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The Spatial Economy: Cities, Regions, and International Trade null

by Masahisa Fujita (Author), Paul Krugman (Author), Anthony J. Venables (Author)

8 ratings

ISBN-13: 978-0262561471

ISBN-10: 0262561476

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The authors show how a common approach that emphasizes the three-way interaction among increasing returns, transportation costs, and the movement of productive factors can be applied to a wide range of issues in urban, regional, and international economics.

Since 1990 there has been a renaissance of theoretical and empirical work on the spatial aspects of the economy―that is, where economic activity occurs and why. Using new tools―in particular, modeling techniques developed to analyze industrial organization, international trade, and economic growth―this "new economic geography" has emerged as one of the most exciting areas of contemporary economics.

The authors show how seemingly disparate models reflect a few basic themes, and in so doing they develop a common "grammar" for discussing a variety of issues. They show how a common approach that emphasizes the three-way interaction among increasing returns, transportation costs, and the movement of productive factors can be applied to a wide range of issues in urban, regional, and international economics. This book is the first to provide a sound and unified explanation of the existence of large economic agglomerations at various spatial scales.

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Editorial Reviews

Review

"A superb volume on the new economics of geography by three pioneers in the field. This lucid, elegant book is a must for any graduate course in urban economics."--Edward L. Glaeser, Professor of Economics, Harvard University

& quot; A superb volume on the new economics of geography by three pioneers in the field. This lucid, elegant book is a must for any graduate course in urban economics.& quot; -- Edward L. Glaeser, Professor of Economics, Harvard University

" A superb volume on the new economics of geography by three pioneers in the field. This lucid, elegant book is a must for any graduate course in urban economics." -- Edward L. Glaeser, Professor of Economics, Harvard University

-- Edward L. Glaeser, Professor of Economics, Harvard University

Review

Monopolistic competition has revolutionized our thinking about a wide variety of economic topics, and it has established a firm foothold in macroeconomics. This splendid book shows how a number of common themes that have emerged from this approach can be used to advance our understanding of economic geography, regional and urban economics, international trade and economic development. It represents applied theory at its very best.

―Elhanan Helpman, The Eitan Berglas School of Economics, Tel Aviv University, and Department of Economics, Harvard University

Product details

Publisher : The MIT Press (September 1, 2001)
Language : English
Paperback : 384 pages
ISBN-10 : 0262561476
ISBN-13 : 978-0262561471
Item Weight : 1.2 pounds
Dimensions : 6 x 0.63 x 9 inches

Best Sellers Rank: #1,049,281 in Books (See Top 100 in Books)
- #253 in Economic Theory (Books)
- #466 in Business Development
- #1,522 in International Economics (Books)

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Reviewed in the United States on February 12, 2018

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Difficult

Stephen R. Shulman-Laniel

An instant classic in urban economics

Reviewed in the United States on October 29, 2008

This is the most I've enjoyed an economics book since Sam Bowles's "Microeconomics". Like Bowles's book, it offers crystal-clear writing attached to non-scary mathematics. It's less wide-ranging than Bowles's book, but the amount of amazement per page is comparable. In the case of "The Spatial Economy", the amazement comes from how much mileage they get from very simple models.

They're trying to answer some questions that lay dormant in economics for many years, namely: why do cities form where they do? How important are first-mover advantages for cities? (I.e., what would have to happen for New York to no longer be top dog?) How do national boundaries affect the distribution of industries within a given nation? How does trade liberalization (for instance, NAFTA) change that distribution? How can the same methods used to study cities help us understand international trade?

One way to start modeling cities is to assume a built-in tension in their size: as a city grows more dense, it draws more businesses to it, but also pushes some out into the suburbs. It draws them because they want to be where the customers are ("forward linkage") and also want to be where their suppliers are ("backward linkage"). It pushes them away because of land rents: the denser the city becomes, the higher the rent.

