nep-geo New Economics Papers
on Economic Geography
Issue of 2007‒01‒02
seventeen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Polarizações e desigualdades: desenvolvimento regional na China (1949-2000) By Ricardo Machado Ruiz
  2. Canadian City Housing Prices and Urban Market Segmentation By Jason Allen; Robert Amano; David P. Byrne; Allen W. Gregory
  3. Are there Border Effects in the EU Wage Function? By Peter Huber; Michael Pfaffermayr; Yvonne Wolfmayr
  4. La polarizzazione territoriale del prodotto pro capite: un'analisi del caso italiano sulla base di dati provinciali By Stefano Iezzi
  5. FDI in Chinese Cities: Spillovers and Impact on Growth By Nicole Madariaga; Sandra Poncet
  6. Market Access Impact on Individual Wage: Evidence from China By Laura Hering; Sandra Poncet
  7. Anticipated Capitalization of the Santiago Metro System on Housing Prices By Claudio Agostini; Gastón Palmucci
  8. Immigration and the neighborhood By Albert Saiz; Susan Wachter
  9. Housing Dynamics By Edward L. Glaeser; Joseph Gyourko
  10. Does Size of Local Labour Markets Affect Wage Inequality? A Rank-size Rule of Income Distribution By Korpi, Martin
  11. Evolving agglomeration in the U.S. auto supplier industry By Thomas H. Klier; Daniel McMillen
  12. Learning at the boundaries for industrial districts between exploitation of local resources and the exploration of global knowledge flows By Fiorenza BELUSSI; Luciano PILOTTI; Silvia Rita SEDITA
  13. Transforming payment choices by doubling fees on the Illinois Tollway By Eugene Amromin; Carrie Jankowski; Richard Porter
  14. Search in Thick Markets: Evidence from Italy By Sabrina Di Addario
  15. Size and Soft Budget Constraints By Ernesto Crivelli; Klaas Staal
  16. Isolation and Subjective Welfare By Fafchamps, Marcel; Shilpi, Forhad
  17. Road Traffic Congestion and Public Information: An Experimental Investigation By Kene Boun My; Laurent Denant-Boèmont; Frédéric Koessler; Marc Willinger; Anthony Ziegelmeyer

  1. By: Ricardo Machado Ruiz (Cedeplar-UFMG)
    Abstract: The regional development in China in the period 1949-2000 has two stages. In the first one (1949-1978), the aim was to control the territory. During three decades the government encouraged the convergences of per capita income among regions, rural, and urban areas, the industry was decentralized, the growth of central regions was induced, and the growth of coastal regions was constrained. In the second period (1979-2000), the so called "coastal and uneven strategy of development" determined the regional development of China. During this period the regional disparity decreased only at the beginning, then the differences between rural and urban areas, regions, and provinces were amplified and political conflicts increased.
    Keywords: China; regional economics; economic development; regional policy
    JEL: R58 R11 O14 O18
    Date: 2006–12
  2. By: Jason Allen; Robert Amano; David P. Byrne; Allen W. Gregory
    Abstract: The authors provide a detailed empirical analysis of Canadian city housing prices. They examine the long-run relationship between city house prices in Canada from 1981 to 2005 as well as idiosyncratic relations between city prices and city-specific variables. The results suggest that city house prices are only weakly correlated in the long run, and that there is a disconnect between house prices and interest rates. City-specific variables such as union wage levels, new-housing prices, and the issuance of building permits tend to be positively related to city existing-house prices. Surprisingly, there is mixed evidence with respect to standard measures of economic activity, such as labour force and per capita GDP.
    Keywords: Regional economic developments
    JEL: C22 C32 R2
    Date: 2006
  3. By: Peter Huber; Michael Pfaffermayr; Yvonne Wolfmayr
    Abstract: We estimate a linear approximation of the market potential function for Europe as derived in geography and trade models. Using a spatial econometric estimation approach, border effects are identified by a differential impact of other regions purchasing power, depending on whether two regions are located within the EU15 or outside the EU15. We find that intra EU15-borders have an insignificant but external borders a significant effect on regional wage structures. We illustrate the magnitude of EU external border effects by simulating the enlargement of the EU in May 2004. Our results suggest a large impact of the border for new member states, but a relatively small one for old members.
