The first of four articles on their prospects explores the new economic geography and its attempts to explain industrial location and the origins of inequalities between regions. CEPR researchers have been among the pioneers of the new economic geography , which offers a new approach to the location of firms. The latest research is surveyed by Gianmarco Ottaviano and Diego Puga in a recent CEPR Discussion Paper.
Agglomeration happens on a number of different levels.
At one end are the small scale agglomerations of finely defined sectors, such as US carpet production in the city of Dalton, Georgia and the Italian textile industry in the city of Prato. At the other end are large scale agglomerations cutting across state and national boundaries. The new models of industrial location explain the large scale phenomena as the result of the tension between two opposing forces. This encourages the dispersion of industry. The agglomeration forces may overcome the dispersion forces if workers migrate easily or if there are strong vertical linkages between firms operating in the same or related industries.