This paper surveys the empirical literature on the economic geography of trade flows, factor prices, and the location of production. The discussion is structured around the empirical predictions of a canonical theoretical model. We review empirical evidence on the determinants of trade costs and the effects of these costs on trade flows. Geography is a major determinant of factor prices, and access to foreign markets alone is shown to explain some 35 % of the cross-country variation in per capita income. The paper documents empirical findings of home market (or magnification) effects, suggesting that imperfectly competitive industries are drawn more than proportionately to locations with good market access. Sub-national evidence establishes the presence of industrial clustering, and we examine the roles played by product market linkages to customer and supplier firms, knowledge spillovers, and labour market externalities.

n globalization there was convergence, with poorer economies growing especially fast and catching up with richer ones. Second, the review of history reminds us that globalization can be stopped and reversed with very unpleasant consequences. Hence the importance of international cooperation to maintain and extend an open system for trade and investment. What is distinctive about the third wave of globalization that began in the late 1970s is that for the first time large developing countries chose to open up to foreign trade and investment (section 2). Growth rates in a wide range of countries have accelerated as they have integrated with the global economy China, India, Mexico, Uganda, and Vietnam are all examples. The experience of these countries is consistent with endogenous growth models in which technological advance plays a key role in growth, and integration of a backward region with a more advanced one accelerates technological learning. The post-1980 globalizers have not mere

Communication costs are frequently cited as an important determinant of trade costs, but without any supporting empirical evidence. We test this relationship by incorporating alternative measures of communication costs in a model of bilateral trade. We find that international variations in communication costs indeed have a significant influence on trade patterns. Furthermore, estimates using disaggregated data reveal that the impact of communication costs on trade in differentiated products is larger than on trade in homogenous products - by as much as one-third.

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A discussion of the theory of technology and economic growth suggests potentially negative implications for the impact of the Internet on developing countries. Technology in general is undoubtedly central to the growth process, but economists define technology in very broad terms. The impact of any particular, invented, technology is likely to be small. This theoretical perspective is supported by the empirical evidence regarding the limited impact of past `information revolutions' on least developed countries (LDCs) and the present impact of the Internet on advanced economies. Furthermore, LDCs appear ill-prepared to benefit from those opportunities that the Internet does present---they lack the physical and human capital, along with the institutions required to exploit the e-economy. Finally, even more optimistic forecasts of the Internet's global economic impact are small in scale compared to the challenge of development. This has some significant implications for development policy.

This paper models the relationship between countries ’ distance from global economic activity, endogenous investments in education, and economic development. Firms in remote locations pay greater trade costs on both exports and intermediate imports, reducing the amount of value added left to remunerate domestic factors of production. If skill-intensive sectors have higher trade costs, more pervasive input-output linkages, or stronger increasing returns to scale, we show theoretically that remoteness depresses the skill premium and therefore incentives for human capital accumulation. Empirically, we exploit structural relationships from the model to demonstrate that countries with lower market access have lower levels of educational attainment. We also show that the world’s most peripheral countries are becoming increasingly economically remote over time.

Afghanistan’s reconstruction is an immense challenge – for the people and government of Afghanistan and no less so for the world community. More than two decades of war and displacement have had destructive and corrosive effects throughout the country and in all aspects of life. Moreover, conflict and institutional erosion have

A discussion of the theory of technology and economic growth suggests potentially negative implications for the impact of the Internet on developing countries. Technology in general is undoubtedly central to the growth process, but economists define technology in very broad terms. The impact of any particular, invented, technology is likely to be small. This theoretical perspective is supported by the empirical evidence regarding the limited impact of past ‘information revolutions ’ on least developed countries (LDCs) and the present impact of the Internet on advanced economies. Furthermore, LDCs appear ill-prepared to benefit from those opportunities that the Internet does present—they lack the physical and human capital, along with the institutions required to exploit the e-economy. Finally, even more optimistic forecasts of the Internet’s global economic impact are small in scale compared to the challenge of development. This has some significant implications for development policy.

Abstract not found