nep-geo New Economics Papers
on Economic Geography
Issue of 2005‒04‒24
nineteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. City and Suburban Competition By Andrew Austin
  2. Convergencia Regional en Chile: Nuevos Tests, Viejos Resultados By Roberto Duncan; J. Rodrigo Fuentes
  3. How to Measure the Unobservable: A Panel Technique for the Analysis of TFP Convergence By Adriana Di Liberto; Roberto Mura; Francesco Pigliaru
  4. Analysis of Regional Economic Growth in the U.S. Midwest, An By Monchuk, Daniel C.; Miranowski, John; Hayes, Dermot J.; Babcock, Bruce A.
  5. Immigrants’ Responsiveness to Labor Market Conditions and Its Implications on Regional Disparities: Evidence from Spain By Catalina Amuedo-Dorantes; Sara de la Rica
  6. Mind the Gap: Unemployment in the New EU Regions By Anna Maria Ferragina; Francesco Pastore
  7. Urban Structure and Growth By Esteban Rossi-Hansberg; Mark L.J. Wright
  8. Government Policy Effects on Urban and Rural Income Inequality By Ximing Wu; Jeffrey Perloff; Amos Golan
  9. Asymmetric Labor Markets, Southern Wages, and the Location of Firms By Alireza Naghavi
  10. Multilateral Environmental Agreements and Trade Obligations: A Theoretical Analysis of the Doha Proposal By Alireza Naghavi
  12. Los mecanismos de cohesión territorial en España: un análisis y algunas propuestas By Angel de la Fuente
  13. Forecasting China's Carbon Dioxide Emissions: A Provincial Approach By Maximilian Auffhammer; Richard Carson; Teresa Garin-Munoz
  14. A Tale of Two Communities: Explaining Deforestation in Mexico By Jennifer Alix-Garcia; Alain de Janvry; Elisabeth Sadoulet
  15. The Determinants of Residential Water Demand Empirical Evidence for a Panel of Italian Municipalities By Massimiliano Mazzanti; Anna Montini
  16. Dynamiques de pauvreté en milieu rural malgache By Claire Gondard-Delcroix
  17. A Simple Model of Credit Rationing with Information Externalities By AKM Rezaul Hossain
  18. Portfolio Diversification, Proximity Investment and City Agglomeration By WILLIAM N. GOETZMANN; MASSIMO MASSA; ANDREI SIMONOV
  19. Net Capital Flows and Productivity: Evidence from U.S. States By Sebnem Kalemli-Ozcan; Bent E. Sørensen; Ariell Reshef; Oved Yosha

  1. By: Andrew Austin
    Abstract: This paper presents an analog to Cournot duopoly in a model of the local public sector, with one city and a suburb. Reaction functions are derived for the mayor of the city and of the suburb, and properties of the Nash equilibria are analyzed. The translation of the Cournot duopoly model is not simply a matter of renaming variables, because of the role of land rents. As residents move, they impose a pecuniary externality on others through higher land prices as well as by changing incentives facing each mayor. Comparative statics results are derived for changes in agricultural land prices and transportation costs and for their effects on city population and rents captured by the city mayor.
    Keywords: Government competition, Duopoly, Local public finance.
    JEL: H73 D72 D43
    Date: 2005–02
  2. By: Roberto Duncan; J. Rodrigo Fuentes
    Abstract: The traditional tests of convergence implicitly test the unit root hypothesis for per capita income series. Despite that under the null the statistics do not have standard asymptotic distributions, most papers on this topic use standard distributions to evaluate this hypothesis, with the corresponding wrong inference. The goal of this paper is to determine the existence of convergence in per capita GDP and per capita income across the regions of Chile using not only the traditional cross-section and panel tests, but also the recently developed test for panel data that allows making the correct inference. The tests also include confidence intervals for the variance of per capita GDP, to check convergence in standard deviation, and a multimodality test, to analyze the existence of convergence clubs. The main conclusions are: (1) there is evidence of absolute ß convergence in per capita GDP and per capita income; (2) the convergence rate for income is higher than in GDP; however, both are low for international standards; (3) the convergence rate increases if the mining production share is included in the regression; (4) despite that the data seems to show the existence of convergence clubs, they are not statistically significant; (5) there is evidence of s convergence in GDP over the 1960-2000 period, but not in per capita income for the period 1987-2000.
