nep-geo New Economics Papers
on Economic Geography
Issue of 2012‒03‒14
twelve papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Overlapping jurisdictions and demand for local public services: does spatial heterogeneity matter? By Marie-Estelle Binet; Alain Guengant; Matthieu Leprince
  2. Creative professionals and high-skilled agents: Polarization of employment growth? By Wedemeier, Jan
  3. Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety By Sumon Datta; K. Sudhir
  4. Did Zipf Anticipate Socio-Economic Spatial Networks? By P. Nijkamp; A. Reggiani
  5. Is a Specific Grant Really ”Specific”?: Case of Indonesian Provinces, 2003 – 2010 By Kodrat Wibowo; Astia Dendi; Zulhanif
  6. Governance Infrastructure and Location of Foreign Direct Investment in the People’s Republic of China By Jia He; Oliver M. Rui; Xiaolei Zha
  7. Rational expectations in urban economics By Berliant, Marcus; Yu, Chia-Ming
  8. Agglomeration, Trade and Selection By Gianmarco I. P. Ottaviano
  9. Well-being in Germany: What explains the regional variation? By Vatter, Johannes
  10. The flypaper effect: evidence from a natural experiment in Hesse By Baskaran, Thushyanthan
  11. The Home Bias and the Credit Crunch: A Regional Perspective By Andrea Filippo Presbitero; Gregory F. Udell; Alberto Zazzaro
  12. Demand Externalities from Co-Location By Boudhayan Sen; Jiwoong Shin; K. Sudhir

  1. By: Marie-Estelle Binet (University of Rennes 1 - CREM, (UMR 6211 CNRS)); Alain Guengant (University of Rennes 1 - CREM, (UMR 6211 CNRS)); Matthieu Leprince (University of Rennes 1 - CREM, (UMR 6211 CNRS))
    Abstract: This paper aims to test the existence of vertical interactions in terms of public spending between overlapping local jurisdictions in France using a data set of 110 French municipalities and their corresponding departments in 2001 and 2005. To do so, we consider that demand for municipal services is conditioned by the services provided by departments. We then estimate two specifications which allow spatial heterogeneity to be modeled and which are compared with a simple spatial error specification (without spatial heterogeneity). The two estimated spatial regimes models are able to eradicate spatial autocorrelation in the error term. The estimation results show that an appropriate consideration of spatial heterogeneity can lead to new insights. The spatial error specification reveals a robust complementary demand relationship between services provided by departmental and municipal governments. However, these results are not in accord with the results produced by the spatial regime models, which provide evidence of heterogeneity with independence, complementarity or substitution between the services offered by the two overlapping jurisdictions.
    Keywords: Local public expenditures; Overlapping jurisdictions; Spatial heterogeneity; Spatial econometrics
    JEL: C21 H72 H77
    Date: 2012–02
  2. By: Wedemeier, Jan
    Abstract: The creative sector is frequently regarded as one of the driving forces of total employment growth. Empirical studies suggest that the clustering of human capital might result in the polarization of employment growth. Since the creative sector's definition is motivated from the insights of the economics of human capital, this effect might also be relevant to the creative sector. Following these ideas, the objective of the present paper is to analyze the impact of the creative sector on total employment and on creative sector's employment growth in Western Germany's regions from 1977 to 2004. For the analysis, the definitions of the creative sector follow a technologically and culturally oriented definition and, alternatively, Florida's creative class (2002). These approaches focusing on human capital are contrasted with a skill-based approach. Using a fixed-effects panel model with time lags, I find evidence that the creative sector fosters the regional growth rate of total employment. The results show, moreover, that an initially large share of regional creative professionals pushes further the regional concentration of those professions in agglomerated regions. Driving force for the concentration of creative professionals are local amenities, measured by bohemians, and it is assumed that knowledge spillovers - possibly accelerated by the diversified composition of employment - contribute to this polarization. These results are as well confirmed for the high-skilled agents. --
    Keywords: regional employment growth,creative sector,human capital,bohemians,externalities
    JEL: J21 J24 R11 Z1
    Date: 2012
  3. By: Sumon Datta (Krannert School of Management, Purdue University); K. Sudhir (Cowles Foundation and Yale School of Management)
    Abstract: This paper investigates the impact of spatial zoning restrictions on retail market outcomes. We estimate a structural model of entry, location and format choice across a large number of markets in the presence of zoning restrictions. The paper contributes to the literature in three ways: First, the paper demonstrates that estimates of factors affecting market potential and competitive intensity in the extant literature on entry and location choice that do not account for zoning restrictions are significantly biased. Second, the cross-market variations in zoning regulations helps us test and provide evidence for the theory that constraints on spatial differentiation will lead to greater product differentiation. Finally, we provide qualitative insight on how zoning impacts retail entry and format variety; in particular we evaluate the impact of prototypical zoning arrangements such as "centralized," "neighborhood," and "outskirt" zoning on entry and format variety.
