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The Spatial Economy

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Description: Article by Masahisa Fujita, Paul Krugman and Anthrony Venables that describes the dramatic increase in research on economic geography. Includes a discussion of spatial aspects of the Dixit-Stiglitz model of monopolistic competition.
THE SPATIAL ECONOMY: INTRODUCTION In the last few years there has been a dramatic increase in research on economic geography -- that is, on where economic activity occurs and why. This surge of interest has been driven to some extent by real-world concerns -- the field has been given a big boost in particular by plans to unify the European market, and the attempt to understand how this deeper integration will work by comparing international economics within Europe with interregional economics within the United States. But economic geography has always been important; if it has been notably neglected by the economics profession, this is not because economists have been uninterested in the subject, but because they have regarded it as intractable. Their new willingness to work on economic geography comes from their sense that new tools -- in particular, modeling tricks that have been developed to analyze industrial organization, international trade, and economic growth -- have removed crucial technical barriers, and transformed a once inhospitable field into fertile ground for theorists.
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