nep-geo New Economics Papers
on Economic Geography
Issue of 2005‒01‒23
seven papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. The Impact of Multilateral Liberalisation on European Regions: a CGE Assessment By Sebastien Jean; David Laborde
  2. The Home Market Shadow By Suedekum, Jens
  3. Equilibrium Search Unemployment with Explicit Spatial Frictions By Wasmer, Etienne; Zenou, Yves
  4. Market Distortions when Agents are Better Informed: The Value of Information in Real Estate Transactions By Steven D. Levitt; Chad Syverson
  5. Interest Rate, Inflation, and Housing Price: With an Emphasis on Chonsei Price in Korea By Dongchul Cho
  6. "Fiscal Decentralization, Commitment and Regional Inequality: Evidence from State-level Cross-sectional Data for the United States" By Nobuo Akai; Masayo Sakata
  7. Borderplex Bridge and Air Econometric Forecast Accuracy By Thomas M Fullerton Jr

  1. By: Sebastien Jean; David Laborde
    Abstract: This study proposes a full-fledged, bottom-up CGE model (nicknamed DREAM) intended to analyse the regional impact of trade policies in the EU. The two-tiered approach followed includes first an EU-wide CGE assessment, taking exhaustively account of preferential agreements. The information produced about the impact on international trade is then used as an input for an original CGE model built on purpose, where each of the 119 NUTS-1 EU regions is considered separately. This approach is used to simulate the impact of several far-reaching liberalisation scenarios, and to highlight the sources of differences in regional impacts.
    Keywords: Computable General Equilibrium (CGE) model; regional economics; trade policy
    JEL: R13 D58 F13
    Date: 2004–11
  2. By: Suedekum, Jens (University of Konstanz and IZA Bonn)
    Abstract: The home market effect (HME) is a distinguishing feature of the “new” theory of international trade, but it is uncertain whether this effect survives if one moves beyond the simplifying setup with only two countries. We present a three -country version of the seminal model by Krugman (1980) and analyse under which circumstances the HME is present once third country effects are taken into account. We show that an exogenous increase in the home country’s expenditure level on the modern good will unambiguously lead to an overproportional output reaction. If production in the foreign world shifts from a more remote to a better accessible economy, industry location in the home country is negatively affected. Thus, if the expenditure increase is small relative to the foreign expenditure shifting, an under-proportion al output reaction in the home country can result. In a more extreme case the industry share of the home country can even decrease. This phenomenon is labelled the “home market shadow”.
    Keywords: new trade theory, home market effect, hub effect
    JEL: F12 F14 R12
    Date: 2005–01
  3. By: Wasmer, Etienne (Université du Quebec à Montreal, CIRPEE, CEPR and IZA Bonn); Zenou, Yves (IUI, GAINS, CEPR and IZA Bonn)
    Abstract: Assuming that job search efficiency decreases with distance to jobs, workers’ location in a city depends on spatial elements such as commuting costs and land prices and on labour elements such as wages and the matching technology. In the absence of moving costs, we show that there exists a unique equilibrium in which employed and unemployed workers are perfectly segregated but move at each employment transition. We investigate the interactions between the land and the labour market equilibrium and show under which condition they are interdependent. When relocation costs become positive, a new zone appears in which both the employed and the unemployed co-exist and are not mobile. We demonstrate that the size of this area goes continuously to zero when moving costs vanish. Finally, we endogeneize search effort, show that it negatively depends on distance to jobs and that long and shortterm unemployed workers coexist and locate in different areas of the city.
    Keywords: local labour markets, relocation costs, search effort, job matching
    JEL: E24 J41 R14
    Date: 2005–01
  4. By: Steven D. Levitt; Chad Syverson
    Abstract: Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example. Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired by others to sell a home to instances in which a real estate agent sells his or her own home. In the former case, the agent has distorted incentives; in the latter case, the agent wants to pursue the first-best. Consistent with the theory, we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer, even after controlling for a wide range of housing characteristics. Situations in which the agent's informational advantage is larger lead to even greater distortions.
    JEL: D8 L1 L8 R2
    Date: 2005–01
  5. By: Dongchul Cho
    Abstract: This paper discusses the relationship between interest rate and inflation rate on one part and the house price relative to chonsei price (up-front lump-sum deposit from the tenant to the owner for the use of the property with no additional requirement for periodic rent payments) on the other. The key point of the paper is that the relative price of sales to chonsei depends on the ratio of inflation to real interest rate, and thus even when the monetary authority maintains a pre-announced target level of inflation rate, the relative price of sales to chonsei rises if the real interest rate is lowered. This finding seems to help understand the recent hikes of the house prices despite the stabilizing chonsei prices. Recognizing this relationship, it may be sensible to lower the target inflation rate in an economy where real interest rates permanently decline, if the society wishes to reduce its adverse effect on the wealth distribution between house owners and chonsei tenants.
    JEL: R2 E4 E1
    Date: 2005–01
  6. By: Nobuo Akai (School of Business Administration, University of Hyogo); Masayo Sakata (Faculty of Politics, Economic and Law, Osaka International University)
    Abstract: While conventional approaches to fiscal decentralization suggest that decentralization lowers the power of redistribution among regions, recent theories argue that fiscal decentralization works as a commitment device. In this manner, where the budget in a given region is highly dependent on transfers from the central government, there is an incentive for effort following fiscal decentralization. The former effect is argued to increase regional inequality, while the latter suggests a decrease in regional inequality. However no known empirical work has directly examined the relationship between fiscal decentralization and regional inequality. In this paper, cross-sectional data for the United States, excluding the convergence of regional income, are used to derive the net relationship. It is also the case that the direction of this effect on regional inequality depends on how fiscal decentralization is promoted. While the former distribution effect directly depends on the central government's share of power, the latter incentive effect depends on autonomy. Two measures that represent the power of the central government and autonomy are used to identify these effects. The results indicate that local expenditure or revenue share in fiscal decentralization has no significant effect on regional inequality, while the achievement of autonomy by fiscal decentralization has a negative effect on regional inequality. This supports the theory that fiscal decentralization works as a commitment device. The results also show that how fiscal decentralization is promoted is important for how it impacts on regional inequality.
    Date: 2005–01
  7. By: Thomas M Fullerton Jr (University of Texas at El Paso)
    Abstract: El Paso, Texas and Ciudad Juarez, Mexico jointly comprise a large cross- border metropolitan economy. El Paso is an important port-of-entry for international cargo, as well as a key transit point for regional trade flows in the southwestern United States. Reflective of those traits, the borderplex econometric forecasting system includes two blocks of transportation equations. One sub-system models northbound surface traffic across the international bridges from Ciudad Juarez. The other deals with passenger, cargo, and mail flows at El Paso International Airport. To gauge model reliability, an analysis of borderplex transportation variable forecast accuracy relative to a random walk benchmark is completed. Empirical evidence is mixed with respect to model precision for the 1998-2003 sample period for which data are currently available.
    Keywords: Econometric Forecasts, Transportation, Border Economics
    JEL: R15
    Date: 2005–01–20

This nep-geo issue is ©2005 by Vassilis Monastiriotis. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.