nep-geo New Economics Papers
on Economic Geography
Issue of 2008‒03‒15
twenty-one papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Search, Wage Posting, and Urban Spatial Structure By Zenou, Yves
  2. Spatial Development and Energy Consumption By Safirova, Elena A.; Houde, Sébastien; Harrington, Winston
  3. Information and communication technologies and geographic concentration of manufacturing industries: Evidence from China By Hong, Junjie; Fu, Shihe
  4. Regional Unemployment and Human Capital in Transition Economies By Stepan Jurajda; Katherine Terrell
  5. Sexual orientation and neighborhood quality: Do same-sex couples make better communities? By Fu, Shihe
  6. Regional and technological effects of cooperation behavior By Uwe Cantner; Andreas Meder
  7. Empowerment Zones, Neighborhood Change and Owner Occupied Housing By Krupka, Douglas J.; Noonan, Douglas S.
  8. Marginal Social Cost Pricing on a Transportation Network: Comparison of Second-Best Policies By Safirova, Elena A.; Houde, Sébastien; Harrington, Winston
  9. Do higher rents discourage fertility? evidence from U.S. cities, 1940-2000 By Simon, Curtis; Tamura, Robert
  10. Empirical Assessment of the Existence of Taxable Agglomeration Rents By Souleymane COULIBALY
  11. The Stability of Mixed Income Neighborhoods in America By Krupka, Douglas J.
  12. Immigrants’ Responsiveness to Labor Market Conditions and Their Impact on Regional Employment Disparities: Evidence from Spain By Catalina Amuedo-Dorantes; Sara de la Rica
  13. Who Leaves the City? The Influence of Ethnic Segregation and Family Ties By Zorlu, Aslan
  14. Explaining the size distribution of cities: x-treme economies By Berliant, Marcus; Watanabe, Hiroki
  15. Ethnic Networks and Employment Outcomes By Patacchini, Eleonora; Zenou, Yves
  16. The End of Urban Involution and the Cultural Construction of Urbanism in Indonesia By Evers, Hans-Dieter
  17. How Do Very Open Economies Absorb Large Immigration Flows? Recent Evidence from Spanish Regions By Gonzalez, Libertad; Ortega, Francesc
  18. Coopération et gouvernance dans deux districts en transition By Mendez Ariel; Ragazzi Elena
  19. Risk Sharing and Commuting Among US Federal States By Juessen, Falko
  20. On the Dynamics of Interstate Migration: Migration Costs and Self-Selection By Bayer, Christian; Juessen, Falko
  21. Identifying Agglomeration Spillovers: Evidence from Million Dollar Plants By Michael Greenstone; Richard Hornbeck; Enrico Moretti

  1. By: Zenou, Yves (Stockholm University)
    Abstract: We develop an urban-search model in which firms post wages. When all workers are identical, the Diamond paradox holds, i.e. there is a unique wage in equilibrium even in the presence of search and spatial frictions. This wage is affected by spatial and labor costs. When workers differ according to the value imputed to leisure, we show that, under some conditions, two wages emerge in equilibrium. The commuting cost affects the land market but also the labor market through wages. Workers’ productivity also affects housing prices and this impact can be positive or negative depending on the location in the city. One important aspect of our model is that, even with positive search costs, wage dispersion prevails in equilibrium, a feature not possible in the non-spatial model.
    Keywords: diamond paradox, urban land-use, spatial compensation, search frictions, wage dispersion
    JEL: D83 J64 R14
    Date: 2008–02
  2. By: Safirova, Elena A. (Resources for the Future); Houde, Sébastien; Harrington, Winston
    Abstract: Previous literature has suggested that the urban form (i.e., city size, density, and center distribution pattern) influences urban energy consumption. It has been argued that more dense development is likely to result in more energy-efficient and sustainable cities. However, very little is known about the precise magnitude of possible energy savings from more compact urban form. Moreover, practically no research has been done to investigate which urban policies are likely to be effective in making cities more energy efficient and to quantify those potential energy savings. In this paper we discuss the potential effectiveness of urban policies at improving energy efficiency. First, we analyze several abstract scenarios suggested by the literature to see whether making a previously dispersed city more compact would result in improved energy efficiency. Then we model realistic transportation and land-use policies and examine whether those policies are likely to reduce energy consumption in the urban context.
