The Core Content of New Economic Geography

Paul krugman is one of the most influential economists. With his genius and diligence, he opened up new research fields such as new trade theory and economic geography, which had a far-reaching impact on the development of contemporary economics. In 2008, Krugman won the Nobel Prize in Economics, which was awarded to him by the jury in recognition of his "proof of the influence of economies of scale on trade patterns and economic activities". Krugman won the prize because the research he started from 1979 explained the trade patterns between countries, as well as what goods came from and why.

The traditional trade theories are as follows: ① Adam Smith's absolute cost theory (absolute comparative advantage theory): It is believed that the production cost of the same industry is different in different countries, and trade can make countries make profits by arranging production according to the principle of the lowest production cost. ② David Ricardo's relative cost theory (relative comparative advantage theory): It is believed that it is not the low absolute cost that determines international trade, but the low relative cost. Every country, regardless of its level of development, can produce its own products with relatively low cost and then trade them. (3) Olin's resource evaluation theory: The decisive factor of international trade is expanded from the difference of labor cost to the relative difference of production factor input, and it is considered that the relative abundance of production factor resources (resource evaluation state) in various countries is the fundamental reason that determines the emergence and flow of international trade.

Obviously, the above trade theory is based on the differences between countries, especially the relative differences of production factors (absolute differences can be used as a special form of relative differences) to explain trade. This means that there is an inverse relationship between the similarity between countries and the trade volume. However, a large amount of world trade, that is, most of the trade among members of the Organization for Economic Cooperation and Development (OECD), is conducted in countries with similar factors of production. In addition, for most of the postwar period, the proportion of trade between industrial countries in the income of these countries has been rising. By most standards, these countries are becoming more and more similar in terms of factors of production. Their trade products are similar. The new trade theory tries to explain this trade phenomenon.

1, trade theory under similar conditions

Krugman's new trade theory also admits that the differences between countries are one of the reasons for the occurrence of trade, but his views are obviously different from the traditional trade theory in the following aspects.

(l) He believes that the trade between countries, especially the trade of similar products in similar countries, represents the result of specialization development in these countries according to the principle of increasing returns to scale, and has little to do with the differences in production factors enjoyed by different countries. Ricardo and others' comparative advantage and trade theory are based on perfect competition and constant returns to scale. On the other hand, the new trade theory assumes that the market environment is an incomplete popular feature. Driven by economies of scale and income increase, the expansion of output scale has brought about the decline of production costs. Countries can increase profits by developing specialization and trade.

(2) Under the premise of the above theory, what kind of specialization the country develops has historical contingency to some extent. The production place of a specific product is uncertain and largely depends on history. Krugman once gave some examples to illustrate this historical dependence. For example, 1895, a girl in Dalton, Georgia, USA made a clustered bedspread and gave it to her friends as a wedding gift. This special handicraft wedding gift made Dalton the carpet manufacturing capital of the United States after World War II. Among the 20 largest carpet manufacturers in China, 6 are located in Dalton; There are 20,000 people employed in the carpet manufacturing industry in this city and its vicinity. Others, such as collars and sleeves made in Troy, new york, Gloversvine and Johnston, new york. Hnston) Leather glove manufacturing, footwear industry in northeastern Massachusetts, etc. , have similar reasons to Dalton. However, once the regional specialization pattern is formed, it will continue to accumulate and develop through trade. Extending to countries, that is, the specialized division of labor and trade patterns between countries have a strong "path dependence."

(3) Under the condition of incomplete competition and trading of similar products, the demand and reward of production factors depend on the production technical conditions on the micro scale. The change of production technology can change the demand structure and income pattern of production factors, thus affecting trade under similar factors and promoting trade of similar products.

(4) The new trade theory holds that the existence of imperfect competition and increasing income makes it possible for countries and regions to adopt strategic trade policies and create competitive advantages. For example, some sectors have prominent economies of scale (especially external economies), and regions can gain competitive advantages by promoting the export and development of these sectors. In other words, strategic trade policy can make a country change its specialization pattern in the international economy and develop in a favorable direction.

Second, the main theory of new economic geography

Krugman's founder "New Economic Geography" is inspired by "New Trade Theory", which is often an extension of the new trade theory. The traditional international trade theory is completely rooted in the neoclassical tradition (that is, the equilibrium model based on the assumption of rational individual behavior), and tends to study static, perfect competition and constant return. Most models imagine the world as a world without transportation costs, and the mode of international trade is determined by the comparative advantage caused by technological differences or factor endowments. Based on the fact that a large part of international trade occurs between countries with similar factor endowments, Krugman constructs a model that even countries without comparative advantages will trade for the purpose of improving welfare. In 1979, he hinted at the imperfect competitive market structure in the discussion about the increasing returns to scale of manufacturers and the effect of consumers' preference, and borrowed Dixie-Grice (D-S) model to establish his own views. Krugman believes that the greatest contribution of his "new economic geography" is to help end the practice of mainstream economists not considering spatial structure.

The new economic geography follows the general equilibrium analysis method of traditional economics, and mathematicizes, abstracts and models the real world on the basis of Dixie-Stiglitz monopoly competition, alternative elastic utility function and iceberg transportation cost. By describing the centripetal force of economic activity agglomeration and the centrifugal force of decentralized economic activity, this paper reveals how the geographical structure and spatial distribution of economic activity form agglomeration and its micro-basic determinants under the action of these two forces. At present, the first generation theory of new economic geography has matured, including core-periphery theory, urban evolution theory and agglomeration and trade theory.

