nep-geo New Economics Papers
on Economic Geography
Issue of 2011‒03‒26
23 papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Income Inequality, Regional Development and Decentralisation in Western Europe By Andy Pike; Andrés Rodríguez-Pose; John Tomaney; Gianpiero Torrisi; Vassilis Tselios
  2. Productivity distribution, firm heterogeneity, and agglomeration: Evidence from firm-level data By Toshihiro Okubo; Eiichi Tomiura
  3. The Winner's Choice: Sustainable Economic Strategies for Successful 21st Century Regions By Mark D., Partridge; M. Rose, Olfert
  4. Regional Patterns of Intangible Capital, Agglomeration Effects and Localised Spillovers in Germany By Kurt Geppert; Anne Neumann
  5. Where is the Economics in Spatial Econometrics? By Luisa Corrado; Bernard Fingleton
  6. Spatial Propagation of Macroeconomic Shocks in Europe By Romain Houssa
  7. Regional Wage Differences in the Netherlands: Micro-Evidence on Agglomeration Externalities By Stefan P.T. de Groot; Henri L.F. de Groot; Martijn Smit
  8. When do global pipelines enhance knowledge diffusion in clusters? By Andrea Morrison; Roberta Rabellotti; Florian Lorenzo Zirulia
  9. Overeducation and spatial flexibility in Italian local labour markets By Croce, Giuseppe; Ghignoni, Emanuela
  10. The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies By Raveh, Ohad
  11. Real Earnings Disparities in Britain By Stephen Gibbons; Henry G. Overman; Guilherme Resende
  12. The Long Term Impacts of Migration in British Cities: Diversity, Wages, Employment and Prices By Max Nathan
  13. Plant-level Determinants of Total Factor Productivity in Great Britain, 1997-2006 By Richard Harris; John Moffat
  14. Localized knowledge spillovers and patent citations: A distance-based approach By Yasusada Murata; Ryo Nakajima; Ryosuke Okamoto; Ryuichi Tamura
  16. Anti-agglomeration Subsidies with Heterogeneous Firms By Toshihiro Okubo
  17. Metropolitanization 15 years after (In French) By Lise BOURDEAU-LEPAGE ( ADIS, Université Paris Sud 11); Frédéric GASCHET (GREThA, CNRS, UMR 5113); Claude LACOUR (GREThA, CNRS, UMR 5113); Sylvette PUISSANT (GREThA, CNRS, UMR 5113)
  18. Note on the Interpretation of Convergence Speed in the Dynamic Panel Model By Masahiko Shibamoto; Yoshiro Tsutsui
  19. Dutch Disease, Factor Mobility Costs, and the ‘Alberta Effect’ – The Case of Federations By Raveh, Ohad
  20. The Impact of Exogenous Asymmetry on Trade and Agglomeration in Core-Periphery Model By Sidorov, Alexander
  21. Industry and the Urge to Cluster: A Study of the Informal Sector in India By Megha Mukim
  22. The Economics of Super-Diversity: Findings from British Cities, 2001-2006 By Max Nathan
  23. Fiscal Decentralization and Local Tax Effort By Raghbendra Jha; Woojin Kang; Hari K. Nagarajan

  1. By: Andy Pike; Andrés Rodríguez-Pose; John Tomaney; Gianpiero Torrisi; Vassilis Tselios
    Abstract: This paper deals with the relationship between fiscal and political decentralisation, regional economic development, and income inequality within regions. Using Moderated Multiple Regression analysis applied to more than 100,000 individuals in the European Union (EU), it addresses two main questions. First, whether decentralisation in western Europe has an effect on within regional interpersonal inequality. Second, whether this possible relationship is mediated by the level of economic development of the region. The results of the analysis show that greater fiscal and political decentralisation is associated with lower interpersonal income inequality, but that this relationship is far from linear. As regional income rises, further decentralisation is connected to a lower decrease or even to an increase in inequality. This finding is robust to the measurement and definition of income inequality, as well as to the weighting of the spatial units by their population size.
