nep-geo New Economics Papers
on Economic Geography
Issue of 2009‒08‒16
sixteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Assessing Agglomeration Economies in a Spatial Framework with Endogenous Regressors By Michael Artis; Ernest Miguélez; Rosina Moreno
  2. Aging nations and the future of cities By Carl Gaigné; François Thisse
  3. In Search of W By Richard Harris; Victoria Kravtsova
  4. The Upswing of Regional Income Inequality in Spain (1860-1930) By Julio Martinez-Galarraga; Joan R. Roses; Daniel A. Tirado Fabregat
  5. Resurgent Cities and Regional Economic Performance By Henry Overman; Patricia Rice
  6. Survival of the Fittest in Cities: Agglomeration, Selection and Polarisation By Kristian Behrens; Frédéric Robert-Nicoud
  7. Simulating Wages and House Prices Using the NEG By Bernard Fingleton
  8. Common and Spatial Drivers in Regional Business Cycles By Michael Artis; Christian Dreger; Konstantin Kholodilin
  9. Analysing the Impact of Public Capital Stock Using the NEG Wage Equation: A Panel Data Approach By Bernard Fingleton; Miguel Gómez-Antonio
  10. What policies do we need for Southern Italy? The role of national and regional policies in the last decade By Luigi Cannari; Marco Magnani; Guido pellegrini
  11. Regional Data By Gerd Groezinger; Wenzel Matiaske
  12. Does Decentralization Matter for Regional Disparities? A Cross-Country Analysis By Roberto Ezcurra; Andrés Rodríguez-Pose
  13. Computerization, accounting transparency and competitiveness of public administration: a regional analysis By Carlo Maria Arpaia; Raffaele Doronzo; Paquale Ferro
  14. Matching inefficiencies, regional disparities and unemployment By Jaakko Pehkonen; Aki Kangasharju; Hynninen; Sanna-Mari
  15. Consumer price levels in Northern and Southern Italy By Luigi Cannari; Giovanni Iuzzolino
  16. Does Urbanisation Affect Rural Poverty? Evidence from Indian Districts By Massimiliano Cali; Carlo Menon

  1. By: Michael Artis; Ernest Miguélez; Rosina Moreno
    Abstract: This paper is concerned with the influence of agglomeration economies on economicoutcomes across British regions. The concentration of economic activity in one place canfoster economic performance due to the reduction in transportation costs, the readyavailability of customers and suppliers, and knowledge spillovers. However, theconcentration of several types of intangible assets can boost productivity as well. Thus, usingan interesting dataset which proxies regional productivity, we will assess the relativeimportance of agglomeration and other assets, controlling both for endogeneity and forspatial autocorrelation at the same time. Our results suggest that agglomeration has a definitepositive influence on productivity, although our estimates of its effect are dramaticallyreduced when spatial dependence and other hitherto omitted variables proxying intangibleassets are controlled for.
