nep-geo New Economics Papers
on Economic Geography
Issue of 2007‒03‒10
thirteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Clusters, Functional Regions and Cluster Policies By Karlsson, Charlie
  2. Regional convergence and the causal impact of migration on regional growth rates By Kirdar, Murat; Saracoglu, Sirin
  3. Time-trend in spatial dependence: Specification strategy in the first-order spatial autoregressive model By López, Fernando; Chasco, Coro
  4. Cross-sectional Space-time Modeling Using ARNN(p, n) Processes By Kakamu, Kazuhiko; Polasek, Wolfgang
  5. Hysteresis vs. NAIRU and Convergence vs. Divergence: The behavior of regional unemployment rates in Brazil* By Gomes, F. A. R. & Silva, C. G.
  6. Outward FDI and local employment growth in Italy By Stefano Federico; Gaetano Alfredo Minerva
  7. Neighborhood effects, public housing and unemployment in France By Florence Goffette-Nagot; Claire Dujardin
  8. Regional disparities in labor market performance in Croatia : the role of individual and regional structural characteristics By Xubei Luo
  9. Housing tenure and labour mobility: a comparison across European countries By Cristina Barceló
  10. The interaction between house prices and loans for house purchase. The Spanish case By Ricardo Gimeno; Carmen Martínez-Carrascal
  11. House Prices, Rents, and Interest Rates under Collateral Constraints By Óscar J. Arce; David López-Salido
  12. House prices and rents in Spain: does the discount factor matter? By Juan Ayuso; Fernando Restoy
  13. Why do Black Workers Search Less? A Transport-Mode Based Theory By Zenou, Yves

  1. By: Karlsson, Charlie (Jönköping International Business School (JIBS) and CESIS)
    Abstract: This paper gives an overview of research on economic clusters and clustering and is motivated by the growing intellectual and political interest for the subject. Functional regions have the features that agglomeration of economic activities i.e. clusters, benefit from. Functional regions have low intra-regional transaction and transportation cost and has access to the local labour market. The features of spatial economic concentration were for a long time disregarded and it was first in the early 1990s that Krugman brought the subject into the stage light. The scientific interests of cluster and clustering phenomenon have after the “new” introduction rapidly increased in the last decade. Hence, the subject is being thought at various education levels. The importance of cluster and clustering has also been recognized at a national, regional and local level and cluster policies are becoming a major part of political thinking. These policies are however often based on a scarce analysis where no strict criterions are stated.
    Keywords: cluster; location; functional region; knowledge; innovation; entrepreneurship; cluster policy
    JEL: R12 R58
    Date: 2007–02–28
  2. By: Kirdar, Murat; Saracoglu, Sirin
    Abstract: The standard growth theory predicts that allowing for labor mobility across regions would increase the speed of convergence in per capita income levels and that migration has a negative causal impact on regional growth rates. Although the empirical literature has uncovered some evidence for the former implication, the latter has not been verified empirically. This paper provides empirical evidence for the negative causal impact of migration on provincial growth rates in a developing country with a high level of internal migration that is characterized by unskilled labor exiting rural areas for urban centers. We utilize instrumental variables estimation method with an instrument unique to the country examined and also control for provincial fixed effects.
    Keywords: Regional convergence; Regional growth; Internal migration; Fixed effects; IV estimation
    JEL: R23 C23 O40
    Date: 2007–01
  3. By: López, Fernando; Chasco, Coro
    Abstract: The purpose of this article is to analyze if spatial dependence is a synchronic effect in the first-order spatial autoregressive model, SAR(1). Spatial dependence can be not only contemporary but also time-lagged in many socio-economic phenomena. In this paper, we use three Moran-based space-time autocorrelation statistics to evaluate the simultaneity of this spatial effect. A simulation study shed some light upon these issues, demonstrating the capacity of these tests to identify the structure (only instant, only time-lagged or both instant and time-lagged) of spatial dependence in most cases.