    Date: 2005–04
  3. By: Adriana Di Liberto (Universita' di Cagliari); Roberto Mura (University of York, Università di Cagliari and CRENoS); Francesco Pigliaru (Università di Cagliari and CRENoS)
    Abstract: This paper proposes a fixed-effect panel methodology that enables us to simultaneously take into account both TFP convergence and the traditional neoclassical-type of convergence. We analyse a sample of Italian regions between 1963 and 1993 and find strong evidence that both mechanisms were at work during the process of aggregate regional convergence observed in Italy up to the mid-seventies. Finally, we find that our TFP estimates are highly positively correlated with standard human capital measures, where the latter is not statistically significant in growth regressions. This evidence confirms one of the hypotheses of the Nelson and Phelps approach, namely that human capital is the main determinant of technological catch-up. Our results are robust to the use of different estimation procedures such as simple LSDV, Kiviet-corrected LSDV, and GMM à la Arellano and Bond.
    Keywords: TFP, Panel data, Regional convergence
    JEL: O47 O33 O18 C23
    Date: 2005–01
  4. By: Monchuk, Daniel C.; Miranowski, John; Hayes, Dermot J.; Babcock, Bruce A.
    Abstract: In this paper we examine some of the economic forces that underlie economic growth at the county level. In an effort to describe a much more comprehensive regional economic growth model, we address a variety of different growth hypotheses by introducing a large number of growth related variables. When formulating our hypotheses and specifying our growth model we make liberal use of GIS (geographical information systems) mapping software to “paint” a picture of where growth spots exist. Our empirical estimation indicates that amenities, state and local tax burdens, population, amount of primary agriculture activity, and demographics have important impacts on economic growth.
    Date: 2005–04–15
  5. By: Catalina Amuedo-Dorantes (San Diego State University); Sara de la Rica (Universidad del País Vasco and IZA Bonn)
    Abstract: Using data from the Spanish Labor Force Survey (Encuesta de Población Activa) from 1999 through 2004, we explore the role of regional employment opportunities in explaining the increasing immigrant flows of recent years despite the limited internal mobility on the part of natives. Subsequently, we investigate the policy question of whether immigration has helped reduced unemployment rate disparities across Spanish regions by attracting immigrant flows to regions offering better employment opportunities. Our results indicate that immigrants choose to reside in regions with larger employment rates and where their probability of finding a job is higher. In particular, and despite some differences depending on their origin, immigrants appear generally more responsive than their native counterparts to a higher likelihood of informal, self, or indefinite employment. More importantly, insofar the vast majority of immigrants locate in regions characterized by higher employment rates, immigration contributes to greasing the wheels of the Spanish labor market by narrowing regional unemployment rate disparities.
    Keywords: international migration, immigrant workers, immigrant location, immigrant responsiveness, labor market conditions, regional disparities
    JEL: J61
    Date: 2005–04
  6. By: Anna Maria Ferragina (CNR and University of Rome "Tor Vergata"); Francesco Pastore (University of Naples II and IZA Bonn)
    Abstract: The paper surveys the theoretical and empirical literature on regional unemployment during transition in Central and Eastern Europe. The focus is on Optimal Speed of Transition (OST) models and on comparison of them with the neoclassical tradition. In the typical neoclassical models, spatial differences essentially arise as a consequence of supply side constraints and institutional rigidities. Slow-growth, high-unemployment regions are those with backward economic structures and constraints on factors mobility contribute to making differences persistent. However, such explanations leave the question unanswered of how unemployment differences arise in the first place. Economic transition provides an excellent testing ground to answer this question. Prefiguring an empirical law, the OST literature finds that the high degree of labour turnover of high unemployment regions is associated with a high rate of industrial restructuring and, consequently, that low unemployment may be achieved by implementing transition more gradually. Moreover, international trade, FDI and various agglomeration factors help explain the success of capital cities compared to peripheral towns and rural areas in achieving low unemployment.
