nep-geo New Economics Papers
on Economic Geography
Issue of 2008‒03‒25
twenty-one papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Penetrating the Knowledge Filter in "Rust Belt" Economies By Zoltan Acs; Lawrence A. Plummer; Ryan Sutter
  2. The Geography and Determinants of Entrepreneurship By Jagannadha Pawan Tamvada
  3. Regional Wage Differentiation and Wage Bargaining Systems in the EU By Athanasios Vamvakidis
  4. Revealing Agglomeration Economies with Stochastic Frontier Modelling in the Finnish ICT Industry By Elina Berghäll
  5. Redes e polarização urbana e financeira: uma exploração inical para o Brasil By Marco Crocco; Ricardo Machado Ruiz; Anderson Cavalcante
  6. Capacity cost structure, welfare and cost recovery: are transport infrastructures with high fixed costs a handicap? By Bruno De Borger; Fay Dunkerley; Stef Proost
  7. Resource abundance and regional development in China: By Zhang, Xiaobo; Xing, Li; Fan, Shenggen; Luo, Xiaopeng
  8. Geography vs. Institutions at the Village Level By Grimm, Michael; Klasen, Stephan
  9. Export and Economic Growth: Analysis of the cities of the COREDE Serra - 1997-2004 By Galimberti, Jaqueson Kingeski; Caldart, Wilson Luís
  10. The role of clustering in rural industrialization: A Case Study of the Footwear Industry in Wenzhou By Huang, Zuhui; Zhang, Xiaobo; Zhu, Yunwei
  11. Policy Coordination in an Oligopolistic Housing Market. By Ana I. Saracho; José M. Usategui
  12. Spatial coordination in public good allocation: Nonparametric evidence from decentralized Indonesia By Yamauchi, Futoshi; Chowdhury, Shyamal; Dewina, Reno
  13. Urbanization, educational expansion, and expenditures inequality in Indonesia in 1996, 1999, and 2002: By Akita, Takahiro; Miyata, Sachiko
  14. Regional disparities in Ghana: Policy options and public investment implications By Al-Hassan, Ramatu M.; Diao, Xinshen
  15. Ad valorem housing subsidies may reduce house building. By José M. Usategui
  16. A Test of the Balassa-Samuelson Effect Applied to Chinese Regional Data By Stephen G Hall; Qian Guo
  17. Transport Infrastructure Investment and Demand Uncertainty By Stef Proost; Saskia van der Loo
  18. Housing market spillovers: Evidence from an estimated DSGE model By Matteo Iacoviello; Stefano Neri
  19. On the importance of borrowing constraints for house price dynamics By Eerola, Essi; Määttänen, Niku
  21. Location decisions and Minimum Wages By Isabelle Méjean; Lise Patureau

  1. By: Zoltan Acs (George Mason University; Max Planck Institute of Economics, Jena); Lawrence A. Plummer (Clemson University); Ryan Sutter (George Mason University)
    Abstract: A new model of economic growth introduces the knowledge filter between new generic knowledge and economically-useful knowledge. It identifies both the formation of new ventures and the absorptive capacity of incumbent firms as the mechanisms that penetrate the knowledge filter. Recent empirical work has shown that new firms are more proficient at penetrating the knowledge filter than are incumbent firms; however, the analysis has only examined expanding economies and has relied on purely cross-sectional regression methodologies. This study explores the role of new and incumbent firms in penetrating the knowledge filter utilizing recent developments in spatial panel estimation techniques to provide a more robust set of findings. The results suggest that new firms are more proficient at penetrating the knowledge filter in declining and growing regions alike.
