CHAPTER 16: International Trade and Agglomeration: An Alternative Framework

The New Economic Geography, as expounded by Krugman and others, highlights the importance of greater extent of agglomeration as incomes grow in the world economy. In this chapter, we suggest an alternative framework in which, as incomes grow, greater degrees of economic fragmentation, and disagglomeration are encouraged. In both approaches increasing returns to scale are crucial, but in ours these are found in service sectors that allow separate production blocks to be coordinated instead of being found within separate production blocks.