nep-geo New Economics Papers
on Economic Geography
Issue of 2008‒08‒31
seventeen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. The Entrepreneurial Advantage of World Cities - Evidence from Global Entrepreneurship Monitor Data By Zoltan Acs; Niels Bosma; Rolf Sternberg
  2. The Economic Approach to Cities By Glaeser, Edward L.
  3. Measuring the Value of a Moscow Apartment: a Spatial Approach to the Hedonic Pricing of Attributes By Repkine, Alexandre
  4. Arbitrage in Housing Markets By Glaeser, Edward L.; Gyourko, Joseph
  5. Price convergence and geographic dimension of market integration: Evidence from China By Ritola, Maria
  6. Did the Death of Distance Hurt Detroit and Help New York? By Glaeser, Edward L.; Ponzeto, Giacomo A. M.
  7. Indonesia's Changing Economic Geography By Hal Hill; RBudy Resosudarmo; Yogi Vidyattama
  8. Industrial Agglomeration, Geographic Innovation and Total Factor Productivity: The Case of Taiwan By Chia-Lin Chang; Les Oxley
  9. Creative Destruction and Regional Productivity Growth: Evidence from the Dutch Manufacturing and Services Industries By Niels Bosma; Erik Stam; Veronique Schutjens
  10. Spatial Interdependencies of FDI Locations: A Lessening of the Tyranny of Distance? By Stephen G. Hall; Pavlos Petroulas
  11. Inter-regional Migration: The UK experience By Tapan Biswas; Jo McHardy; Michael Nolan
  12. Spatial Clustering Of NGOs: An Evolutionary Economic Geography Approach By Dirk-Jan Koch; Ruerd Ruben
  13. Evolution of Locations, Specialisation and Factor Returns with Two Distinct Waves of Globalisation By Jang Ping Thia
  14. "Domestic Innovation and Chinese Regional Growth, 1991-2004" By William Latham; Hong Yin
  15. Cooperation networks and innovation: A complex system perspective to the analysis and evaluation of a EU regional innovation policy programme By Russo, Margherita; Rossi, Federica
  16. Is Terrorism Eroding Agglomeration Economies in Central Business Districts? Lessons from the Office Real Estate Market in Downtown Chicago By Abadie, Alberto; Dermisi, Sofia
  17. A New Perspective on the Relationship Between House Prices and Income By Quan Gan; Robert J. Hill

  1. By: Zoltan Acs (George Mason University, Washington D.C.and Max Planck Institute of Economics); Niels Bosma (Utrecht University, EIM Business + Policy Research, Global Entrepreneurship Research Association); Rolf Sternberg (University of Hannover)
    Abstract: Recent discussions in the Economic Geography literature increasingly focus on creative cities and the importance of creativity for achieving economic growth. Considering the increased attention on urban areas it is not surprising that the regional dimension of entrepreneurship is a subject of great interest. We set out a framework encompassing the individual process between entrepreneurial perceptions and entrepreneurial activity and demonstrate how the urban environment can have an impact on this process. We create entrepreneurship indices for 34 world cities exploiting the Global Entrepreneurship Monitor (GEM) Database 2001-2006. We investigate differences between the city-level and country-level for a selection of the indices. These exercises can be seen as initial tests of the ‘entrepreneurial advantage of cities.’ Based on the literature we expect that most indices will be higher for world cities, although exceptions are also plausible, for instance in world cities where the government resides. Our findings predominantly confirm the entrepreneurial advantage of world cities.
    Keywords: entrepreneurship, world cities, entrepreneurial perceptions, entrepreneurial activity, urbanization, Global Entrepreneurship Monitor
    JEL: R11 M13 O18
    Date: 2008–08–22
  2. By: Glaeser, Edward L. (Harvard U)
    Abstract: The economic approach to cities relies on a spatial equilibrium for workers, employers and builders. The worker’s equilibrium implies that positive attributes in one location, like access to downtown or high wages, are offset by negative attributes, like high housing prices. The employer’s equilibrium requires that high wages be offset by a high level of productivity, perhaps due to easy access to customers or suppliers. The search for the sources of productivity differences that can justify high wages is the basis for the study of agglomeration economies which has been a significant branch of urban economics in the past 20 years. The builder’s equilibrium condition pushes us to understand the causes of supply differences across space that can explain why some places have abundant construction and low prices while others have little construction and high prices. Since the economic theory of cities emphasizes a search for exogenous causes of endogenous outcomes like local wages, housing prices and city growth, it is unsurprising that the economic empirics on cities have increasingly focused on the quest for exogenous sources of variation. The economic approach to urban policy emphasizes the need to focus on people, rather than places, as the ultimate objects of policy concern and the need for policy to anticipate the mobility of people and firms.
