nep-geo New Economics Papers
on Economic Geography
Issue of 2008‒04‒29
sixteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Empirical Growth Models Under The Spatial Effects: An Application to Turkey By Nazif Catik; Mehmet Guclu
  2. Economic Linkages Across Space By Overman, Henry G.; Rice, Patricia; Venables, Anthony J.
  3. "Consumption Side Agglomeration Economies in Japanese Cities" By Chisato Asahi; Satoshi Hikino; Yoshitsugu Kanemoto
  4. An Empirical Study about the Impact of Knowledge Accumulation on the Development of Regional Industry By Nobuo Kobayashi
  5. Can information asymmetry cause agglomeration? By Berliant, Marcus; Kung, Fan-chin
  6. A Model of Sequential City Growth By Cuberes, David
  7. Urban Expansion or Clustered Deconcentration? By Wouter Vermeulen; Jan Rouwendal
  8. Cities and Satellites: Spatial Effects and Unobserved Heterogeneity in the Modeling of Urban Growth By Colin Vance; Rich Iovanna
  9. Expert Opinion versus Transaction Evidence: Using the Reilly Index to Measure Open Space premiums in the Urban-Rural Fringe By Geerte Cotteleer; Tracy Stobbe; G. Cornelis van Kooten
  10. Explaining the size distribution of cities: x-treme economies By Berliant, Marcus; Watanabe, Hiroki
  11. Why Should Regional Agricultural Productivity Growth Converge? Evidence from Italian Regions By Roberto ESPOSTI
  12. Interregiona;Decomposition of labor productivity differences in China, 1987-1997 By Yang, Ling; Lahr, Michael/L
  13. Spatial Growth Volatility and Age-structured Human Capital Dynamics in Europe. By Mamata Parhi; Tapas Mishra
  14. A new way to link development to institutions,policies and geography By Sudip Ranjan Basu
  15. R&D and the agglomeration of industries By Jan Kranich
  16. The Contribution of Economic Geography to GDP Per Capita By Hervé Boulhol; Alain de Serres; Margit Molnar

  1. By: Nazif Catik (Department of Economics, Ege University); Mehmet Guclu (Department of Economics, Ege University)
    Abstract: In this study we analyze the regional development process in Turkey by using the two traditional regional empirical growth models, Neoclassical convergence equations and Post-Keynesian Verdoorn’s Law, for the period from 1990 to 2000 at the NUTS 3 level under the spatial effects. Evidence obtained from the convergence equations with non-spatial effects rejects the validity of both absolute and conditional convergence hypotheses, while spatial econometric models taking into account the interaction between the regions in the growth process reveal existence of a weak convergence between the regions of Turkey. The results indicate that regional development disparities and location significantly affect the growth process of the regions in Turkey. Verdoorn’s Law indicates that there is a strong positive relation between manufacturing productivity growth and output growth and hence, manufacturing industries are also subject to increasing returns to scale. However, spatial econometric models of Verdoorn equations show that there is no significant spillover effect to accelerate productivity growth in the regions. According to the results obtained from both specifications, interaction between the regions is so weak and limited. Therefore, we argue that it is inevitable to review regional policies in Turkey to reduce regional development disparities.
    Keywords: Spatial Econometrics, Regional Growth, Convergence, Verdoorn’s Law, Spillover Effects
    JEL: C51 R11 R15
    Date: 2007–12
  2. By: Overman, Henry G.; Rice, Patricia; Venables, Anthony J.
    Abstract: We develop a diagrammatic framework that can be used to study the economic linkages between regions or cities. Hitherto, such linkages have not been the primary focus of either the theoretical or empirical literatures. We use the framework to analyse the impact of shocks that occur in one region (eg productivity improvements or increases in housing supply) on other regions, highlighting the key adjustment mechanisms and their long run implications for incomes, the cost of living, and the spatial distribution of population. Our general approach provides a framework encompassing both the New Economic Geography and Urban Systems literatures. We link our approach to these literatures and review empirical studies that quantify the key mechanisms that we have identified.
