nep-geo New Economics Papers
on Economic Geography
Issue of 2010‒11‒20
24 papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. The impact of creativity on growth in German regions By Wedemeier, Jan
  2. Within and Between Panel Cointegration in the German Regional Output-Trade-FDI Nexus By Timo Mitze
  3. The Fluctuating Record of Economic Regeneration in Englands Second-Order City Regions, 1984-2007 By Tony Champion; Alan Townsend
  4. In Search of the Economic Dividend of Devolution: Spatial Disparities, Spatial Economic Policy and Decentralisation in the UK By Andy Pike; Andrés Rodríguez-Pose; John Tomaney; Gianpiero Torrisi; Vassilis Tselios
  5. Network dynamics in regional clusters: The perspective of an emerging economy By Elisa Giuliani
  6. Entrepreneurship and Market Size. The Case of Young College Graduates in Italy. By Sabrina Di Addario; Daniela Vuri
  7. Regional Knowledge and the Emergence of an Industry: Laser Systems Production in West Germany, 1975Ð2005 By Guido Buenstorf; Michael Fritsch; Luis Medrano
  8. Spatial Costs in a Monocentric City(And Implications for Agglomeration) By Hugh B. Wenban-Smith
  9. Diferencias Regionales en Rendimiento Educativo en España: ¿La Familia lo Explica Todo? By José Ignacio García Pérez; Marisa Hidalgo Hidalgo; José Antonio Robles Zurita
  10. Regional Manufacturing Wages: Dancing to the Tune of Trade Shocks By Filipe Lage de Sousa
  11. Regions, frictions, and migrations in a model of structural transformation By Tombe, Trevor
  12. Predicting the Geography of House Prices By Bernard Fingleton
  13. Search, Wage Posting, and Urban Spatial Structure By Zenou, Yves
  14. Mostly Pointless Spatial Econometrics? By Steve Gibbons; Henry G. Overman
  15. Towards the Resilient Region?: Policy Activism and Peripheral Region Development By Stuart Dawley; Andy Pike; John Tomaney
  16. "The Henry George Theorem in A Second-Best World" By Kristian Behrens; Yoshitsugu Kanemoto; Yasusada Murata
  17. Geography or Economics? A Micro-Level Analysis of the Determinants of Degree Choice in the Context of Regional Economic Disparities in the UK By Philip Wales
  18. Search, Migration, and Urban Land Use: The Case of Transportation Policies By Yves Zenou
  19. Economic Geographers and the Limelight: The Reaction to the 2009 World Development Report By Andrés Rodríguez-Pose
  20. The Impact of Crises on Youth Unemployment of Russian Regions: An Empirical Analysis By Olga Demidova; Marcello Signorelli
  21. Immigration, factor endowments and the productive structure of Spanish regions By Guadalupe Serrano; Francisco Requena; Joan Martin-Montaner
  22. Wage Effects from Changes in Local Human Capital in Britain By Ioannis Kaplanis
  23. Bank Location and Financial Liberalization Reforms: Evidence from Microgeographic Data By Marieke Huysentruyt; Eva Lefevere; Carlo Menon
  24. Success from Satisficing and Imitation: Entrepreneurs’ Location Choice and Implications of Heuristics for Local Economic Development By Berg, Nathan

  1. By: Wedemeier, Jan
    Abstract: The objective of this paper is to analyze the impact of the creative professions - technological employees and bohemians - on economic growth in Germany’s planning regions. It is concluded that technological employees and bohemians foster economic growth. We find that growth is particularly dynamic in agglomerated and urbanized regions. Among regional factors relevant to the location decisions of creative professionals, diversity is analyzed in particular, as it might stimulate growth because of its potential to increase the rate of interchange of different ideas and knowledge. Diversity is therefore a “knowledge production factor." The analysis of both - creative professions and diversity - is related to two current topics in regional economics, namely the knowledge based economy and its effects on city development, and the topic of creative cities.
