nep-geo New Economics Papers
on Economic Geography
Issue of 2008‒07‒30
eighteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. On Amenities, Natural Advantage and Agglomeration By Krupka, Douglas J.
  2. Evolution of the influence of geography on the location of production in Spain (1930-2005) By Chasco, Coro; López, Ana María
  3. Agglomeration within and between regions: Two econometric based indicators By Valter Di Giacinto; Marcello Pagnini
  4. How Does Industry Specialization Affect the Efficiency of Regional Innovation Systems? By Michael Fritsch; Viktor Slavtchev
  5. Higher Education, the Health Care Industry, and Metropolitan Regional Economic Development: What Can “Eds & Meds” Do for the Economic Fortunes of a Metro Area’s Residents? By Timothy J. Bartik; George Erickcek
  6. Predicting House Prices with Spatial Dependence: Impacts of Alternative Submarket Definitions By Steven C. Bourassa; Eva Cantoni; Martin Hoesli
  7. Area Regeneration and Tourism Development. Evidence from Three European Cities By Jan van der Borg; Antonio Russo
  8. Housing Supply and Housing Bubbles By Edward L. Glaeser; Joseph Gyourko; Albert Saiz
  9. The Agglomeration of US Ethnic Inventors By William R. Kerr
  10. Unequal Access to Higher Education in the Czech Republic: The Role of Spatial Distribution of Universities By Michal Franta; Martin Guzi
  11. The Geography of Economics and Happiness By Luca Stanca
  12. Crime does pay (at least when it’s violent)!– On the compensating wage differentials of high regional crime levels By Nils Braakmann
  13. Centralized Wage Determination and Regional Unemployment Differences: The Case of Italy By Caponi, Vincenzo
  14. Impact Analysis of Regional Knowledge Subsidy: a CGE Approach By Giorgio Garau; Patrizio Lecca
  15. Price level convergence, purchasing power parity and multiple structural breaks: An application to US cities By Syed A. Basher; Josep Lluis Carrión-i-Silvestre
  16. Does Distance Determine Who Attends a University in Germany? By C. Katharina Spieß; Katharina Wrohlich
  17. Political institutions and suicide: A regional analysis of Switzerland By Justina AV Fischer; Antonio Rodriguez-Andrés
  18. The Circular City with Heterogeneous Firms By Marco Alderighi; Claudio A. Piga

  1. By: Krupka, Douglas J. (IZA)
    Abstract: A prominent feature of economic geography in America is the positive correlation amongst local incomes, housing costs and city population. This paper embeds a “black box” agglomeration economy within a more neoclassical general equilibrium model of local wages, rents and population to assess the ability of various conceptual models to predict this cross-sectional variation. I use exogenous changes in housing supply to induce changes in population and examine whether the changes in rents and wages move in the same direction under neo-classical assumptions, agglomeration economies in production, congestion in production, or urbanization economies in consumption. On their own, none of these urban scale effects generate the observed pattern. All urban scale effects generate a negative correlation between rents and population. Combining natural advantage with the urban scale effects improves the models’ output. It generally predicts positive correlations amongst the three variables, although some of these effects are ambiguous in the production agglomeration model. If natural advantage and housing supply constraints vary more-or-less independently, the results suggest a better fit of the data is provided by either the congestion in production or the agglomeration in consumption models. The micro-economics of such consumption-oriented agglomeration economies have received less attention than production-oriented agglomeration economies. The results of this model thus suggest that consumption-oriented agglomeration and congestion should receive more attention in the future.
    Keywords: agglomeration, urbanization economies, congestion, regional equilibrium, natural advantage, economic geography
    JEL: D5 J31 R12 R13 R23 R31
    Date: 2008–07
  2. By: Chasco, Coro; López, Ana María
    Abstract: In this paper, we investigate the relative importance of geographic features on the location of production in Spain. Specifically, we want to quantify how much of the spatial pattern of GDP can be attributed to only exoge-nous first nature elements (physical and political geography) and how much can be derived from endogenous second nature factors (man-made agglomeration economies). In order to disentangle both effects empiri-cally, and to learn how they are interrelated, we control for second nature. We use a methodology based on an analysis of variance (ANOVA), which is applied to a panel of 47 Spanish provinces in the period 1930-2005. We demonstrate that results can be biased if spatial autocorrelation and spatial heterogeneity, as well as multicollinearity and endogeneity, are not prop-erly taken into account. In the Spanish case, we detect strong spatial het-erogeneity in the form of two main clusters. As expected, gross second na-ture forces are more important than net natural advantages, though their effects range from about 55% in the hinterland to 80% in the coast.
