Paul Krugman's Geographical Economics and Its Implications for Regional Development Theory: A Critical Assessment

TLDR

Geography has become central to trade theory, with new trade and competitive advantage frameworks emphasizing that imperfect competition, increasing returns, and external economies are most effectively realized at local and regional scales, a view championed by Paul Krugman. The study seeks to explain trade by analyzing the processes that cause production to concentrate locally and regionally. Krugman employs a range of geographical concepts, from Marshallian agglomeration economies to traditional location theories, to model how such concentration arises.

Abstract

AbstractEconomists, it seems, are discovering geography. Over the past decade, a “new trade theory” and “new economics of competitive advantage” have emerged which, among other things, assign a key importance to the role that the internal geography of a nation may play in determining the trading performance of that nation's industries. Paul Krugman's work, in particular, has been very influential in promoting this view. According to Krugman, in a world of imperfect competition, international trade is driven as much by increasing returns and external economies as by comparative advantage. Furthermore, these external economies are more likely to be realized at the local and regional scale than at the national or international level. To understand trade, therefore, Krugman argues that it is necessary to understand the processes leading to the local and regional concentration of production. To this end he draws on a range of geographical ideas, from Marshallian agglomeration economies, through traditional loc...