Introduction

The central message of chapter 1 is that geography is important. Economic activity is not evenly distributed across space. On the contrary, clustering of economic activities can be found at various levels of aggregation: the considerable variation in economic size of cities or regions at the national level, or the uneven distribution of wealth and production at the global level. The question arises, of course, of why location apparently is relevant for the distribution of economic activity. To answer this question, we need an analytical framework in which geography plays a part one way or another. In particular, we would like to show that the decisions of economic agents are determined by geography, and that geography itself can be derived from the behavior of economic agents. This is, in a nutshell, what the approach developed in this book tries to do. We want to make absolutely clear from the start that this approach, referred to throughout this book as geographical economics but (see the preface) perhaps better known as new economic geography, is by no means the first theory to address location issues. There is a long tradition that deals with these questions, and this will be discussed in this chapter. The novelty of geographical economics is not the research topic, but the way it tackles the relationships between economics and geography.

Before we turn to the core model of geographical economics, this chapter discusses the role of geography in economic theory. It is clearly beyond the scope of this book to try to give a complete survey of the literature. Instead, we highlight the role of geography in some important fields of economics.