An Introduction to Geographical and Urban Economics A Spiky World

This chapter starts with a look at empirical evidence on economic growth and development as summarized in four stylized facts: (i) rising income levels, (ii) lasting differences in growth rates, (iii) periods of stagnation followed by rapid growth, and (iv) leap-frogging. We argue that the endogenous growth literature can help us understand the first two facts, while geographical economics can help us understand the last two facts. To this end, we introduce a model that is a merger of the geographical economics model with an endogenous growth model. This model gives us new insights, for example on the importance of international knowledge spillovers. But, as is to be expected from any model, this model also has its shortcomings. We zoom in on the argument that models like this still focus only on the proximate causes of growth at the neglect of the so-called deep determinants of economic development: institutions and geography. Finally, using the case of China’s economic geography as example, we illustrate how the class of geographical economics models can be used to answer what-if questions pertaining to the possible impact of structural changes on a country’s economic growth and development.