Principles of new economic geographic models

In this short paper there will be introduced the stream of economic theory labelled as the New Economic Geography (NEG) and derived the core-periphery model, a flagship of the NEG. It is a model of two regions with imperfect competition and increasing returns to scale, where some properties of the model contrast certain features of basic neoclassic models of regional economics and international trade. The role of monopolistic competition and increasing returns to scale opens the possibility of highly nonlinear effects of production location with respect to barriers of trade. I analyze main mechanisms of the model and discuss the relevance of the NEG for economic policy in the context of European economic integration.

Keywords: New Economic Geography, monopolistic competition, increasing returns to scale, core-periphery model