Increasing Returns and Economic Geography

Author: Paul Krugman

Publication: Journal of Political Economy. vol. 99, no. 3. pp. 483-499

Date: June 1991

Abstract: 

This paper develops a simple model that shows how a country can endogenously become differentiated into an industrialized “core” and an agricultural “periphery.” In order to realize scale economies while minimizing transport costs, manufacturing firms tend to locate in the region with larger demand, but the location of demand itself depends on the distribution of manufacturing. Emergence of a core-periphery pattern depends on transportation costs, economies of scale, and the share of manufacturing in national income.

Link: Increasing Returns and Economic Geography (PDF)