2021 Volume 27 Issue 1 Pages 57-91
One of the unsatisfactory aspects of spatial economics is the role ascribed to the agricultural sector. To study how economic activities are impacted by the falling trade costs of manufactured goods, it is convenient to assume that the agricultural sector has only one homogeneous product and that it is traded costlessly. This paper reports how these oversimplified assumptions can be improved and what new results are derived regarding the nonmanufacturing sectors. In particular, we survey how to apply this general-equilibrium approach to clarify the role of trade costs in disclosing some well-known puzzles, including the resource curse, Dutch disease, and transfer paradox.