Shifts in Economic Geography and Their Causes.

Recent decades have seen momentous changes in the economic geography of the world. Political transitions and economic liberalization have brought formerly closed countries into the world economy. Such changes have challenged our understanding of the location of economic activity and of the determinants of changes in the pattern of location. In a presentation at the Federal Reserve Bank of Kansas City's 2006 economic symposium, "The New Economic Geography: Effects and Policy Implications," Venables explored how a new economic geography perspective provides a number of additional insights into existing patterns of activity and into the forces driving future changes. His discussion focused on three key propositions. First, proximity to other economic agents--workers, consumers, and firms--is good for productivity. Second, large income disparities are a perfectly natural outcome of a world in which proximity matters. And, third, the effects of increased trade are potentially ambiguous--there are circumstances in which cheaper spatial interactions cause inequality, not convergence