The main idea of economic geography is that economic theory cannot ignore space because it fundamentally shapes economic activities. Economic geography has its origins in 19th century Germany with location theory, which can be seen as an intellectual predecessor of neoclassical economics. Location theory tried to predict where economic activities would take place by using the assumptions that individuals were rationally maximizing their utility and firms maximize their profits. As such, they developed models to calculate what the optimal locations would be for certain economic activities. As a key figure of location theory, and because of its relation with neoclassical economics, the German economist Johann Heinrich von Thünen (1783-1850) is often included in histories of economic thought.
More recent insights developed within economic geography are, however, rarely included in discussions on economic thought. Especially since the 1970s, the subdiscipline has developed new ideas. It became more diverse with Marxist (also called political economy), feminist, cultural, regulationist, and evolutionary approaches. These insights can add great value to the understanding of issues such as relations between why innovation hubs exist and how they emerge, how processes of urbanisation and immigration work and what their economic implications are, and how capitalism expands geographically and creates spatial inequalities through uneven development.
There have also been new neoclassical approaches to economic geography, often called new economic geography, new trade theory, or geographical economics. These scholars, such as Paul Krugman, focus on how forces of agglomeration can be explained by allowing for market imperfections in neoclassical models. Key imperfections in this line of thinking are monopolistic competition and economies of scale, which result from forward and backward linkages that trigger further investment in specific places.
In sum, economic geography is a highly pluralist and interdisciplinary subdiscipline, as it often connects different theoretical approaches and insights from various disciplines such as geography, economics, political science, sociology, and history.
- The New Oxford Handbook of Economic Geography by Dariusz Wójcik, from 2000. An impressive collection of essays on economic geography, with chapters focusing on different regions, theoretical approaches, and the topics of innovation, firms, work, finance, the environment and development.
- Economic Geography: A Critical Introduction by Brett Christophers & Trevor J. Barnes, from 2017. A useful introduction into economic geography, with attention to its conceptual foundations, history, different theories and methods, and application to topics such as globalization, finance, urbanization, nature and technological change.