    Keywords: Entrepreneurship, Knowledge, Regional Growth, Endogenous Growth
    JEL: L26 O1 O18 O3 R1
    Date: 2008–03–14
  2. By: Jagannadha Pawan Tamvada (Max Planck Institute of Economics, Jena)
    Abstract: Entrepreneurship literature (Parker 2004) has rarely considered spatial location as a micro-determinant of occupational choice, although there are compelling reasons to posit that spatial location influences economic behavior. Using Bayesian semiparametric methodologies and geoadditive techniques, we examine spatial location as a micro-determinant of self-employment choice of Indians, in addition to standard determinants such as age, gender and education. The empirical analysis suggests the presence of spatial occupational neighborhoods and a clear north-south divide in self-employment choice in India when individuals of agricultural and nonagricultural sectors are considered together; however, such spatial patterns are less pronounced when individuals in nonagriculture alone are considered in the analysis. These residual spatial patterns are found to be inversely related to the per-capita GDP of the region. The results further suggest nonlinear relationships between age, wealth and the probability of self-employment.
    Keywords: Entrepreneurship, Self-employment, Developing Countries, Bayesian Semiparametric Methods, Geoadditive Models
    JEL: J24 J43 J44 L26
    Date: 2008–03–20
  3. By: Athanasios Vamvakidis
    Abstract: The theoretical literature has argued that a centralized wage bargaining system may result in low regional wage differentiation and high regional unemployment differentials. The empirical literature has found that centralized wage bargaining leads to lower wage inequality for different skills, industries and population groups, but has not investigated its impact on regional wage differentiation. Empirical evidence in this paper for EU regions for the period 1980-2000 suggests that countries with more coordinated wage bargaining systems have lower regional wage differentials, after controlling for regional productivity and unemployment differentials.
    Keywords: Wage bargaining , European Union , Unemployment , Productivity ,
    Date: 2008–02–20
  4. By: Elina Berghäll
    Abstract: Agglomeration economies are sought with stochastic frontier methodology to analyse their role in the extraordinary productivity growth of the knowledge-intensive information and communication technology (ICT) equipment industry in Finland. Results suggest that the method, though imprecise, is useful for identifying developments in agglomeration economies. The main empirical result is that the highly increasing scale elasticities (i.e., relative to firm size) found in the sector are more industry and firm size related, than location related external economies of scale. Policy-wise, there are two neglected concerns: (i) Agglomeration economies have weakened with the industry life cycle, and the maturing of the underlying technology towards mass production is well under way in the industry, with R&D saving and labour using technical change. (ii) The deployment of R&D subsidies as instruments of regional policy may harm long term competitiveness in dispersing innovation intensive activities to low spillover areas and by disrupting the creation of persistent location-specific advantages.
    Keywords: Agglomeration, productivity, scale, technical change, efficiency
    Date: 2008–01–14
  5. By: Marco Crocco (UnB); Ricardo Machado Ruiz (Cedeplar-UFMG); Anderson Cavalcante (University of Cambridge)
    Abstract: This paper aims, in an exploratory way, to discuss the regional network of financial services in Brazil and its role in the configuration of the Brazilian urban network and its hierarchy. To achieve this objective, the paper, based on the seminal works of both CHRISTALLER (1966) and LÖSCH (1944/54), tries to understand how the process of spatial urban configuration works. Based on this framework it is possible to focus on the financial system, especially on the factors that determine the locational decision of financial institutions, aiming the building of a polarization system of the financial activities. The paper will adopt a adapted gravitation model to analyze the power of attraction of different financial centers based on diverse variables (credit, total assets, functional and structural diversification).
    Keywords: polarization, financial system, centrality, urban network
    JEL: R12 G20 O16
    Date: 2008–03
  6. By: Bruno De Borger; Fay Dunkerley; Stef Proost
    Abstract: In this paper, we consider a region that invests in infrastructure used by both local demand and through transport. We then compare transport systems that have, for a given capacity, the same total infrastructure cost but vary in the proportion of fixed costs and variable capacity costs. We show, first, that infrastructure which has (ceteris paribus) a higher share of fixed costs leads to higher welfare for the regional government building it. Contrary to what is commonly believed, it therefore requires less, rather than more, federal subsidies. Second, we find that, even for capacity characterized by, ceteris paribus, very high shares of fixed costs, financing of infrastructure is generally not an important issue as long as regions are allowed to toll through traffic. Third, if member states cannot toll through traffic, or if a federal authority (such as the EU or the USA) can impose pricing at the global marginal social cost, our analysis shows that this reduces investment incentives for the individual regions, and subsidies may be needed. We discuss the policy implications of these findings and illustrate all theoretical results numerically.
