Technological progress has led to rapidly declining costs for transport and communication; trade integration via NAFTA or the EU reduces the costs of economic distance even further. This can have substantial consequences for the distribution of industries between peripheral and core regions. Based on recent advances in modeling economic geography, this study shows the forces that influence the degree of economic concentration in the course of economic development and globalization. The models are based on trade costs and economies and diseconomies of scale, all of which are found to be empirically relevant factors for spatial concentration. The study finds that in early stages of economic development, rising GDP levels and lower trade costs increase spatial concentration, while they decrease concentration in later stages, so that it peaks at per capita incomes of around US $12,000. Moreover, the historic degree of spatial concentration is found to have a long-lasting influence in the cross section of countries under study.
Publisher: The University of Michigan Press