This paper, authored by Paul Krugman and Anthony J. Venables, explores the impact of globalization on the inequality of nations. The authors develop a model where a monopolistically competitive manufacturing sector produces goods for final consumption and intermediate use, leading to cost and demand linkages between firms and the tendency for manufacturing agglomeration. They argue that as transport costs decrease, a core-periphery pattern emerges, with peripheral nations experiencing a decline in real income. However, as transport costs continue to fall, peripheral nations eventually converge in real incomes, benefiting from lower wage rates. The model predicts a U-shaped pattern of global economic change, initially diverging and then converging. The authors discuss the implications for trade policy and suggest further research directions, including incorporating more geographical detail, capital mobility, and empirical validation.This paper, authored by Paul Krugman and Anthony J. Venables, explores the impact of globalization on the inequality of nations. The authors develop a model where a monopolistically competitive manufacturing sector produces goods for final consumption and intermediate use, leading to cost and demand linkages between firms and the tendency for manufacturing agglomeration. They argue that as transport costs decrease, a core-periphery pattern emerges, with peripheral nations experiencing a decline in real income. However, as transport costs continue to fall, peripheral nations eventually converge in real incomes, benefiting from lower wage rates. The model predicts a U-shaped pattern of global economic change, initially diverging and then converging. The authors discuss the implications for trade policy and suggest further research directions, including incorporating more geographical detail, capital mobility, and empirical validation.