    Keywords: regional unemployment, structural change, labour turnover, optimal speed of transition, Central and Eastern Europe
    JEL: J6 P2 R1 R23
    Date: 2005–04
  7. By: Esteban Rossi-Hansberg; Mark L.J. Wright
    Abstract: Most economic activity occurs in cities. This creates a tension between local increasing returns, implied by the existence of cities, and aggregate constant returns, implied by balanced growth. To address this tension, we develop a theory of economic growth in an urban environment. We show that the urban structure is the margin that eliminates local increasing returns to yield constant returns to scale in the aggregate, which is sufficient to deliver balanced growth. In a multi-sector economy with specific factors and productivity shocks, the same mechanism leads to a city size distribution that is well described by a power distribution with coefficient one: Zipf's Law. Under certain assumptions our theory produces Zipf's Law exactly. More generally, it produces the systematic deviations from Zipf's Law observed in the data, including the under-representation of small cities and the absence of very large ones. In general, the model identifies the standard deviation of industry productivity shocks as the key parameter determining dispersion in the city size distribution. We present evidence that the relationship between the dispersion of city sizes and the variance of productivity shocks is consistent with the data.
    JEL: E0 O4 R0
    Date: 2005–04
  8. By: Ximing Wu (University of Guelph); Jeffrey Perloff (University of California, Berkeley, and Giannini Foundation); Amos Golan (American University)
    Keywords: income distribution, inequality, public policy, welfare,
    Date: 2004–02–01
  9. By: Alireza Naghavi (University College Dublin and CERAS)
    Abstract: This paper studies the behavior of firms towards weak labor rights in developing countries (South). A less than perfectly elastic labor supply in the South gives firms oligopsonistic power tempting them to strategically reduce output to cut wages. In an open economy, competitors operating in perfectly competitive labor markets meanwhile enjoy less aggressive competitors and raise output. Finally, competition effect reduces the ex-post output of a relocating firm. These effects reduce relative profitability of the South casting doubts on traditional beliefs that multinationals are attracted to regions with lower wages. Adopting a minimum wage unambiguously enhances Southern competitiveness and welfare.
    Keywords: Labor standards, Labor market imperfection, Oligopsony, Location of firms, Minimum wages, Strategic behavior, Multinationals, Southern welfare
    JEL: J80 F23 J42 F12 R38 L13
    Date: 2005–01
  10. By: Alireza Naghavi (PSE, Ecole Normale Supèrieure)
    Abstract: The Doha declaration on trade and environment proposed to clarify the relationship between multilateral environmental agreement (MEA) trade obligations and WTO rules by only guaranteeing economic integration upon ratification of certain MEAs. In other words, it pushed to authorize the use of trade measures against non-compliance, denying a non-signatory of its WTO rights to exercise countervailing tariffs. This paper demonstrates that the Doha proposal can be effective when environmental policy and its trade obligations are endogenous. Under plausible circumstances, ratification by a non-signatory to the MEA along with free trade as a reward is the unique equilibrium outcome. Delocation to pollution havens does not occur, as optimal tariffs are positive if standards are not adopted. Tariffs however only work as a credible threat and do not emerge in equilibrium. Results are consistent with broad empirical evidence that opposes the pollution haven hypothesis and suggests capital movements to be non-pollution related.
    Keywords: Environmental policy, WTO, Location of firms, Green tariffs, Multilateral environmental agreements, Doha declaration
    JEL: F13 F18 F23 H23 Q56 R38
    Date: 2005–04
  11. By: Jörg MAYER
    Abstract: The paper draws broad predictions from the developmental elements of new economic geography models and subjects them to empirical scrutiny. Industrial activity has spread from developed to geographically close developing countries in sectors that are intensive in immobile primary factors and not too heavily dependent on linkages with other firms. Only developing countries with an already established industrial base achieved industrialization in other sectors. The sizable change in both the size and structure of manufactured exports from developing countries has not been associated with corresponding changes in manufacturing value added. To benefit more from relocating industrial activities, developing countries need to create the critical mass of linkages that provide pecuniary externalities to industrial firms.