    Keywords: Agglomeration; Geography; Spatial Heterogeneity; Endogeneity; Spanish Regions
    JEL: R12 C21
    Date: 2008–02–03
  3. By: Valter Di Giacinto (Bank of Italy, LÂ’Aquila Branch, Economic Research Unit); Marcello Pagnini (Bank of Italy, Bologna Branch, Economic Research Unit)
    Abstract: We propose two indexes to measure the agglomeration forces acting within and between different regions. Unlike the existing measures of agglomeration, our model-based indexes allow for simultaneous treatment of both aspects. Local plant diffusion in a given industry is modelled as a spatial error components process (SEC). Maximum likelihood inference on model parameters is dealt with, including the problem of data censoring. The statistical properties of standard agglomeration indexes in the data environment provided by our SEC model are then treated. Finally, our methodology is applied to Italian census data for both manufacturing and service industries.
    Keywords: agglomeration, spatial autocorrelation, spatial error components model
    JEL: R12 L70 C19
    Date: 2008–06
  4. By: Michael Fritsch (Friedrich-Schiller-University Jena, Faculty of Economics and Business Administration; Max Planck Institute of Economics, Jena, Germany); Viktor Slavtchev (Max Planck Institute of Economics, Jena, Germany)
    Abstract: This study analyzes the relationship between the specialization of a region in certain industries and the efficiency of the region in generating new knowledge. The efficiency measure is constructed by relating regional R&D input and output. An inversely u-shaped relationship is found between regional specialization and R&D efficiency, indicating the presence of externalities of both Marshall and Jacobs’ type. Further factors influencing efficiency are spillovers within the private sector as well as from public research institutions. The impact of both the specialization and the additional factors is, however, different for regions at different efficiency levels.
    Keywords: Efficiency, innovation, spillovers, patents, regional analysis.
    JEL: O31 O18 R12
    Date: 2008–07–17
  5. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research); George Erickcek (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper examines the effects of expansions in higher educational institutions and the medical service industry on the economic development of a metropolitan area. This examination pulls together previous research and provides some new empirical evidence. We provide quantitative evidence of the magnitude of economic effects of higher education and medical service industries that occur through the mechanism of providing some export-base demand stimulus to a metropolitan economy. We also provide quantitative evidence on how much higher education institutions can boost a metropolitan economy through increasing the educational attainment of local residence. We estimate that medical service industries pay above average wages, holding worker characteristics constant, whereas the higher education industry pays below average wages; the wage standards of these industries may affect overall metropolitan wages. We also discuss other mechanisms by which these two industries may boost a metropolitan economy, including: increasing local amenities, generating R&D spillovers, increasing the rate of entrepreneurship in local businesses, and helping provide local leadership on development and growth issues. Finally, the paper discusses possible effects of these two industries on disparities between the central city and suburbs in a metropolitan area.
    Keywords: higher, education, medical, service, industry, regional, economic, development
    JEL: R58 R11 R23 R53
    Date: 2007–02
  6. By: Steven C. Bourassa (University of Louisville, School of Urban and Public Affairs); Eva Cantoni (University of Geneva, Departement of Econometrics); Martin Hoesli
    Abstract: We analyze the impacts of alternative submarket definitions when predicting house prices in a mass appraisal context, using both ordinary least squares (OLS) and geostatistical techniques. For this purpose, we use over 13,000 housing transactions for Louisville, Kentucky. We use districts defined by the local property tax assessment office as well as a classification of census tracts generated by principal components and cluster analysis. We also experiment with varying numbers of census tract groupings. Our results indicate that somewhat better results are obtained with more homogeneous submarkets. Also, the accuracy of house price predictions increases as the number of submarkets is increased, but then quickly levels off. Adding submarket variables to the OLS model yields price predictions that are as accurate as when geostatistical methods are used to account for spatial dependence in the error terms. However, using both dummy variables for submarkets and geostatistical methods leads to significant increases in accuracy.
    Keywords: spatial dependence, hedonic price models, geostatistical models, mass appraisal, housing submarkets.
    JEL: C11 D58 D84 D91
    Date: 2008–01
  7. By: Jan van der Borg (Department of Economics, University Of Venice Ca’ Foscari); Antonio Russo (University Rovira i Virgili, Tarragona, Spain)
    Abstract: This paper discusses a key issue in the framework of modern urban development policies: the role of cultural tourism in processes of urban transformation. The analysis focuses specifically on how the emphasis on the symbolic in the restructuring of certain areas of the city may function like a spinwheel for the regeneration of urban economies, and on the stability of this process. The paper presents the cases of three European cities -Barcelona, Manchester and Rotterdam-, all of which are believed to be templates in cultural planning, and have been successful, to different extents, as tourism destinations. In the three cities, the peculiar relationship between area renewal through cultural development projects and tourism has unravelled in different ways that are revelatory of structural, as well as contingent, differences in tourism policy organisation and contexts, and that present different challenges for the future.