    Keywords: Income inequality, income per capita, fiscal and political decentralisation,interaction, regions, Europe
    JEL: R51
    Date: 2011–03
  2. By: Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University); Eiichi Tomiura (Department of Economics, Yokohama National University)
    Abstract: This paper empirically examines how productivity distributions of firms vary across regions based on Japan's manufacturing census data. We find that firm productivity is distributed with wide dispersions, especially in core regions. Our firm-level estimates demonstrate that the productivity distribution of firms tends to be noticeably left-skewed, deviating from the normal distribution, especially in regions with weak market potential but also in agglomerated or urbanized regions. These findings suggest that agglomeration economies are likely to accommodate heterogeneous firms that co-exist in the same region.
    Keywords: agglomeration; productivity; gamma distribution; heterogeneity; firm-level data
    JEL: L11 R12
    Date: 2011–02
  3. By: Mark D., Partridge; M. Rose, Olfert
    Abstract: Throughout the second half of the 20th Century, urbanization, new technologies, rapid labor-saving productivity growth in primary industries, and improved highways combined to create large-scale rural-urban functionally integrated regions. These forces have raised the stakes for regions in their pursuit of economic development and growth, making successful regional policy even more important. Changes to the governance structures consistent with the increased interdependence within broad rural-urban regions will improve the region's competitiveness; adopting fad-based approaches and policies aimed at “picking winners” will be less fruitful. Going forward, continuing globalization and environmental sustainability have the potential to fundamentally reshape relative regional attractiveness.
    Keywords: Regional Policy; Rural Development
    JEL: R58 R10 H0
    Date: 2010–03–04
  4. By: Kurt Geppert; Anne Neumann
    Abstract: We use a large micro-dataset to assess the importance of intangible capital - organisation, R&D and ICT capital - for the economic performance of establishments and regions in Germany. In 2003 self-produced intangible capital accounted for more than one fifth of the total capital stock of estab-lishments. More than half of the intangible capital is R&D capital. This high proportion is mainly due to a relatively strong and research-intensive manufacturing sector in Germany. At the regional level, we find descriptive evidence for a positive relationship between intangible capital and the economic performance of regions. This is true both for the level of economic activities and for growth. The results of cross-sectional regressions for the years from 1999 to 2003 indicate that dou-bling the intangible capital intensity of establishments increases the average wage levels by one percent. Regarding the regional economic environment of establishments, we find that the substan-tial net advantages of agglomeration have more to do with broad knowledge and diversity than with regional clustering and specialisation. Separate regressions for the wage levels of non-intangible workers show very similar results. These workers can share the rents of the activities of intangible workers. Thus, intangible capital generates positive externalities not only at the regional level, but also at the level of establishments.
    Keywords: Firm productivity, intangible capital, agglomeration, local spillovers
    JEL: J24 M40 O33 R30
    Date: 2011
  5. By: Luisa Corrado; Bernard Fingleton
    Abstract: Spatial econometrics has been criticized by some economists because some model specifications have been driven by data-analytic considerations rather than having a firm foundation in economic theory. In particular this applies to the so-called W matrix, which is integral to the structure of endogenous and exogenous spatial lags, and to spatial error processes, and which are almost the sine qua non of spatial econometrics. Moreover it has been suggested that the significance of a spatially lagged dependent variable involving W may be misleading, since it may be simply picking up the effects of omitted spatially dependent variables, incorrectly suggesting the existence of a spillover mechanism. In this paper we review the theoretical and empirical rationale for network dependence and spatial externalities as embodied in spatially lagged variables, arguing that failing to acknowledge their presence at least leads to biased inference, can be a cause of inconsistent estimation, and leads to an incorrect understanding of true causal processes.
    Keywords: Spatial econometrics, endogenous spatial lag, exogenous spatial lag, spatiallydependent errors, network dependence, externalities, the W matrix, panel data with spatialeffects, multilevel models with spatial effects
    JEL: C21 C31 R0
    Date: 2011–03
  6. By: Romain Houssa (Center for Research in the Economics of Development, University of Namur)
    Abstract: This paper develops a Spatial Vector Auto-Regressive (SpVAR) model that takes into account both the time and the spatial dimensions of economic shocks. We apply this framework to analyze the propagation through space and time of macroeconomic (inflation, output gap and interest rate) shocks in Europe. The empirical analysis identifies an economically and statistically significant spatial component in the transmission of macroeconomic shocks in Europe.
