Concluding Remarks
The (relative) absence of space in economic theory lies in the attempt made by economists to develop a rigorous theory of markets and prices. This attempt has led them, through a series of simplifications and shortcuts taken long ago, to zero in on the combination of “constant returns and perfect competition” with consequences for economic geography that are comparable to those for growth theory.
While the lack of interest manifested by many economists about spatial issues is regrettable, the opposite attitude (disinterest in economic theory as a whole on the grounds that it is a-spatial) is untenable. This attitude long characterized traditional regional economists, and it largely explains the stagnation of this field.The present state of the art in economic geography is the outcome of a two-sided process. The first side involves regional scientists who felt the need to root their field in economic theory. For a long time, because the emphasis was on city and regional planning, regional science focused more on optimization techniques than on equilibrium analyses. Despite some mutual ignorance between economists and regional scientists, most of the main contributions in regional science have been incorporated into the realm of economic theory, often after some delay. Among the community of regional scientists, one scholar stands out, namely, Masahisa Fujita whose contributions have been acclaimed by the economics profession. The second side involves the few economists who faced the challenges posed by the introduction of space in economic theory, such as Martin Beckmann and Edwin Mills. Their task was not an easy one since space is plagued with all the difficulties that one may encounter in standard economic theory: non-convexities, externalities and imperfect competition.
For a long time, the contributions to economic geography made by economists have been confined to a small circle of isolated specialists.
The situation has vastly changed. Whereas most old contributions to economic geography were often poorly related to mainstream economic theory, Krugman’s work has drawn space from the periphery to the center stage of economic theory, making new and already existing ideas more amenable to both theoretical and empirical scrutiny. While new economic geography is closely related to trade theory, it is also very much connected to industrial organization. It is, therefore, not totally surprising that the surge of new economic geography took place a few years after the revival of monopolistic competition and industrial organization, from which it borrows many ideas and concepts. There are also strong links to new growth theories, where many scholars see cities as the engine of growth. Thus, it is fair to say that new economic geography has contributed to the development of a new and large flow of high-quality research and to the gradual emergence of a unified field. All of this highlights the integrative power of modern economic theory.Jacques-Francois Thisse