    Keywords: New Economic Geography; Spatial linkages; Urban and regional policy; Urban systems
    JEL: R00 R58
    Date: 2008–04
  3. By: Chisato Asahi (Faculty of Urban Liberal Arts, Tokyo Metropolitan University); Satoshi Hikino (Faculty of Economics, University of Tokyo); Yoshitsugu Kanemoto (Faculty of Economics, University of Tokyo)
    Abstract: We estimate the consumption values of urban agglomeration economies and social overhead capital for Japanese metropolitan areas. Following the pioneering work of Tabuchi and Yoshida (2000), our approach exploits the fact that consumers tolerate higher living costs if they benefit from urban agglomeration economies and/or better social overhead capital. This living cost approach requires an appropriate measure of the representative living cost in a metropolitan area; however, it is not easy to estimate because housing prices vary widely within a metropolitan area. Tabuchi and Yoshida (2000) choose the average land price for commercial use as a measure of housing costs in a metropolitan area. Because the prices of residential land are typically much lower than those of commercial land, this might have resulted in biased estimates. We estimate bid rent functions for suburban municipalities within metropolitan areas to cope with the aggregation problem. According to our estimation results, the elasticity of the real wage with respect to city size is about -9.3% if we use the land price as the housing price variable and about -7.9% if we use housing rent data. These numbers are comparable to those obtained by Tabuchi and Yoshida (between -7% and -12% depending on the specification). Another finding is that social overhead capital in a municipality has much larger and more significant effects than city size: the elasticity of the real wage with respect to social overhead capital is about -24.4% in the housing rent estimation and about -45.7% in the land price estimation.
    Date: 2008–04
  4. By: Nobuo Kobayashi (School of Economics, Kwansei Gakuin University)
    Abstract: This study mainly investigated two issues: firstly, the existence of a positive relationship between the accumulation of knowledge stocks in regional industries and their value addition, and secondly, the spillover effects of knowledge stocks from the central cities to the surrounding regions, by using patent data as knowledge stock indicators. The empirical result suggests that there are positive impacts of knowledge accumulation to value addition, and there are positive spillover effects to the surrounding regions. The spillover effects are especially clearer when the creators of knowledge stocks are diversified in central cities, and when the industrial structure of surrounding regions is similar to the central cities.
    Keywords: knowledge accumulation, patent, spillover effect, regional industry
    JEL: O18 O34 R11 R15
    Date: 2008–05
  5. By: Berliant, Marcus; Kung, Fan-chin
    Abstract: The modern literature on city formation and development, for example the New Economic Geography literature, has studied the agglomeration of agents in size or mass. We investigate agglomeration in sorting or by type of worker, that implies agglomeration in size when worker populations differ by type. This kind of agglomeration can be driven by asymmetric information in the labor market, specifically when firms do not know if a particular worker is of high or low skill. In a model with two types and two regions, workers of different skill levels are offered separating contracts in equilibrium. When mobile low skill worker population rises or there is technological change that favors high skilled workers, integration of both types of workers in the same region at equilibrium becomes unstable, whereas sorting of worker types into different regions in equilibrium remains stable. The instability of integrated equilibria results from firms, in the region to which workers are perturbed, offering attractive contracts to low skill workers when there is a mixture of workers in the region of origin.
    Keywords: Adverse Selection; Agglomeration
    JEL: R13 R12 D82
    Date: 2008–04–22
  6. By: Cuberes, David
    Abstract: There is strong evidence showing that in most countries cities develop sequentially, with the initially largest cities being the first to grow. This paper presents a growth model of optimal city size that rationalizes this growth pattern. Increasing returns to scale is the force that favors agglomeration of resources in a city, and convex costs associated with the stock of installed capital represent the congestion force that limits city size. The key to generate sequential growth is the assumption of irreversible investment in physical capital. The presence of a positive external effect of aggregate city capital on individual firms makes the competitive equilibrium inefficient.
    Keywords: City Growth; Increasing Returns; Congestion Costs
    JEL: N90 O57 R12
    Date: 2008–02–16
  7. By: Wouter Vermeulen (CPB Netherlands Bureau for Economic Policy Analysis, The Hague); Jan Rouwendal (VU University Amsterdam)
    Abstract: How should urban containment and the diversion of households to nearby residential areas be evaluated from a welfare economic perspective? Assuming the existence of a negative externality of city size, we develop a concise general equilibrium model for a mother city and a satellite. This satellite should be founded if the gain in surplus exceeds the fixed costs of intercity infrastructure provision, and a Pigouvian tax on the conversion of land to urban use in both cities would then attain the first-best allocation. Rising incomes and falling transport costs enhance the surplus gain from ‘clustered deconcentration’, or the accommodation of growth in planned satellites, relative to expansion of the mother city. Nevertheless, plans by the Dutch government to uphold strict growth controls around Amsterdam, while fostering large-scale residential construction projects in the nearby satellite of Almere, are difficult to reconcile with the optimal policy in a calibrated version of our model.
