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Research Programmes | Trade:

New Economic Geography

Overview

An overwhelming feature of economic activity is its spatial unevenness. It manifests in income disparities between countries and regions, the clustering of industries, and the formation of urban systems. We want to explain the location of economic activity and how this affects productivity and living standards in different countries, across regions and within cities. An important innovative element in our approach is that we draw out complementarities between studying international and sub-national spatial issues. We collaborate closely with the Spatial Economics Research Centre who take a more traditional spatial/urban economics approach.

In recent years the European Union expanded eastwards to include several former communist countries. The integration of these countries into the EU provides a number of challenges and opportunities including migration, competition in product markets, and the outsourcing of labour-intensive production to lower cost locations. One of the most dramatic examples of this regional integration was the reunification of West and East Germany in 1990. CEP research explores the implications of Germany's division and reunification for the spatial distribution of economic activity within West Germany (CEP Discussion Paper No 688, later published in American Economic Review). This research shows that cities close to the new border between East and West Germany disproportionately lost market access following Germany's division, due to the loss of nearby trading partners accessible at low transportation costs. The German reunification began to reverse these relative differences between border and non-border cities. Further work has pinpointed some of the mechanisms that shape the modern urban economy (CEP Discussion Paper No 1154). This research contrasts economic activity within Berlin before, during and after the fall of the Berlin Wall to better understand and quantify the impact of concentrated worker pools and consumers in cities.

The shift from rural to urban settlement has a wide range of implications for infrastructure, public health, environment and economic performance. As a result, urbanisation is central to many policy debates and is viewed as a key part of economic development. While this urban transition is largely complete in countries such as the United States, urbanisation continues swiftly in Brazil, China and India. Although urbanisation involves large-scale restructuring of the economy, much of our existing knowledge comes from research that excludes rural areas. Using a novel dataset that encompasses both the United States and Brazil, CEP research provides new findings on urbanisation (CEP Discussion Paper No 892, later published in Quarterly Journal of Economics). For example, the well known Gibrat's Law (that population growth is independent of population size) breaks down outside of large cities. The findings suggest a stronger distinction is needed between polices for urban and rural areas.

News Coverage

The CEP's research is often featured in international news coverage and is influential in informing public debate. Some recent policy issues discussing work of the New Economic Geography include:

Related Papers

These and other related topics have also been studied in the following recent CEP papers:

SERC Discussion Paper
The Effect of Public Sector Employment on Local Labour Markets
Giulia Faggio, Henry G. Overman
June 2012
Paper No' SERCDP0111: Read Abstract | Full paper (pdf)


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CEP Discussion Paper
The Economics of Density: Evidence from the Berlin Wall Gabriel M. Ahlfeldt, Stephen J. Redding, Daniel M. Sturm and Nikolaus Wolf June 2012
Paper No' CEPDP1154:
Read Abstract | Full Paper (pdf)

JEL Classification: N34; O18; R12


Tags: agglomeration; dispersion; density; cities

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CEP Discussion Paper
Agglomeration, Trade and Selection Gianmarco I. P. Ottaviano
February 2012
Paper No' CEPDP1129:
Read Abstract | Full Paper (pdf)

JEL Classification: F12; R11; R12


Tags: agglomeration; trade; heterogeneity; selection; economic geography

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CEP Discussion Paper
Spatial Frictions Kristian Behrens, Giordano Mion, Yasusada Murata and Jens Südekum
December 2011
Paper No' CEPDP1108:
Read Abstract | Full Paper (pdf)

JEL Classification: F12; R12


Tags: trade frictions; urban frictions; productivity; city-size distribution; markups

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CEP Discussion Paper
Spatial Exporters Fabrice Defever, Benedikt Heid and Mario Larch
December 2011
Paper No' CEPDP1100:
Read Abstract | Full Paper (pdf)

JEL Classification: F12; F13


Tags: export destination choice; spatial correlation; extended gravity; firm-level customs data; mfa; atc quota removal

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CEP Discussion Paper
The Spatial Organization of Multinational Firms Fabrice Defever
December 2010
Paper No' CEPDP1029:
Read Abstract | Full Paper (pdf)

JEL Classification: F23; L22; R3


Tags: functional fragmentation; vertical linkages; location choice

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CEP Discussion Paper
The Empirics of New Economic Geography Stephen Redding
April 2009
Paper No' CEPDP0925:
Read Abstract | Full Paper (pdf)

JEL Classification: F12; F14; O10


Tags: new economic geography; market access; industrial location; multiple equilibria

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CEP Discussion Paper
Economic Geography: A Review of the Theoretical and Empirical Literature Stephen Redding
January 2009
Paper No' CEPDP0904:
Read Abstract | Full Paper (pdf)

JEL Classification: F12; F14; O10


Tags: new economic geography; market access; home market effect; multiple equilibria

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CEP Discussion Paper
Why Capital does not Migrate to the South: A New Economic Geography Perspective Jang Ping Thia
November 2008
Paper No' CEPDP0895:
Read Abstract | Full Paper (pdf)

JEL Classification: F12; F15


Tags: firm heterogeneity; capital mobility; economic geography

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CEP Discussion Paper
Urbanisation and Structural Transformation Guy Michaels, Ferdinand Rauch and Stephen Redding
October 2008
Paper No' CEPDP0892:
Read Abstract | Full Paper (pdf)

JEL Classification: R11; R51


Tags: urbanisation; economic development; urban population; rural population