    Keywords: energy consumption, urban form, general equilibrium, land use, transportation, government policy
    JEL: D58 H23 Q48 R13 R14 R40 R5
    Date: 2007–12–19
  3. By: Hong, Junjie; Fu, Shihe
    Abstract: Using the 2004 China economic census database, this paper examines the impact of information and communication technologies (ICT) on the geographic concentration of manufacturing industries, controlling for other determinants of industrial agglomeration. Higher geographic concentration is found consistently in industries where ICT are more widely adopted, and the association is stronger at higher geographic levels. Furthermore, young firms that have adopted ICT, although they are more footloose, contribute to industrial agglomeration. High-tech industries with advanced ICT also tend to agglomerate. Contrary to the prevalent argument that ICT lead to more dispersion, our study suggests that ICT promote industrial agglomeration.
    Keywords: Information and communication technologies; Geographic concentration; Agglomeration
    JEL: R32 R12
    Date: 2008–03–08
  4. By: Stepan Jurajda; Katherine Terrell
    Abstract: Differences in regional unemployment in post-communist economies are large and persistent. We show that inherited variation in human-capital endowment across the regions of four such economies explains the bulk of regional unemployment variation there and we explore potential explanations for this outcome through related capital and labor mobility patterns. The evidence suggests that regions with high inherited skill endowments attract skilled workers as well as FDI. This mobility pattern, which helps explain the lack of convergence in regional unemployment rates, is consistent with the presence of complementarities in skill and capital. Nevertheless, we find no supporting evidence of human capital wage spillovers implied by the complementarities story. Unemployment of the least-skilled workers appears lower in areas with a higher share of college-educated labor and future research is needed to see if this finding as well as the observed migration pattern arise from different adjustments to regional shocks by education level brought about in part by Central European labor-market institutions, such as guaranteed welfare income raising effective minimum wages.
    Keywords: Unemployment, Human capital, Regional labor markets, Transition economies, Labor Mobility, Complementarities, Spillovers, Czech Republic, Hungary, Romania, Ukraine.
    JEL: E24 J0 J61
    Date: 2007–12
  5. By: Fu, Shihe
    Abstract: This study provides an initial empirical analysis on identifying the general relationship between housing values and the spatial distribution of same-sex couples across the U.S. The paper uses the 1990 and 2000 census 5% Public Use Microdata Samples and introduces the gay index into the social-amenity-based hedonic housing models. The results show significant correlation between the spatial concentration of same-sex couples and housing values; furthermore, housing values are higher in a city where the proportion of same-sex couples was higher a decade ago, suggesting that same-sex couples make better communities.
    Keywords: Same-sex couples; Hedonic housing model; Gentrification; Gay index
    JEL: J15 R31 R14
    Date: 2008–03–11
  6. By: Uwe Cantner (Friedrich-Schiller-University Jena, Department of Economics); Andreas Meder (Friedrich-Schiller-University Jena, Department of Economics)
    Abstract: In this paper we investigate the determinants of cooperative innovation and put our main focus on the regional or spatial and on the technological or sectoral dimension. We suggest a method to disentangle these two factors and to extract differential regional effects. The latter can be used to identify and evaluate the strength of regional innovation systems. Applying this method to German patent data we find evidence that regional differences in the degree of cooperative innovation are not only due to the technological/sectoral composition of the region but also due to a specific regional effect.
    Keywords: Cooperative innovation, regional innovation system, technological proximity, spatial proximity
    JEL: O31 P25 Q55
    Date: 2008–02–25
  7. By: Krupka, Douglas J. (IZA); Noonan, Douglas S. (Georgia Tech)
    Abstract: This paper examines the effects of a generous, spatially-targeted economic development policy (the federal Empowerment Zone program) on local neighborhood characteristics and on the neighborhood quality of life, taking into account the interactions amongst the policy, changes in neighborhood demographics and neighborhood housing stock. Urban economic theory posits that housing prices in a small area should increase as quality of life increases, because people will be more willing to pay to live in the area, but these changes in prices and quality of life will also affect the demographics of the population through sorting and the housing stock through reinvestment. Using census block-group-level data, we examine how housing prices respond to the Empowerment Zone policy intervention. Changes in the other dimensions of neighborhood quality (demographics and housing stock characteristics) will also help determine the total, or full effect on housing values of the policy intervention. This paper estimates these direct and indirect effects in a simultaneous equations setting, compares indirect and full effects, and examines the robustness of the effects to alternate estimation strategies. We find strong evidence for substantively large and highly significant direct price effects, while results suggest that the indirect effects are substantively small or even negative.
