The Spatial Economy

The defining issue of economic geography is the need to explain concentrations of population and/or economic activity - the distinction between manufacturing belt and farm belt, the existence of cities, the role of industry clusters. Broadly speaking, it is clear that all these concentrations form and survive because of some form of agglomeration economies, in which spatial concentration itself creates the favorable economic environment that supports further or continued concentration. And for some purposes - as in the urban systems literature described in Chapter 2 - it may be enough simply to posit the existence of such agglomeration economies. But the main thrust of the new geography literature has been to get inside that particular black box, and derive the self-reinforcing character of spatial concentration from more fundamental considerations. The point is not just that positing agglomeration economies seems a bit like assuming one's conclusion - as a sarcastic physicist remarked after hearing one presentation on increasing returns, "So you're telling us that agglomerations form because of agglomeration economies." The larger point is that by modeling the sources of increasing returns to spatial concentration, we are able to learn something about how and when these returns may change - and then explore how the economy's behavior will change with them.
--Masahisa Fujita, Paul Krugman, Anthony Venables, The Spatial Economy
(emphasis added)