ABSTRACT
This chapter illustrates the basic model as it was developed by Paul R. Krugman and then apply it to China by analysing what could happen with further reductions in migration restrictions. It suggests that economic activity will further stimulate economic agglomeration in China. China is rapidly industrializing, making agglomeration of economic activity beneficial. The authors provide a non-technical overview of the structure of the geographical economics model. The location and size of the cities which emerge in the equilibrium depend on the chosen parameter values in the model and on the geographical shape of the economy. Dirk Stelder concludes that even a basic model can produce city hierarchies if applied in spaces closer to geographic reality. Modern theoretical developments summarized under the name ‘geographical economics’, can explain why uneven spatial distributions of economic activity can be an equilibrium outcome.