    Keywords: Regional Economic Growth; Creativity; Diversity
    JEL: R1 O3 O4 R23
    Date: 2010
  2. By: Timo Mitze
    Abstract: For spatial data with a sufficiently long time dimension, the concept of global cointegration has been recently included in the econometrics research agenda. Global cointegration arises when non-stationary time series are cointegrated both within and between spatial units. In this paper, we analyze the role of globally cointegrated variable relationships using German regional data (NUTS 1 level) for GDP, trade, and FDI activity during the period 1976–2005. Applying various homogeneous and heterogeneous panel data estimators to a Spatial Panel Error Correction Model (SpECM) for regional output growth allows us to analyze the short- and long-run impacts of internationalization activities. For the long-run cointegration equation, the empirical results support the hypothesis of export- and FDI-led growth. We also show that for export and outward FDI activity positive cross-regional eff ects are at work. Likewise, in the short-run SpECM specification, direct and indirect spatial externalities are found to be present. As a sensitivity analysis, we use a spatial weighting matrix based on interregional goods transport fl ows rather than geographical distances. This scheme thus allows us to address more soundly the role of positive and negative effects of trade/FDI on output activity for a system of interconnected regions.
    Keywords: Cointegration; Spatial Durbin model; growth; trade; FDI
    JEL: C21 C22 C23 F43
    Date: 2010–11
  3. By: Tony Champion; Alan Townsend
    Abstract: This study examines how far and in what way 'Our cities are back', as claimed by England's Core Cities Group. It focuses on 1984-2007 employment changes for the eight Core Cities and their city regions: Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield. City regions are defined on a consistent functional basis and allowance is made for discontinuities in the jobs time-series. These provincial city regions are found to have suffered relatively less than London in the early 1990s recession, but then recovered more slowly to achieve their greatest rates of growth in 1998- 2002 and only then did the Core Cities outpace the rest of their city regions. Employment growth slowed after this, though their population recovery continued.
    Keywords: Urban regeneration, employment data, city regions, Core Cities, England
    JEL: J21 O18 R11 R12 R23
    Date: 2009–10
  4. By: Andy Pike; Andrés Rodríguez-Pose; John Tomaney; Gianpiero Torrisi; Vassilis Tselios
    Abstract: After a decade of devolution and amid uncertainties about its effects, it is timely to assess andreflect upon the evidence and enduring meaning of any 'economic dividend' of devolution inthe UK. Taking a multi-disciplinary approach utilising institutionalist and quantitativemethods, this paper seeks to discern the nature and extent of any 'economic dividend'through a conceptual and empirical analysis of the relationships between spatial disparities,spatial economic policy and decentralisation. Situating the UK experience within thehistorical context of its evolving geographical political economy, we find: i) a varied anduneven nature of the relationships between regional disparities, spatial economic policy anddecentralisation that change direction during specific time periods; ii) the role of nationaleconomic growth is pivotal in explaining spatial disparities and the nature and extent of theirrelationship with the particular forms of spatial economic policy and decentralisationdeployed; and, iii) there is limited evidence that any 'economic dividend' of devolution hasemerged but this remains difficult to discern because its likely effects are over-ridden by therole of national economic growth in decisively shaping the pattern of spatial disparities and indetermining the scope and effects of spatial economic policy and decentralisation.
    Keywords: Economic dividend, devolution, spatial disparities, spatial economic policy,decentralisation, UK
    JEL: D53 R51
    Date: 2010–10
  5. By: Elisa Giuliani
    Abstract: Regional clusters are spatial agglomerations of firms operating in the same or connected industries, which enable innovation and economic performance for firms. A wealth of empirical literature shows that one of key elements of the success of regional clusters is that they facilitate the formation of local inter-organizational networks, which act as conduits of knowledge and innovation. While most studies analyze the benefits and characteristics of regional cluster networks and focus on advanced economies and high tech Ôhot spotsÕ, this paper advances with the existing literature by analyzing network dynamics and taking an emerging economyÕs perspective. Using longitudinal data of a wine cluster in Chile and stochastic actor-oriented models for network dynamics, this paper examines what micro-level effects influence the formation of new knowledge ties among wineries. It finds that the coexistence of cohesion effects (reciprocity and transitivity) and the presence of inter-firm knowledge base heterogeneity contribute to the stability of an informal hierarchical network structure over time. Empirical results have interesting implications for cluster competitiveness and network studies, and for the burgeoning literature on corporate behavior in emerging economies.