    JEL: O52 R00 R58 Z10
    Date: 2008
  8. By: Edward L. Glaeser; Joseph Gyourko; Albert Saiz
    Abstract: Like many other assets, housing prices are quite volatile relative to observable changes in fundamentals. If we are going to understand boom-bust housing cycles, we must incorporate housing supply. In this paper, we present a simple model of housing bubbles that predicts that places with more elastic housing supply have fewer and shorter bubbles, with smaller price increases. However, the welfare consequences of bubbles may actually be higher in more elastic places because those places will overbuild more in response to a bubble. The data show that the price run-ups of the 1980s were almost exclusively experienced in cities where housing supply is more inelastic. More elastic places had slightly larger increases in building during that period. Over the past five years, a modest number of more elastic places also experienced large price booms, but as the model suggests, these booms seem to have been quite short. Prices are already moving back towards construction costs in those areas.
    JEL: G12 R1 R31
    Date: 2008–07
  9. By: William R. Kerr (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: The ethnic composition of US inventors is undergoing a significant transformation - with deep impacts for the overall agglomeration of US innovation. This study applies an ethnic-name database to individual US patent records to explore these trends with greater detail. The contributions of Chinese and Indian scientists and engineers to US technology formation increase dramatically in the 1990s. At the same time, these ethnic inventors became more spatially concentrated across US cities. The combination of these two factors helps stop and reverse long-term declines in overall inventor agglomeration evident in the 1970s and 1980s. The heightened ethnic agglomeration is particularly evident in industry patents for high-tech sectors, and similar trends are not found in institutions constrained from agglomerating (e.g., universities, government).
    Keywords: Agglomeration, Innovation, Research and Development, Patents, Scientists, Engineers, Inventors, Ethnicity, Immigration.
    JEL: F15 F22 J44 J61 O31
    Date: 2008–07
  10. By: Michal Franta; Martin Guzi
    Abstract: The Czech Republic exhibits high geographical variation of both human capital and universities. We examine a potential source of human capital spatial disparities: the unequal access to tertiary education caused by the absence/presence of a local university. We model both a secondary school graduate’s decision whether to apply to a university and a university’s decision about admission. Two possible sources of unequal access to university study are distinguished: cost savings and informational advantages for those residing close to a university. Estimation results suggest that the local neighborhood having a highly educated population, rather than the presence of a university per se, has a positive effect on a secondary school graduate’s decision to apply. Moreover, we find that heterogenous information plays a significant role in admission to university.
    Keywords: Human capital, spatial distribution, access to tertiary education.
    JEL: I20 I21 J24
    Date: 2008–03
  11. By: Luca Stanca
    Abstract: This paper investigates the spatial pattern of the e®ects of eco- nomic conditions on subjective well-being, using a large sample of in- dividuals from 81 countries throughout the world. We ¯nd evidence of substantial spatial heterogeneity and spatial dependence in the cross- country distribution of the e®ects of income and unemployment on happiness. We examine the impact of macroeconomic conditions on country-level sensitivities of subjective well-being to microeconomic conditions. The e®ect of income on well-being is found to be signif- icantly stronger in countries with lower GDP per capita and higher unemployment rate. The e®ect of unemployment on well-being is in- stead signi¯cantly stronger in countries with higher GDP per capita and higher unemployment rate.
    Keywords: subjective well-being, economic geography, spatial econometrics
    JEL: A12 D12 I31
    Date: 2008–06
  12. By: Nils Braakmann (Institute of Economics, Leuphana University of Lüneburg)
    Abstract: This paper investigates whether high regional crime levels lead to a compensating wage differential paid by firms in the respective region. Using data from German social security records and official police statistics for 2003 to 2006, we consider both violent and non-violent crimes and use three-way error-components estimators to control for individual and regional heterogeneity. Our findings suggest a positive and rather large compensating differential for the risk of falling victim to a violent crime while no such effect exists for other criminal activities. However, our results also suggest that the wage effects for most individuals are rather small due to small variation in the crime rates.
