Introduction

In the first chapter of this book a number of stylized facts about the clustering of economic activity were presented to justify our inquiry into the relationship between economics and geography. Chapters 2–4 have mainly looked at this relationship from a theoretical point of view. In this chapter we start with the reminder that in reality there is a considerable degree of clustering, that is location matters. Our main objective in this chapter is to assess the empirical relevance of geographical economics and to see whether and how the theoretical model of chapters 3 and 4 can be tested.

In the next section we briefly review the main facts about the concentration and agglomeration of economic activity at different levels of aggregation. This continues, and partly restates, our discussion of stylized facts of location in chapter 1. Against this background, section 5.3 deals with the question of whether these facts can be reconciled with the various economic theories of location presented in Chapters 2–4. To answer this question, we summarize the main predictions about clustering (if any) that follow from the various theories, and conclude that the stylized facts are in accordance with several theories (and not only with geographical economics). This does not come as a big surprise since many empirical studies about the concentration or the agglomeration of economic activity are simply not primarily concerned with the testing of specific theories.

In sections 5.4 and 5.5 we analyze two recent attempts which explicitly try to test (part of) the implications of the geographical economics models. The bulk of this chapter consists of an in-depth discussion of these two attempts, such that we will not offer a fully-fledged survey of the empirical aspects of trade, growth, and location.