘agglomeration’ as a generic term is convenient at a certain level of abstraction, it must be kept in mind that this concept refers to very distinct real world situations. At one extreme of the spectrum lies the North–South divide. At the other, restaurants, movie theaters or shops selling similar products are often clustered within the same neighborhood, not to say on the same street. In the foregoing examples, what drives the location of firms and consumers is the accessibility to spatially dispersed markets, a fact that has been recognized for long both in spatial economics and regional science (Fujita and Thisse, 2002). Accessibility is itself measured by all the costs generated by the various types of spatial frictions that economic agents face in the exchange process. In the case of goods and services, such costs are called trade costs. Spulber (2007) refers to them as ‘the four Ts’: (a) Transaction costs that result from doing business at a distance due to differences in customs, business practices, as well as political and legal climates; (b) Tariff and non-tariff costs such as...
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