New Economic Geography

The existence of interregional inequalities has long attracted the attention of economists, especially in the area known as “regional economics”. For a long time, however, regional concepts, models and techniques were a mere extension of those used at the national level, with an additional index identifying the different regions - think of interregional input-output matrices.

In the 1950s, several development theorists put forward a principle that allowed them to uncover the underpinnings of unequal development - a principle that has been ignored, however, for several decades - that of circular or cumulative causation. Myrdal (1957: 13) sums up these ideas in the following paragraph:

The idea I want to expound in this book is that... there is no such tendency towards auto­matic self-stabilization in the social system. The system is by itself not moving towards any sort of balance between forces, but is constantly on the move away from such a situation. In the normal case a change does not call forth countervailing changes but, instead, supporting changes, which move the system in the same direction as the first change but much further. Because of such circular causation a social process tends to become cumulative and often to gather speed at an accelerating rate.

Applied to economic geography, this principle says that regional disparities are driven by a “snowball” effect, which results in its continuous reinforcement once it is set in motion. Krugman (1991: 486) states the same idea when he writes: “manufactures production will tend to concentrate where there is a large market, but the market will be large where manufactures production is concentrated”.