nep-geo New Economics Papers
on Economic Geography
Issue of 2008‒04‒12
thirteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Explaining the Variation in housing princes: an economic geography approach By Karolien De Bruyne; Jan Van Hove
  2. Estimating Agglomeration Economies with History, Geology, and Worker Effects By Combes, Pierre-Philippe; Duranton, Gilles; Gobillon, Laurent; Roux, Sébastien
  3. The Lifecycle of Regions By Audretsch, David B; Falck, Oliver; Feldman, Maryann P; Heblich, Stephan
  4. Urban Growth and Transportation By Duranton, Gilles; Turner, Matthew A
  5. Human capital differentials across municipalities and states in Brazil By Bernardo L. Queiroz; André B. Golgher
  6. From Cities to Productivity and Growth in Developing Countries By Duranton, Gilles
  7. Regional Competition in the European Union. By Filip Abraham
  8. Capacity cost structure, welfare and cost recovery: are transport infrastructures with high fixed costs a handicap? By De Borger B.; Dunkerley F.; Proost S.
  9. The interactin between tolls and capacity investment in serial and parallel transport networks By Bruno De Borger; Fay Dunkerley; Stef Proost
  10. Fiscal competition between decentralized jurisdictions, theoretical and empirical evidence By Clément Carbonnier
  11. Optimal Pricing for Urban Road Transport Externalities By Sara Ochelen; Stef Proost; Kurt Van Dender
  12. Asymmetric duopoly in space - what policies work? By Fay Dunkerley; André de Palma; Stef Proost
  13. Optimal location of new forests in a suburban region By Ellen Moons; Bert Saveyn; Stef Proost; Martin Hermy

  1. By: Karolien De Bruyne; Jan Van Hove
    Abstract: Housing prices vary geographically, even between municipalities. Local differences can be attributed to differences in incomes, demographic effects and real estate characteristics. This paper argues that one should additionally take into account the geographical location of municipalities. In particular, housing prices are affected by distance and travel-time to important economic centers offering jobs and extensive services. Following the economic geography literature, we develop a model showing the impact of geographical barriers on housing prices. We estimate this model on municipality-level housing prices for all 589 Belgian municipalities in 2001. We also differentiate between the two main regions of Belgium (Flanders and Wallonia) as both regions are characterized by political, economic and geographical differences. We distinguish between the attractive forces exercised by both the capital city Brussels and other regional clusters. Our empirical results confirm the expectations. Geographical barriers have significantly negative effects on housing prices. Nevertheless we find important differences between the regions and the means of transport considered.
    Date: 2008–03
  2. By: Combes, Pierre-Philippe; Duranton, Gilles; Gobillon, Laurent; Roux, Sébastien
    Abstract: Does productivity increase with density? We revisit the issue using French wage and TFP data. To deal with the ‘endogenous quantity of labour’ bias (i.e., urban agglomeration is consequence of high local productivity rather than a cause), we take an instrumental variable approach and introduce a new set of geological instruments in addition to standard historical instruments. To deal with the ‘endogenous quality of labour’ bias (i.e., cities attract skilled workers so that the effects of skills and urban agglomeration are confounded), we take a worker fixed-effect approach with wage data. We find modest evidence about the endogenous quantity of labour bias and both sets of instruments give a similar answer. We find that the endogenous quality of labour bias is quantitatively more important.
    Keywords: agglomeration economies; instrumental variables; TFP; wages
    JEL: R12 R23
    Date: 2008–02
  3. By: Audretsch, David B; Falck, Oliver; Feldman, Maryann P; Heblich, Stephan
    Abstract: Major economic transitions, even when they are disruptive, do not occur instantaneously but rather occur over time, as regions within a country change at different rates. Accordingly, these dynamics may be reflected in a geographic lifecycle with different regions characterized by different phases analogous to the industry lifecycle model. In accordance with this argument, this paper tests the hypothesis that regions can be characterized as evolving over a predictable and well-defined lifecycle: (1) an initial entrepreneurial phases where Jacobs externalities and inter-industry start-ups prevail; (2) a routinized phase where innovation takes place within top-performing incumbents; (3) a second entrepreneurial phase characterized by Marshall-Arrow-Romer externalities, leading to intra-industry start-ups in niches; and (4) a second phase of routinization, in which no further innovation takes place, but is instead a phase of structural change. Using data on 74 West German planning regions, we find compelling evidence of a spatial lifecycle.
