There are two principal theories of why countries or regions trade: comparative advantage and increasing returns to scale. Yet there is virtually no empirical work that assesses the relative importance of these two theories in accounting for production structure and trade. We use a framework that nests an increasing returns model of economic geography featuring “home market effects” with that o...

This paper presents a New Economic Geography model with distortionary taxation and endogenized trade costs. Tax revenues finance a public good, infrastructure. We show that the introduction of costly public investment in infrastructure increases agglomerative tendencies. With respect to the regions’ sizes, in the periphery, the price-index for manufacturing goods decreases, whereas for the core...

a r t i c l e i n f o Paul Krugman has clarified the microeconomic underpinnings of both spatial economic agglomerations and regional imbalances at national and international levels. He has achieved this with a series of remarkably original papers and books that succeed in combining imperfect competition, increasing returns, and transportation costs in new and powerful ways. Yet, not everything...

In economic geography the notion of the network has come to play a critical role in a range of debates. Yet, networks hardly are construed in an explicit fashion but rather are assumed as some sort of more enduring social relations. This paper seeks to foreground these implicit assumptions – and their limitations – by tracing the selective engagement of economic geography with network approache...