    Keywords: Compensating wage differentials, crime, three-way error-components model
    JEL: J31
    Date: 2008–07–21
  13. By: Caponi, Vincenzo (Ryerson University)
    Abstract: This paper addresses the problem of the dualism of the Italian economy, particularly of its labor market. Although the Italian labor market is considered to be the most highly regulated among OECD countries, the unemployment rate in the North, which represents two thirds of the whole economy, is one of the lowest in Europe. In contrast, the South faces an unemployment rate between two to five times higher than the North. GDP per capita is also twice in the North than in the South, while nominal wages do not differ substantially across regions. Finally internal migration is the lowest among European countries since the middle seventies. This paper argues that the uniform wage is the result of the centralized wage setting carried on by unions, and that the absence of migration is the result of the proactive role of the government, which in the seventies stopped the mass internal migration from the South to the North and since then is acting to prevent the reappearance of such phenomenon. Uniform wage across regions, the active role of the government to prevent internal mass migration and a structural productivity divide between North and South are the institutional features that, within a general equilibrium matching model, explain the high unemployment rate in the South and, perhaps more interestingly, the low unemployment rate accompanied by low wages in the North even when compared to other western European countries.
    Keywords: Italy, European unemployment, internal migration, regional unemployment
    JEL: E24 J51 J60
    Date: 2008–07
  14. By: Giorgio Garau; Patrizio Lecca
    Abstract: In this paper we present a computable general equilibrium model for the region of Sardinia for the purpose of evaluating the capacity of R&D policies to affect the long run rate of growth. The model incorporates induced technical change and allow for external knowledge spillovers. We find that the cost of R&D policies may change according to the wage setting prevailing into the region. Furthermore, the capacity of such a policy to generate knowledge spillovers from the international and interregional trade are quite modest. Indeed, the capacity of the regional system to internalize the technological level embody in the imported good is partially offset by an increase in internal efficiency lowering the share of import but increasing competitiveness.
    Keywords: Regional modelling, Induced Technical Change and R&D policies
    JEL: R13 R58
    Date: 2008
  15. By: Syed A. Basher (Department of Economic Policies, Qatar Central Bank, Doha, Qatar.); Josep Lluis Carrión-i-Silvestre (AQR-IREA, University of Barcelona.)
    Abstract: This article provides a fresh methodological and empirical approach for assessing price level convergence and its relation to purchasing power parity (PPP) using annual price data for seventeen US cities. We suggest a new procedure that can handle a wide range of PPP concepts in the presence of multiple structural breaks using all possible pairs of real exchange rates. To deal with cross-sectional dependence, we use both cross-sectional demeaned data and a parametric bootstrap approach. In general, we find more evidence for stationarity when the parity restriction is not imposed, while imposing parity restriction provides leads toward the rejection of the panel stationar- ity. Our results can be embedded on the view of the Balassa-Samuelson approach, but where the slope of the time trend is allowed to change in the long-run. The median half-life point estimate are found to be lower than the consensus view regardless of the parity restriction.
    Date: 2008–07
  16. By: C. Katharina Spieß; Katharina Wrohlich
    Abstract: We analyze the role of distance from a university in the decision to attend higher education in Germany. Students who live near a university can avoid moving and the increased living expenses by commuting. Thus, transaction cost arguments would suggest that the greater the distance to the nearest university, the lower the participation in higher education. We analyse this hypothesis by combining data from the German Socio-Economic Panel Study (SOEP) with a database from the German Rectors¿ Conference on university postal codes. Based on a discrete time hazard rate model we show that distance to the next university at the time of completing high school significantly affects the decision to enrol in tertiary education. Controlling for many other socio-economic and regional variables, we find that 1 kilometre distance decreases the probability to enrol in higher education by 0.2 ¿ 0.3 percentage points
    Keywords: Higher education, distance to university, competing risk model
    JEL: I2 R1
    Date: 2008
  17. By: Justina AV Fischer; Antonio Rodriguez-Andrés
    Abstract: The question to what extent governance structure affects people’s well-being, here reflected in the decision to commit suicide, remains still largely unknown. This paper examines the effects of political institutions and governance structure on suicide using a balanced panel for 26 Swiss states (cantons) over the period 1980–1998. Our results indicate that stronger popular rights and more fiscal decentralization reduce suicide, while more local autonomy increases it. The effects are not strongly gender-specific. However, we find evidence that the effect of direct legislation is partly transmitted through sub-federal budgets, but not through health sector spending exclusively.
    Keywords: Suicide, Direct democracy, Decentralization, Happiness, Well-being
    Date: 2008
  18. By: Marco Alderighi (University of Valle d'Aosta, Italy.); Claudio A. Piga (Dept of Economics, Loughborough University)
    Abstract: The paper extends the Salop model of localized competition by allowing firms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.
    Keywords: Localized competition; market effciency, cost heterogeneity; large markets.
    JEL: L11 D61
    Date: 2008–07

This nep-geo issue is ©2008 by Vassilis Monastiriotis. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.