One of the most interesting parts of the book is that they don't actually model land rents at all. In essence, all of their models derive from varying assumptions about transportation costs, forward linkages, and backward linkages. From these meagre beginnings, they get quite stunning results. One particularly charming chapter evolves their model through time as the population increases and companies move out into the hinterlands; cities merge and shift and grow, all from a quite simple dynamic, with a few assumptions about costs and market structure.

At every step, they go through basically the same motions. First, derive the wage at any point in the city or its suburbs, using some fairly unrealistic assumptions about zero-profit businesses. Do this for a second, nearby city as well. Deflate the wages in both cities by something akin to the Consumer Price Index; this gives you the real wage in both places. Then divide one by the other to get the ratio of real wages; if this number is not equal to 1, then employees have an incentive to move from one city to the other. Evolve the model through time until the real wage ratio equals 1 everywhere.

Normally this wage-ratio formula is rather complicated and analytically intractable. They simplify things a great deal by coming at the problem from another direction: assume that all cities are identical at the start -- in particular, that they all have identical populations. Now take the derivative of the wage ratio in the neighborhood of this "symmetric" configuration. (It took me a while to figure out that "symmetric" meant "equal everywhere"; it also took me a while to realize that when they say "linearize," they mean "take the derivative." Both usages make sense; I'm just slow.) If a small movement of employees from one city to another leads to a cascade, wherein a flood of people follow in pursuit of higher wages, then the symmetric equilibrium is not stable; the authors call this the "break point." Symmetry breaking leads to the formation of a new city. Then the question becomes: is this new equilibrium with unequally sized cities sustainable, or will it also fall apart when a few employees pick up and leave? If this "asymmetric equilibrium" is stable for certain values of the parameters, then the authors label this bundle of parameters the "sustain point."

The math is not hard, though the sheer volume of symbols is imposing. There's some calculus -- a derivative here, an integral there -- but it's mostly just a lot of algebra, and a lot of tricks for simplifying complicated expressions. The authors are good writers, so they refuse to use equations where words will say the same thing.

They're also straightforward about the problems their models face. One of these problems is particularly intriguing to me, namely the well-known fact that the distribution of city sizes approximately follows a power law. That is, the second-largest city tends to be 1/2 the size of the largest city, the third-largest tends to be 1/3 the size, and so on. This discovery is most famously associated with Herb Simon's paper "On A Class Of Skew Distribution Functions". Krugman, at least, hates Simon's presentation, as he's said elsewhere, so "The Spatial Economy" recapitulates Simon's proof in a much simpler way. The trouble for Fujita, Krugman, and Venables is that their models don't lead to anything close to a power law in city sizes. The authors are perfectly straightforward about this rather large hole in their results.

You have to think about methodology when you're reading a book like this. In particular: if the assumptions are extremely simplistic and wildly unrealistic, then how valuable are the conclusions that spring from those assumptions? The answer, I think, is: very valuable indeed, because the unrealistic bits don't alter the main thrust of the argument. The stability of equilibria probably wouldn't be changed if we got rid of the zero-profit condition, for instance. Likewise, if the wage ratio had to get really large before employees would move (call this "wage inertia"), that probably would only slow down the speed at which new cities grow; it likely wouldn't affect the existence or location of equilibria themselves.

For a book with a few hundred equations, "The Spatial Economy" is remarkably readable. Anyone who's interested in economics, urban growth, international economics, or simple evolutionary-game-theory models will find this book indispensible and charming.

19 people found this helpful

Spatial Economy book, not for Urban and Regional planners.

Reviewed in the United States on April 19, 2013

This book provides introduction to spatial economics. But when you say spatial economics, you expect graphical explanations to the various theories which is lacking here.

This book might be good for economists but if you are urban planner and want to learn urban economics, this book is not for you.

4 people found this helpful

Top reviews from other countries

Saffron Rainey

Excellent technical intro to Urban Economics

Reviewed in the United Kingdom on July 31, 2017

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Very useful book that lays out the principle Alonso's urban economic model and augments it with technical amendments that give clear insights into why cities grow or fail.

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