    Keywords: agglomeration economies, intangible assets, endogeneity, spatial autocorrelation
    JEL: C21 J24 R10 R11 R12
    Date: 2009–06
  2. By: Carl Gaigné; François Thisse
    Abstract: We investigate whether an aging population may challenge the supremacy of large working-cities. To this end, we develop an economic geography model with two types of individuals (the elderly and workers) and two sectors (consumer services and manufacturing). Individuals are geographically mobile and their agglomeration within a city generates rising urban costs through competition for land. When the elderly are immobile and equally distributed between cities, an aging population works against the agglomeration of production. When the elderly are free to choose their residence, the most likely scenario is such that the city with the lower share of old people follows a U-shaped curve. Increasing commuting costs cut short the first phase in which the employment share decreases
    Keywords: economic geography, aging population, spatial mobility, sectoral mobility, commuting costs
    JEL: F12 F16 J60 L13 R12
    Date: 2009
  3. By: Richard Harris; Victoria Kravtsova
    Abstract: This paper provides a survey and critique of how spatial links are taken into account inempirical analysis by applied economists/regional scientists. Spatial spillovers and spatialinterrelationships between economic variables (e.g. unemployment, GDP, etc) are likely to beimportant, especially because of the role of local knowledge diffusion and how trade (interregionalexports and imports) can potentially act to diffuse technology. Since most empiricaleconomic studies ignore spatial autocorrelation they are thus potentially mis-specified. Thishas led to various approaches to taking account of spatial spillovers, including econometricmodels that dependent on specifying (correctly) the spatial weights matrix, W. The paperdiscusses the standard approaches (e.g., contiguity and distance measures) in constructing W,and the implications of using such approaches in terms of the potential mis-specification ofW. We then look at more recent attempts to measure W in the literature, including: Bayesian(searching for 'best fit'); non-parametric techniques; the use of spatial correlation to estimateW; and other iteration techniques. The paper then considers alternative approaches forincluding spatial spillovers in econometric models such as: constructing (weighted) spillovervariables which directly enter the model; allowing non-contiguous spatial variables to enterthe model; and the use of spatial VAR models. Lastly, we discuss the likely form of spatialspillovers and therefore whether the standard approach to measuring W is likely to besufficient.
    Keywords: spatial weights spatial dependence spatial models
    JEL: C31 R11
    Date: 2009–03
  4. By: Julio Martinez-Galarraga; Joan R. Roses; Daniel A. Tirado Fabregat
    Abstract: This paper studies the evolution of Spanish regional inequality from 1860 to 1930. The results point to the coexistence of two basic forces behind changes in regional economic inequality: industrial specialization and labor productivity differentials. The initial expansion of industrialization, in a context of growing economic integration of regions, promoted the spatial concentration of manufacturing in certain regions, which also benefited from the greatest advances in terms of labor productivity. Since 1900, the diffusion of manufacturing production to a greater number of locations generated the emulation of production structures and a process of catching-up in labor productivity and wages.
    Keywords: Industrialization, Market Integration, Heckscher-Ohlin Model, New Economic Geography
    JEL: N93 N94 R11
    Date: 2009–07
  5. By: Henry Overman; Patricia Rice
    Date: 2008–06
  6. By: Kristian Behrens; Frédéric Robert-Nicoud
    Abstract: Empirical studies consistently report that labour productivity and TFP rise with city size. The reason is that cities attract the most productive agents, select the best of them, and make the selected ones even more productive via various agglomeration economies. This paper provides a microeconomically founded model of vertical city differentiation in which the latter two mechanisms (`agglomeration' and `selection') operate simultaneously. Our model is both rich and tractable enough to allow for a detailed investigation of when cities emerge, what determines their size, and how they interact through the channels of trade. We then uncover stylised facts and suggestive econometric evidence that are consistent with the most distinctive equilibrium features of our model. We show, in particular, that larger cities are both more productive and more unequal (`polarised'), that inter-city trade is associated with higher income inequalities, and that the proximity of large urban centres inhibits the development of nearby cities.
    Keywords: entrepreneur heterogeneity, firm selection, agglomeration, income inequalities,urbanization, urban systems
    JEL: F12 R12
    Date: 2008–11
  7. By: Bernard Fingleton
    Abstract: The paper incorporates house prices within an NEG framework leading to the spatialdistributions of wages, prices and income. The model assumes that all expenditure goes tofirms under a monopolistic competition market structure, that labour efficiency units areappropriate, and that spatial equilibrium exists. The house price model coefficients areestimated outside the NEG model, allowing an econometric analysis of the significance ofrelevant covariates. The paper illustrates the methodology by estimating wages, income andprices for small administrative areas in Great Britain, and uses the model to simulate theeffects of an exogenous employment shock.
