Economic Geography, Industry Location and Trade: The Evidence

General-equilibrium models based on increasing returns, product differentiation and monopolistic competition have attained a prominent position in trade theory and, more recently, in economic geography. This paper surveys empirical studies on issues raised by the new wave of theoretical thinking. There is a growing literature documenting spatial distributions of industries at country and regional levels, which focuses predominantly on the United States and the European Union. This body of work has produced robust findings as well as puzzles. Particular ambiguity appears in studies of location trends in the European Union. In addition, empirical researchers have devised methods to separate and test alternative theoretical paradigms. Analytical work confirms the complementarity and relevance of both neo-classical and “new” models. Existing results, however, do not permit firm conclusions about the relative explanatory power of the main theoretical approaches for location patterns overall and in particular industries.