nep-geo New Economics Papers
on Economic Geography
Issue of 2008‒10‒28
twelve papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Paul Krugman: Trade and Geography - Economies of Scale, Differentiated Products and Transport Costs By Committee, Nobel Prize
  2. Urban Growth Drivers and Spatial Inequalities: Europe - a case with geographically sticky people By Paul Cheshire; Stefano Magrini
  3. Pollution and the Efficiency of Urban Growth By Martin F. Quaas; Sjak Smulders
  4. Quality of Life in Urban Neighborhoods in Costa Rica By Roger Madrigal Author-X-Name_First: Roger Author-X-Name_Last: Madrigal; Juan Robalino Author-X-Name_First: Juan Author-X-Name_Last: Robalino; Luis J. Hall Author-X-Name_First: Luis J. Author-X-Name_Last: Hall
  5. Globalisation and Wage Differentials: A Spatial Analysis By Baddeley, M.; Fingleton, B.
  6. Urban Inequality By Edward L. Glaeser; Matthew G. Resseger; Kristina Tobio
  7. Age-structured Human Capital and Spatial Total Factor Productivity Dynamics By Mishra, Tapas; Jumah, Adusei; Parhi, Mamata
  8. Regional Input Output Models and the FLQ Formula: A Case Study of Finland By Tony Flegg; Paul White
  9. Endogenous Neighborhood Selection and the Attainment of Cooperation in a Spatial Prisoner’s Dilemma Game By Jason Barr; Troy Tassier
  10. Mountains in a flat world: Why proximity still matters for the location of economic activity By Andrés Rodríguez-Pose; Riccardo Crescenzi
  11. Occupational Choice and Social Contacts Across Regions By Stefan Bauernschuster; Oliver Falck; Stephan Heblich
  12. The Changing Incidence of Geography By James E. Anderson; Yoto V. Yotov

  1. By: Committee, Nobel Prize (Nobel Prize Committee)
    Abstract: Scientific Background, The Nobel Prize in Economic Sciences 2008. Over the centuries, international trade and the location of economic activity have been at the forefront of economic thought. Even today, free trade, globalization, and urbanization remain as commonplace topics in the popular debate as well as in scholarly analyses. Traditionally, trade theory and economic geography evolved as separate subfields of economics. More recently, however, they have converged become more and more united through new theoretical insights, which emphasize that the same basic forces simultaneously determine specialization across countries for a given international distribution of factors of production (trade theory) and the long-run location of those factors across countries (economic geography).
    Keywords: Trade; Geography;
    JEL: F10
    Date: 2008–10–13
  2. By: Paul Cheshire (London School of Economics); Stefano Magrini (Department of Economics, University Of Venice Cà Foscari)
    Abstract: We try to combine theory with empirical analysis to investigate the drivers of spatial growth processes, welfare and disparities in a context in which people are markedly immobile. Drawing on two of our recent papers (Cheshire and Magrini, 2006 and 2008), we review the evidence on the drivers of differential urban growth in the EU both in terms of population and output growth. The main conclusion from our findings is that one cannot reasonably maintain the assumption of full spatial equilibrium in a European context. This has a number of wider implications. It suggests that i. differences in real incomes in Europe - and more generally where populations are relatively immobile - are likely to persist and indicate real differences in welfare; ii. there is no evidence of a unified European urban system but rather of a set of national systems; iii. there are significant but theoretically consistent, differences in the drivers of population compared to economic growth.
    Keywords: Growth, urban system, spatial equilibrium
    JEL: O18 R11 R13
    Date: 2008
  3. By: Martin F. Quaas (University of Kiel); Sjak Smulders (University of Calgary and Tilburg University)
    Abstract: We analyze the efficiency of urbanization patterns in a dynamic model of endogenous urban growth with two sectors of production. Production exhibits increasing returns to scale on aggregate. Urban environmental pollution, as a force that discourages agglomeration, is caused by domestic production. We show that cities are too large and too few in number in equilibrium, compared to the efficient urbanization path, if economic growth implies increasing aggregate emissions. If, on the other hand, production becomes cleaner over time (`quality growth') the urbanization path approximates the efficient outcome after finite time.