    Keywords: market potential, border effects, spatial econometrics
    JEL: C21 F10 F12 R12
    Date: 2006
  4. By: Stefano Iezzi (Bank of Italy)
    Abstract: Economic convergence at the sub-national level could have spatially explicit manifestations reflecting convergence clubs and other forms of geographical clustering that are not captured by an overall inequality measure. By decomposing the Theil index of per capita income inequality into between and within groups of neighbouring locations, the degree of spatial polarization is measured as the share of inequality accounted for by the between group component. The choice of the partition can fundamentally change any inequality measure decomposition, both qualitatively and quantitatively. In order to overcome this issue I propose a kernel approach to the spatial polarization measure based on the Theil index computed on the spatial moving averages. This allows to detect a polarization curve measuring the degree of geographic concentration as a function of a spatial scale parameter, denoting the geographic dimension of the groups. The analysis of per capita income data of Italian provinces in XX century shows the existence of a multiple polarization, that is per capita income is polarized at different spatial scales. The forces sustaining the polarization are stronger at medium and high spatial scales. The analysis also shows the presence of a long-run geographic club convergence with converging clubs and a strengthening of the polarization, mainly referable to regional differences; the reinforcement of North – South dualism is more limited.
    Keywords: polarizzazione territoriale, scomposizione della disuguaglianza, convergenza economica, test di permutazione spaziale
    JEL: C19 R11 R12
    Date: 2006–12
  5. By: Nicole Madariaga; Sandra Poncet
    Abstract: We study the impact of FDI on growth performance. We rely on a data set of Chinese cities between 1990 and 2002 to investigate the effects of FDI in the traditional growth regression framework using the GMM estimator for dynamic panels. Our growth model incorporates an explicit consideration of spatial dependence effects in the form of spatially lagged income and FDI. Our results reveal that Chinese cities take advantage not only of FDI flows received locally but also of FDI flows received by their neighbors.
    Keywords: Growth; regional convergence; economic geography; foreign direct investment China
    JEL: E1 O1 O5 R1
    Date: 2006–12
  6. By: Laura Hering; Sandra Poncet
    Abstract: We study the effect of geography and in particular of market access on wages by working with individual data from 56 Chinese cities in 11 different provinces. By applying the theory of the New Economic Geography on individual survey data, we contribute to the explanation of growing disparities within the country, and even within provinces. We examine to what extent proximity to markets can explain inter-individual wage heterogeneity and growing wage disparities within Chinese provinces. Using a New Economic Geography style model, we derive an econometric specification relating wages to market access. The latter is calculated as a transport cost weighted sum of the surrounding locations’ market capacities. Based on data from 1995 on around 10,000 Chinese workers, and after controlling for individual skills and factor endowments, we find that a significant fraction of inter-individual differences in terms of return to labor can be explained by the geography of access to markets. Moreover, our study investigates whether the relationship between market access and wages holds for all types of workers equally and shows that the magnitude of the impact depends on the firm type and the level of qualification.
    Keywords: Economic geography; international trade; regional integration; wage China; inequality
    JEL: F12 F15 R11 R12
    Date: 2006–12
  7. By: Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado); Gastón Palmucci (Tribunal de Defensa de la Libre Competencia (Chile))
    Abstract: Housing units with closer access to public transportation enjoy a higher market value than those with similar characteristics but poorer access. This difference can be explained by the less expensive cost of transport to the main workplaces and shopping areas in town. For this reason, investments in public transport infrastructure, for example, building a new metro line, are capitalized totally or partially on land property and housing prices. This work analyzes empirically the degree of capitalization on housing prices when the new Line 4 of the Santiago de Chile Metro System was built. In particular, and given that the new line started operating in December 2005, the degree of anticipated capitalization on housing prices at the moment of announcing construction of Line 4 and at the moment of informing on the basic engineering to determine the location of the stations has been estimated. A unique data base has been used, containing all home buying and selling operations in the Greater Santiago between December 2000 and March 2004. The results show that the average apartment price rose between 3.3% and 4.4% as a consequence of having announced the construction, and between 4.5% and 5.7% after information on the location of the stations was made known. This increase was not distributed evenly but depended on the distance to the closest station. An indirect effect of this kind of capitalization is that property tax collection increases if landed property is reassessed according to the price rise. This effect is not negligible in magnitude and could stand for a minimum between 14% and 20% of investment in the new metro line, which gives way to an interesting discussion with respect to the form of financing the metro network extension.
