Even today, free trade, globalization, and urbanization remain as commonplace topics in the popular debate as well as in scholarly analyses. Traditionally, trade theory and economic geography evolved as separate subfields of economics.
Here as well, it had long been recognized that economies of scale are decisive role for the location of economic activity.
As Krugman ( 1979) notes, it was never covered in most textbooks or courses whether graduate or undergraduate. While some authors (e.g. Ohlin 1933; Balassa 1967; Kravis 1971) recognized the importance of scale economies in international trade, they received little attention in formal trade theory.
This paper reviews recent research on geography and trade. One of the key empirical findings over the last decade has been the role of geography in shaping the distributional consequences of trade.