    Keywords: Regional clusters, knowledge networks, network dynamics, wine industry, Chile
    Date: 2010–10
  6. By: Sabrina Di Addario (Bank of Italy); Daniela Vuri (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: We analyse empirically the effects of urbanization on Italian college graduates’ work possibilities as entrepreneurs three years after graduation. We find that doubling the province of work’s population density reduces the chances of being an entrepreneur by 2-3 percentage points. This result holds after controlling for regional fixed effects and is robust to instrumenting urbanization. Provinces’ competition, urban amenities and dis-amenities, cost of labour, earning differentials between employees and self-employed workers, unemployment rates and value added per capita account for more than half of the negative urbanization penalty. Our result cannot be explained by the presence of negative differentials in returns to entrepreneurship between the most and the least densely populated areas either. In fact, as long as they succeed in entering the most densely populated markets, young entrepreneurs are able to reap-off the benefits of urbanization externalities: the elasticity of entrepreneurs’ net monthly earnings with respect to population density is 0.02-0.03.
    Keywords: Labour market transitions; Urbanization.
    JEL: R12 J24 J21
    Date: 2010–11–08
  7. By: Guido Buenstorf; Michael Fritsch; Luis Medrano
    Abstract: We analyze the emergence and spatial evolution of the German laser systems industry. Regional knowledge in the related field of laser sources, as well as the presence of universities with physics or engineering departments, is conducive to the emergence of laser systems suppliers. The regional presence of source producers is also positively related to entry into laser systems. One important mechanism behind regional entry is the diversification of upstream laser source producers into the downstream systems market. Entry into the materials processing submarket appears to be unrelated to academic knowledge in the region, but the presence of laser source producers and the regional stock of laser knowledge are still highly predictive in this submarket.
    Keywords: Innovation, regional knowledge, laser technology, emerging industries, diversification
    JEL: L22 L69 R11 O52
    Date: 2010–11
  8. By: Hugh B. Wenban-Smith
    Abstract: Using water supply as a model for a wider range of infrastructure services, the effect of a negative exponential density gradient on distribution costs is investigated for four monocentric urban development scenarios: (a) Densification; (b) Dispersion; (c) Suburbanisation; and (d) Constant density. It is shown that economies of scale in production can be outweighed by diseconomies in distribution in cases (b) and (c), suggesting that the agglomeration benefits of infrastructure cannot be taken for granted. They depend as much on the effect of density on distribution costs as the effect of size on production costs.
    Keywords: Urbanisation, spatial analysis, returns to scale, water utilities
    JEL: R12 R32 D24 L95
    Date: 2009–10
  9. By: José Ignacio García Pérez (Department of Economics, Universidad Pablo de Olavide); Marisa Hidalgo Hidalgo (Department of Economics, Universidad Pablo de Olavide); José Antonio Robles Zurita (Department of Economics, Universidad Pablo de Olavide)
    Abstract: PISA 2006 results showed huge differences in educational attainment across Spanish regions. The aim of this paper is to analyze the factors explaining these differences. Our results indicate that differences in family characteristics of students from different regions are crucial in explaining them. However, we also find that differences in regional educational systems are important factors explaining differences in education outcome. The variables related to regional particularities of the educational system are important in explaining the different results in different academic areas. The implications in terms of educational policies of the latter result are many, especially for the implementation of policies to reduce regional economic disparities.
    Keywords: PISA; Rendimiento educativo; Análisis Regional; Descomposición de las diferencias; Sistema educativo; Políticas Públicas.
    JEL: H52 I21 I28 D61 R50
    Date: 2010–11
  10. By: Filipe Lage de Sousa
    Abstract: Firms generally choose to locate their production where profits are maximized. As costsaffect profits, trade-offs between two marginal costs - employees' wages and transport costs- may be important for decisions regarding location. Wages tend to be greater in industrialcentres and decrease as transport costs increase. Trade shocks might impact regional wagedisparities by making foreign markets, for example, relatively more attractive for firms thandomestic markets. This paper tests these two hypotheses by using regional Brazilian data.Results corroborate that regions with higher transport costs present lower wages, and thattrade shocks affect these regional wage disparities.
    Keywords: Economic geography, trade shocks, manufacturing wages
    JEL: F12 F14 R12
    Date: 2010–04
  11. By: Tombe, Trevor
    Abstract: Why do some regions grow faster than others? More precisely, why do rates of convergence differ? Recent research points to labour market frictions as a possible answer. This paper expands along this line by investigating how these labour market frictions interact with regional migration. Motivating this are two important observations: (1) farm-to-nonfarm labour reallocation costs have fallen, disproportionately benefiting poorer agricultural regions; and (2) migration flows vary dramatically by region, lowering (raising) marginal productivities in destination (source) regions. Using a general equilibrium model of structural transformation calibrated with US regional data over time, I find regional migration barriers magnify the income convergence effect of labour market improvements. For instance, recent research points to improved nonagricultural skills acquisition as a driver of Southern US convergence with the North. I find the strong link between labour markets and Southern convergence follows from the South’s historically extensive migration restrictions. Finally, the model captures the low convergence rates experienced by other regions, such as the US Midwest.