    Keywords: new economic geography, real estate prices, spatial econometrics
    JEL: C21 C31 O18 R12 R31
    Date: 2009–04
  8. By: Michael Artis; Christian Dreger; Konstantin Kholodilin
    Abstract: We examine real business cycle convergence for 41 euro area regions and 48 US states.Results obtained by a panel model with spatial correlation indicate that the relevance ofcommon business cycle factors is rather stable over the past two decades in the euro area andthe US. Ongoing business cycle convergence often detected in cross-country data is notconfirmed at the regional level. The degree of synchronization across the euro area is similarto that to be found for the US states. Thus, the lack of convergence does not seem to be animpediment to a common monetary policy.
    Keywords: Business cycle convergence, spatial correlation, spatial panel model
    JEL: E32 C51 E37
    Date: 2009–04
  9. By: Bernard Fingleton; Miguel Gómez-Antonio
    Abstract: This paper examines the relationship between the level of public infrastructure and the level of productivity using panel data for the Spanish provinces over the period 1984-2004, a period which is particularly relevant due to the substantial changes occurring in the Spanish economy at that time. The underlying model used for the data analysis is based on the wage equation, which is one of a handful of simultaneous equations which when satisfied correspond to the short-run equilibrium of New Economic Geography theory. This is estimated using a spatial panel model with fixed time and province effects, so that unmodelled space and time constant sources of heterogeneity are eliminated. The model assumes that productivity depends on the level of educational attainment and the public capital stock endowment of each province. The results show that although changes in productivity are positively associated with changes in public investment within the same province, there is a negative relationship between productivity changes and changes in public investment in other regions.
    Keywords: spatial economics, public infrastructure, productivity, panel data, economic geography
    JEL: H54 R11 R15 C21
    Date: 2009–06
  10. By: Luigi Cannari (Banca d'Italia); Marco Magnani (Banca d'Italia); Guido pellegrini
    Abstract: In this paper we examine the Italian regional policies launched in the second half of the 1990s and aimed at promoting the development of Southern Italy. Ten years on, the goals have not been reached, either in terms of social and economic development, or of the performance of firms receiving government aid. In evaluating the discrepancy between targets and results we argue that the failure of regional policies is a facet of the more general failure of Italian economic policies in the last fifteen years, clearly witnessed by the stagnation of growth and productivity both in the North and Centre and in the South. Two main aspects are highlighted: the effectiveness of regional policies has been affected by national legal rules that have had different effects across regions and have usually allowed a lower quality of public expenditure in the South; the effectiveness of regional policies has been diminished also by attributing importance to regional governments as control centres of public intervention.
    Keywords: regional policies, regional development, cohesion
    JEL: R58
    Date: 2009–07
  11. By: Gerd Groezinger; Wenzel Matiaske
    Abstract: Spatiality is an increasingly important dimension in the social sciences, as a new wave of recent publications shows. Intra-national comparisons have proved to be as fruitful as the better known inter-national analysis. Regional characteristics are found to have considerable influence on individual behaviour. This movement was fostered by methodological advances, e.g. in multi-level techniques. On the data side spatial analysis is supported by a good basic infrastructure in official and semi-official information, often provided in the way of easily usable DVDs. In addition, both scientific researchers and commercial marketing firms collect valuable information, partly on a very detailed local level of only a handful of households. However, there is ample room for improvement. Huge existing datasets (e.g. PISA E) are not open for spatial oriented scientific purposes; in many cases regional information is not sufficiently available (e.g. on criminal behaviour); systematic over-sampling in sparsely inhabited areas to allow additional regional analysis is not very common.
    Date: 2009
  12. By: Roberto Ezcurra; Andrés Rodríguez-Pose
    Abstract: This paper looks at the relationship between fiscal and political decentralization and theevolution of regional inequalities in a panel of 26 countries - 19 developed and 7 developing- for the period between 1990 and 2006. Using an instrumental variables method, it finds thatwhereas for the whole sample decentralization is completely dissociated for the evolution ofregional disparities, the results are highly contingent on the level of development, the existinglevel of territorial inequalities, and the fiscal redistributive capacity of the countries in thesample. Decentralization in high income countries has, if anything, been associated with areduction of regional inequality. In low and medium income countries, fiscal decentralizationhas been associated with a significant rise in regional disparities, which the positive effects ofpolitical decentralization have been unable to compensate. Policy preferences by subnationalgovernments for expenditure in economic affairs, education, and social protection havecontributed to this trend.
