The New Introduction to Geographical Economics, 2nd edition

Half-title......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
Figures......Page 11
Tables......Page 15
Boxes......Page 17
Technical notes......Page 19
Symbols and Parameters......Page 20
Positioning of the book......Page 23
Geographical economics: what’s in a name?......Page 24
What’s new?......Page 26
Acknowledgments......Page 29
Part I: Introduction......Page 31
1.1 Introduction......Page 33
1.2.1 The global view......Page 34
1.2.2 Production distribution in Europe......Page 40
1.2.3 Urban agglomeration in India......Page 42
1.3 Economic interaction......Page 44
1.3.1 An example at the firm level: hard disk drives......Page 45
1.3.2 Germany, trade, and distance......Page 47
1.4 Rapid change in the distribution of production and population......Page 51
1.5 Overview of the book......Page 56
Appendix......Page 58
Exercises......Page 61
2.1 Introduction......Page 62
It walks like a survey, it talks like a survey, so surely it must be…......Page 63
2.2 Geography in regional and urban economics......Page 64
The monocentric city model......Page 65
Urban economics and increasing returns......Page 70
Which type of external economies of scale?......Page 72
Central place theory......Page 74
Market potential......Page 78
2.2.3 Is geographical economics new? The view from urban and regional economics......Page 80
2.3 International trade theory......Page 83
2.3.1 Neoclassical trade theory......Page 84
Krugman (1979)......Page 89
Krugman (1980)......Page 93
Krugman and Venables (1990)......Page 94
2.4 Economic growth and development......Page 98
2.4.1 Economic growth theory......Page 99
2.4.2 Economic development......Page 103
2.5 Conclusions......Page 106
Exercises......Page 107
Part II: Core models and empirical evidence......Page 109
3.1 Introduction......Page 111
3.2 An example of geographical economics......Page 112
3.3 The structure of the model......Page 116
3.4 Demand......Page 119
3.4.1 Spending on food and manufactures (callout a)......Page 120
3.4.2 Spending on manufacturing varieties (callout b)......Page 121
3.4.3 Demand effects: income, price, elasticity epsilon (callout c) and the price index I......Page 126
3.5.1 Production structure (callout d)......Page 131
3.5.2 Price setting and zero profits (callout e)......Page 132
3.6 Transport costs: icebergs in geography......Page 136
3.7 Multiple locations......Page 140
3.8 Equilibrium......Page 142
3.8.1 Short-run equilibrium......Page 143
3.8.2 Long-run equilibrium......Page 147
3.9 A first look at dynamics......Page 151
3.10 Conclusions......Page 157
Exercises......Page 161
4.1 Introduction......Page 164
4.2 Beyond the short-run equilibrium: introducing simulations......Page 165
4.3 Some first results......Page 168
4.4 Changes in transport costs and the introduction of the tomahawk......Page 171
4.5 Sustain and break analysis......Page 175
4.5.1 Sustain and break points in the core model......Page 176
Proposition 4.1 (Fujita, Krugman, and Venables, 1999)......Page 178
4.5.2 Solving for the break point and DIY break simulations......Page 179
4.6 Intermediate inputs without interregional labor mobility......Page 181
4.6.1 Demand......Page 182
4.6.2 Manufacturing supply......Page 183
4.6.3 Supply of food......Page 184
4.6.4 Equilibrium with transport costs......Page 185
4.6.5 Simulations......Page 187
4.7.1 Decreasing returns......Page 191
4.7.2 Generalized model......Page 195
4.8 The solvable model: two factors of production in manufactures......Page 196
4.9.1 Many locations in neutral space......Page 201
4.9.2 Preferred frequency......Page 204
4.10 Conclusions......Page 205
Stability of the spreading equilibrium......Page 209
Exercises......Page 212
5.1 Introduction......Page 213
5.2.1 Distinguishing between concentration, specialization, and agglomeration......Page 214
5.2.2 Location matters: a reminder......Page 218
5.3.1 Facts in search of a theory?......Page 226
5.3.2 Geographical economics and five testable hypotheses......Page 229
5.4.1 The home market effect: a reminder......Page 231
5.4.2 Estimation results......Page 233
5.4.3 The home market effect and geographical economics: an assessment......Page 234
5.5 The spatial wage structure and real market potential......Page 236
5.5.1 Regional wages and the distance from the center......Page 237
5.5.2 Wages and the market potential function......Page 240
5.5.3 Spatial wages and real market potential......Page 245
5.5.4 Two critical observations and extensions......Page 250
5.6 Conclusions (or why we do need chapter 6)......Page 255
Exercises......Page 257
6.1 Introduction......Page 259
6.2.1 City growth, the WWII shock and the return to the initial equilibrium......Page 260
6.2.2 Shocks and multiple equilibria......Page 266
From theory to estimates......Page 269
6.3.1 Where on the tomahawk diagram or bell-shaped curve are we?......Page 272
6.3.2 The freeness of trade and taking the two-region model (too) seriously......Page 273
6.3.3 Bilateral trade and an alternative measurement of the freeness of trade......Page 277
6.3.4 Freeness of trade, agglomeration, and multi-region simulations: an example......Page 279
6.3.5 Where on the curves are we? A multi-region simulation answer......Page 287
6.4 Conclusions......Page 292
Exercises......Page 295
