nep-geo New Economics Papers
on Economic Geography
Issue of 2011‒10‒22
eighteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Convergence and divergence in living standards among regions of the enlarged European Union (1992-2006) By Novotný, JOSEF
  2. 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
  3. Italian economic dualism and convergence clubs at regional level By JG. Brida; N. Garrido; Francesco Mureddu
  4. Spatial Determinants of Entrepreneurship in India By Ejaz Ghani; William R. Kerr; Stephen D. O'Connell
  5. Methodology for Measuring the Fiscal Effect of Regional Expenditures in Colombia By Michael Jorratt
  6. Structural change and regional convergence: the case of declining transport costs By Tombe, Trevor
  7. Labour market adjustment in the Spanish regions: a first examination to the immigration shock, 1995-2002 By José V. Blanes; Francisco Requena; Guadalupe Serrano
  8. The Future of Rural Policy: Lessons from Spatial Economics By Steve Gibbons; Henry G. Overman
  9. Geographic concentration and vertical disintegration in KIBS: evidence from the metropolitan area of Milan By Roberto Antonietti; Giulio Cainelli
  10. State owned enterprises, entrepreneurship and local development: A case from Turkey By Çokgezen, Murat
  11. Agglomeration, related variety and vertical integration By Giulio Cainelli; Donato Iacobucci
  12. The Future of Rural Policy: Lessons from Spatial Economics (Policy Note) By Steve Gibbons; Henry G. Overman
  13. The Political Economy of Infrastructure Investment: Competition, Collusion and Uncertainty By Arghya Ghosh; Kieron Meagher
  14. Past dominations, current institutions and Italian regional economic performance By Adriana Di Liberto; M. Sideri
  15. Measuring the competitiveness of the provinces of Ecuador By Alvarado, Rafael
  16. Structural Change and Growth in a NEG model By Fabio Cerina; Francesco Mureddu
  17. Knowledge Flows and Capability Building in the Indian IT Sector: A Comparative Analysis of Cluster and Non-Cluster Locations By Basant, Rakesh; Chandra, Pankaj; Upadhyayula Rajesh
  18. Local Municipality Productive Efficiency and Its Determinants in South Africa By Nara F. Monkam

  1. By: Novotný, JOSEF
    Abstract: This paper examines regional convergence in living standards among 264 EU27 regions during1992-2006. The main contribution is the exploratory analysis, which inspects various aspects of regional dynamics such as convergence and divergence, polarization, the role of inter-national component, polarization, switching, and mobility of regions. Both the development of absolute and relative differentials in regional living standards is considered by applying several different techniques including some magnitude-free statistics. The results indicate that regional convergence in relative differentials was concurrent to widening of absolute gaps. Beyond the aggregate trends a significant extent of switching and mobility of individual regions has been detected.
    Keywords: European Union; living standards; subjective judgements; real convergence; regional dynamics
    JEL: O18 C20 R12 O52
    Date: 2011–01–01
  2. By: Andy Pike (CURDS, Newcastle University); Andrés Rodríguez-Pose (IMDEA Social Sciences Institute); John Tomaney (CURDS, Newcastle University); Gianpiero Torrisi (CURDS, Newcastle University); Vassilis Tselios (Monash University, Australia)
    Abstract: After a decade of devolution and amid uncertainties about its effects, it is timely to assess and reflect upon the evidence and enduring meaning of any 'economic dividend' of devolution in the UK. Taking an institutionalist and quantitative approach, 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 its evolving historical context, we find: i) a varied and uneven nature of the relationships between regional disparities, spatial economic policy and decentralisation that change direction during specific time periods; ii) the role of national economic growth is pivotal in explaining spatial disparities and the nature and extent of their relationship with the particular forms of spatial economic policy and decentralisation deployed; and, iii) there is limited evidence that any ‘economic dividend’ of devolution has emerged but this remains difficult to discern because its likely effects are over-ridden by the role of national economic growth in decisively shaping the pattern of spatial disparities and in determining the scope and effects of spatial economic policy and decentralisation.
    Keywords: Economic Dividend; Devolution; Spatial Disparities; Spatial Economic Policy; Decentralisation; UK
    Date: 2011–10–14
  3. By: JG. Brida; N. Garrido; Francesco Mureddu
    Abstract: This paper compares the long run prediction of convergence clubs introduced by Quah (1996 and 1997) with the actual observed dynamics of the Italian regions during the period 1970-2004. Economic dynamics is described by the evolution per capita GDP and different notions of distance are introduced to compare the trajectories of the regions. In addition, by means of hierarchical clustering methodologies the set of economies are segmented. By using the average distance, the study identifies two main performance clubs resembling the long run prediction of two converge clubs. On the other hand, the distance correlation shows different co-movements between members of the same cluster, indicating a variety of responses to external shocks. In particular the average distance identifies a clear division between a high performance club consisting of regions from the Center North, and a low performance club composed by regions from the South and islands. The presence of a cluster composed by center north regions is substantially confirmed by the distance correlation analysis, suggesting an homogeneous response to external shock. By contrast Southern regions display the same dynamical evolution but difference in co-movements. Our analysis provides hints about the fundamentals that link the regions in their process of divergence. In fact the performance clubs pattern we discovered reflects the distribution of economic activities as well as the structural attributes of the regional economies.
