Economic geography, industry location and trade: The evidence

The 1990s have seen a spectacular resurgence of academic interest in the spatial dimension of economics. This interest was fostered primarily by the improvement of the analytical tool kit available to economists through the 'new' theories of trade and economic geography. In other words, renewed attention to spatial economics was the result of theoretical advances rather than to a changed empirical context. Yet, economic knowledge cannot be gleaned from theory alone. For theoretical innovations to convince, they need to be validated through observed facts. Therefore, empirical work soon followed the advances made on the theoretical side, and earlier results could be reinterpreted against the new paradigms. This paper summarises the current state of play in the empirical agenda opened up by the 'new economic geography'. It shows that there already exists a substantial body of evidence against which one can judge the merits of competing theories. Yet, given the prominence reached by the theory and given the welfare relevance of the topic, the empirical literature still presents ample scope for fruitful extension. This paper is structured as follows. First, in Section 2, I briefly summarise the predictions generated by the mains strands of trade and location theory. In Section 3, I survey recent empirical work which does not explicitly test competing theories, but which describes economic location aptterns. Section 4 is dedicated to studies which analyse economic data explicitly against the background of location and trade theory. Section 5 concludes with an overall summary and suggestions for future empirical research.