Part III: Applications and extensions......Page 299
7.1 Introduction......Page 301
7.2.1 The sources of urban agglomeration economies: Marshall and beyond......Page 305
7.2.2 The scope of urban agglomeration economies: diversity and competition......Page 306
7.3.1 The core model of urban systems......Page 312
7.3.2 The core models of urban systems and geographical economics compared......Page 316
7.4 Congestion as an additional spreading force......Page 320
7.4.1 The modeling of congestion......Page 321
7.4.2 The two-city model and congestion......Page 324
7.4.3 Many locations and congestion......Page 326
7.5.1 Urban economics and the city size distribution......Page 329
7.5.2 What is Zipf's law?......Page 331
7.5.3 Estimating Zipf's law......Page 336
7.6 Explanations for Zipf's law: the congestion model and other approaches......Page 339
7.6.1 Non-economic explanations......Page 340
7.6.2 Simulating Zipf using the core model with congestion......Page 344
7.7 Conclusions......Page 347
Appendix......Page 348
Exercises......Page 350
8.1 Introduction......Page 352
8.2 Multinational production: stylized facts......Page 353
8.3 Explaining multinational production......Page 359
8.3.1 Multinationals in trade theory......Page 362
8.4 Multinationals in geographical economics......Page 365
8.4.1 Horizontally integrated multinationals......Page 368
8.4.2 Vertically integrated multinationals......Page 370
8.5.1 Indirect evidence......Page 375
8.5.2 Direct evidence I: evidence consistent with agglomeration effects......Page 378
8.5.3 Direct evidence II: market potential and spatial lag in FDI......Page 380
8.5.4 Direct evidence III: empirical evidence grounded upon geographical economics......Page 386
8.6 Conclusions......Page 388
Exercises......Page 389
9.1 Introduction......Page 390
9.2 Two manufacturing sectors......Page 396
9.3 Comparative advantage: David Ricardo......Page 398
9.4 Comparative advantage: factor abundance......Page 402
9.5.1 Some facts about labor migration......Page 414
9.5.2 Migration as a testing ground for geographical economics......Page 417
9.6.1 Recent developments......Page 420
9.6.2 Can geographical economics explain gravity? A simulation experiment......Page 423
9.6.3. How to use the gravity model to test geographical economics......Page 426
9.7 Conclusions......Page 433
Exercises......Page 434
10.1 Introduction......Page 437
10.2.1 Regular adjustment......Page 439
10.2.2 Special adjustment dynamics......Page 442
10.3 Some stylized facts of economic growth......Page 445
10.4 Explaining the facts: endogenous growth and geographical economics......Page 454
10.4.1 Endogenous growth......Page 455
10.4.2 Static geographical economics and the use of simulation dynamics......Page 456
10.5 Simulation dynamics: an experiment with the reduction of transport costs......Page 458
10.5.1 Structure of the simulation dynamics experiment......Page 459
10.5.2 Measuring agglomeration: the Herfindahl index......Page 460
10.5.3 Discussion of the results of the experiment......Page 461
10.6.1 Main ingredients......Page 466
10.6.2 Agglomeration and growth in the Baldwin-Forslid model......Page 468
First conclusion......Page 471
Second conclusion......Page 472
Third conclusion......Page 473
10.7.1 The correlation between institutions and income levels......Page 475
10.7.2 The geography of institutions......Page 478
10.7.3 The geography of institutions and/or the geography of markets?......Page 479
10.8 Conclusions......Page 483
Exercises......Page 484
Part IV: Policy and evaluation......Page 487
11.1 Introduction......Page 489
11.2.1 The lip service paid to geographical economics in policy discussions......Page 490
11.2.2 Six basic policy implications and the tomahawk diagram......Page 491
11.2.3 Taking the core model too seriously?......Page 495
11.3.1 Corporate income taxation and the race to the bottom: the standard view......Page 496
11.3.2 Corporate income taxation and the race to the bottom: agglomeration rents......Page 500
11.3.3 Government spending......Page 505
11.4 Building a bridge: a simple policy experiment in non-neutral space......Page 511
11.4.1 The pancake economy......Page 512
11.4.2 Bridges and the equilibrium spatial distribution......Page 514
11.5.1 Introducing welfare analysis into geographical economics......Page 518
11.5.2 Welfare implications of a bridge in the pancake economy......Page 519
11.6 Conclusions about the policy relevance of geographical economics......Page 522
Effects of parameter changes with a bridge between cities 4 and 10......Page 523
Distance matrices related to the cases depicted in figure 11.7......Page 527
Exercises......Page 529
12.2 Criticism of geographical economics......Page 531
12.2.1 Comments from regional and urban economics......Page 532
12.2.2 Comments from international economics......Page 534
12.2.3 Comments from economic geography......Page 536
12.3 An evaluation of the critique......Page 542
12.4 Growing up: where will geographical economics go from here?......Page 548
Not “one size fits all”…......Page 549
Spatial data and techniques and the comeback of simulations......Page 550
More conversation with the “others” – wishful thinking?......Page 554
The end of geographical economics as a separate sub-field within economics?......Page 555
Exercises......Page 556
References......Page 559
Index......Page 581