    Keywords: capacity cost structure, cost recovery, transport investment
    JEL: R41 R48
    Date: 2008–03
  7. By: Zhang, Xiaobo; Xing, Li; Fan, Shenggen; Luo, Xiaopeng
    Abstract: "Over the past several decades, China has made tremendous progress in market integration and infrastructure development. Demand for natural resources has increased from the booming coastal economies, causing the terms of trade to favor the resource sector, which is predominantly based in the interior regions of the country. However, the gap in economic development level between the coastal and inland regions has widened significantly. In this paper, using a panel data set at the provincial level, we show that Chinese provinces with abundant resources perform worse than their resource-poor counterparts in terms of per capita consumption growth. This trend that resource-poor areas are better off than resource-rich areas is particularly prominent in rural areas. Because of the institutional arrangements regarding property rights of natural resources, most gains from the resource boom have been captured either by the government or state owned enterprises. Thus, the windfall of natural resources has more to do with government consumption than household consumption. Moreover, in resource-rich areas, greater revenues accrued from natural resources bid up the price of non-tradable goods and hurt the competitiveness of the local economy." from Authors' Abstract
    Keywords: Regional inequality, Resource curse, Dutch disease, Property rights, Rural-urban linkages,
    Date: 2007
  8. By: Grimm, Michael (Institute of Social Studies); Klasen, Stephan (University of Göttingen)
    Abstract: There is a well-known debate about the roles of geography versus institutions in explaining the long-term development of countries. These debates have usually been based on cross-country regressions where questions about parameter heterogeneity, unobserved heterogeneity, and endogeneity cannot easily be controlled for. The innovation of Acemoglu, Johnson and Robinson (2001) was to address this last point by using settler mortality as an instrument for geography-induced endogenous institutions and found that this supported their line of reasoning. We believe there is value-added to consider this debate at the micro level within a country as particularly questions of parameter heterogeneity and unobserved heterogeneity are likely to be smaller than between countries. Moreover, at the micro level it is possible to identify more precise transmission mechanisms from geography via institutions to economic development outcomes. In particular, we examine the determinants of economic development across villages on the Indonesian Island of Sulawesi and find that geography-induced endogenous emergence of land rights is the critical institutional link between geographic conditions and technological change. We therefore highlight and empirically validate a new transmission channel from endogenously generated institutions on economic development.
    Keywords: geography, migration, land rights, institutions, technology adoption, agricultural development, Indonesia
    JEL: K11 O12 Q12
    Date: 2008–03
  9. By: Galimberti, Jaqueson Kingeski; Caldart, Wilson Luís
    Abstract: This paper aims to verify the existence of a relation between exports and the economic growth of the pertaining cities to the region of the COREDE Serra of the Rio Grande do Sul, for the period of 1997 to 2004. For this it is used the approach of the economic growth theory, specifically the model formulated by Feder (1983), in which exports positively affect the economic growth through two possible ways: positive externalities, and through the reallocation of resources for more productive activities. The results indicate that exports affect economic growth positively, and this effect is not consequence of externalidades, but only of the differential of productivity between the exporting sector and the not exporting one. The estimates had indicated that in the exporting sector the production factors are used 62.65% more productive than the remaining portion of the economy. Of this, it is concluded of the importance of promotional politics of the exports, also in municipal scope, as a form to stimulate the regional economic growth. Moreover, the estimates had allowed the verification of the existence of decreasing marginal incomes in the capital and labor factors of production for the sample of cities. Considering exports in set with the accumulated production factors it becomes possible to get constant economies of scale. The conclusion is that the efficiently use of the factors of production in the exporting sector allows to a compensation to the nature of decreasing marginal incomes of the accumulated production factors.
