Paul Krugman and the New Economic Geography - assesment in the light of the dynamics of a “real world” local system of firms

Since the publication of Krugman's paper on "Geography and Trade" in 1991, a burgeoning literature has developed under the heading New Economic Geography. In the following we shall survey the NEG literature and critically evaluate its contribution relative to earlier work on similar topics. More specifically, we will focus our attention on a model that seems to have given new impulses to the introduction of spatial factors into the economic analysis: Krugman’s model. We will proceed with our assesment analysing if and to which extent the features of the model are effective in investigating a real local system of firms: the Etna Valley, an industrial agglomeration specialized in the production of microelectronic components in the area around the Sicilian town of Catania. What emerges from the critical analysis is that the above model results to be extremely simplified. If, on one hand this may be true for every economic model, on the other, we feel that, in our specific case study, the formalization of the processes of local development does not result to be entirely useful. Indeed, great part of the analysis of the industrial district based on the “industrial atmosphere” (Marshall, 1890) remains out of the picture. Therefore, we find more useful the positions of those authors that not drawing on the deductive methods of theorising and analysing employed by Krugman, nonetheless have managed to enlighten mechanisms that seem to be more apt to investigate dynamics taking place in developing areas. More specifically, they seem to offer more useful insights in the context of non stationary economies where markets are not yet stabilized and therefore are not entirely capable of adequately transmitting incentives and information to the actors in the economy.