    Keywords: land use regulation; growth controls; systems of cities; housing markets; applied general equilibrium
    JEL: R52 R13 R14
    Date: 2008–04–18
  8. By: Colin Vance; Rich Iovanna
    Abstract: The confluence of factors driving urban growth is highly complex, resulting from a combination of ecological and social determinants that co-evolve over time and space. Identifying these factors and quantifying their impact necessitates models that capture both why urbanization happens as well as where and when it happens. Using a database that links five satellite images spanning 1976–2001 to a suite of socioeconomic, ecological and GIS created explanatory variables, this study develops a spatial-temporal model of the determinants of built-up area across a 25,900 square kilometer swath across central North Carolina. Extensive conversion of forest and agricultural land over the last decades is modeled using the complementary log-log derivation of the proportional hazards model, thereby affording a means for modeling continuous- time landscape change using discrete-time satellite data. To control for unobserved heterogeneity, the model specification includes an error component that is Gamma distributed. Results confirm the hypothesis that the landscape pattern surrounding a pixel has a major influence on the likelihood of its conversion and, moreover, that the omission of external spatial effects can lead to biased inferences regarding the influence of other covariates, such as proximity to road. Cartographic and nonparametric validation exercises illustrate the utility of the model for policy simulation.
    Keywords: Urban growth, landscape pattern, satellite imagery, hazard model,North Carolina
    JEL: C41 Q15 R14
    Date: 2008–03
  9. By: Geerte Cotteleer; Tracy Stobbe; G. Cornelis van Kooten
    Abstract: Due to economic and population growth farmland and to a lesser extend other undeveloped areas are under pressure in the urban-rural fringe in British Columbia, Canada. The objectives of this paper are to determine if residential property values near Victoria, BC include open-space premiums for farmland, parks or golf courses, and to determine if using assessed values instead of market prices of the property result in the same findings. We estimate a Seemingly Unrelated Regression (SUR) model with two hedonic pricing equations, one with actual market values as the dependent variable and one with assessed property values, and compare the resulting estimates of shadow prices for open space amenities. Furthermore, we take account of spatial autocorrelation and combine Method of Moment estimates of the spatial parameters in both equations.
    Keywords: Hedonic pricing models, spatial dependence, assessed property values, open space.
    JEL: R14 R52 C21 Q20 H23
    Date: 2008–04
  10. By: Berliant, Marcus; Watanabe, Hiroki
    Abstract: We criticize the theories used to explain the size distribution of cities. They take an empirical fact and work backward to obtain assumptions on primitives. The induced theoretical 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. We propose an alternative class of models, involving extreme risk against which consumers will not insure. Instead, they will move, generating a Fréchet distribution of city sizes that is empirically competitive with other models.
    Keywords: Zipf's Law; Gibrat's Law; Size Distribution of Cities; Extreme Value Theory
    JEL: R12
    Date: 2008–04–23
  11. By: Roberto ESPOSTI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: The paper analyses agricultural TFP growth across Italian regions during the 1952-2002 period, and aims at identifying those factors that favour or hinder regional agricultural TFP growth convergence. Among them, idiosyncratic, R&D-spillover and learning components are included. Of major relevance is whether regions, despite their inescapable heterogeneity, tend to share common technological improvements, that is, to move along the same productivity growth rate TFP growth decomposition ultimately allows attributing observed productivity performance to convergence and divergence forces. Appropriate testing and estimation procedures are adopted to take into account panel unitroot issues and cross-sectional dependence.
    Keywords: TFP growth, convergence, panel data, spillover, unit root
    JEL: O13 O18 Q10 Q16
    Date: 2008–04
  12. By: Yang, Ling; Lahr, Michael/L
    Abstract: The literature on regional disparities in China is both broad and deep. Nonetheless much of its focus has been on the effects of trade liberalization and national policies toward investment in interior provinces. Few pieces have examined whether the disparities might simply be due to differences in industry mix, final demand, or even interregional trade. Using multiregional input-output tables and disaggregated employment data, we decompose change in labor productivity growth for seven regions of China between 1987 and 1997 into five partial effects—changes in value added coefficients, direct labor requirements, aggregate production mix, interregional trade, and final demand. Subsequently we summarize the contributions to labor productivity of the different factors at the regional level. In this way, we present a new perspective for recent causes of China’s interregional disparity in GDP per worker.
    Keywords: Decomposition; input-output analysis; productivity; regional disparity; China
    JEL: O1 C6 R11 O4
    Date: 2008–04–04
  13. By: Mamata Parhi; Tapas Mishra
    Abstract: In a semi-parametric spatial vector autoregressive setting this paper investigates the role of age-structured human capital on output comovements in Europe. Using the proportion of age-structured human capital growth and its degree of appropriations in output production as twin measures of distance, we find significant positive spatial growth volatility/persistence.
    Keywords: Spatial growth volatility, Non-linear growth, Age-structured human capital, Semi-parametric VAR.