    Keywords: structural change; regional migration; transportation costs; labour market frictions; regional convergence
    JEL: O11 N1 E00 R11
    Date: 2010–03–01
  12. By: Bernard Fingleton
    Abstract: Prediction is difficult. In this paper we use panel data methods to make reasonably accurate shorttermex-post predictions of house prices across 353 local authority areas in England. The issue ofprediction over the longer term is also addressed, and a simple method that makes use of thedynamics embodied in New Economic geography theory is suggested as a possible way toapproach the problem.
    Keywords: new economic geography, real estate prices, spatial econometrics, panel data, prediction
    JEL: C21 C31 O18 R12 R31
    Date: 2010–02
  13. By: Zenou, Yves (Dept. of Economics, Stockholm University)
    Abstract: We develop an urban-search model in which firms post wages. When all workers are identical, there is a unique wage in equilibrium even in the presence of search and spatial frictions. This wage is affected by spatial and labor costs. When workers differ according to the value imputed to leisure, we show that, under some conditions, two wages emerge in equilibrium. The commuting cost affects the land market but also the labor market through wages. Workers’ productivity also affects housing prices and this impact can be positive or negative depending on the location in the city. We then run some numerical simulations to reproduce some stylized facts about the labor-market outcomes of black and white workers. We find that a reduction in commuting costs for all workers reduces the unemployment rate of white workers and the profit of all firms but increases the wage of all workers (black and white) and raises the fraction of firms posting the high wage.
    Keywords: Diamond paradox; urban land-use; spatial compensation; search frictions; wage dispersion
    JEL: D83 J64 R14
    Date: 2010–11–08
  14. By: Steve Gibbons; Henry G. Overman
    Abstract: We argue that identification problems bedevil most applied spatial research. Spatialeconometrics solves these problems by deriving estimators assuming that functional formsare known and by using model comparison techniques to let the data choose betweencompeting specifications. We argue that in most situations of interest this, at best, achievesonly very weak identification. Worse, in most cases, such an approach will simply beuninformative about the economic processes at work rendering much applied spatialeconometric research 'pointless', unless the main aim is simply description of the data. Weadvocate an alternative approach based on the 'experimental paradigm' which puts issues ofidentification and causality at centre stage.
    Keywords: statistical methods, spatial, modeling
    JEL: C1 C12 C21 R00 R15
    Date: 2010–10
  15. By: Stuart Dawley; Andy Pike; John Tomaney
    Abstract: Discussions of local and regional development have recently broadened from apreoccupation with growth to one which captures the notion of resilience. This papermakes two main contributions to these debates. First, the paper critiques staticequilibrium-based notions of resilience and instead advances a more dynamicevolutionary approach to explain local and regional resilience. Second, we seek toaddress the widening gap between resilience thinking and its transfer to practical policyprescription. To do this, we explore the notions of adaptability, adaptive capacity andnew path creation in developing local and regional resilience. We then focus upon whatthis might mean for local and regional strategies and draw on the case study of theRenewable Energy sector in North East England to demonstrate the enduring role ofpolicy intervention in stimulating change and building resilience in peripheral regions.
    Keywords: Resilience, adaptability, adaptation
    JEL: O10 R00
    Date: 2010–09
  16. By: Kristian Behrens (Departement des Sciences Economiques, Universite du Queebec a Montreal (UQAM), CIRPEE, and CEPR); Yoshitsugu Kanemoto (Graduate School of Economics and Graduate School of Public Policy (GraSPP), University of Tokyo, National Graduate Institute for Policy Studies); Yasusada Murata (Advanced Research Institute for the Sciences and Humanities (ARISH), Nihon University)
    Abstract: The Henry George Theorem (HGT), or the golden rule of local public finance, states that, in first-best economies, the fiscal surplus, defined as aggregate land rents minus aggregate losses from increasing returns to scale activities, is zero at optimal city sizes. We derive a general second-best HGT in which the fiscal surplus equals the excess burden, expressed as an extended Harberger formula. We then apply our theorem to various settings encompassing urban eco- nomics, the new economic geography and local public finance to investigate whether or not a single tax on land rents can raise enough revenue to cover aggregate losses from increasing returns to scale activities.