    Keywords: Metro, Apartment Prices, Anticipated Capitalization
    JEL: H54 R21 R53
    Date: 2006–12
  8. By: Albert Saiz; Susan Wachter
    Abstract: What impact does immigration have on neighborhood dynamics? Within metropolitan areas, the authors find that housing values have grown relatively more slowly in neighborhoods of immigrant settlement. They propose three nonexclusive explanations: changes in housing quality, reverse causality, or the hypothesis that natives find immigrant neighbors relatively less attractive (native flight). To instrument for the actual number of new immigrants, the authors deploy a geographic diffusion model that predicts the number of new immigrants in a neighborhood using lagged densities of the foreign-born in surrounding neighborhoods. Subject to the validity of their instruments, the evidence is consistent with a causal interpretation of an impact from growing immigration density to native flight and relatively slower housing price appreciation. Further evidence indicates that these results may be driven more by the demand for residential segregation based on race and education than by foreignness per se.
    Keywords: Immigrants
    Date: 2006
  9. By: Edward L. Glaeser; Joseph Gyourko
    Abstract: The key stylized facts of the housing market are positive serial correlation of price changes at one year frequencies and mean reversion over longer periods, strong persistence in construction, and highly volatile prices and construction levels within markets. We calibrate a dynamic model of housing in the spatial equilibrium tradition of Rosen and Roback to see whether such a model can generate these facts. With reasonable parameter values, this model readily explains the mean reversion of prices over five year periods, but cannot explain the observed positive serial correlation at higher frequencies. The model predicts the positive serial correlation of new construction that we see in the data and the volatility of both prices and quantities in the typical market, but not the volatility of the nation's more extreme markets. The strong serial correlation in annual house price changes and the high volatility of prices in coastal markets are the two biggest housing market puzzles. More research is needed to determine whether measurement error-related data smoothing or market inefficiency can best account for the persistence of high frequency price changes. The best rational explanations of the volatility in high cost markets are shocks to interest rates and unobserved income shocks.
    JEL: A1
    Date: 2006–12
  10. By: Korpi, Martin (Institute for Futures Studies)
    Abstract: The question addressed in this paper is twofold: (i) does wage inequality increase with local population size, and if so, (ii) what are possible factors behind this increase? In a cross-section analysis of Swedish local labour markets using full population data, the paper shows that urban scale, i.e. size of local population, has significant positive effects on wage inequality. Testing for potential explanations, labour market diversification, human capital and population size are shown to be significantly associated with inequality. Given these effects, the paper raises the question of how to understand and incorporate scale effects into models of long-term change in wage inequality.
    Keywords: Wage inequality; local labour markets; urban size; business diversification
    JEL: D63 J31 J40 R12
    Date: 2006–10
  11. By: Thomas H. Klier; Daniel McMillen
    Abstract: Using nonparametric descriptive tools developed by Duranton and Overman (2005), we show that both new and old auto supplier plants are highly concentrated in the eastern United States. Conditional logit models imply that much of this concentration can be explained parametrically by distance from Detroit, proximity to assembly plants, and access to the interstate highway system. New plants are more likely to be located in zip codes that are close to existing supplier plants. However, the degree of clustering observed is still greater than implied by the logit estimates.
    Date: 2006
  12. By: Fiorenza BELUSSI; Luciano PILOTTI; Silvia Rita SEDITA
    Abstract: The work offers an integrated view on how knowledge is developed in localised systems of specialised firms (industrial districts - IDs), through informal social networks (communities of practice - CoPs), and firms networks, in an osmotic process between the internal to the district knowledge and the external to the district knowledge. Contrary to the Marshallian consolidated tradition, we describe the functioning of the modern industrial district emphasising not just the role of the local “industrial atmosphereâ€, but the modern aspect of “learning at the boundariesâ€, where local actors mix sources of knowledge located inside the district (exploitation of local resources) with external sources (exploration of global knowledge). Our empirical work, based on the analysis of three Italian industrial districts, shows that, in relation to the aspect of exploitation of local resources, the investment (both direct and indirect) of firms in augmenting their capabilities is juxtaposed to the activity organised by the district meta-organisers of cultivating local resources; furthermore, in relation to the exploration of global knowledge, internal/external switchers allow the exploration of global knowledge flows. It is a process that combines forms of localised learning with learning at the boundaries, through the access to pipelines (FDI, firms networks, distant KIBS) and boundary spanning actors (external CoPs).