    Keywords: Cities, Urbanisation, Pollution, Growth, Migration, Sustainable Development
    JEL: Q56 R12 O18
    Date: 2008–09
  4. By: Roger Madrigal Author-X-Name_First: Roger Author-X-Name_Last: Madrigal; Juan Robalino Author-X-Name_First: Juan Author-X-Name_Last: Robalino; Luis J. Hall Author-X-Name_First: Luis J. Author-X-Name_Last: Hall
    Abstract: This paper considers valuation of amenities in urban neighborhoods and satisfaction with both those neighborhoods and life in general. First, rents are used to estimate neighborhood amenities price in San Jose, which explain 39 percent of the standardized variation of rents. Some districts rank very high in housing characteristics but poorly in neighborhood amenities, while others rank poorly in housing characteristics but high in neighborhood amenities, suggesting that indirect policy measures might reduce inequality in urban areas through improving neighborhood amenities. Second, the paper explores differences in the valuation of amenities by calculating prices in different urban areas. In more sparsely populated urban areas, distance to national parks becomes less important, but distance to primary roads becomes more important. Finally, housing and safety satisfaction represent the key components of life satisfaction.
    Date: 2008–10
  5. By: Baddeley, M.; Fingleton, B.
    Abstract: In this paper, we assess the Fujita, Krugman and Venables (FKV) nonlinear model of wage differentials. Using a spatial econometric model incorporating a spatial autoregressive error process, we estimate a quadratic form using cross-sectional data for 98 countries from 1970 to 2000. The evidence suggests no necessary tendency for all countries to converge towards the stable upper root. Polarization is possible. This polarization may be permanent - generating persistent international wage differentials. Our findings suggest that moderating the transmission of shocks across countries should be a key element of international macroeconomic policy co-ordination.
    Keywords: Globalisation, convergence, wage differentials, spatial error models
    JEL: R12 R15
    Date: 2008–09
  6. By: Edward L. Glaeser; Matthew G. Resseger; Kristina Tobio
    Abstract: What impact does inequality have on metropolitan areas? Crime rates are higher in places with more inequality, and people in unequal cities are more likely to say that they are unhappy. There is also a negative association between local inequality and the growth of both income and population, once we control for the initial distribution of skills. What determines the degree of inequality across metropolitan areas? Twenty years ago, metropolitan inequality was strongly associated with poverty, but today, inequality is more strongly linked to the presence of the wealthy. Inequality in skills can explain about one third of the variation in income inequality, and that skill inequality is itself explained by historical schooling patterns and immigration. There are also substantial differences in the returns to skill, related to local concentrations in different industries, and these too are strongly correlated with inequality.
    JEL: H0 I0 J0 R0
    Date: 2008–10
  7. By: Mishra, Tapas (World Population Program, International Institute for Applied Systems Analysis, Laxenburg, Austria); Jumah, Adusei (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria, and Department of Economics, University of Vienna, Vienna, Austria); Parhi, Mamata (BETA, Louis-Pasteur University, Strasbourg, France)
    Abstract: This paper models total factor productivity (TFP) in space and proposes an empirical model for TFP interdependence across spatial locations. The interdependence is assumed to occur due to age-structured human capital dynamics. A semi-parametric spatial vector autoregressive framework is suggested for modeling spatial TFP dynamics where the role of demographic state and technological change are explicitly incorporated in the model to influence their spatial TFP co-movements. Empirical scrutiny in case of Asian countries suggests that cross-country human capital differences in their accumulation and appropriation pattern significantly influenced TFP volatility interdependence. The finding of complementarity in TFP in spatial locations calls for joint policy program for improving aggregate and individual country welfare.