    Keywords: Space-time dependence; Spatial autoregressive models; Moran’s I
    JEL: C15 C51 C21
    Date: 2007–03–03
  4. By: Kakamu, Kazuhiko (Graduate School of Economics, Osaka University, Osaka, Japan); Polasek, Wolfgang (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)
    Abstract: We suggest a new class of cross-sectional space-time models based on local AR models and nearest neighbors using distances between observations. For the estimation we use a tightness prior for prediction of regional GDP forecasts. We extend the model to the model with exogenous variable model and hierarchical prior models. The approaches are demonstrated for a dynamic panel model for regional data in Central Europe. Finally, we find that an ARNN(1, 3) model with travel time data is best selected by marginal likelihood and there the spatial correlation is usually stronger than the time correlation.
    Keywords: Dynamic panel data, hierarchical models, marginal likelihoods, nearest neighbors, tightness prio, spatial econometrics
    JEL: C11 C15 C21 R11
    Date: 2007–02
  5. By: Gomes, F. A. R. & Silva, C. G.
    Date: 2007–10
  6. By: Stefano Federico (Bank of Italy); Gaetano Alfredo Minerva (Universita' di Bologna)
    Abstract: Using several data sources, we assess the impact of Italy's outward foreign direct investment (FDI) on local employment growth between 1996 and 2001 for 12 manufacturing industries and 103 administrative provinces. Our main result is that, controlling for the local industrial structure and area fixed effects, FDI is associated with faster local employment growth, relatively to the national industry average. We also find that employment in small plants is not negatively influenced by higher levels of FDI. Our findings do not support therefore the idea that FDI is detrimental to local employment growth in the home country.
    Keywords: Foreign direct investment, agglomeration, employment growth
    JEL: C21 F21 F23
  7. By: Florence Goffette-Nagot (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines]); Claire Dujardin (CORE - Center for Operations Research and Econometrics - [Université catholique de Louvain])
    Abstract: This paper is aimed at examining how individual unemployment is influenced both by location in a deprived neighborhood and public housing. Our identification strategy is twofold. First, we estimate a simultaneous probit model of public housing accommodation, type of neighborhood, and unemployment, thus accounting explicitely for correlation of unobservables between the three behaviors. Second, we take advantage of the situation of the public housing sector in France, which allows us to use public housing accommodation as a powerful<br />determinant of neighborhood choices and to use household's demographic characteristics as exclusion restrictions. Our results show that public housing does not have any direct effect on unemployment. However, living within the 35% more deprived neighborhoods does increase the unemployment probability significantly. As expected, the effect of neighborhood substantially decreases when dealing with the endogeneity of neighborhood and when using public housing as a determinant of neighborhood choice.
    Keywords: Neighborhood effects ; public housing ; unemployment ; simultaneous probit models ; simulated maximum likelihood
    Date: 2007–02–28
  8. By: Xubei Luo
    Abstract: The labor market performance in Croatia failed to keep pace with the moderately good overall macroeconomic development in the past few years. Youth, the less well-educated, and women face more difficulties in getting a job with a decent salary. A large part of the difference in regional labor market performance is associated with the difference in the human capital endowment. With a stagnant total employment rate, the large disparities in employment and earnings across individual groups and regions have become one of the concerns for the long-term sustainable development of the economy. Using Labor Force Survey (LFS) data from 2002-04, this paper studies the labor market performance in Croatia at the national and regional levels. The results show that both one ' s individual characteristics (including age, education and gender) and where he or she works plays a role in his or her employment and earnings. Regional differences in employment and earnings are reduced to a large extent when accounting for differences in individual characteristics. The simulations shed light on the effectiveness of the nationwide education policy and regional specific labor market policy, and suggest that improving human capital endowment and adjusting labor market structure are both important to rebalance regional development and enhance total welfare.
    Keywords: Labor Markets,Access & Equity in Basic Education,Population Policies,Education For All,Gender and Education
    Date: 2007–03–01
  9. By: Cristina Barceló (Banco de España)
    Abstract: This paper studies housing tenure and labour mobility using individual data from the ECHP for five European countries. First, the effect of housing tenure on the unemployed workers' labour mobility is studied using a discrete unemployment duration model with two alternative exits to employment, depending on whether they are associated with a residential change or not. Ownership is found to affect geographical mobility negatively. Second, the results are robust to potential endogeneity of the ownership status and institutional differences across countries. Third, post-unemployment wages are studied. We do not find any effects of the unemployment spell duration and the geographical mobility on wages after controlling for the self-selection bias.