    Date: 2004
  12. By: Angel de la Fuente
    Abstract: El presente informe describe y cuantifica los principales mecanismos de cohesión social y territorial existentes en España, analiza su incidencia sobre la distribución regional de la renta y su contribución a la nivelación de la calidad de los servicios básicos, y propone algunos cambios en su diseño con el objetivo de mejorar sus propiedades de eficiencia y su adecuación a los principios constitucionales de igualdad, solidaridad y autonomía. La tesis central del tabajo es que el proceso de reformas autonómicas que ahora se inicia no debería en ningún caso suponer la ruptura de los mecanismos existentes de cohesión y debería aprovecharse para perfeccionarlos.
    Keywords: cohesión territorial, financiación autonómica, política regional
    Date: 2005–03–03
  13. By: Maximilian Auffhammer (University of California, Berkeley); Richard Carson (University of California, San Diego); Teresa Garin-Munoz (UNCED - Madrid)
    Keywords: carbon dioxide emissions, climate change,
    Date: 2004–02–03
  14. By: Jennifer Alix-Garcia (University of California, Berkeley); Alain de Janvry (University of California, Berkeley); Elisabeth Sadoulet (University of California, Berkeley)
    Abstract: Explaining land use change in Mexico requires understanding the behavior of the local institutions involved. We develop two theories to explain deforestation in communities with and without forestry projects, where the former involves a process of side payments to non-members of the community and the latter of partial cooperation among community members. Data collected in 2002 combined with satellite imagery are used to test these theories. For the forestry villages, we establish a positive relationship between the distribution of profits as dividends instead of public goods and forest loss. For communities not engaged in forestry projects, deforestation is largely related to the ability of the community to induce the formation of a coalition of members that cooperates in not encroaching. This happens more easily in smaller communities with experienced leaders. A disturbing result of the analysis is that deforestation is higher when a community engages in forestry projects, even after properly accounting for self-selection into this activity. This suggests that forestry projects as they now exist in Mexico are not sustainable and contribute to the deforestation problem.
    Keywords: deforestation, common property, partial cooperation,
    Date: 2003–11–07
  15. By: Massimiliano Mazzanti (University of Ferrara); Anna Montini (University of Bologna and CERIS/DSE-CNR)
    Abstract: We present empirical evidence on the determinants of residential water demand for one Italian region, Emilia-Romagna, by using municipal panel data. The estimated water demand price elasticity is negative, showing values between -0.99 and -1.33, never significantly different from one, considering different specifications without and with additional socio-economic factors. Income results associated to a positive elasticity, though lower than one. The role of other socio-economic territory-specific determinants is less relevant, with the exception of altitude. The relative high value of price elasticity is deemed consistent with the higher level of Regional water prices compared to the national average. The applied analysis is an important starting point for the Italian environment, which lacks reliable estimates on elasticities concerning microeconomic water demand studies. The estimation of price elasticity and the investigation on the determinants of water demand are necessary steps for both private and private-public management of water resources within the new framework originating from the implementation of the 96/1994 National water bill.
    Keywords: Residential water demand, Price elasticity, Income elasticity, Water pricing
    JEL: C23 D12 Q25
    Date: 2005–02
  16. By: Claire Gondard-Delcroix (CED, IFReDE/GRES, Université Montesquieu-Bordeaux IV)
    Abstract: Après des décennies de recul du PIB par habitant à Madagascar, les années 1990 ont renoué avec la croissance. Cependant, les répercussions en milieu rural, notamment en ce qui concerne la pauvreté, restent mal connues. L’article se propose donc d’étudier les dynamiques rurales de la pauvreté à Madagascar. Pour ce faire, deux types d’analyses complémentaires sont développés : il s’agit, en premier lieu, de mener une comparaison temporelle des indicateurs monétaires de pauvreté ; en second lieu, un accent particulier est mis sur l’identification des formes dynamiques de la pauvreté (pauvreté chronique et pauvreté transitoire) et de leurs déterminants sur la base de données de panel. Il s’avère que les évolutions de la pauvreté en milieu rural sont assez largement déconnectées des tendances macroéconomiques nationales (mis à part pour l’année 2002). Elles sont en outre différenciées d’une zone rurale à l’autre. Il apparaît ainsi que les évolutions de la pauvreté s’expliquent majoritairement par la survenance de chocs positifs ou négatifs localisés, soulignant la précarité des conditions de vie des ménages ruraux. Par ailleurs, l’analyse des formes de pauvreté, bien qu’elle confirme des spécificités locales marquées dans la prédominance d’une forme de pauvreté plutôt que l’autre, met également en exergue l’influence majeure des dotations en actifs (particulièrement la dotation