    Keywords: Industrial Districts, Learning, Communities of Practice, Networks
    JEL: D83 M54 R12
    Date: 2006–12
  13. By: Eugene Amromin; Carrie Jankowski; Richard Porter
    Abstract: Rising traffic congestion and the need to improve operational efficiency prompted the Illinois Tollway Authority to unveil plans to reconfigure its road network for “stop-free” electronic toll collection. Committing to an extensive construction program would have required the Tollway to ensure that enough drivers had electronic payment devices (branded as I- PASS). Conversely, without reconfigured toll gates the drivers would have had less reason to own an I-PASS. To resolve this potentially thorny chicken-and-egg problem, the Tollway put in place a new I-PASS distribution network and then dramatically raised the price for cash toll payments. This paper focuses on consumer response to the change in relative prices. Using tollway traffic data, we document a substantial aggregate increase in electronic toll payments. The propensity to pay electronically rose uniformly throughout the day, reflecting the effectiveness of the Tollway’s actions in modifying behavior of both commuters and leisure drivers. However, not all drivers appear to have responded to the price change per se. To analyze the relative importance of price, income, and fixed participation costs we use the Census tract level data on employment and residential location to construct a ZIP-code measure of the likelihood of commuting to work via the tollway. Conditional on this measure, we show that the adoption of electronic payments among lower-income households was indeed influenced by the price change. In contrast, high- and medium-income households responded to lower fixed costs of obtaining I-PASS at conveniently located supermarkets. Finally, we document the role of social network relationships, as changes in I-PASS ownership for all income groups were strongly affected by I-PASS use among neighbors and co- workers.
    Date: 2006
  14. By: Sabrina Di Addario (Bank of Italy)
    Abstract: I analyze empirically the effects of both urban and industrial agglomeration on men’s and women’s search behavior and on the efficiency of matching. The analysis is based on a unique panel data set from the Italian Labor Force Survey micro-data, which covers 520 randomly drawn Local Labor Market Areas (66 percent of the total) over the four quarters of 2002. I compute transition probabilities from non-employment to employment by jointly estimating the probability of searching and the probability of finding a job conditional on having searched, and I test whether these are affected by urbanization and/or industry localization. The main results indicate that both urbanization and industry localization raise job seekers’ chances of finding employment (conditional on having searched), but neither of them affects non-employed individuals’ search behavior.
    Keywords: Labor market transitions, search intensity, urbanization, industry localization.
    JEL: J64 R00 J60
    Date: 2006–12
  15. By: Ernesto Crivelli; Klaas Staal
    Abstract: There is much evidence against the so-called "too big to fail" hypothesis in the case of bailouts to sub-national governments. We look at a model where districts of different size provide local public goods with positive spillovers. Matching grants of a central government can induce socially-efficient provision, but districts can still exploit the intervening central government by inducing direct financing. We show that the ability of a district to induce a bailout from the central government and district size are negatively correlated.
    Keywords: bailouts, soft-budget constraints, jurisdictional size, public goods, spillovers
    JEL: H40 H70 R10
    Date: 2006
  16. By: Fafchamps, Marcel; Shilpi, Forhad
    Abstract: Using detailed geographical and household survey data from Nepal, this article investigates the relationship between isolation and subjective welfare. This is achieved by examining how distance to markets and proximity to large urban centers affect responses to questions about income and consumption adequacy. Results show that isolation significantly reduce subjective assessments of income and consumption adequacy, even after controlling for consumption expenditures and other factors. Part of this effect can be attributed to lower access to public goods and to a reduction in the variety of consumption items. Equivalent variation estimates suggest that the subjective cost of isolation is large but also that the gain from reduced isolation is largest for households already close to markets.
    Keywords: consumption adequacy; geographical isolation; subjective well-being
    JEL: D60 I31 R20
    Date: 2006–12
  17. By: Kene Boun My; Laurent Denant-Boèmont; Frédéric Koessler; Marc Willinger; Anthony Ziegelmeyer
    Abstract: This paper reports two laboratory studies designed to study the impact of public information about past departure rates on congestion levels and travel costs. Our experimental design is based on a discrete version of Arnott, de Palma, and Lindsey’s (1990) bottleneck model where subjects have to choose their departure time in order to reach a common destination. Experimental treatments in our first study differ in terms of the level of public information on past departure rates and the relative cost of delay. In all treatments, congestion occurs and the observed total travel costs match the predicted ones. In other words, subjects' capacity to coordinate is neither affected by the availability of public information on past departure rates nor by the relative cost of delay. This absence of treatment effects is confirmed by our finding that a parameter-free reinforcement learning model best characterizes individual behavior. The number of experimental subjects taking the role of drivers is four times larger in our second study than in our first study. We observe that subjects’ capacity to coordinate is not affected by the size of the population.
    Keywords: Travel behavior; Congestion; Information in intelligent transportation systems; Laboratory experiments
    JEL: C91 C92 D83 R40 R41
    Date: 2006–12

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