    Keywords: Total factor productivity, Spatial growth, Non-linearity, Human capital, Age-structure, Semi-parametric VAR
    JEL: C14 C31 E61 N10 O30 O47
    Date: 2008–10
  8. By: Tony Flegg (Department of Economics, University of the West of England, Bristol, UK); Paul White (School of Business and Economics, University of Jyväskylä, Finland)
    Abstract: This paper examines the use of location quotients (LQs) in constructing regional input-output models. Its focus is on the augmented FLQ formula (AFLQ) proposed by Flegg and Webber, 2000, which takes regional specialization explicitly into account. In our case study, we examine data for 20 Finnish regions, ranging in size from very small to very large, in order to assess the relative performance of the AFLQ formula in estimating regional imports, total intermediate inputs and output multipliers, and to determine an appropriate value for the parameter ? used in this formula. In this assessment, we use the Finnish survey-based national and regional input-output tables for 1995, which identify 37 separate sectors, as a benchmark. The results show that, in contrast with the other LQ-based formulae examined, the AFLQ is able to produce adequate estimates of output multipliers in all regions. However, some variation is required in the value of ? across regions in order to obtain satisfactory estimates. The case study also reveals that the AFLQ and its predecessor, the FLQ, yield very similar results. This finding indicates that the inclusion of a measure of regional specialization in the AFLQ formula is not helpful in terms of generating superior results.
    Keywords: Regional input-output models Finland FLQ formula Location quotients
    Date: 2008–10
  9. By: Jason Barr (Rutgers University, Newark, Department of Economics); Troy Tassier (Fordham University, Department of Economics)
    Abstract: There is a large literature in economics and elsewhere on the emergence and evolution of cooperation in the repeated Prisoner’s Dilemma. Recently this literature has expanded to include cooperation in spatial prisoner dilemma games where agents play only with local neighbors in a specified geography. In this paper we explore how the ability of agents to move and choose new locations and new neighbors influences the emergence of cooperation. First, we explore the dynamics of cooperation by investigating agent strategies that yield Markov transition probabilities. We show how different agent strategies yield different Markov chains which generate different asymptotic behaviors in regard to the attainment of cooperation. Second, we investigate how agent movement affects the attainment of cooperation in various spatial networks using agent based simulations.
    Keywords: repeated prisoner’s dilemma, cooperation, agent-based economics, endogenous networks, Markov chains
    JEL: C63 C72 C73 D8
    Date: 2008
  10. By: Andrés Rodríguez-Pose (London School of Economics); Riccardo Crescenzi (European University Institute)
    Abstract: Thomas Friedman (2005) argues that the expansion of trade, the internationalization of firms, the galloping process of outsourcing, and the possibility of networking is creating a \'flat world\': a level playing field where individuals are empowered and better off. This paper challenges this view of the world by arguing that not all territories have the same capacity to maximize the benefits and opportunities and minimize the risks linked to globalization. Numerous forces are coalescing in order to provoke the emergence of urban \'mountains\' where wealth, economic activity, and innovative capacity agglomerate. The interactions of these forces in the close geographical proximity of large urban areas give shape to a much more complex geography of the world economy.
    Date: 2008–10–15
  11. By: Stefan Bauernschuster (University of Jena); Oliver Falck (Ifo Institute for Economic Research); Stephan Heblich (Max Planck Institute of Economics, Jena)
    Abstract: This paper tests the importance of social contacts on entrepreneurship. To measure differences in the interconnectedness of social contacts, we compare rural and agglomerated areas. A smaller community size in rural areas generates greater network closure. Agents’ neighborhoods are more likely to overlap, which intensifies social contacts and thus facilitates resource mobilization. Analyzing the impact of social contacts across regions, we find that greater network closure increases the likelihood of being an entrepreneur by 1.9 to 14.2 percentage points, depending on the number of underlying social contacts. These results remain robust after applying matching techniques and concentrating on young entrepreneurs.
    Keywords: Occupational Choice, Entrepreneurship, Social Contacts
    JEL: J Z13
    Date: 2008–10–30
  12. By: James E. Anderson; Yoto V. Yotov
    Abstract: The incidence of bilateral trade costs is calculated here using neglected properties of the structural gravity model, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992-2003, incidence is on average some five times higher for sellers than for buyers. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in 'constructed home bias', the disproportionate share of local trade; and large but varying gains in real GDP.
    JEL: F10 F15 R10
    Date: 2008–10

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