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The Spatial Economy: Cities, Regions, and International Trade
By Masahisa Fujita, Paul Krugman, and Anthony J. Venables, Cambridge, MA: The MIT Press, 1999, 367 pp., $35. 00, hardcover.
The Spatial Economy will likely become the cornerstone of the revitalized field of economic geography. Economic geography has always been a critical link in the stories economists have told, but most have regarded the field as essentially intractable. The new willingness to work in this field results largely from new tools (especially those from international trade and growth theory) that have removed some of the technical barriers that once prohibited extensive research efforts in this field.
The authors rely heavily upon the familiar Dixit-Stiglitz model of monopolistic competition that offers a way to respect the effects of increasing returns at the level of the individual firm but simplifies things enough to avoid getting bogged down in the details of increasing returns. This model is used to answer two very useful questions: (1) What are the conditions under which a spatial concentration of economic activity is sustainable, and (2) when is a symmetric equilibrium, without spatial concentration, unstable? Before answering these questions, however, the authors present a useful review of both urban economics and regional science.
Urban economists are familiar with the classic monocentric city model, which is augmented by a theory of agglomeration based on external economies, and it is this model that underlies much of the analysis in the book. The classic monocentric model of urban economics is von Thunen's model substituting commuters for farmers and substituting a central business district for von...