    Keywords: Macroeconomics, Spatial Models, VAR
    JEL: E3 E43 E52 C51 C33
    Date: 2010–04
  7. By: Stefan P.T. de Groot (VU University Amsterdam); Henri L.F. de Groot (VU University Amsterdam); Martijn Smit (VU University Amsterdam)
    Abstract: Based on micro-data on individual workers for the period 2000-2005, we show that wage differentials in the Netherlands are small but present. A large part of these differentials can be attributed to individual characteristics of workers. Remaining effects are partially explained by variations in employment density, with an elasticity of about 3.8 percent and by Marshall-Arrow-Romer externalities, where doubling the share of a (2-digit NACE) industry results in a 2.4 percent higher productivity. We find evidence for a negative effect of competition (associated with Porter externalities) and diversity (associated with Jacobs externalities).
    Keywords: regional labour markets; wage differentials; agglomeration externalities
    JEL: J24 O12 R11 R23
    Date: 2011–03–07
  8. By: Andrea Morrison; Roberta Rabellotti; Florian Lorenzo Zirulia
    Abstract: Recent studies have stressed the role played by global pipelines in fostering cluster growth and innovativeness. This paper develops a formal model investigating when global pipelines contribute to increase local knowledge, depending on various cluster characteristics such as size, knowledge endowment and ease of internal knowledge transmission. This model is an extension of Cowan and JonardÕs 2004 model in which we introduce the concept of cluster and a role for spatial proximity in knowledge diffusion. We find that there is a natural tendency of actors within global pipelines to act as external stars rather than knowledge gatekeepers. Global pipelines are beneficial for cluster knowledge accumulation only if the cluster is either characterized by a high quality local buzz or is small and weakly endowed in terms of knowledge.
    Keywords: knowledge gatekeepers, clusters, knowledge diffusion
    JEL: R11 O33 D83 C63
    Date: 2011–03
  9. By: Croce, Giuseppe; Ghignoni, Emanuela
    Abstract: According to a recent strand of literature this paper highlights the relevance of spatial mobility as an explanatory factor of the individual risk of being overeducated. To investigate the causal link between spatial mobility and overeducation we use individual information about daily home-to-work commuting time and choices to relocate in a different local area to get a job. In our model we also take into account relevant local labour markets features. We use a probit bivariate model to control for selective access to employment, and test the possibility of endogeneity of the decision to migrate. Separate estimations are run for upper-secondary and tertiary graduates. The results sustain the appropriateness of the estimation technique and show a significantly negative impact of the daily commuting time for the former group, as well as, negative impact of the decision to migrate and of the migration distance for the latter one.
    Keywords: Overeducation; Spatial flexibility; Local labour markets; Sample selection bias
    JEL: J62 J21 J61
    Date: 2011–03–01
  10. By: Raveh, Ohad
    Abstract: Natural resource abundance is a blessing for some countries, yet is a curse for others. The degree of fiscal decentralization may account for this divergent outcome. Resources tend to locate in remote, non-agglomerated, and sparsely populated areas; a high degree of fiscal decentralization gives a resource abundant region an advantage in the inter-regional tax competition over capital so that it attracts some capital from agglomerated and densely populated regions. Given a sufficiently high agglomeration level, any such movement of capital would bring a loss of output in the agglomerated region that outweighs the sum of gains from resource income and increased output in the remote region – so that aggregate product in the economy drops. This theory is empirically tested -and confirmed- building on Sachs and Warner’s influential works on the resource curse, employing the World Bank’s Fiscal Decentralization Indicators, and taking the United States as a case study.