    Keywords: Economic growth; exports; regional economy; externalities
    JEL: O41 F43 R11
    Date: 2007–09–20
  10. By: Huang, Zuhui; Zhang, Xiaobo; Zhu, Yunwei
    Abstract: "Wenzhou used to be one of the poorest regions in eastern China. With limited arable land, poor road access to major cities, and little support from the upper level governments, this region seemed to lack all the conditions necessary for economic growth. However, over the past several decades Wenzhou has developed the most dynamic private sector in China, and has accordingly achieved one of the fastest growth rates. In particular, the footwear industry in Wenzhou has grown from a negligible market share to the largest in China. Here, we report a survey of 140 Wenzhou-based footwear enterprises of various scales, and use this information to examine the driving forces behind the dramatic rural industrial growth seen in this region. Our results show that clustering deepens the division of labor in the production process and makes it possible for small entrepreneurial firms to enter the industry by focusing on a narrowly defined stage of production. Therefore, Wenzhou represents an example of how clustering plays a significant role in helping fledgling rural industries overcome the growth constraints of capital and technology in the incipient stage of industrialization." from Authors' Abstract
    Keywords: Cluster analysis, Industrialization, Finance, Economic development, Nonfarm economy,
    Date: 2007
  11. By: Ana I. Saracho (The University of the Basque Country); José M. Usategui (The University of the Basque Country)
    Abstract: This paper analyzes the consequences of the interaction between two different levels of government (regulators) in the development of housing policy when their decisions determine the level of competition in the housing market. The analysis discusses the implications derived from a lack of coordination between a local regulator who controls the supply of land for housing development and a central regulator who decides on housing subsidies. The results suggest that lack of coordination has significant effects on prices and supply of houses, housing developers' profits, and buyers' surplus.
    Keywords: Imperfect competition, housing policy coordination
    JEL: L L
    Date: 2008–03–14
  12. By: Yamauchi, Futoshi; Chowdhury, Shyamal; Dewina, Reno
    Abstract: "This paper examines dynamics in public good accessibility and cross-community inequality in Indonesia, using village-level panel data from 2000 to 2006 from their decentralized public-good allocation system. The introduction of decentralization makes public-good investment dependent on initial local income and endowment, and makes it difficult to coordinate investment decisions across communities. Our analysis also shows that possible strategic interactions among communities connected with transportation infrastructure (externalities) implies spatial divergence. Empirical evidence on education and heath facilities, however, demonstrates that during the decentralized period, (1) accessibility to school has improved and school investments were effectively coordinated over space; (2) hospital access has improved only marginally; but (3) per-capita availability of schools and local medical clinics (puskesmas) in the community shows convergence toward low-level equilibria. Despite the coordination in spatial allocation even in the decentralization period (observed in intervillage accessibility), endogenous population mobility and growth partially cancel the benefits of the coordinated efforts in public-good allocation. This point requires further policy attention." from Authors' Abstract
    Keywords: Public goods, Education, health, Spatial coordination, Poverty dynamics,
    Date: 2007
  13. By: Akita, Takahiro; Miyata, Sachiko
    Abstract: "This paper considers urban-rural location and education as the main causes of expenditure inequality and attempts to examine inequality changes associated with urbanization and educational expansion in Indonesia from 1996 to 2002, using Indonesian monthly household consumption expenditure data. It introduces a hierarchical framework of inequality decomposition by population subgroups, which enables researchers to analyze inequality resulting from differences in educational attainment as well as inequality within each educational group, after the effects on inequality of urban–rural differences in the composition of educational attainments are removed. It finds that the urban sector's higher educational group contributes significantly to overall inequality. Inequality within the group increased significantly once Indonesia recovered from the financial crisis of 1998. This, together with educational expansion in urban areas, led to a conspicuous rise in urban inequality. Overall expenditure inequality has increased markedly, due not only to the rise in urban inequality but also a widening urban-rural disparity, accompanied by a population shift from the rural to the urban sector. Since more people will obtain higher education as the economy continues to develop, and more jobs requiring specialized skills become available in urban areas, urban inequality is likely to remain high. In order to mitigate urban inequality and thus overall inequality, the government needs to introduce policies that could reduce inequality among households whose heads have a tertiary education." from Authors' Abstract
