Increasing Returns and Economic Geography
Paul Krugman
Massachusetts Institute of Technology
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.
The