    Keywords: Natural Resources; Economic Growth; Resource Curse; Fiscal Decentralization; Agglomeration Economies; Tax Competition
    JEL: O18 O57 O13 Q33 C21
    Date: 2011–01
  11. By: Stephen Gibbons; Henry G. Overman; Guilherme Resende
    Abstract: This report estimates housing-cost-earnings differentials across labour market areas in Britain. We show that quality-adjusted housing costs rise on average, one for one with the skill-adjusted earnings of the average working household. However, the relationship is Ushaped, with relatively high housing costs in places at the bottom and top ends of the wage distribution. This variation in housing costs means nominal wages are uninformative about real income disparities. If we assume spatial equilibrium and treat the cost-earnings differentials as estimates of the value of amenities, we can rank cities in terms of quality of life and estimate the value of different amenities. Our work improves on previous research by using longitudinal data on workers to estimate skill-adjusted labour market earnings differentials (net of taxes), using micro data on housing transactions, and by considering the implications of capital gains for housing user cost calculations.
    Keywords: Britain, spatial equilibrium, labour market, housing market
    JEL: J60 R23
    Date: 2011–01
  12. By: Max Nathan
    Abstract: British cities are becoming more culturally diverse, with migration a main driver. Is this growing diversity good for urban economies? This paper explores, using a new 16-year panel of UK cities. Over time, net migration affects both local labour markets and the wider economy. Average labour market impacts appear neutral. Dynamic effects may be positive on UK-born workers' productivity and wages (via production complementarities for higher skill workers) or negative on employment (if migrants progressively displace lower-skill natives from specific sectors). The results, which survive causality checks, suggest both processes are operating in British cities. Long-term industrial decline and casualisation of entry-level jobs help explain the employment findings.
    Keywords: cities, migration, cultural diversity, labour markets, productivity, urban economics
    JEL: D24 J15 J61 O18 R11 R23
    Date: 2011–02
  13. By: Richard Harris; John Moffat
    Abstract: This paper examines the determinants of total factor productivity (TFP) using a GB plant-level dataset. Using a systems-GMM approach, it considers the role of the following four plant characteristics: internal and external knowledge; foreign ownership, multi-plant economies of scale and competition; and spatial spillovers and 'place' effects. The sample is disaggregated into manufacturing and services and by technology to show any differences across sectors.
    Keywords: productivity, plant level TFP, spatial ‘place’ effects, foreign-owned plants
    JEL: C23 D24 R12
    Date: 2011–01
  14. By: Yasusada Murata (Advanced Research Institute for the Sciences and Humanities, Nihon University); Ryo Nakajima (Department of Economics, Yokohama National University); Ryosuke Okamoto (National Graduate Institute for Policy Studies); Ryuichi Tamura (Graduate School of Humanities and Social Sciences, University of Tsukuba)
    Abstract: We develop a new approach to localized knowledge spillovers by incorporating the concept of control patents (Jaffe, Trajtenberg and Henderson 1993) into the distancebased test of localization (Duranton and Overman, 2005). Using microgeographic data, we identify localization distance while allowing for cross-boundary spillovers, unlike the existing literature where the extent of localized knowledge spillovers is detected at the state or metropolitan statistical area level. We revisit the recent debate by Thompson and Fox-Kean (2005) and Henderson, Jaffe and Trajtenberg (2005) on the existence of localized knowledge spillovers, and find solid evidence supporting localization, even when finer controls are used.
    Keywords: localized knowledge spillovers; distance-based tests; microgeographic data; K-density; patent citations; control patents
    JEL: O31 R12
    Date: 2011–03
    Abstract: La competitividad se ha estudiada con diferentes nombres desde el nacimiento de la economía y las firmas; el uso del concepto es objeto de debate por las relaciones con diversos desarrollos teóricos en la administración, la geografía económica y las políticas. Objetivo: Diferenciar las perspectivas, escuelas y autores que estudian la competitividad territorial. Metodología: En la literatura sobre competitividad se encuentran unos referentes teóricos notorios como lo son la competitividad internacional de la Escuela de Harvard, el Foro Económico Mundial y la Escuela de Negocios IMD; la competitividad sistémica del Instituto Alemán de Desarrollo; y la competitividad regional. La revisión bibliográfica y el análisis se hacen a partir de artículos sistematizados en las categorías competitividad internacional, sistémica y regional. Resultados: Se encuentra que la competitividad territorial es una categoría transversal que reúne la competitividad nacional y regional. Se concluye que el uso de la competitividad como categoría de análisis de los territorios es académicamente válido, y por lo tanto son válidas sus implicaciones en política comercial estratégica y regulación.