    Date: 2008–01
  3. By: Repkine, Alexandre
    Abstract: In this paper we explore spatial effects in a hedonic price function framework for a large sample of apartments in Moscow. We find strong evidence of both spatial lag and spatial autocorrelation. Our results are robust across both the spatial model specifications and the choice of the spatial weight matrices. The fact that the quality attributes’ shadow prices we estimate are not much different from the OLS (ML) estimates suggests that spatial effects are orthogonal to the quality characteristics. One interesting finding is that an increase in the kitchen area contributes much more significantly to the apartment’s price compared a marginal increase in the living area, which is reflecting the traditional role kitchen has been playing in the Russian households as a dining and communication area. House type, time needed to walk to the nearest subway station and subway time to the city center are other important apartment attributes. Methodologically, we believe our study is demonstrating the need to develop spatial econometric techniques for application in the environment where both types of spatial effects are simultaneously present.
    Keywords: spatial models; housing market; hedonic price functions
    JEL: R12 C21 R21
    Date: 2008–03
  4. By: Glaeser, Edward L. (Harvard U); Gyourko, Joseph (U of Pennsylvania)
    Abstract: Urban economists understand housing prices with a spatial equilibrium approach that assumes people must be indifferent across locations. Since the spatial no arbitrage condition is inherently imprecise, other economists have turned to different no arbitrage conditions, such as the prediction that individuals must be indifferent between owning and renting. This paper argues the predictions from these non-spatial, financial no arbitrage conditions are also quite imprecise. Owned homes are extremely different from rental units and owners are quite different from renters. The unobserved costs of home owning such as maintenance are also quite large. Furthermore, risk aversion and the high volatility of housing prices compromise short-term attempts to arbitrage by delaying home buying. We conclude that housing cannot be understood with a narrowly financial approach that ignores space any more than it can be understood with a narrowly spatial approach that ignores asset markets.
    Date: 2008–03
  5. By: Ritola, Maria (BOFIT)
    Abstract: This study analyses the level and geographic dimension of China's market integration. The objective is to provide a broad characterization of China's market integration by performing a variety of empirical tests and providing comparisons to other studies on the same topic. The models tested are grounded in the law of one price. Price convergence is analysed with univariate time series methods, where linear and non-linear cointegration models refer to convergence in the short run and in the long run, respectively. The non-linear model is considered a good fit for analysing transitional economies, because the non-linear trend variable in the model indicates whether there is movement towards integration in the long run. Convergence of prices is first analysed by comparing city-level prices with China's national average price level and then by dividing China into three regional clusters. The estimation results suggest that the level of integration across Chinese cities is fairly high by international standards. The great majority of price series trending towards integration are services. The geographic pattern of China's market integration did not turn out as expected. Eastern cities are among the least integrated cities in the nationwide examination. Relatively high levels of integration were detected from several central and south-eastern cities. Furthermore, the cluster convergence approach to analyse China's market integration did not augment the eastern cities' level of convergence.
    Keywords: China; market integration; law of one price; price dispersion; regional clusters; convergence
    JEL: C12 C32 P22 R10
    Date: 2008–08–27
  6. By: Glaeser, Edward L. (Harvard U); Ponzeto, Giacomo A. M.
    Abstract: Urban proximity can reduce the costs of shipping goods and speed the flow of ideas. Improvements in communication technology might erode these advantages and allow people and firms to decentralize. However, improvements in transportation and communication technology can also increase the returns to new ideas, by allowing those ideas to be used throughout the world. This paper presents a model that illustrates these two rival effects that technological progress can have on cities. We then present some evidence suggesting that the model can help us to understand why the past thirty-five years have been kind to idea-producing places, like New York and Boston, and devastating to goods-producing cities, like Cleveland and Detroit.
    Date: 2008–01
  7. By: Hal Hill; RBudy Resosudarmo; Yogi Vidyattama
    Abstract: Indonesia is the world's largest archipelagic state, and one of the most spatially diverse nations on earth in its resource endowments, population settlements, location of economic activity, ecology and ethnicity. The regional socio-economic data base now extends over 30 years, and so it is possible to draw conclusions about the country's regional development dynamics since the 1970s. In this paper, we examine economic growth, inequality, convergence, structural change and social indicators for a consolidated group of 26 provinces, ie, the 27 of the late Soeharto period excluding East Timor. Our major conclusions include the following: (a) There continues to be great diversity in economic and social outcomes, but growth and social progress have been remarkably even. The poorest regions, mainly located in Eastern Indonesia, have generally performed about as well as the national average. (b) The better performing regions are typically those that are the most 'connected' to the global economy. In this respect, Jakarta stands out as a special case, growing richer than the rest of the country over time. (c) As expected, conflict is particularly harmful to economic development, as illustrated in the case of Maluku and to a lesser extent Aceh. (d) There is no clear natural resource story, in that the performance of the resource-rich provinces has varied considerably.