    Keywords: economic convergence; economic dualism; hierarchical clustering
    JEL: L83 C24 C14
    Date: 2011
  4. By: Ejaz Ghani; William R. Kerr; Stephen D. O'Connell
    Abstract: We analyze the spatial determinants of entrepreneurship in India in the manufacturing and services sectors. Among general district traits, quality of physical infrastructure and workforce education are the strongest predictors of entry, with labor laws and household banking quality also playing important roles. Looking at the district-industry level, we find extensive evidence of agglomeration economies among manufacturing industries. In particular, supportive incumbent industrial structures for input and output markets are strongly linked to higher establishment entry rates. We also find substantial evidence for the Chinitz effect where small local incumbent suppliers encourage entry. The importance of agglomeration economies for entry hold when considering changes in India’s incumbent industry structures from 1989, determined before large-scale deregulation began, to 2005.
    JEL: L10 L26 L60 L80 M13 O10 R00 R10 R12
    Date: 2011–10
  5. By: Michael Jorratt
    Abstract: The concept of tax expenditure refers to the revenue the treasury foregoes as a result of applying preferential tax regimes with a view to aiding or stimulating certain economic sectors, activities, regions, or agents. Defined in this way, tax expenditures are additional tools for governments to utilize in state intervention, which aim to achieve similar results to those that can be obtained through direct public expenditure. As such, they should be subject to the same controls and transparency criteria as the latter. The general objective of this paper is to develop a methodology to estimate tax expenditures at a regional level, based on the particular case of Colombia.
    Keywords: Economics :: Fiscal Policy, Colombia; Fiscal Effect; Regional Tax Expenditures
    Date: 2010–06
  6. By: Tombe, Trevor
    Abstract: Regional income inequality within countries is an important contributor to global income inequality. I investigate its relationship with structural change and growth using the historical experience of the United States since 1880. Specifically, I modify an existing multi-sector general equilibrium growth model and highlight two important forces: (1) structural change, which disproportionately benefit poor agricultural regions; and (2) transport cost reductions, which shrinks regional price and wage differences. Consistent with existing research, structural change accounts for the Southern states’ convergence to the Northeast. In contrast, I find reductions in transport costs offset the nominal income gains from structural change for the Midwestern states. The Midwest case is of greater relevance for developing countries, given their high internal transportation costs. These results suggest growth in developing countries may not significantly reduce global income inequality.
    Keywords: Structural change; income convergence; dual-economy
    JEL: O11 R11
    Date: 2011–10–11
  7. By: José V. Blanes (Dep. Economics, Quantitative methods and economic History. University Pablo de Olavide); Francisco Requena (Dept. of Applied Economics. Faculty of Economics. University of Valencia); Guadalupe Serrano (Dept. of Economic Analysis. Faculty of Economics. University of Valencia)
    Abstract: We investigate the effects of an immigration shock, which is still on course, in the productive structure of Spanish regions in a Heckscher-Ohlin framework. Immigration alters relative factor endowment composition across Spanish regions. The persistence of rigidities in the regional labour markets conditions the absorption of this labour supply shock and gives the clues to understand and anticipate future changes in regional labour markets. Moreover, we test the extent of production techniques homogeneity across regions and industries. We provide evidence that immigration had no perverse effects on regional labour markets over the period 1995-2002. Firstly, a large proportion of the observed changes came from a generalised skill biased technological change that decreases primary educated employment. Secondly, there is evidence that supports the existence of a Rybczynksi effect in the factor mix-output mix relationship. Finally, our findings also support the existence of factor price equalisation across Spanish regions.
    Keywords: Immigration, Technological change, Rybczynksi effect, Factor Price Equalisation
    JEL: F16 F22 J61
    Date: 2011–10
  8. By: Steve Gibbons; Henry G. Overman
    Abstract: This policy paper is concerned with rural policy. It spells out the lessons for rural policy that emerge from recent SERC research.