1. Core edge theory. The core-periphery theory put forward by Krugman laid the basic framework of the new economic geography theory. Through centrifugal force and centripetal force, this theory explains how increasing returns, transportation costs and factor flows interact and eventually evolve into completely different economic structures. Centrifugal force comes from the existence of a certain solidification effect, which leads to the increase of transaction costs, while centripetal force mainly depends on the "forward connection" that urges workers to get closer to consumer goods producers and the "backward connection" that urges producers to gather in a larger market. For example, if there are many companies in a certain area, the products in this area are significantly different and the competition is fierce. Under the same conditions, the workers in this area will have higher real income, further inducing a large number of workers to migrate to this area; The increase in the number of workers will expand the market scale through the demand-driven effect and produce the local market effect analyzed by Krugman in international trade. If the transportation cost is reduced to a certain extent at this time, the production of each product will only be concentrated in a specific area. Therefore, when the transportation cost is low enough, the product difference is significant, and the production scale is large enough, the "forward" and "backward" correlation is enough to overcome the centrifugal force generated by non-mobile farmers, and the economy will evolve into a "center-periphery" model, that is, all manufacturing industries will be concentrated in one region.

2. Urban and regional evolution theory (self-organized evolution of urban hierarchy). Krugman thinks that self-organization theory and complex theory are very important in economic dynamics analysis. In his book "Self-organized Economy", he applied the complex theory to the analysis of spatial theory, and used this method to design a general framework for the study of urban development process. Self-organization theory shows that local and small-scale interactions can lead to large-scale structural changes. By revealing the behavior of population growth and migration, the city scale model provides a foundation for the growth of big cities and the formation of new cities. Through the above model, he tried to show that self-organization activities are implicit in many urban phenomena. In order to explain how the interdependent location decision of businessmen in metropolitan areas leads to the formation of polycentric structure, that is, businessmen are concentrated in several spatially separated residential areas, Krugman established a spatial self-organization model of polycentric cities-marginal city model. Krugman's spatial self-organization model of multi-center urban structure is based on the analysis of centripetal force and centrifugal force between manufacturers and their interaction. It clearly explains to us the internal mechanism of forming a large-scale regular economic spatial pattern through "an invisible hand", and it answers the questions that the early Du Neng model and Christalle and Liao's central place theory can't answer, which greatly supplements and perfects the central place theory and becomes the field of spatial economics, especially in recent years. An important task of economic geography is to explain the concentration of population and economic activities, such as the difference between manufacturing belt and agricultural belt, the existence of cities and the role of industrial agglomeration. Broadly speaking, all these concentrations are formed and exist because of some form of agglomeration economy. In agglomeration economy, spatial concentration itself creates a favorable economic environment, which can support further or sustained concentration. In the literature of traditional urban system research, it is enough to assume the existence of agglomeration economy. However, the study of new economic geography must enter the black box in order to deduce the self-reinforcing characteristics of spatial agglomeration from more basic investigations. This is not only because assuming the existence of agglomeration economy looks a bit like assuming someone's conclusion is taken for granted, but more importantly, by modeling the source of increasing returns of spatial agglomeration, we can understand how and when this return changes, so as to explore how economic behavior changes accordingly. Krugman's spatial self-organization model of multi-center urban structure outlines a snowball-like image of a city or region developing with time through in-depth analysis of the dynamic evolution mechanism inside the black box. This dynamic model has become an indispensable theoretical support for new economic geography.

On the one hand, the theory of urban and regional evolution of new economic geography pays attention to the spatial distribution of agglomeration, such as the number and scale of agglomeration, spatial coordination among industries, etc. On the other hand, it abstracts the internal spatial structure of agglomeration and abstracts the city as a point in the location space. Krugman established a dynamic multi-regional model on the basis of von Duneng, and defined the city as a manufacturing concentration surrounded by agricultural hinterland, and abstracted it as a gathering point with balanced spatial structure and equidistant distribution. Subsequently, Fujita Masahisa and Krugman put forward that the existence of central cities comes from the role of forward and backward links by using the method of equilibrium analysis. They believe that due to the increasing population, the hinterland extends outward and away from the central cities, thus forming many new cities. Once the number of cities becomes enough, the scale of cities and the distance between cities tend to remain at a generally fixed level due to the relative strength of centripetal force and centrifugal force. With the relative decline of agricultural and industrial transportation costs, it may eventually form a metropolis group composed of large core cities.

3. Industrial agglomeration and trade theory. The new economic geography, by slightly modifying the center-periphery theory, shifts the research focus from gathering resources to regional gathering of specific industries, and further studies industrial gathering and trade from the aspects of correlation between industries, transportation costs and mobility of factors. Krugman believes that backward correlation and forward correlation of industries are two forces to promote industrial agglomeration and regional specialization development, and upstream and downstream producers are concentrated in a single place due to the increasing transportation costs and income. On the one hand, industrial agglomeration depends on the commodity expenditure (including intermediate input and other commodity expenditure) of the industry. Large-scale industries can provide a larger market for the industry, and commodity producers are encouraged to produce in upstream industries. On the other hand, due to the existence of external economies of scale, regions with large industrial scale will provide a variety of intermediate inputs for producers of final commodities, reduce the cost of final commodities in this industry, and urge producers of intermediate products to produce in the largest market they control, which is precisely the downstream industry. Therefore, in a specific region, the effects of "forward correlation" and "backward correlation" can produce a specialized process, which makes manufacturing or specific industries gather in a limited number of regions.