    Keywords: economic development, empowerment zones, porperty values, household mobility, sorting
    JEL: R0 R21 R31 R38 R58
    Date: 2008–01
  8. By: Safirova, Elena A. (Resources for the Future); Houde, Sébastien; Harrington, Winston
    Abstract: In this paper we evaluate and compare long-run economic effects of six road-pricing schemes aimed at internalizing social costs of transportation. In order to conduct this analysis, we employ a spatially disaggregated general equilibrium model of a regional economy that incorporates decisions of residents, firms, and developers, integrated with a spatially-disaggregated strategic transportation planning model that features mode, time period, and route choice. The model is calibrated to the greater Washington, DC metropolitan area. We compare two social cost functions - one restricted to congestion alone and another that accounts for other external effects of transportation. We find that when the ultimate policy goal is a reduction in the complete set of motor vehicle externalities, cordon-like policies and variable-toll policies lose some attractiveness compared to policies based primarily on mileage. We also find that full social cost pricing requires very high toll levels and therefore is bound to be controversial.
    Keywords: traffic congestion, social cost pricing, land use, welfare analysis, road pricing, general equilibrium, simulation, Washington DC
    JEL: Q53 Q54 R13 R41 R48
    Date: 2008–01–09
  9. By: Simon, Curtis; Tamura, Robert
    Abstract: This paper documents the existence of a negative cross-sectional correlation between the price of living space and fertility using U.S. Census data over the period 1940-2000. This correlation is not spurious, nor does it reflect the tendency of larger families to locate within less-expensive areas of a given metropolitan area. We examine the extent to which the results reflect the sorting of married couples across metropolitan areas on desired fertility. The relationship between the unit price of living space and fertility in fact tends to be more negative for households that have moved recently. However, the probability of migration between metropolitan areas is smaller for larger families, even those originating in more expensive cities. Moreover, Durbin-Wu-Hausman tests reveal only limited evidence of endogeneity. The weaker effects of the price of living space for less mobile couples seems to be at least in part a result of their choosing to live in less-expensive portions within a given metropolitan area.
    Keywords: price of space; fertility; metropolitan areas
    JEL: J13 R21
    Date: 2008–02–15
  10. By: Souleymane COULIBALY
    Abstract: The New Economic Geography literature claims that firms are ready to pay more tax in "big markets" because of agglomeration rents. Tax authorities can thus set higher tax rates in denser economic area, hence an opposite mechanism to the "race to the bottom" process described by the classical tax competition theory. The aim of this paper is to empirically assess the existence of such agglomeration rents. We use Swiss data on municipalities corporate income tax rates and firms location to test the tax gap between these municipalities and the most peripheral one using a theory-based relation. Our estimations indicate that municipalities with higher agglomeration rents (measured as the number of firms plus the "potential of neighboring firms") are setting higher corporate income tax rates, hence confirming the existence of taxable agglomeration rents.
    Keywords: agglomeration rents; tax competition; potential of neighboring firms
    JEL: C4 H2 R12
    Date: 2008–01
  11. By: Krupka, Douglas J. (IZA)
    Abstract: Whether people of differing types can live happily together is one of the most important social and political questions concerning urban areas. From a variety of theoretical perspectives, such mixing seems extremely unlikely. While the theoretical result seems well supported in the context of race, the evidence for income mixing is much less stark. Compared to the strict segregation predicted by the models (and embodied in the context of race), Americans live in economically diverse neighborhoods. While this has lead to some further theoretical experiments, the stability of this mixing has never been addressed as an empirical matter. It would be naïve to look at cross-sectional snapshots of income mixing as representing stable situations, since neighborhood change is a prevalent feature of American urban economies. This paper sketches out the empirical implications of slow transition towards the predicted equilibrium, and tests those implications. It is the first paper to directly evaluate the persistence and stability of mixed-income communities. The results are supportive of the three models of income segregation: income mixing appears to be unstable, although the adjustment process is slow. This work is of especial importance due to the focus mixed-income communities receive in the urban planning and policy.
