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

JEL Classification: F12; F14; O10

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

This paper reviews the new economic geography literature, which accounts for the uneven distribution of economic activity across space in terms of a combination of love of variety preferences, increasing returns to scale and transport costs. After outlining the canonical core and periphery model, the paper examines the empirical evidence on three of its central predictions: the role of market access in deter- mining factor prices, the related home market effect in which demand has a more than proportionate effect on production, and the potential existence of multiple equilibria. In reviewing the evidence, we highlight issues of measurement and identification, alternative potential explanations, and remaining areas for further research.