Economic Geography

Geographical economists
Geographical economists, as a school of economic geography, emerged in the
1990s, contemporaneously with the cultural turn and feminist approaches. The
catalyst came from Economics, particularly Paul Krugman (Fujita et al. 1999;
Krugman 1991). In Krugman’s model, firms with scale economies, each repre-
senting a different economic sector, find themselves in monopolistic competition
with one another. Two regions exist, each of which produces food under constant
returns, and firms choose the most profitable location. The major finding is that
three different spatial equilibria are possible (agglomeration in one or the other
region, or dispersed production), depending on transport costs and other param-
eters. There are many similarities with location theory. The ‘economic’ is defined
in terms of what are now called ‘microfoundations’; spatial patterns are an equi-
librium outcome of individual, rational fully informed self-interested choices, and
capitalism is reduced to market exchange. Geography matters because morphogen-
esis is a common outcome of such actions (agglomeration in a single region, in
homogeneous space); and because (controversially, for mainstream economics)
more than one spatial equilibrium is possible. Path dependence exists, in the
narrow sense that different initial geographies and shifts in transportation costs
determine which spatial pattern emerges. There has been extensive elaboration
of this skeletal starting point, including a reinvigorated interest in constructing
economic geography models within the framework of mainstream economics
(Henderson and Thisse 2004). The focus on explaining the ‘stylized fact’ that
industries agglomerate has reinforced a policy interest in place (with interesting
parallels to the work of Scott within political economy, the cultural turn, and
feminist approaches). It is argued that place still matters in a globalizing econ-
omy, and that fostering the competitiveness of localities as agglomerations of
dynamic economic sectors is the key to both local and national economic pros-
perity (and by implication, for realizing livelihood possibilities).
Macroeconomic extensions of this research have returned to the old chestnut
of whether the economic fortunes of regions converge under capitalist competition
(answering in the affirmative, as in location theory, but using a microfoundations
approach based in the new growth theory pioneered by Paul Romer). There has
also been recent interest in explaining the rank-size rule. In addition, however,
is an emergent interest in how physical geography affects economic growth and
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Eric Sheppard

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livelihood possibilities. Jeffrey Sachs, in particular, has undertaken research,
showing correlations between economic prosperity, and both tropicality and
distance from navigable waterways, arguing that physical geography matters
because it acts as a barrier to the ability of market mechanisms to equalize liveli-
hood possibilities. This has the policy implication that more global effort must
be put into solving the special geographical challenges of physically disadvan-
taged locations. Whereas the place-based policy implications of the agglomera-
tion school support such policies as structural adjustment (getting things 
‘right’ locally is the key to prosperity), Sachs’ work suggests that geography
makes a level playing field (assumed in Krugman-like models) impossible.
Methodologically, geographical economists emphasize the construction of math-
ematical models that produce equilibrium patterns consistent with what they 
identify as stylized facts (e.g. industrial agglomeration, the rank size rule, global
economic inequalities), showing more interest in detailed empirical analysis and
hypothesis testing than their colleagues in mainstream economics.