    Keywords: entrepreneurship; innovation; knowledge externalities; regional development; spatial lifecycle
    JEL: O18 O31 R12
    Date: 2008–03
  4. By: Duranton, Gilles; Turner, Matthew A
    Abstract: We estimate the effects of major roads and public transit on the growth of major cities in the US between 1980 and 2000. We find that a 10% increase in a city’s stock of roads causes about a 2% increase in its population and employment and a small decrease in its share of poor households over this 20 year period. We also find that a 10% increase in a city’s stock of large buses causes about a 0.8% population increase and a small increase in the share of poor households over this period. To estimate these effects we rely on an instrumental variables estimation which uses a 1947 plan of the interstate highway system and an 1898 map of railroads as instruments for 1980 roads.
    Keywords: instrumental variables; public transport; transportation; urban growth
    JEL: L91 N70 R11 R49
    Date: 2008–01
  5. By: Bernardo L. Queiroz (Cedeplar-UFMG); André B. Golgher (Cedeplar-UFMG)
    Abstract: In this paper, we investigate the distribution of more educated and skilled people in Brazilian municipalities and states. Previous evidence shows a high concentration of college educated and high skilled workers in some areas of the country. We investigate whether the increase in the number of high skill workers is faster in municipalities with high initial levels of human capital than in municipalities with lower initial levels. We develop a theoretical model to explain the convergence/divergence of regional skill levels In Brazil. We estimate OLS models based on the theoretical model to explain empirically wage differentials in Brazil. Last, we compute standard segregation and isolation measures to show the trends in the distribution of skilled workers across states and cities in Brazil. We find that educated and qualified workers are concentrated in some areas of the country and recent decades show a higher concentration of them across states and cities.
    Keywords: human capital, segregation, regional differences, Brazil
    JEL: J21 J24 R23
    Date: 2008–03
  6. By: Duranton, Gilles
    Abstract: This paper reviews the evidence about the effects of urbanisation and cities on productivity and economic growth in developing countries using a consistent theoretical framework. Just like in developed economies, there is strong evidence that cities in developing countries bolster productive efficiency. Regarding whether cities promote self-sustained growth, the evidence is suggestive but ultimately inconclusive. These findings imply that the traditional agenda of aiming to raise within-city efficiency should be continued. Furthermore, reducing the obstacles to the reallocation of factors and activities, and more generally promoting the movement of human capital and goods across cities may have significant positive dynamic effects as well static ones.
    Keywords: cities in developing countries; growth; urbanisation
    JEL: O18 R11
    Date: 2008–01
  7. By: Filip Abraham
    Abstract: In the last decade, regional issues have gradually moved into the centre-stage of the debate on economic integration and international trade in Europe. The fading influence of the nation-state goes together with a transfer of sovereignty to the European level combined with a renewed interest in the region as a relevant economic unit. Regional authorities are welcoming this evolution as a new opportunity for greater regional autonomy. They are developing political and economic ties with other regions but are at the same time promoting the strategic interests of their own region. This twofold strategy draws a hesitant response from European Union (EU) regulators. They applaud the fact that economic integration strengthens regional complementarities and co-operation. But the increased regional competition raises the prospect of a greater use of policies that distort competition in an integrated economic area. Moreover, EU regional policies that seek convergence between high and low income regions would suffer from a systematic policy of the stronger regions to expand their influence at the expense of the weaker regions. From a theoretical point of view, those issues raise several questions that are addressed in this paper. What are the driving forces for regional complementarities and regional competition? How does economic integration affect regional competition ? What can "strategic" regional policy do to promote narrowly defined regional interests ? And how do EU-wide policies prevent distortions in regional competition? This paper addresses those theoretical questions based on the literature in international trade, regional agglomeration and multinational companies. Section 1 starts with a look at theories that predict regional convergence as the outcome of the regional integration process. Section 2 assesses recent theoretical contributions that focus on regional agglomeration and explore the regional consequences of multinational companies. In a third section, the scope for EU policies that prevent destructive regional competition is discussed.
    Date: 2008–03
  8. By: De Borger B.; Dunkerley F.; Proost S.
    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.
    Date: 2008–01
  9. By: Bruno De Borger; Fay Dunkerley; Stef Proost
    Abstract: The purpose of this paper is to compare the interaction between pricing and capacity decisions on simple serial and parallel transport networks. When individual links of the network are operated by different regional or national authorities, toll and capacity competition is likely to result. Moreover, the problem is potentially complicated by the presence of both local and transit demand on each link of the network. We bring together and extend the recent literature on the topic and, using both theory and numerical simulation techniques, provide a careful comparison of toll and capacity interaction on serial and parallel network structures. First, we show that there is more tax exporting in serial transport corridors than on competing parallel road networks. Second, the inability to toll transit has quite dramatic negative welfare effects on parallel networks. On the contrary, in serial transport corridors it may actually be undesirable to allow the tolling of transit at all. Third, if the links are exclusively used by transit transport, toll and capacity decisions are independent in serial networks. This does not generally hold in the presence of local transport. Moreover, it contrasts with a parallel setting where regional authorities compete for transit; in that case, regional investment in capacity leads to lower Nash equilibrium tolls.
