Paul Krugman summarizes Paul Krugman

The new trade theory starts with the observation that while this
[the old trade theory] explains a lot of world trade, it also misses a lot. France and Germany
sell lots of stuff to each other, even though they have similar
climates and resources; so do the United States and Canada. What’s that

The answer is that there are many goods that aren’t like wheat or
bananas, but are instead like wide-bodied jet aircraft. There are only
a few places in which wide-bodied jets are produced, because of the
enormous economies of scale – you only want a couple of factories
worldwide. Those factories have to be somewhere, and those countries
that get the factories export jets, while everyone else imports them.

But who gets the aircraft factories, or the factory producing a
specialized kind of machine tool, or the plant producing a particular
model of car that selected consumers all over the world want? The
answer of new trade theory – and it was a tremendously liberating
answer – is that it doesn’t matter. There are many economies-of-scale
goods; everyone gets some of them; and the details, which may be
largely a story of historical accident, aren’t important.

Here is the whole post, which covers his work on economic geography as well and relates it to his work on trade.  As you might expect, it is a very good exposition of…Paul Krugman.

If you are wondering, one early writer who saw a link between trade, location, urban economics, and increasing returns was the 17th century British pamphleteer Nicholas Barbon; his full name was Nicholas Unless-Jesus-Christ-Had-Died-For-Thee-Thou-Hadst-Been-Damned Barbon.  Barbon was also a precursor of aggregate demand theories of macroeconomics and an influence on Adam Smith.


"Again, this may seem obvious, and it is now – but it wasn’t before 1991 or so. As with trade, the plain English version was possible only after the mathematical models had been worked out."

So the mathematical models came first, then the simple intuition? More likely the other way around: mathematical modeling of the obvious, rebaptized as a great discovery.

I think the problem with having just the intuition (pre-model) is that there are tons of plausible intuitions out there. I've had lots of ideas that seem to me, not an economist, to have great economic insight. Are they more than plausible? Modeling helps separate the wheat from the chaff and let you know what you can build on. Otherwise, I think it's philosophy, history, or journalism, not economics.

If you are wondering, here is a 1927 survey of the then state-of-the-art thought on the intersection of location and international trade theory, urban economics, and increasing returns that does justice to both economists and geographers (of the mathematical and non-mathematical kind). And it was published in the Journal of Political Economy no less...

Krzyzanowski, W. (1927). Review of the Literature of the Location of Industries.
Journal of Political Economy, 35, 278-291 (easily accessible through JSTOR, of

Too bad so many economists are learning their history of thought from Krugman's writings...

This earlier lit gets dismissed because
it is not mathematically rigorous. Krugman's
claim is that his 1991 paper was the first to
show agglomeration works in space in a rigorous
mathematical way. Here are some earlier papers
that also do so that he did not cite and has
never acknowledged. I do not know if he has ever
read them, or some others like them.

Y.Y. Papageorgiou and T.R. Smith, 1983. "Agglomeration
as Local Instability of Spatially Uniform Steady-States."
Econometrica, vol. 51, pp. 1109-1119.

Wolfgang Weidlich and Gunter Haag, 1987. "A Dynamic
Phase Transition Model for Spatial Agglomeration."
Journal of Regional Science, vo. 27, pp. 529-569.

I also miswrote earlier when I said that he had cited
all those using the Dixit-Stiglitz model prior to him
on this matter, which would be a 1988 paper by Masahisa
Fujita. He did not do so in his 1991 paper, although he
would later coauthor with Fujita.

"everyone gets some of them"

This statement is demonstrably false. How does that affect the conclusion?

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