    Date: 2010–12–14
  16. By: Toshihiro Okubo (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper studies anti-agglomeration subsidies in a core-periphery setting when firms are heterogeneous in labour productivity, focusing on the effects of relocation subsidy on firm location in various tax-financing schemes (local versus global). We discuss how subsidy can enhance welfare in periphery. As a result we find that subsidy proportional to profits can induce the relocation of high productivity firms and that a subsidy can increase welfare in periphery. Concerning tax-financing schemes, local tax financing scheme has an optimal level of subsidy.
    Keywords: heterogeneous firms, anti-agglomeration relocation subsidy, global/local tax-financing scheme.
    JEL: F21 H32 H25
    Date: 2011–03
  17. By: Lise BOURDEAU-LEPAGE ( ADIS, Université Paris Sud 11); Frédéric GASCHET (GREThA, CNRS, UMR 5113); Claude LACOUR (GREThA, CNRS, UMR 5113); Sylvette PUISSANT (GREThA, CNRS, UMR 5113)
    Abstract: This paper proposes a survey of recent literature on the analysis of metropolitanization, with a main focus on the economic approach of the phenomenon. The basic statements of metropolitanization, appeared at the beginning of 90’s, are clarified: metropolitanization was conceived as the spatial translation of globalization, which has induced changes in the productive systems. Three main categories of recent deepenings are identified. The first relates to the identification of the specific role of metropolises within the globalization context and relies on the analysis of metropolitan functions of coordination, command and control. The second applies knowledge economics in order to understand the specific place of metropolises, stressing the mechanisms of endogenous growth but also the concepts of creativity and knowledge base. The third explores the geography of metropolitan globalization, and stresses the selectivity of metropolitanization dynamics at a worldwide scale and their recent changes, specifically the rise of Asian metropolises.
    Keywords: Metropolisation, globalisation, creativity, knowledge economy, global cities
    JEL: R11 R12
    Date: 2011
  18. By: Masahiko Shibamoto (Research Institute for Economics and Business Administration, Kobe University); Yoshiro Tsutsui (Graduate School of Economics, Osaka University)
    Abstract: Studies using the dynamic panel regression approach have found the speed of income convergence among the world and regional economies to be high. For example, Lee et al. (1997, 1998) report the income convergence speed to be 30% per annum. This note argues that their estimates may be seriously overstated. Using a factor model, we show that the coefficient of the lagged income in their specification may not be the long-run convergence speed, but the adjustment speed of the short-run deviation from the long-run equilibrium path. We give an example of an empirical analysis, where the short-run adjustment speed is about 40%.
    Keywords: convergence speed, dynamic panel regression, factor model
    JEL: O40
    Date: 2011–01
  19. By: Raveh, Ohad
    Abstract: Do reduced costs of factor mobility mitigate ‘Dutch Disease’ symptoms? The case of federations provides an indication for this. By investigating ‘Resource Curse’ effects in all federations for which complete data is available at the regional level it is observed that within federations resource abundance is more of a blessing than a curse (while between them the curse remains). In addition, it is also shown that federations with relatively worse institutional quality experience amplified reversed ‘Resource Curse’ effects within them, so that results are not driven by good institutions. A theory is then presented in an attempt to explain the difference between the cross-federal (and previous cross-country) results of the ‘Resource Curse’, and the intra-federal ones presented initially. It is argued that the reduced factor mobility costs within federations (compared to the costs of cross-country mobility) trigger an ‘Alberta Effect’ which mitigates ‘Dutch Disease’ symptoms, so that ‘Resource Curse’ effects do not apply within federations, and are even reversed. Thus, this paper demonstrates and emphasizes the significance of the mitigating role of factor mobility; also, it highlights the relative importance of ‘Dutch Disease’ theory (compared to the ‘institutions’ perspective) in explaining the ‘Resource Curse’ phenomenon. The paper concludes with empirical evidence for the main implications of the model, taking the United States and Canada as case studies.
