Working Paper: CEPR ID: DP3985
Authors: Keith Head; Thierry Mayer
Abstract: This paper examines empirical strategies that have been or could be used to evaluate the importance of agglomeration and trade models. This theoretical approach, widely known as ?New Economic Geography? (NEG), emphasizes the interaction between transport costs and firm-level scale economies as a source of agglomeration. NEG focuses on forward and backward trade linkages as causes of observed spatial concentration of economic activity. We survey the existing literature, organizing the papers we discuss under the rubric of five interesting and testable hypotheses that emerge from NEG theory. We conclude the chapter with an overall assessment of the empirical support for NEG and suggest some directions for future research.
Keywords: Agglomeration; Trade; New Economic Geography
JEL Codes: F10; R10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher market potential (D40) | local factor prices (F16) |
| higher market potential (D40) | wages (J31) |
| higher market potential (D40) | land rentals (Q15) |
| good access to major markets (R53) | capital inflows (F21) |
| market size (L25) | production distribution (D39) |
| reduction in trade costs (F12) | spatial concentration of producers and consumers (R12) |
| temporary shocks to economic activity (E32) | agglomeration patterns (R11) |