    Keywords: congestion pricing, transport investment, transit traffic
    JEL: H23 H71 R41 R48
    Date: 2008–03
  10. By: Clément Carbonnier (THEMA - Université de Cergy-Pontoise, 33 boulevard du port, F 95011 Cergy-Pontoise cedex, France)
    Abstract: This article provides theoretical and empirical evidence that local fiscal competition generates a bias toward low business tax rates. Furthermore, it is shown that this bias is stronger for smaller jurisdictions. First, a theoretical model is settled with private and public capital and a fixed factor. The fixed factor allows to consider differences between the jurisdictions. The results show that there exists a bias toward low tax rates due to tax competition. This bias generates an underprovision of public capital, and therefore production is smaller with tax competition than with cooperation. Moreover, the bias toward low tax rates is stronger for jurisdictions with less fixed factor. That means that tax competition generates a larger production decrease for smaller jurisdictions. The empirical part aims at estimating the bias toward low tax rates and its dependency with respect to the fixed factor. Panel regressions with temporal and individual fixed effects of the tax rates are implemented with French local data, using the creation of intercity communities. The results indicate that the bias toward low local tax rates is strong: up to 23% decrease for the smaller cities. It is also significantly decreasing with respect to the city size: there is no tax rate decrease due to tax competition for the biggest cities.
    Keywords: Optimal taxation; Business taxes ; Tax competition ; Public capital; Firm location.
    JEL: H21 H25 H73 R12 R30
    Date: 2008
  11. By: Sara Ochelen; Stef Proost; Kurt Van Dender
    Abstract: A partial equilibrium model for the urban transport market is described. The urban transport market is represented as a set of interrelated transport submarkets, one per type of mode or vehicle and period. This allows to represent in detail the different external costs associated with the use of different modes: congestion, accidents, air pollution and noise. The model allows to find second best optima that combine optimally given pricing and environmental regulation instruments. The model is demonstrated for Brussels. For this city the welfare effects of alternative sets of instruments are compared.
    Date: 2008–03
  12. By: Fay Dunkerley; André de Palma; Stef Proost
    Abstract: In this paper we study the problem of a city with access to two subcentres selling a differentiated product. The first subcentre has low free flow transport costs but is easily congested (near city centre, access by road). The second one has higher free flow transport costs but is less prone to congestion (ample public transport capacity, parking etc.). Both subcentres need to attract customers and employees by offering prices and wages that are sufficiently attractive to cover their fixed costs. In the absence of any government regulation, there will be an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages offered by the two subcentres. This solution is typically characterised by excessive congestion for the nearby subcentre. We study the welfare effects of a number of stylised policies by setting up a general model and illustrating the model using competition between airports as an example. The first stylised policy is to extend the congested road to subcentre 1. This policy will not necessarily lead to less congestion as more customers will be attracted by the lower transport costs. The second policy option is to add congestion pricing (or parking pricing (etc.) for the congested subcentre. This will decrease its profit margin and attract more customers. The third policy is acceptable for politicians: providing a direct subsidy to the remote subcentre, reducing its marginal costs. This policy will again ease the congestion problem for the nearby subcentre but will do this in a very costly way.
    Keywords: duopoly, imperfect competition, congestion, general equilibrium, airport competition
    JEL: L13 D43 R41 R13
    Date: 2008–03
  13. By: Ellen Moons; Bert Saveyn; Stef Proost; Martin Hermy
    Abstract: This paper looks at the optimal location of new forests in a suburban region under area constraints. The GIS-based methodology takes into account use benefits such as timber, hunting, carbon sequestration and recreation, non-use benefits (both bequest and existence values), opportunity costs of converting agricultural land, as well as planting and management costs of the new forest. The recreation benefits of new forest sites are estimated using function transfer techniques. We show that the net social benefit of the total afforestation project may vary up to a factor 6, depending on the forest sites that are selected. We show that the recreation value of a forest site varies considerably with the available substitutes.
    Keywords: Benefit transfer, travel cost analysis, cost-benefit analysis, forest recreation, Geographical Information Systems (GIS)
    JEL: Q23 Q24 Q26 R14
    Date: 2008–03

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