This paper has been written as a chapter of the "Handbook of Regional and Urban Economics", Volume 5, Duranton, Henderson, and Strange editors, Elsevier. We thank Vernon Henderson, William Strange and Gilles Duranton for their comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.