It has become common to argue that external economies operate at a local rather than a national level, an observation that has led to a new interest in economic geography among international trade theorists. This seems to suggest an approach to international economics in which one thinks of countries as areas on a surface, rather than as discrete locations, and tries to adopt a `field theory' approach to global trade that describes all flows of goods and services across that surface rather than only those flows that happen to cross arbitrary lines called borders.

While most models of the international economy assume that trade takes place between nations or regions which are themselves dimensionless points, in Discussion Paper No. 1230, Research Fellow Paul Krugman and Programme Director Anthony Venables develop a model in which economic space is instead assumed to be continuous, and in which this `seamless world' spontaneously organizes itself into industrial and agricultural zones because of the tension between forces of agglomeration and disagglomeration. In common with traditional location theory and recent work in economic geography they assume away inherent differences between locations, and instead explain regional specialization in terms of some kind of external economies. They show that although there are no inherent differences between locations, spontaneous differentiation of space – into industrial and agricultural regions – can occur.

The Seamless World: A Spatial Model of International Specialization
Paul Krugman and Anthony J Venables

Discussion Paper No. 1230, August 1995 (IT)