    Keywords: labour mobility, housing tenure, duration models, self-selection bias, wage equation
    JEL: J61 R20 J31
    Date: 2006–02
  10. By: Ricardo Gimeno (Banco de España); Carmen Martínez-Carrascal (Banco de España)
    Abstract: The aim of this paper is to analyse, using a vector error-correction model (VECM), the dynamic interaction between house prices and loans for house purchase in Spain. The results show that both variables are interdependent in the long run: loans for house purchase depend positively on house prices, while house prices adjust when this credit aggregate departs from the level implied by its long-run determinants. In contrast, disequilibria in house prices are corrected only through changes in this variable. As for short-run dynamics, the results show that the two variables have a positive contemporaneous impact on each other, indicating the existence of mutally reinforcing cycles in both variables.
    Keywords: mortgage debt, housing prices, error correction
    JEL: E32 G21 R21
    Date: 2006–02
  11. By: Óscar J. Arce (Banco de España); David López-Salido (Banco de España; Centre for Economic Policy Research (CEPR))
    Abstract: We develop an OLG model aimed at explaining the joint determination of housing prices, rents, and interest rates, in an environment featuring a positive home ownership bias and individual borrowing limits that generate a mismatch between desired and available funds to finance housing purchases. Individual heterogeneity on this mismatch gives rise to three different types of households: renters, landlords (i.e. buy-to-let investors, who provide the stock of houses for rent) and home buyers who do not participate in the rental market. We investigate the conditions under which two alternative stationary equilibria may coexist: (i) a low valuation equilibrium (LVE) in which landlords do not exhaust their borrowing limits; and (ii) a high valuation one (HVE) where every household is financially constrained at the time of purchasing its housing stock. In a HVE (relative to the LVE) the volume of buy-to-let investment, the price-to-rent ratio and the housing price are higher while the interest rate is lower. Due to binding borrowing constraints, in a HVE further reductions in the interest rate only bear a positive networth effect through a reduction of the cost of repaying outstanding mortgaged debt, which fuels future availability of funds, thus sustaining the higher demand for credit. More generally, coexistence of both types of equilibria provides a rationale for the existence of speculative paths from a LVE to a HVE.
    Keywords: price-to-rent ratio, collateral constraints, buy-to-let investment, multiple equilibria
    JEL: G21 R21 R31
    Date: 2006–04
  12. By: Juan Ayuso (Banco de España); Fernando Restoy (Banco de España)
    Abstract: We estimate alternative price to rent ratios in the Spanish housing market by considering different stochastic discount factors in present value models similar to those used in the financial literature but where the higher rigidity that characterises this market is taken into account. We identify three robust across model regularities: i) the increase in the price to rent ratio since the late nineties helped at first to restore equilibrium, ii) further increases in house prices raised the ratio between 24% and 32% above equilibrium by 2004, although iii) at that time the ratio was only around 2% above its short term adjustment path towards a (new) long run equilibrium.
    Keywords: housing, price-to-rent ratio, overvaluation
    JEL: G12 R21 R31
    Date: 2006–04
  13. By: Zenou, Yves
    Abstract: We develop a search matching model in which blacks and whites are totally identical, except for the fact that they use different transport modes. We find that whites, who use faster transport modes (i.e. cars) than blacks (who use public transport), do search more intensively and extensively, and experience lower unemployment rate. Indeed, when deciding their optimal search intensities, all workers trade off short-run losses with long-run gains. However, because they use a faster transport mode, white job-seekers anticipate that they can reach jobs located further away so they can increase their maximal distance of search. This, in turn, induces firms to create more jobs, which finally motivate white workers to search more because of better opportunities. We also show that whites obtain higher wages. Indeed, in our model, each worker negotiates his/her wage with the firm using the Nash-bargaining rule. Because white workers have better outside options than blacks since their labour market tightness as well as the maximal distance of search are higher, they obtain a higher wage.
    Keywords: ethnic minorities; job search; multiple job centres; spatial labour markets
    JEL: D83 J15 J64 R1
    Date: 2007–03

This nep-geo issue is ©2007 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.