Research content of new economic geography

The main content of new economic geography can be roughly divided into two aspects: the spatial agglomeration of economic activities and the driving force of regional growth agglomeration. Based on the theory of increasing income, the new economic geography studies the spatial agglomeration of economic activities through the phenomenon of "path dependence" in location agglomeration. Increasing returns, perfect competition and comparative advantage are three basic assumptions of traditional economics. Krugman is not the first person to explain geographical agglomeration by increasing income. To some extent, "new economic geography" can be regarded as part of the revival of interest in increasing returns in economics. In the process of air training gathering, different scholars emphasize different forms of increasing income. In the new economic geography, increasing income refers to the cost savings brought by the spatial proximity of economically interrelated industries or economic activities, or the economies of scale of intangible assets brought about by the expansion of industrial scale. Krugman systematically expounded the idea of increasing income in his works, and tried to establish a new economic location theory on the basis of increasing income. In his view, the increase in income is essentially a regional and local phenomenon. Spatial agglomeration is the external manifestation of income increase, the economic effect of various industries and economic activities after spatial concentration, and the centripetal force to attract economic activities to a certain region.

In addition to explaining the agglomeration or diffusion of industrial activities, as the basis of "new economic geography", the increasing return model is also used to explain the dynamic mechanism of urban growth. The research of new economic geography mostly focuses on the regional distribution of industrial activities, and discusses why specific industries are concentrated in certain places, especially cities. When explaining that people, money and things are concentrated in cities, Krugman pointed out that people are concentrated in cities because of higher wages and diversified commodities, while factories are concentrated in cities because they can provide a bigger market for their products. New economic geographers believe that spatial agglomeration is the basic factor leading to the formation and continuous expansion of urban and regional development.

Under the influence of the law of increasing income and the corresponding agglomeration or diffusion model, "New Economic Geography" defines the development of regions and cities as "path dependence" and "historical events". Contrary to the neoclassical economic equilibrium model, Krugman emphasizes the persistence and accumulation of forces that affect agglomeration by using historical methods. In other words, there is a trend of "path dependence" and "historical events". In short, in the "new economic geography", regional advantages are considered to be self-reinforcement caused by some small events. The second main research content of new economic geography is the relationship between long-term regional growth and spatial agglomeration. The standard neoclassical growth model assumes that the returns of capital and labor are decreasing. According to this framework, a relatively poor country with low capital reserves will have higher marginal productivity and capital profit rate. The neoclassical growth model predicts that poorer countries will grow faster and eventually catch up with richer countries. According to Barrow and Sala-I-Martin (1995), the regional convergence speed of the United States, the European Union, Canada, China and Australia is very similar, but the regional convergence speed is quite slow, about 1.2% per year, which is much slower than the simple neoclassical model. The fact that the regional convergence rate is slow and the doubt about the validity of the neoclassical long-term growth model lead to the connection with the increasing return model.

According to the new economic geography, the relative scale of capital externalities (the scope of market action), the mobility of labor force and transportation costs will determine the degree of regional integration of economic activities and wealth in spatial allocation. On the one hand, when capital externalities and labor migration increase through regional integration, the new economic geography model will predict greater spatial agglomeration and the gap between rich centers and poor marginal areas will increase, and the empirical results seem to support this prediction; On the other hand, if regional mobility still exists (due to language and cultural barriers), the cost caused by labor and congestion in the central area will increase, which is conducive to the spread of economic activities and the weakening of regional agglomeration.