    Keywords: Expenditure inequality, Urbanization, Educational expansion, Theil index, Two-stage nested inequality decomposition analysis, Public investment,
    Date: 2007
  14. By: Al-Hassan, Ramatu M.; Diao, Xinshen
    Abstract: "The development pattern in Ghana is characterised by a north-south divide in which the north lags far behind the south... This paper sets out to identify avenues for pro-poor growth in Ghana, focussing on agricultural opportunities, particularly in northern Ghana. Using an economywide, multimarket model and based on time series production data between 1991 and 2000 and Ghana Living Standards Survey data of 1991/92 and 1998/99, this paper analyzes the possible poverty reduction trends up to 2015 by assuming different patterns of growth. The results show that agriculture-led growth has a larger poverty reducing effect than nonagriculture-led growth... A review of the literature shows that while the north generally is a net migration area, the rewards of migration have been limited because people who migrate have no skills and are, therefore, limited to entering the informal job market where wages are low. The implication is to enhance this labour with education and skills. Ultimately, the regions must attract production investment to boost economic activity and generate local growth. The state must play a leading role in investing in productive and social infrastructure as a way of facilitating the environment for private sector operators.: from Authors' Abstract
    Keywords: Pro-poor growth, Pro-poor policies, Regional inequality, Poverty reduction, Agricultural growth, Economywide modeling, Public investment,
    Date: 2007
  15. By: José M. Usategui (The University of the Basque Country)
    Abstract: In this paper it is shown that an ad valorem housing subsidy set by a central regulator (or a raise in the ad valorem housing subsidy rate) may reduce the number of houses built in the market and increase the price paid by the buyers of houses. The analysis considers a situation where there is imperfect competition in the housing market and a local regulator that decides on density, or on the number of sites for housing development, and that cares about a combination of the profits of housing developers and the surplus of buyers of houses.
    Keywords: Housing subsidies, imperfect competition, price of houses.
    JEL: L L R
    Date: 2008–03–14
  16. By: Stephen G Hall; Qian Guo
    Abstract: In this paper we investigate the relevance of the Balassa-Samuelson effect to the determination of regional inflation in China, for the period 1985 – 2000. To do this, we first construct annual measures of Chinese inflation and industry input on regional and sectoral basis. Then we generalize the Asea and Mendoza (1994) settings to consider asymmetric productivity shocks across sectors. Testing this model on Chinese Regional Data aid of non-stationary panel data techniques, it shows that our extended theoretical model is a good empirical representation of the Chinese data which supports the Balassa- Samuelson effect. Moreover, we are able to test the Asea and Mendoza (1994) version of our general model and find that the restrictions are rejected.
    Date: 2008–03
  17. By: Stef Proost; Saskia van der Loo
    Abstract: In transportation planning there can be long lead times to adapt capacity. This paper addresses two questions. First, in a one mode world (say rail or road), what is the optimal capacity choice when faced with uncertain demand, long lead times and congestion. Using a simple analytical model it is shown that when demand is inelastic, it is socially optimal to invest more than if only the expected level of demand is taken into account. In this case it may be beneficial to overinvest in capacity because congestion costs are a convex function of relative use. This result holds with or without optimal tolling. The second question deals with two competing modes and where only one mode has long lead times for capacity while the other has flexible capacity. This is typical for the competition between High Speed Rail and air for the medium distance trips (500 to 1000 km), or for the competition between inland waterways and trucks for freight. We find that overinvestment is less justified because the substitute mode can more easily absorb the high demand outcomes.
