On economic geography in economic theory: increasing returns and pecuniary externalities

Abstract

Our objective is twofold. First, we show why there is a spatial question in economic theory – why a free competitive market is unable to cope with agglomeration and regional imbalance in the absence of market distortions. Second, using a new and simple model, we review what has been accomplished in economic theory during the 1990s when due allowance is given to increasing returns, while market structure is given by monopolistic competition.\n