    Date: 2011–10
  9. By: Roberto Antonietti; Giulio Cainelli
    Abstract: A recent strand of the economic literature has emphasised the role of services, and in particular knowledge-intensive business services (KIBS), as a primary source of knowledge creation and diffusion. Since this transferring process often occurs through strong face-to-face interactions, the role of spatial proximity becomes crucial. Theoretical and empirical literature shows that the geographic concentration of industry induces firms to vertically disintegrate their production, due to the lowering of transport and governance costs as well as to the reduction of opportunism in managing transactions. However, the evidence is primarily based on manufacturing firms, whereas little or no attention is given to service firms. In this paper we try to fill this gap by estimating the effects of spatial agglomeration on knowledge intensive business service firms' vertical disintegration with reference to the metropolitan region of Milan. Relying on a rich firm-level dataset of about 12.000 KIBS firms located in the metropolitan area of Milan in 2008, we first geo-referenciate our data by employing a GIS routine. Then, we define a set of rings moving out of increments of 1 kilometre, and we count the number of firms located within each ring. For each firm, we compute, ring by ring, the number of neighbouring firms that are in the same three-digit industry, and the number of firms that are in all the three-digit industries except for the one in which the firm operates. In this way, we estimate the impact of proximity-based specialization Vs diversification economies on KIBS firms' vertical disintegration, exploiting information on the actual distance between each pair offirms in the sample. Our dependent variable is calculated as the share of purchased business services over total production costs. This purchased-inputs variable allows accounting for the fact that "many business services are likely to be exactly the kind of locally produced intermediate input that producers in localized areas will have greater access to than producers in isolated areas" (Holmes 1999, p. 316).
    Keywords: GIS, KIBS, spatial agglomeration, vertical disintegration
    JEL: R12 L8
    Date: 2011
  10. By: Çokgezen, Murat
    Abstract: This study has examined the results of SOE policy by comparing two provinces in Turkey, one that was a would-be beneficiary of this policy and the other not. Statistical data and anecdotal evidence from in-depth interviews show that the SOEs increased labor costs, discouraged private entrepreneurship and guided locals to political, rather than productive solutions to their economic problems; regional development in the province in which SOEs dominated the regional economy was hindered. These results are in line with the reported outcomes of SOE policy adopted by Italian governments in order to promote development in southern Italy.
    Keywords: state owned enterprises turkey regional development
    JEL: O18 L26
    Date: 2011–01–24
  11. By: Giulio Cainelli; Donato Iacobucci
    Abstract: Several recent studies investigate the relation between geographic concentration of production and vertical integration, based on the hypothesis that spatial agglomeration of firms in the same industry facilitates input procurement thereby reducing the degree of vertical integration. The present paper contributes to this debate by also considering the effects of industry variety at the local level. Specifically, we consider two forms of variety: unrelated variety and vertically related variety. The latter index is constructed using information drawn from input-output tables and captures the opportunities for outsourcing within the local system. We consider inter-industry vertical integration by taking account of the ownership of activities with input-output linkages. Using a dataset of 24,663 Italian business groups in 2001, we estimate Tobit models to investigate the influence of vertically related variety and other agglomeration forces on the degree of vertical integration of groups. Our evidence confirms that vertical integration is influenced by industry specialization at the local level. We also find that the higher the vertically related variety, the lower the need for firms to integrate activities since they have more opportunities to acquire intermediate goods and services within the local system.
    Keywords: vertical integration, agglomeration, related-variety, business group
    JEL: L2 M2
    Date: 2011
  12. By: Steve Gibbons; Henry G. Overman
    Abstract: This policy note spells out lessons for rural policy that emerge from recent SERC research. It summarises a SERC policy paper available at ly/SERC/publications/download/sercpp008. pdf
    Date: 2011–10
  13. By: Arghya Ghosh; Kieron Meagher
    Abstract: Infrastructure, as it impacts transport costs, is crucial in determining equilibrium outcomes in spatial competition; however, infrastructure investment is typically exogenous. Our political economy analysis of infrastructure choice is based upon consumer preferences derived from Salop’s circular city model. In this setting, infrastructure investment has two effects: it directly lowers costs to consumers and indirectly affects market power. We show how political support for infrastructure investments depends crucially on the details of the market. Competition boosts popular support for infrastructure — often excessively so — while collusion leads to underinvestment. The uncertainty produced by infrastructure induced entry leads to traps and thresholds.
    JEL: D43 L13 H4
    Date: 2011–10
  14. By: Adriana Di Liberto; M. Sideri
    Abstract: In this paper we study the connection between economic performance and the quality of government institutions for the sample of 103 Italian NUTS3 regions. We include new measures of institutional quality calculated using data on the provision of four areas of public services - health, education, environment and energy. We depart from the vast literature that examines the role of different formal institutions on economic development and investigate if the quality of the same governing institutions matters for productivity. To get through likely endogeneity problems we focus on history to find good instruments. We firstly concentrate on the Spanish period that has been often portrayed by historians as having negatively affected the dominated areas through its legacy of inefficient bureaucracy. Secondly, unlike previous studies that are usually based on specific historical events, we collect data for all different dominations that governed each Italian province over seven centuries before the creation of the unified Italian State. Our results suggest a significant role of past historical institutions on the current public administration efficiency and, most of all, confirm that the latter matters for explaining region’s economic performance, with institutional quality differences explaining more than 20% of the observed differences in productivity levels. Our results are robust to the inclusion of different sets of controls, instruments and the use of different measures of regional economic performance.