    Keywords: transport infrastructure, uncertainty, investments
    JEL: R41 R42
    Date: 2008–03
  18. By: Matteo Iacoviello (Boston College); Stefano Neri (Bank of Italy, Economics and International Relations)
    Abstract: The ability of a two-sector model to quantify the contribution of the housing market to business fluctuations is investigated using U.S. data and Bayesian methods. The estimated model, which contains nominal and real rigidities and collateral constraints, displays the following features: first, a large fraction of the upward trend in real housing prices over the last 40 years can be accounted for by slow technological progress in the housing sector; second, residential investment and housing prices are very sensitive to monetary policy and housing demand shocks; third, the wealth effects from housing on consumption are positive and significant, and have become more important over time. The structural nature of the model allows identifying and quantifying the sources of fluctuations in house prices and residential investment and measuring the contribution of housing booms and busts to business cycles.
    Keywords: House prices, Collateral Constraints, Bayesian methods, Two-sector Models
    JEL: E32 E44 E47 R21 R31
    Date: 2008–01
  19. By: Eerola, Essi (University of Helsinki and HECER); Määttänen, Niku (The Research Institute of the Finnish Economy)
    Abstract: We study how a household borrowing constraint the the form of a down payment requirement affects house price dynamics in an OLG model with standard preferences. We find that in certain situations the borrowing constraint shapes house price dynamics substantially. The importance of the constraint depends very much on whether house price changes are driven by interest rate or aggregate income shocks. Moreover, because of the borrowing constraint, house price dynamics display substantial asymmetries between large positive and large negative income shocks. These results are related to the fact that the share of borrowing-constrained households is different following different shocks.
    Keywords: house prices; dynamics; borrowing constraints; down payment constraint
    JEL: E21 R21
    Date: 2008–03–17
  20. By: ranjan, sharad
    Abstract: The evidence of diversification of rural employment in India structure away from farm to non-farm activities has attracted a lot of interest among researchers. But a few empirical studies have been made of such developments in the state of Uttar Pradesh (UP). The present study takes into account the latest data available on the subject relating to the state of UP. The study investigates whether the employment shift from farm sector towards the non-farm sector arises out of prosperity-induced factors or distress-induced factors. It examines employment pattern at various levels such as sectoral distribution, mode of employment in terms of self-employed or wage earners, rewards of their labour and productivity levels of the ubiquitous unorganised sector. Such an investigation carried out from various perspectives led to conclusive evidence showing that distress-push factors were predominant in driving workers to non-farm employment. Further, it records also the impact on rural non-farm employment, of various factors such as land ownership, education and their caste affiliation. Low level of their education and their status as landless earners devoid of capital resources suggest broad distress-induced circumstances of non-farm workers.
    JEL: R11
    Date: 2007–11–25
  21. By: Isabelle Méjean (CEPII, 9 rue G. Pitard, 75015 Paris, France); Lise Patureau (THEMA, University of Cergy-Pontoise, 33, boulevard du Port, 95011 Cergy-Pontoise Cedex, France)
    Abstract: The paper contributes to the living debate on the controversial effects of minimum wage policy on economic performances, focusing on its impact on firms’ location choice. The question is investigated through a theoretical model, that incorporates features from the new trade literature (Krugman (1991)) and the labor-market literature. In a two-country framework, we model endogenous entry of firms under wage rigidity. In this setting, the impact of an unilateral increase in the home country’s minimum wage is analyzed. The policy shock is shown to have a twofold influence on the relative attractiveness of the home country, simultaneously affecting its relative cost competitiveness and the aggregate demand addressed to firms. Both effects do not necessarily go in the same direction, hence the final effect on firms’ location decisions is ambiguous. We show that it notably depends on the adjustments that occur on the skilled and unskilled labor markets. Our overall results suggest that the design of labor-market policies should take into account their impact on firms’ location decisions, if willing to evaluate their whole consequences in the national economy.
    Keywords: Minimum wage, Home Market Effect, Firms location decisions
    JEL: F12 F16 F21
    Date: 2008

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