    Date: 2008
  8. By: Chia-Lin Chang; Les Oxley (University of Canterbury)
    Abstract: The paper analyses the impact of geographic innovation on Total Factor Productivity (TFP) in Taiwan. Using 242 four-digit standard industrial classification (SIC) industries in Taiwan in 2001, we compute TFP by estimating Translog production functions with K, L, E and M inputs, and measure the geographic innovative activity using both Krugman's Gini coefficients and the location Herfindahl index. We also consider the geographic innovation variable as an endogenous variable and use 2SLS to obtain a consistent, albeit inefficient, estimator. The empirical results show a significantly positive effect of geographic innovation, as well as R&D expenditure, on TFP. These results are robust for the Gini coefficients and location Herfindahl index, when industry characteristics and heteroskedasticity are controlled. Moreover, according to the endogeneity of geographic innovation, the Hausman test shows that the geographic innovation variable should be treated as endogenous, which supports the modern theory of industrial clustering about innovation spillovers within clusters.
    Keywords: Industry agglomeration; Geographic innovation; Total factor productivity; Cluster; Research and Development
    JEL: O32 O33 L60 R12
    Date: 2008–07–01
  9. By: Niels Bosma; Erik Stam; Veronique Schutjens
    Abstract: Do processes of firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, measured by Total Factor Productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988-2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities.
    Keywords: entrepreneurship, entry & exit, turbulence, creative destruction, regional competitiveness, total factor productivity
    JEL: L10 M13 O18 R11
    Date: 2008–08
  10. By: Stephen G. Hall; Pavlos Petroulas
    Abstract: Recent theoretical approaches stress the importance of complex integration strategies of multinationals and the interdependence between locations. Up till now little has been done to incorporate the potential cross-country dependencies into the empirical analysis of the determinants and the structure of foreign direct investment. By utilizing a panel data set that consists of real FDI stocks for 476 country pairs for the years 1994-2004 and a distance weighted spatial matrix, we find significant third country effects. Interestingly, the bilateral variables seem to be in concordance with the notion of horizontally motivated FDI while the spatial third country effects seem to comply with the notion of vertical FDI and production fragmentation. While bilateral variables seem to dominate location decisions the results confirm the existence and importance of international interdependence.
    Keywords: Foreign Direct Investment; Spatial Econometrics; Panel Data
    JEL: F21 F23 C31 C33
    Date: 2008–08
  11. By: Tapan Biswas; Jo McHardy (Department of Economics, The University of Sheffield); Michael Nolan
    Abstract: This paper looks at the scenario of intra-UK migration amongst its four regions. The level of intra-UK migration is significant and is increasing over time. Using several measures of the balance in migration we observe that, broadly speaking, the balance is improving. We also examine the impact of changes in the regional per capita GDPs and unemployment levels on regional migration using panel analysis. Several authors find these to be significant factors in international migration. However, it seems that neither regional per capita GDP nor the unemployment level has a significant effect on regional migration in the UK (although the regression coefficients have the correct signs). In the case of regional migration in the UK, it is other characteristics of the source and destination regions which appear to matter most.
    Keywords: Inter-Regional Migration, UK
    JEL: J61 O50
    Date: 2008–02
  12. By: Dirk-Jan Koch; Ruerd Ruben
    Abstract: Strong patterns of concentration characterize the location decisions of development NGOs. Since current theories on non-profit location choice tend to neglect such tendencies, this article develops an evolutionary economic geography approach to non-profit organizations. It focuses on increasing returns to scale, labor mobility and path dependence and contextualizes those factors. A survey involving visual ranking methods of OECD-based development NGOs and structured field-level interviews with local NGOs in the Central African Republic and Tanzania provide original empirical data. Statistical methods are used to contrast the divergent experiences in the two countries. The article concludes that the increased interest of international NGOs in Tanzania and their continued lack of interest in the Central African Republic are self-perpetuating processes that explain the concentration of NGOs. This concentration may lead to increased efficiency, but reduces the equitable distribution of NGO aid and therefore has implications for the attainment of global poverty goals.
    Keywords: economic geography; clusters; NGO; aid; Tanzania, Central African Republic
    Date: 2008–08
  13. By: Jang Ping Thia
    Abstract: This paper presents an economic geography model with two differentiated sectors that exhibitweaker inter and stronger intra-industry input-output linkages. Labour is also differentiatedaccording to skills in a hierarchy of tasks they can perform. Globalisation occurs in twodistinct phases, leading to the agglomeration of an industry (manufacturing) in the first wave,which is subsequently displaced by the other industry (services) when the second wave ofglobalisation takes place. Because of agglomeration effects, the increase in relativeendowment of a factor may increase its relative wages, leading to more inequality. Withinand between nations inequality can result.