    Keywords: economic development; quality of institutions; history
    JEL: O43 O11
    Date: 2011
  15. By: Alvarado, Rafael
    Abstract: The aim in this paper is constructs an index of competitiveness for the provinces (PCI) in Ecuador. The CPI measures the structural and institutional conditions that cause the provinces competitiveness. This index can be used as an indicator larger than the rate of growth of GDP or per capita income to measure the productive capacity of the provinces and the standard of living of its inhabitants. Factors included are economic, human capital, geography, infrastructure, institutions and markets. The factors indicate the ability to leverage resources and create conditions for development more efficiently than their peers. The results obtained show that the most competitive provinces are those with greater economic concentration, less competitive and those with low economic concentration.
    Keywords: Competitiveness. Ecuador
    JEL: R12 R11
    Date: 2011–10
  16. By: Fabio Cerina; Francesco Mureddu
    Abstract: This paper presents a footloose capital model of structural change, agglomeration and growth. By assuming the same non-homothetic preference structure as Murata (2008), we obtain similar results in that a progressive reduction of trade costs allows the economy to pass from a pre-industrialized to an industrialized stage and then, within the latter, from a dispersed to an urbanized regime. However, the introduction of capital accumulation and the dynamic setting of our model opens the door to a richer set of implications. First, as far as the dynamics of equilibrium allocations are concerned, an additional stage is introduced as, for some intermediate values of trade costs, multiple equilibria regime emerges with the symmetric and the core-periphery equilibria stable at the same time. Second, as far as growth analysis is concerned, the introduction of non-homotheticity allows growth to depend on both trade costs and agglomeration even in the absence of localized spillovers. In particular, integration is always growth-enhancing while agglomeration is growth-detrimental.
    Keywords: structural change; non-homothetic preferences; agglomeration; growth
    JEL: O41 O11 R11 R12 O18
    Date: 2011
  17. By: Basant, Rakesh; Chandra, Pankaj; Upadhyayula Rajesh
    Abstract: The role of industrial clusters in the industrialization of many emerging economies continues to dominate the debate among policy makers and researchers worldwide. While recent discussions on this debate have focused on knowledge spillovers among participants within clusters, knowledge flows between non local networks and the cluster actors have not been accorded due attention in the literature. Further, the literature does not compare the relative impact of knowledge flows among firms within clusters and firms outside clusters. In this study, we attempt a comparative analysis of the role of knowledge flows in capability formation among firms in the Indian Information Technology sector (IT sector) across cluster and non-cluster locations. The empirical results suggest that at the firm level, leveraging of capabilities to enhance performance and networks to build capabilities is not automatic; structural features of the firms’ location enable this transformation. Moreover, while capabilities affect performance of firms positively only in clusters, economies of scale and some strategies like quality certification used by firms impact performance of firms outside clusters. Interestingly, although economies of scale do not impact the performance of firms within clusters, they do, however affect the capability formation of firms within clusters only. Further, we found that local and national non-customer networks affect capability formation of firms within and outside clusters whereas international customer networks affect capability formation of firms within clusters only. These have implications for how firms can develop appropriate strategies to enhance their performance.
    Keywords: Industrial Clustering, Information Technology industry, Networks, Capabilities
  18. By: Nara F. Monkam (Department of Economics, University of Pretoria)
    Abstract: The paper assesses the technical efficiency of 231 local municipalities in South Africa for 2007 and investigates the potential determinants of efficiency gaps among local municipalities in the country using the nonparametric Data Envelopment Analysis (DEA) and the parametric Stochastic Frontier Analysis (SFA) techniques. In relation to the DEA technique, efficiency scores are subsequently explained in a second stage regression model with potential explanatory factors using a Tobit regression model. The results show that on average, B1 and B3 municipalities could have theoretically achieved the same level of basic services with about 16% and 80% fewer resources respectively; the difference between the most efficient and the least efficient municipalities being quite substantial. The results also show that B4 municipalities could have theoretically achieved the same level of basic services with about 62% fewer operating expenditures. Furthermore, fiscal autonomy and the number and skill levels of the top management of a municipality’s administration were found to influence the productive efficiency of municipalities in South Africa. The paper findings raise concerns over the future of local municipalities in South Africa, especially B3 and B4 municipalities, about their capability to efficiently deliver on expected outcomes on a sustainable basis.
    Keywords: Municipalities, spending efficiency, sub-national government finance, fiscal decentralization; DEA analysis, Tobit, SFA
    JEL: H11 H71 H72 H77
    Date: 2011–10

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