terrienne) et des moyens de protection vis-à-vis des aléas (diversification des activités et capital social notamment). After decades of decline of the GDP per capita in Madagascar, it increases at the end of the 1990’s. However, the effects on poverty, especially in rural Madagascar, are poorly documented. This paper proposes to study dynamic rural poverty in Madagascar following two types of complementary analyses: firstly, by carrying out a temporal comparison of poverty indicators; then, by identifying chronic poverty and transitory poverty and their determinants on the basis of panel data. We show that poverty evolution in rural Madagascar is rather disconnected from the national macroeconomic tendencies (aside for the year 2002). Moreover, they are differentiated from one rural zone to another. It appears that poverty evolution is mainly explained by localised shocks, emphasising the vulnerability of rural livelihoods. In addition, although the analysis of chronic and transitory poverty confirms local specificities, it also puts forward the major influence of shocks and protection with respect to risk. (Full text in french)
    JEL: I32 R20
    Date: 2005–04
  17. By: AKM Rezaul Hossain (University of Connecticut)
    Abstract: Credit-rationing model similar to Stiglitz and Weiss [1981] is combined with the information externality model of Lang and Nakamura [1993] to examine the properties of mortgage markets characterized by both adverse selection and information externalities. In a credit-rationing model, additional information increases lenders ability to distinguish risks, which leads to increased supply of credit. According to Lang and Nakamura, larger supply of credit leads to additional market activities and therefore, greater information. The combination of these two propositions leads to a general equilibrium model. This paper describes properties of this general equilibrium model. The paper provides another sufficient condition in which credit rationing falls with information. In that, external information improves the accuracy of equity-risk assessments of properties, which reduces credit rationing. Contrary to intuition, this increased accuracy raises the mortgage interest rate. This allows clarifying the trade offs associated with reduced credit rationing and the quality of applicant pool.
    Keywords: Credit rationing, Information Externalities, Adverse selection, Mortgage underwriting.
    JEL: C62 R31 R51
    Date: 2005–04
  18. By: WILLIAM N. GOETZMANN (Yale School of Management - International Center for Finance); MASSIMO MASSA (INSEAD - Department of Finance); ANDREI SIMONOV (Stockholm School of Economics - Department of Finance)
    Abstract: We study the puzzle of portfolio underdiversification and proximity investment from a novel perspective, linking it to the process of urbanization. We find that urban portfolios are more focused - i.e., less diversified and more concentrated in \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\'close\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\' stocks. We explain it in terms of the process of \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\'professional specialization\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\' that characterizes urban environments. We test this against a number of alternative theories: financial sophistication, social competition and hedging non-financial risk. We show that the very same factors behind the drive to city agglomeration also affect both the degree of portfolio diversification and proximity investing by influencing investor information and risk.
    JEL: G11 G14
    Date: 2005–04–14
  19. By: Sebnem Kalemli-Ozcan (Department of Economics, University of Houston); Bent E. Sørensen (Department of Economics, University of Houston); Ariell Reshef (New York University); Oved Yosha
    Abstract: We study net capital flows between U.S. states. We present a simple neoclassical model in which total factor productivity (TFP) varies across states and over time and where capital freely moves across state borders. In this framework capital flows to states that experience a relative increase in TFP thus creating net cross-state capital ownership positions. Net ownership positions converge to zero over time in the absence of further TFP movements. While TFP can not be directly observed, we can identify states with high TFP growth as states with high output growth. By comparing the level of personal income to output, we construct indicators of net capital flows into a state. We then examine empirically if the level of net capital flows between states following relative movements in TFP corresponds to the predictions of the model and whether net ownership positions tend to converge to zero. Our empirical results imply large flows of capital between states; for example, we find that a state with annual per capita output growth 1 percent higher than the average state over 10 years would attract capital in the amount of $9,900 per capita over those 10 years. These magnitudes are in close agreement with the predictions of the model. We conclude that frictions associated with borders are likely to be the main explanation for “low” international capital flows.
    Keywords: regional net capital flows, ownership, dividend income, historical income, net factor income.
    JEL: F21 F41
    Date: 2005–04

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