    Keywords: Fiscal decentralization, political decentralization, regional disparities, territorialinequality, fiscal redistribution
    JEL: H11 H71 R11
    Date: 2009–07
  13. By: Carlo Maria Arpaia (Banca d'Italia); Raffaele Doronzo (Banca d'Italia); Paquale Ferro (Banca d'Italia)
    Abstract: The aim of this work is to provide information of use in evaluating Italian local public entities from two angles: 1) computerization and supply of web-services; 2) “accounting transparency†and use of accounting information for internal control and benchmarking. The analysis is based on data gathered periodically by the Bank of Italy. In order to give a broader view of the quality of Italian public administration, the outcome of the analysis is compared with the Formez research on business activity policies, employment policies and territorial competitiveness policies. The computerization index shows a better performance by northern regions. The “accounting transparency†index, based on SIOPE data, instead reveals that geographical location is not a crucial determinant of the performance gap between Italian regions.
    Keywords: Public administration, competitiveness, computerization, Mezzogiorno
    JEL: H11 R58
    Date: 2009–07
  14. By: Jaakko Pehkonen; Aki Kangasharju; Hynninen; Sanna-Mari
    Abstract: In this paper we apply a stochastic frontier approach to examine how matching efficiency and regional differences in structural factors contribute to regional and aggregate unemployment. Our results suggest that there would be a substantial decline in aggregate unemployment if (i) all local labour offices operated with full efficiency or (ii) they shared the same structure of job seekers and vacant jobs as the most favourable office. In the former case an increase in hirings would lower the average unemployment rate by 2.4 percentage points. In the latter case the decrease would be 1.4 percentage points. Further, we find that fixed effects are positively c0orrelated with both a more favourable structure and higher efficiency. This suggests that the fixed effects may capture some part of time invariant features in the structure and efficiency. Thus, the role of structural factors and efficiency in regional unemployment disparities may be higher than estimated.
    Keywords: Technical efficiency, structural factors, matching, regions, aggregate unemployment
    JEL: J64
    Date: 2009–05–28
  15. By: Luigi Cannari (Banca d'Italia); Giovanni Iuzzolino (Banca d'Italia)
    Abstract: This paper provides a detailed insight into the magnitude of price-level differentials among Italian regions, supplementing the data collected by Istat with information on house prices and rentals collected by Agenzia del Territorio and by the Bank of Italy and with estimates from other sources. Results show that prices are lower in southern Italy than in other areas. The most reliable estimate gives a differential of 16/17 per cent. This spread is due mainly (i.e. more than two-thirds) to different levels of house prices, which include imputed rentals. If only effective rentals are considered, the spread decreases to 10 per cent. Noteworthy differentials can be also found within macro-areas, although on a smaller scale, signalling the potential relevance of regional and local factors in determining the price level of some goods and services.
    Keywords: Urban economics,Regional studies
    JEL: R1 E31
    Date: 2009–07
  16. By: Massimiliano Cali; Carlo Menon
    Abstract: Although the high rate of urbanization and the high incidence of rural poverty are two distinct features of many developing countries, we still do not know the effects of the former on the latter. We address this issue by exploring the mechanisms through which urbanization may alleviate rural poverty, disentangling "first round" effects, due to migration of rural poor to cities, and "second round" effects, due to positive externalities of city growth on surrounding rural areas. We test our theoretical predictions on a sample of Indian districts in the period 1981-1999, and find that urbanization has a substantial and systematic poverty reducing effect in surrounding rural areas. This effect is largely attributable to positive spillovers from urbanisation rather than to the movement of the rural poor to urban areas per se. Results using IV estimation suggest that this effect is causal in nature (from urbanisation to rural poverty).
    Keywords: Rural Poverty, Urbanization, Indian districts, India
    JEL: O12 O18 O2 I3
    Date: 2009–02

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