Theoretical significance of new economic geography

Through the spatial interpretation of the D-S model of increasing returns, the new economic geography deeply discusses the essence and interaction of increasing returns, external economy, transportation cost, factor flow and input-output relationship, and a series of developed models reveal some important theoretical implications, which is of great significance for understanding the characteristics of production, trade and economic development under the conditions of globalization.

The research of new economic geography shows that the influence of the change of transportation cost on the spatial distribution of economic activities is nonlinear and non-monotonous. The decline in trade costs has steadily increased the degree of world economic integration. Generally speaking, due to the consideration of increasing income, transaction costs and market externalities, manufacturers tend to choose places close to the market to arrange production, and the places close to the market are precisely the places where other manufacturers are concentrated; On the contrary, manufacturers who choose to produce in places where other manufacturers are concentrated will face stronger competition in local products and factor markets, and high-intensity competition will often make manufacturers engaged in production spread along the space. The result of the confrontation between attraction (centripetal force or positive feedback) and repulsion (centrifugal force or negative feedback) between manufacturers will ultimately determine whether production activities gather in a specific space or diverge along the whole space. At the high end of trade cost and cost, the market is divided into limited market segments. The imperfect competitive nature determined by the spatial distance and the requirements of the local supply market determine that the exclusion between manufacturers is greater than the attraction, and manufacturers can only provide services to the limited local market, while the limited market size inhibits the specialized division of labor and product segmentation, and the market externalities are difficult to reflect. The whole economic space will be covered by many manufacturers in different regions and scattered markets with limited scale. As the trade cost approaches the intermediate link, the mutual attraction between manufacturers separated from different markets increases, the repulsion decreases, and their penetration into each other's markets increases. When attraction overwhelms repulsion, separated small-scale markets tend to merge (that is, regional integration), and manufacturers and labor force gather in a larger market area. The expansion of market scale promotes the specialized division of production and product segmentation, and the expanded market supports more new manufacturers to produce and develop segmented products at lower cost. Significantly improved market externalities attract more manufacturers, thus activating the cumulative cycle process of "market expansion-production specialization/product segmentation-external economic strengthening-manufacturer agglomeration-market expansion", which is a basic portrayal of the process of economic globalization.

Due to the unique path dependence (or cumulative circular causality) of agglomeration, the degree of industrial agglomeration in the integrated market will be higher and higher, and the prices of local factors and commodities will tend to rise. If a large number of factors and commodities can be imported from other regions, the temptation of external immigrants will promote greater accumulation; If some factors that are particularly important for production (such as labor) cannot flow, or some goods that are particularly important for consumption (such as housing) cannot be traded, further integration will reduce the importance of market externalities, and the price difference between immobile goods and factors will drive manufacturers to transfer investment and workers to other regions for employment, thus starting the global industrialization process of industry spreading from the core developed areas to the surrounding underdeveloped areas. However, the industrialization process characterized by industrial diffusion does not take the form of radiation from the core to the periphery, and industrialization will spread from one country to another in a series of waves. It is not difficult to see that economic globalization can, in turn, decisively affect the spatial position of economic activities by affecting the balance between decentralized power and centralized power. The international division of labor will emerge spontaneously through an unbalanced development process, and the world economy will maintain a "core-periphery" structural model for a long time. Unbalanced development may be the foreseeable consequence of economic globalization. The theory of new economic geography shows that under the condition of increasing returns, industrial agglomeration and long-term growth change nonlinearly with transportation costs, and the evolution trajectory presents a typical inverted U-shaped structure. In the middle of globalization, the industrial structure is highly concentrated, and the economic differences between countries are the most significant. The imbalance between industrial structure and per capita income development is the normal state of economic development.