Abstract

The aim of this article is 2-fold. First, we briefly discuss the constraints associated with the canonical ‘Cobb-Douglas—Dixit-Stiglitz-Spence—Samuelson’ NEG setup originally used by Krugman in 1991. We outline the key features of his core-periphery (CP) model and highlight what results are robust to changes in functional forms and agglomeration mechanisms. We also selectively review the literature that amends the original CP model in various directions and discuss what qualitative insights do change. Our conclusion is that progress within the straightjacket of Krugman's original framework is unlikely to produce path-breaking new insights. Second, we suggest that there are potentially large payoffs to stepping outside of the established framework and to extend the NEG approach into various directions that have to date received only little attention. Heterogeneity, cities, transportation, public policy and calibration are avenues along which NEG needs to make progress.

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