Economic activities are highly clustered. Why is geographic con-centrationbecoming a predominant feature of modern economies? Onthe basis of the empirical models developed by the 'new' theories ofinternational trade, our answer is that increasing returns are the driv-ingforce of economic geography in the US as well as in Europe. Inso doing, we review econometric methods proposed in the literature toseparate and to test alternative theoretical paradigms.
Increasing returns market access demand and cost linkages large-scale agglomeration