    Date: 2010–11
  17. By: Philip Wales
    Abstract: The importance of human capital to the economic performance of a national, regional or local economy is now well established. Labour markets are thought to reward individuals in proportion to their marginal productivity and to encourage an efficient allocation of skilled workers. However, labour markets also provide signals to students about the return to a particular level or type of skill, which in turn affects the future supply of skilled workers. This paper explores how labour market conditions affect one aspect of this supply: through an impact on the subject an individual chooses to study for their undergraduate degree. Using a large micro-level dataset on graduates from British universities between 2004/5 and 2006/7, this paper implements a series of linear probability models in subject choice and makes several contributions to the existing literature. Firstly, it uses a more detailed classification of subjects than has hitherto been employed. Second, it examines the impact of local economic conditions on the student‟s subject choice. Thirdly, the time dimension of the dataset is used to implement fixed effects to control for several forms of endogeneity. The results suggest that personal and academic characteristics, such as gender, ethnicity and prior academic attainment, strongly affect degree choice and suggest that individuals endogenously select into particular areas and schools. It finds that local labour market signals do encourage individuals to take up particular degrees in preference to others, and raises several policy issues.
    Keywords: Education, Human Capital, Skills, Regional Labour Markets
    JEL: C25 I2 J24 R23
    Date: 2010–09
  18. By: Yves Zenou (Stockholm University, IFN, and CREAM)
    Abstract: We develop a search-matching model with rural-urban migration and an explicit land market. Wages, job creation, urban housing prices are endogenous and we characterize the steady-state equilibrium. We then consider three different policies: a transportation policy that improves the public transport system in the city, an entry-cost policy that encourages investment in the city and a restricting-migration policy that imposes some costs on migrants. We show that all these policies can increase urban employment but the transportation policy has much more drastic effects. This is because a decrease in commuting costs has both a direct positive effect on land rents, which discourages migrants to move to the city, and a direct negative effect on urban wages, which reduces job creation and thus migration. When these two effects are combined with search frictions, the interactions between the land and the labor markets have amplifying positive effects on urban employment. Thus, improving the transport infrastructure in cities can increase urban employment despite the induced migration from rural areas.
    Keywords: Rural-urban migration, transportation policies, entry costs, restricting migration.
    JEL: D83 J61 O18 R14
    Date: 2010–11
  19. By: Andrés Rodríguez-Pose
    Abstract: The reaction of economic geographers to the World Bank's World Development Report 2009- Reshaping Economic Geography - has so far been a corporatist turf-protecting exercise.The report has been dismissed as the work of economists who completely ignore a richtradition of work by 'proper' economic geographers. However, this negative response hasprevented geographers from engaging constructively with the World Bank's analysis andproposals. In this note I argue that, while the report presents an accurate diagnosis of recentdevelopment trends and should be praised for its flexibility in providing numerous policyalternatives, geographers can significantly contribute to promote a discussion around two keyissues in the report: its treatment of institutions and its recommendation of spatially-blindpolicies.
    Keywords: economic geography
    JEL: R0 R19
    Date: 2010–04
  20. By: Olga Demidova; Marcello Signorelli
    Abstract: The main purpose of this paper is to estimate the influence of the 1998 and 2008 crises on the youth unemployment rates (age class 20-29) in Russian regions. The investigation is founded on the panel data for 78 Russian regions during 1997–2008 provided by ROSSTAT (the main Russian State statistical organization). We compare the level and dynamics of the youth unemployment in various Russian regions and try to solve three main questions. Are there any special features of the youth unemployment in comparison with overall unemployment? How the 1998 crisis did change - and how the 2008 crisis is going to change - the youth unemployment dynamics? What can we learn from the impact of 1998 crisis and what is the main difference with the impact of the 2008 crisis? With the help of the obtained results we define some preliminary policy suggestion.
    Keywords: financial crises, regional youth unemployment, Russian labour market.