    JEL: C14 C31 E61 J11 O47
    Date: 2008
  14. By: Sudip Ranjan Basu (IUHEI, The Graduate Institute of International Studies, Geneva)
    Abstract: The paper aims to examine the role of institutions relative to economic policy and geography in explaining the differential level of development across countries over time. To that end, it attempts to construct a Development Quality Index (DQI) and an Institutional Quality Index (IQI) by using multivariate statistical method of principal components. It shows that (i) higher level of IQI along with economic policy and geography factors lead to a positive improvement in the level of DQI; and (ii) results remain robust for IQI and relatively robust for economic policy and geography even when it is compared across cross-section and panel data estimation for a set of 102 countries over 1980 to 2004. The results strongly indicate that institutions matter in the context of specific economic policy mixes and geography related factors illustrated by disease burden, etc. It demonstrates that relative influence of institutions varies across stages of development.
    Keywords: Development, Institutions, Economic policy, Geography, Principal component, Instrumental variables, Panel data
    JEL: C3 O10 O57 P51 R11
    Date: 2008–03–01
  15. By: Jan Kranich (Leuphana Universität Lüneburg)
    Abstract: This paper discusses a model of the New Economic Geography, in which the seminal core-periphery model of Krugman (1991) is extended by endogenous research activities. Beyond the common ’anonymous’ consideration of R&D expenditures within fixed costs, this model introduces vertical product dierentiation, which requires services provided by an additional R&D sector. In the context of international factor mobility, the destabilizing eects of a mobile scientific workforce are analyzed. In combination with a welfare analysis and a consideration of R&D promoting policy instruments and their spatial implications, this paper makes a contribution to the so-called brain drain debate.
    Keywords: R&D, New Economic Geography, Vertical Dierentiation
    JEL: F12 F14 F17
    Date: 2008–04
  16. By: Hervé Boulhol; Alain de Serres; Margit Molnar
    Abstract: This paper examines how much of the dispersion in economic performance across OECD countries can be accounted for by economic geography factors. More specifically, two aspects of economic geography are examined, namely the proximity to areas of dense economic activity and endowments in natural resources. To do so, various indicators of distance to markets, transportation costs, and dependence on natural resources are added as determinants in an augmented Solow model, which serves as a benchmark. Three measures of distance to markets are found to have a statistically significant effect on GDP per capita: the sum of bilateral distances, market potential and the weighted sum of market access and supplier access. And the estimated economic impact is far from negligible. The reduced access to markets relative to the OECD average could contribute negatively to GDP per capita by as much as 10% in Australia and New Zealand. Conversely, a favourable impact of around 6-7% of GDP is found in the case of two centrally-located countries: Belgium and the Netherlands. Endowments in natural resources are also found to have a significant positive effect on GDP per capita, suggesting that OECD countries have, on average, escaped the natural resource curse or severe forms of the Dutch disease. The paper provides also some tentative evidence that spending on R&D and human capital might have a stronger effect on GDP per capita in countries with a higher degree of urban concentration. <P>La contribution de l’économie géographique au PIB par tête <BR>Ce papier analyse la contribution des facteurs géographiques à la dispersion des performances économiques entre pays de l’OCDE. Plus particulièrement, deux aspects de l’économie géographique sont étudiés : la proximité de zones denses d’activités économiques et les dotations en ressources naturelles. Pour se faire, divers indicateurs de distance par rapport aux marchés, de coûts de transports, et de dépendance envers les ressources naturelles sont ajoutés comme déterminants dans un modèle de Solow augmenté, utilisé comme référence. Trois mesures de distance sont estimées avoir un effet significatif sur le PIB par habitant : la somme des distances bilatérales, le potentiel de marché et la somme pondérée de l’accès aux marchés et de l’accès aux fournisseurs. De plus, l’impact économique estimé est loin d’être négligeable. L’éloignement par rapport aux marchés pourrait pénaliser l’Australie et la Nouvelle Zélande, par rapport à la moyenne des pays de l’OCDE, à hauteur d’environ 10% de PIB. A l’inverse, la Belgique et les Pays Bas bénéficieraient de leur position centrale pour environ 6-7% de PIB. Les dotations en ressources naturelles sont estimées avoir un effet positif significatif sur le PIB par habitant, suggérant que les pays de l’OCDE ont, en moyenne, échappé au fléau des ressources naturelles ou aux formes sévères de la maladie hollandaise. Des premières indications suggèrent également que les dépenses en R&D et en capital humain peuvent avoir un effet plus fort sur le PIB par tête dans les pays ayant un fort degré de concentration urbaine.
    Keywords: natural resources, ressources naturelles, distance
    JEL: F12 O40 Q30 R11
    Date: 2008–04–14

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