Introduction

Until recently, the modern literature on geography and trade paid relatively little attention to the relationship between agglomerating and spreading forces on the one hand and the structure and volume of (international) trade on the other hand. International trade flows are undoubtedly determined largely by the spatial distribution of economic activity. When taking the core (symmetric) two-country model of chapter 3 as a point of departure, the predictions on the structure and size of trade flows are simple. If economic activity is evenly spread, food is not traded internationally, so there is only intra-industry trade in manufactures between the two countries. If there is complete agglomeration of manufacturing activity – the only other possible long-run outcome – there is exclusively inter-industry trade (food for manufactures) between the two countries.

Although these basic predictions are in line with empirical observations that trade is sizable between similar countries and dominated by intra-industry trade (see box 9.1, which gives some stylized facts on international trade flows), the basic framework is too extreme in its predictions and too rigid in its structure to allow for different types of international trade flows. The objective of this chapter is to demonstrate how international trade models may be combined with the geographical economics structure to allow for a diversified and rich explanation of international interactions.