    JEL: R23 E24
    Date: 2010–10–01
  21. By: Guadalupe Serrano (Dept. of Economic Analysis. Faculty of Economics. University of Valencia); Francisco Requena (Dept. of Economic Analysis. Faculty of Economics. University of Valencia); Joan Martin-Montaner (Dept. of Economics. Universitat Jaume I de Castelló)
    Abstract: Participation of immigrants in Spanish labour market increased from less than 3 percent in 1996 to more than 13 percent in 2005. We use the factor proportion model of production to examine the impact of such a large labour supply shock on the industrial structure of Spanish regions. The results confirm that, first, labour endowment differences across regions help to explain the pattern of industry specialisation across regions. Second, immigrants and natives act as complementary factors in most industries. Third, the importance of immigration is relatively small compared to production technique changes and idiosyncratic industry changes in explaining the overall changes in industrial structure from 1996 to 2005.
    Keywords: Rybczynski Effect, immigration, production specialisation, technological change
    JEL: F22 R11 R13
    Date: 2010–11
  22. By: Ioannis Kaplanis
    Abstract: This paper examines the wage effects arising from changing local human capital in the labourmarket areas of Britain. Employing wage regressions, it is found that individuals' wages arepositively associated with changes in the employment shares of high-paid occupation workersin the British travel-to-work-areas for the late 1990s. I examine this positive association fordifferent occupational groups (defined by pay) in order to disentangle between productionfunction and consumer demand driven theoretical justifications. The former refer toproduction complementarities or wider productivity spillovers arising in areas with highshares of high-skill workers. According to the latter, the presence of a high income workforcein the economy boosts the demand for consumer services leading to an increase in low-pay,service related employment. As these services are non-traded, the increased demand for locallow-paid services should be reflected in a wage premium for the relevant low-paidoccupation employees in the areas with larger shares of high-paid workers. The wage impactis found to be stronger and significant for the bottom occupational quintile compared to themiddle-occupational quintiles and using also sectoral controls the paper argues to providesome preliminary evidence for the existence of consumer demand effects. The empiricalinvestigation addresses potential sources of biases controlling for time invariant unobservedarea-specific characteristics and unobserved individual characteristics. Nevertheless, thepaper points to a number of caveats of the analysis that warrant future research.
    Keywords: local labour markets, wages, consumer demand, human capital externalities
    JEL: J21 J24 J31 R23
    Date: 2010–01
  23. By: Marieke Huysentruyt; Eva Lefevere; Carlo Menon
    Abstract: We examine the effects of bank deregulation on the spatial dynamics of retail-bankbranching, exploiting, much like a quasi-natural experiment, the context of intenseliberalization reforms in Belgium in the late nineties. Using .ne-grained data on branchnetwork dynamics within the metropolitan area of Antwerp and advancing novel spatialeconometric techniques, we show that these liberalization reforms radically shifted andaccelerated branch network dynamics. Entry and exit dynamics substantially intensified, thelevel change in financial void grew significantly, and bank choice markedly declined.Moreover, all these changes consistently extended (even with greater intensity) after theliberalization peak. However, the immediate and longer-term spatial ramifications of thefinancial sector liberalization were very distinct. All immediate changes systematically,differentially impacted the poorer and wealthier neighborhoods, disenfranchising the poorerneighbourhoods and favoring their wealthier counterparts. The longer-term effects on spatialpatterns of change no longer exhibited this systematic relationship with neighborhoodincome. We draw out the policy implications of our findings.
    Keywords: Location, Retail-banking, Liberalization, Poverty, Spatial Statistics
    JEL: G21 L1 L22 O16 R12
    Date: 2010–10
  24. By: Berg, Nathan
    Abstract: Decisions about location choice provide an opportunity to compare the predictions of optimization models, which require exhaustive search through very large choice sets, against the actual decision processes used by entrepreneurs choosing where to allocate investment capital. This paper presents new data on entrepreneurs’ self-described decision processes when choosing where to locate, based on scripted interviews with 49 well-placed business owners and senior managers in charge of location choice. Consideration sets are surprisingly small, especially among those who are successful. According to entrepreneurs’ own accounts, locations are frequently discovered by chance rather than systematic search. Few describe decision processes that bear any resemblance to equating marginal benefit with marginal cost as prescribed by standard optimization theory. Nearly all interviewees describe location choice decisions based on threshold conditions, providing direct evidence of satisficing rather than optimization. Imitation is beneficial for small investment projects. Decision process data collected here suggests a need to rethink standard policy tools used to stimulate local economic development.
    Keywords: Process Model; Bounded Rationality; Interview Data; Ethnic; Discrimination; Low income; Neighborhood; Lexicographic; Non-compensatory; Business Owners
    Date: 2010

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