New Economic Geography, Agglomeration, Regions, International trade
This paper takes issue with Paul Krugman's claim that the New Economic Geography should be considered ‘now middle-aged’. The New Economic Geography can be updated to account for current developments in advanced economies, notably innovation-driven agglomeration and urbanization. The New Economic Geography also needs improvement in its ability to address dynamic processes and causal forces in spatial economics. These updates would require that the New Economic Geography breaks some of its self-imposed theoretical and methodological shackles. This in turn would entail achieving a better balance between economists' love for parsimony and geographers' thirst for complexity. Economics itself offers some clues as to how to succeed in this task. Thus updated, the New Economic Geography could present a compelling approach to innovation-driven agglomeration and specialization in the advanced countries, as well as the development of regions in emerging economies.