    Keywords: Agglomeration, Wage Inequality, Globalisation
    JEL: F02 F12 F16
    Date: 2008–06
  14. By: William Latham (Department of Economics,University of Delaware); Hong Yin (Department of Economics,University of Delaware)
    Abstract: We examine the return to innovation in terms of economic growth at the provincial level to assess whether or not policies that promote R&D, such as China’s Science and Technology Policy, have been productive for all of China’s regions. The return to innovation at the provincial level is estimated using a value-added Cobb-Douglas production function. The measure of the effect of innovation (patenting activity) is valued-added industrial output. The data are a balanced panel for 30 provinces for the period 1991-2004. We find that the production function including innovation fits the Chinese provincial level data well. These estimates indicate that technology plays a positive role in industrial growth at the provincial level; however, the contribution of technology is far too small, which indicates that China’s economic growth is largely driven by the factor inputs. The results support the views that the linkages between innovation activity and commercialization of new technology are weak within Chinese domestic firms which have difficulties in exploiting and adopting the new technologies. The results also indicate that the inter-regional technology spillovers are positive but relatively small and weak, compared to the European regions and the states in the US. The estimated results further confirm that the impact of industrial reforms during the period of 1994-99 on China’s technological development is negative, as there seems to be neither exogenous technical progress nor technology’s contribution to the value-added industrial output during those years.
    Keywords: China, patents, productivity, innovation, regions
    JEL: O33 R11 O47 O55
  15. By: Russo, Margherita; Rossi, Federica
    Abstract: Recent developments in innovation theory and policy have led policymakers to assign particular importance to supporting networks of cooperation among heterogeneous economic actors, especially in production systems composed of small and medium enterprises. Such innovative policies call for parallel innovations in policy analysis, monitoring and assessment. Our analysis of a policy experiment aimed at supporting innovation networks in the Italian region of Tuscany intends to address some issues connected with the design, monitoring and evaluation of such interventions. Combining tools from ethnographic research and social networks analysis, we explore the structural elements of the policy programme, its macroscopic impact on the regional innovation system, and the success of individual networks in attaining their specific objectives. This innovative approach allows us to derive some general methodological suggestions for the design and evaluation of similar programmes.
    Keywords: Innovation policy; cooperation networks; evaluation; regional development; SMEs production systems; complex systems
    JEL: R58 O38 D78 O32 O31
    Date: 2008–06–26
  16. By: Abadie, Alberto (Harvard U); Dermisi, Sofia (Roosevelt U)
    Abstract: The attacks of September 11, 2001, and more recently the Madrid and London downtown train bombings, have raised concerns over both the safety of downtowns and the continuous efforts by terrorists to attack areas of such high density and significance. This article employs building-level data on vacancy rates to investigate the impact of an increased perception of terrorist risk after 9/11 on the office real estate market in downtown Chicago. Chicago provides the perfect laboratory to investigate the effects of an increase in the perceived level of terrorist risk in a major financial district. Unlike in New York, the 9/11 attacks did not restrict directly the available office space in downtown Chicago. Moreover, the 9/11 attacks induced a large increase in the perception of terrorist risk in the Chicago Central Business District, which includes the tallest building in the U.S. (the Sears Tower) and other landmark buildings which are potential targets of large-scale terrorist attacks. Our results show that, following the 9/11 attacks, vacancy rates experienced a much more pronounced increase in the three most distinctive Chicago landmark buildings (the Sears Tower, the Aon Center and the Hancock Center) and their vicinities than in other areas of the city of Chicago. Our results suggest that economic activity in Central Business Districts can be greatly affected by changes in the perceived level of terrorism.
    Date: 2008–03
  17. By: Quan Gan (School of Economics, University of New South Wales); Robert J. Hill (School of Economics, University of New South Wales)
    Abstract: We show that a strong linear relationship exists between income and house price quantiles in Sydney (Australia), Houston, and the state of Texas. This suggests that the house price distribution is closely approximated by the income distribution after a location-scale transformation. The slope of the line changes over time in response to changes in the mortgage market. We argue that this finding is consistent with a simple variant on the permanent income hypothesis. We then explore some of the implications with regard to the evolution of house prices, price-to-income ratios, the efficiency of the housing market, the construction and interpretation of hedonic price indexes for housing, and for public policy.
    Keywords: Real Estate; Permanent income; Mortgage market; Housing bubble; Hedonic index
    JEL: C43 E01 E31 G12 R31
    Date: 2008–08

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