    Keywords: mixed-income, urban policy, neighborhood dynamics, neighborhood change, sorting, segregation
    JEL: R14 R2 R11 R31 N9 O2
    Date: 2008–02
  12. By: Catalina Amuedo-Dorantes (Department of Economics, San Diego State University); Sara de la Rica (Depto. Fundamentos del Análisis Económico II, Universidad del País Vasco & IZA)
    Abstract: Using data from the Spanish Labor Force Survey (Encuesta de Población Activa) from 1999 through 2007, we explore the role of employment opportunities in explaining the growing immigrant flows of recent years. Subsequently, we investigate whether immigrant inflows have helped reduce regional employment disparities. Our results indicate that immigrants choose to reside in regions with higher employment rates for their particular skills. However, perhaps owing to its recent nature or the ability of the production infrastructure to absorb the increase in immigrant labor, immigration does not seem to have significantly helped employment convergence across regions.
    Date: 2007–11
  13. By: Zorlu, Aslan (University of Amsterdam)
    Abstract: In the last three decades, the population of Amsterdam has been ‘coloured’ due to immigration flows from abroad and a low outflow rate among these immigrants and their descendants. The question is to what extent differences in spatial mobility behaviour of migrants and natives are generated by neighbourhood characteristics – among which the level of ethnic segregation – and family ties? This article examines spatial mobility process of Amsterdam population using administrative individual data covering the entire population of the city. The analysis shows that Caribbean (Surinamese and Antillean) migrants have a higher probability of moving to suburbs while Moroccans and Turks tend to rearrange themselves within the city. The estimates reveal that neighbourhood ‘quality’ has only a modest impact on the probability of moving while family ties significantly hamper the out-mobility of all individuals. The impact of family ties is the largest for Turkish and Moroccan migrants.
    Keywords: migrants, residential mobility, family ties
    JEL: J1
    Date: 2008–02
  14. By: Berliant, Marcus; Watanabe, Hiroki
    Abstract: The methodology used by theories to explain the size distribution of cities takes an empirical fact and works backward to first obtain a reduced form of a model, then pushes this reduced form back to assumptions on primitives. The induced assumptions on consumer behavior, particularly about their inability to insure against the city-level productivity shocks in the model, are untenable. With either self insurance or insurance markets, and either an arbitrarily small cost of moving or the assumption that consumers do not perfectly observe the shocks to firms' technologies, the agents will never move. Even without these frictions, our analysis yields another equilibrium with insurance where consumers never move. Thus, insurance is a substitute for movement. Even aggregate shocks are insufficent to generate consumer movement, since consumers can borrow and save. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move.
    Keywords: Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory
    JEL: R12
    Date: 2008–03–09
  15. By: Patacchini, Eleonora (University of Rome La Sapienza); Zenou, Yves (Stockholm University)
    Abstract: We analyse the effect of strong and weak ties on the individual probability of finding a job. Using the dynamic model of Calvó-Armengol and Jackson (2004), two results are put forward: (i) the individual probability of finding a job is increasing in the number of strong and weak ties; (ii) the longer the length of ties, the lower is this effect. We approximate the social space by the geographical space. Ethnicity is the chosen dimension along which agents’ social contacts develop and, as a result, we use ethnic population density to capture social interactions within the given ethnic group. Using a panel of local authority-level data in England between 1993 and 2003, we find that (i) the higher the percentage of a given ethnic group living nearby, the higher the employment rate of this ethnic group; (ii) this effect decays very rapidly with distance, losing significance beyond approximately 90 minutes travel time.
    Keywords: ethnic minorities, social interactions, population density, weak and strong ties
    JEL: A14 C33 J15 R23
    Date: 2008–02
  16. By: Evers, Hans-Dieter
    Abstract: Urban involution has ended and a new urbanism has spread in Indonesia. The impact on the urban economy is investigated.