    Keywords: Natural Resources; Economic Growth; Factor Mobility; Dutch Disease; Resource Curse; Tax Competition; Spatial Economics
    JEL: O18 O57 O13 Q33 C21
    Date: 2010–12
  20. By: Sidorov, Alexander
    Abstract: The paper studies the Krugman's CP model in the weakly explored case of asymmetric regions in two settings: international trade and agglomeration processes. First setting implies that the industrial labor is immobile, while second one consider mobile industrial labor and long-run equilibria. Analytical study of both settings requires application of advanced mathematical analysis, e.g. implicit function theory. For international trade we find how equilibrium prices, production, consumption, wages and welfare for all population groups respond to shifts in all exogenous parameters: characteristics of utility function, transportation costs and degree of asymmetry in initial labor endowment. As for agglomeration process, it was found that the asymmetry in the population distribution simplifies pattern of agglomeration, making the direction of migration more definite, so the well-known ambiguity of final destination may disappear under sufficiently large extent of asymmetry. From political point of view, it means that under some conditions, openness of international trade may be harmful to immobile population of the smaller country.
    Keywords: Agglomeration; international trade; migration dynamics
    JEL: F12 R12 D51 C62 R23
    Date: 2011
  21. By: Megha Mukim
    Abstract: This paper studies the determinants of firm location choice at the district-level in India to gauge the relative importance of agglomeration economies vis-à-vis good business environment. A peculiar characteristic of the Indian economy is that the unorganised nonfarm sector accounts for 43.2% of NDP and employs 71.6% of the total workforce. I analyse National Sample Survey data that covers over 4.4 million firms, in both unorganised sectors - manufacturing and services. The empirical analysis is carried out using count models, and I instrument with land revenue institutions to deal with possible endogeneity bias. I find that buyer-suppler linkages and industrial diversity make a district more attractive to economic activity, whilst the quality and level of infrastructure are also important. I conclude that public policy may be limited in its ability to encourage relocation of informal firms.
    Keywords: Agglomeration economies, informal sector, location choice
    JEL: R12 R3 O17
    Date: 2011–03
  22. By: Max Nathan
    Abstract: British cities have a surprisingly long history of cultural diversity. Recently they have become significantly more multicultural, with 'super-diversity' emerging in many urban neighbourhoods. Public interest in these changes is high, but there has been little research assessing their impacts. This paper makes two contributions to the field. First, it assembles new data on UK urban areas 2001-6, using an innovative cultural-ethno-linguistic (CEL) measure of cultural diversity alongside more traditional measures. Second, it tests links between diversity, wages and employment rates at the urban level. As suggested by theory and international evidence, I find some positive associations between super-diversity and UK urban economic performance.
    Keywords: cities, demography, migration, culture, cultural diversity, super-diversity, urbaneconomies, growth
    JEL: J15 J61 O18 R11 R23
    Date: 2011–02
  23. By: Raghbendra Jha; Woojin Kang; Hari K. Nagarajan
    Abstract: In India an important policy initiative has been the devolution of financial responsibilities to village level local governments called the Panchayats. The Preamble to this initiative is two fold. First such devolution would not only lead to increased public expenditure but also such expenditures being targeted in a manner consistent with the preferences and needs of the local population. Second, the local tax base would widen, thereby reducing the magnitude of the equalization transfers. However, the incentive structures behind the granting of such additional financial powers have been inadequately articulated. The results have been in the form of reduction in taxes collected, as well as a perceived shrinking of the tax base. These outcomes are posited by us to be due to ignoring the impact of cost of collecting taxes, as well as perverse impacts of devolution of expenditure decisions on local wages and profits. The extant literature has been so far unable to adequately explain the perverse outcomes of devolution especially where reactions to local tax efforts to transfers from the higher level governments are concerned. This paper has attempted to fill this gap. It models and measures the cost of taxation and uses this and the ratio of transfers that augment the local wage rate to those that do not, after controlling for a number of other village level characteristics, to explain tax collected at the local level within a framework that allows for mutual endogeneity of tax collected and transfers. We find that both the cost of tax collection and the ratio of transfers that augment the local wage rate to those that do not have a significant negative effect on tax collection, thus validating the conclusions of the theoretical model developed in this paper. Several policy conclusions are derived.
    Keywords: Devolution, Incentive Effects, Equalizing transfers, Panchayats and Local Government
    JEL: H71 H77
    Date: 2011

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