Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of boxes
- List of technical notes
- List of symbols and parameters
- Preface to the new edition
- Acknowledgments
- Part I Introduction
- Part II Core models and empirical evidence
- 3 The core model of geographical economics
- 4 Beyond the core model: solutions, simulations, and extensions
- 5 Agglomeration, the home market effect, and spatial wages
- 6 Shocks, freeness of trade, and stability
- Part III Applications and extensions
- Part IV Policy and evaluation
- References
- Index
3 - The core model of geographical economics
- Frontmatter
- Contents
- List of figures
- List of tables
- List of boxes
- List of technical notes
- List of symbols and parameters
- Preface to the new edition
- Acknowledgments
- Part I Introduction
- Part II Core models and empirical evidence
- 3 The core model of geographical economics
- 4 Beyond the core model: solutions, simulations, and extensions
- 5 Agglomeration, the home market effect, and spatial wages
- 6 Shocks, freeness of trade, and stability
- Part III Applications and extensions
- Part IV Policy and evaluation
- References
- Index
Summary
Introduction
As we noted in the preface, it was a long time ago that Ohlin (1933) observed that the fields of trade theory on the one hand and regional and urban economics on the other hand had, in principle, the same research objectives. Both research areas want to answer the questions: “Who produces what, where, and why?” Despite Ohlin's observation, each field has continued to go its own way since the nineteenth century. Chapter 2 showed that trade theory assumes that countries are dimensionless points in space. Trade theorists are mostly interested in how market structure, production techniques, and consumer behavior interact (Neary, 2004). The resulting factor and commodity prices determine the pattern of international trade flows. Location is, at best, an exogenous factor, and usually does not play a role of any significance. Regional and urban economics, in contrast, takes market structure and prices as given and tries to find out which allocation of space is most efficient. The underlying behavior of consumers and producers, central in trade theory, is less important (Fujita and Thisse, 1996). Although both strands of literature produce valuable insights in their own right, trade theory and regional and urban economics are productively combined in geographical economics.
This chapter discusses and explains the core model of geographical economics, a small, general equilibrium model developed by Krugman (1991a, 1991b). As we shall see, the equilibrium equations of this model are non-linear.
- Type
- Chapter
- Information
- The New Introduction to Geographical Economics , pp. 81 - 133Publisher: Cambridge University PressPrint publication year: 2009