    Keywords: urabs economy; involution; Indonesia
    JEL: O18 N9
    Date: 2007
  17. By: Gonzalez, Libertad (Universitat Pompeu Fabra); Ortega, Francesc (Universitat Pompeu Fabra)
    Abstract: In recent years, Spain has received unprecedented immigration flows. Between 2001 and 2006 the fraction of the population born abroad more than doubled, increasing from 4.8% to 10.8%. For Spanish provinces with above-median inflows (relative to population), immigration increased the high school dropout population by 24%, while only increasing the number of college graduates by 11%. We study the different channels by which regional labor markets have absorbed the large increase in the relative supply of low educated (foreign-born) workers. We identify the exogenous supply shock using historical immigrant settlement patterns by country of origin. Using data from the Labor Force Survey and the decennial Census, we find a large expansion of employment in high immigration regions. Specifically, most industries in high-immigration regions experienced a large increase in the share of low-education employment. We do not find an effect on regions’ sectoral specialization. Overall, and perhaps surprisingly, Spanish regions have absorbed immigration flows in the same fashion as US local economies.
    Keywords: immigration, open economies, Rybcszynski, instrumental variables
    JEL: J2 F1 O3
    Date: 2008–01
  18. By: Mendez Ariel (Université de la Méditerranée); Ragazzi Elena (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (TO), Italy)
    Abstract: Industrial district are often described as systems of firms in static equilibrium, in which changes in the environment or in the power of stakeholders can break the cooperation mechanism and lead to the crisis and even death of the district. The authors analyse two industrial districts, Biella in Italy and Grasse in France, in which the worsening of competition has induced a deep evolution in the strategic behaviour of firms and in the asset of the district. Starting from this evidence they support the thesis that harder competition does not lead to a break in the district atmosphere, but to a change in its governance, in the mechanisms of interaction and level of commitment towards collective strategies.
    Keywords: industrial districts, cooperation, governance
    JEL: O18 R11
    Date: 2007–12
  19. By: Juessen, Falko (University of Dortmund)
    Abstract: Financial markets provide imperfect insurance of labor income risk. However, workers can partly insure against labor market risk by commuting to adjacent regions. Since commuters own wage claims to output produced in adjacent regions, the business cycle in the neighborhood becomes a relevant risk factor at the regional level. In our empirical analysis for US states, we show this effect to be important. State-specific consumption comoves with business cycle shocks that hit adjacent states, in particular if a state is integrated by commuter flows. This labor market perspective on regional risk sharing complements previous studies that investigated risk sharing through financial markets.
    Keywords: risk sharing, consumption smoothing, commuting, labor market risk
    JEL: E21 C33 R20
    Date: 2008–02
  20. By: Bayer, Christian (Bocconi University, Milan); Juessen, Falko (University of Dortmund)
    Abstract: This paper develops a tractable dynamic microeconomic model of migration decisions that is aggregated to describe the behavior of interregional migration. Our structural approach allows us to deal with dynamic self-selection problems that arise from the endogeneity of location choice and the persistency of migration incentives. Keeping track of the distribution of migration incentives over time has important consequences for the econometrical treatment, because the dynamics of this distribution influences the estimation of structural parameters, such as migration costs. For US interstate migration, we obtain a cost estimate of less than one-half of an average annual household income. This is substantially smaller than the migration costs estimated by previous studies. We attribute this difference to the treatment of the dynamic self-selection problem.
    Keywords: dynamic self-selection, migration, indirect inference
    JEL: C61 C20 J61 R23
    Date: 2008–02
  21. By: Michael Greenstone; Richard Hornbeck; Enrico Moretti
    Abstract: We quantify agglomeration spillovers by estimating the impact of the opening of a large new manufacturing plant on the total factor productivity (TFP) of incumbent plants in the same county. Articles in the corporate real estate journal Site Selection reveal the county where the "Million Dollar Plant" ultimately chose to locate (the "winning county"), as well as the one or two runner-up counties (the "losing counties"). The incumbent plants in the losing counties are used as a counterfactual for the TFP of incumbent plants in winning counties in the absence of the plant opening. Incumbent plants in winning and losing counties have economically and statistically similar trends in TFP in the 7 years before the opening, which supports the validity of the identifying assumption. After the new plant opening, incumbent plants in winning counties experience a sharp relative increase in TFP. Five years after the opening, TFP of incumbent plants in winning counties is 12% higher than TFP of incumbent plants in losing counties. Consistent with some theories of agglomeration, this effect is larger for incumbent plants that share similar labor and technology pools with the new plant. We also find evidence of a relative increase in skill-adjusted labor costs in winning counties, indicating that the ultimate effect on profits is smaller than the direct increase in productivity.
    JEL: J0 R0
    Date: 2008–03

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