    Keywords: Product Variety, Zoning, Entry, Location Choice, Retail Competition, Discrete Games, Multiple Equilibria, Structural Modeling
    Date: 2012–03
  4. By: P. Nijkamp; A. Reggiani
    Abstract: An avalanche of empirical studies has addressed the validity of the rank-size rule (or Zipf’s law) in a multi-city context in many countries. City size in most countries seems to obey Zipf’s law, but the question under which conditions (e.g. sample size, spatial scale) this ‘law’ holds remained largely underinvestigated. Another complementary question is whether socio-economic networks in space also show a similar hierarchical pattern. Against this background, the present paper investigates – from a methodological viewpoint – the relationship between network connectivity and the rank-size rule (or Zipf’s law) in an urban-economic network constellation. After a review of the literature, we address in particular the following methodological issues: (i) the (aggregate) behavioural foundation underlying the rank-size rule/Zipf’s law in the light of spatial-economic network theories (e.g. entropy maximization, spatial interaction theory, etc.); (ii) the nature of the analytical relationship between social-spatial network analysis and the rank-size rule/Zipf’s law. We argue that the rank size rule is compatible with conventional economic foundations of spatial network models. Consequently, a spatial-economic interpretation – as well as a network connectivity interpretation – of the rank-size rule coefficient is provided. Our methodological contribution forms the foundation for the subsequent empirical analysis applied to spatial networks in a socio-economic context. The aim here is to test the sensitivity of empirical findings for changes in scale, functional forms, time periods, and network structures. Our application is concerned with an extensive spatio-temporal panel database related to the evolution of urban population in Germany. We test the relevance of the rank-size rule/Zipf’s law, and its evolution over the years, and – in parallel – the related ‘socio-economic’ connectivity in these urban networks. In particular, we will show that Zipf’s law (i.e., with the rank-size coefficient equal to 1) is only valid under particular conditions of the sample size. The paper concludes with some retrospective and prospective remarks.
    Date: 2012–03
  5. By: Kodrat Wibowo (Department of Economics, Padjadjaran University); Astia Dendi (The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)); Zulhanif (Department of Statistics, Padjadjaran University)
    Abstract: Theoretically, according to Shah (1994), the specific purpose transfer fund suited for correcting inefficiencies in financing of public facilities with externalities (spillovers) to communities outside the recepient regions. Various types of matching grant: open-ended and closed-ended are in fact not intended to address the fiscal imbalance or insufficiency of fiscal capacity among regions. The central government of Indonesia prefers the closed-ended specific purpose transfer (specific grant) fund, so called Dana Alokasi Khusus (DAK) in its inter-governmental balancing fund system considering that problem of moral hazard occured in open-ended approach. By definition, the DAK is a fund sourced from the central budget revenues allocated to specific regions in order to help funding, also specific activities that are of regional affairs and in accordance with national priorities. In fact, the number of the DAK-funded priority areas has been increasing from only 5 fields at the beginning of the year 2003 and became 14 fields in 2010. Moreover, the number of DAK recipient regions always reaches almost 90% of total regions in Indonesia in the same period. There appears a question of how the essential of ‘specificness’ of DAK can be evidenced from these facts? This study will use the 2003-2009 DAK fund allocation of 33 provinces in Indonesia and ultilize statistics analysis to analyze the ‘specificness’ of DAK. Based on the evaluation during the period 2003 – 2010 the essence of specificness is drowned out by more sightings of the essence of 'equalization' fiscal capacity both horizontally and vertically which are more functions of the block grant (DAU) and Revenue Sharing Transfer (DBH). The results of our study also shows that the pattern and magnitude of DAK allocation is applied over the years, do not contribute significantly to the goals (outcomes and impact) of national development.
    Keywords: Public Finance, Transfer Fund, Fiscal Decentralization
    JEL: H0 H7
    Date: 2011–09
  6. By: Jia He (Asian Development Bank Institute (ADBI)); Oliver M. Rui; Xiaolei Zha
    Abstract: Standard neoclassical theory predicts that capital should flow from rich to poor countries. However, Lucas (1990) points out that these capital flows are actually very modest, and nowhere near the levels predicted by theory. The People’s Republic of China (PRC) now receives more foreign capital in the form of foreign direct investment (FDI) than any other country, but statistics indicate that this inward FDI flows unequally to different regions. In this study, using hand-collected data on FDI for more than 200 cities, we examine whether the Lucas paradox of capital exists within the PRC. We adopt the dynamic panel data generalized method of moments (GMM) framework to avoid the potential endogeneity issue. Using both provincial- and city-level data, the empirical results show that FDI flows to the PRC, as proxied by total gross domestic product (GDP) and per capita GDP, favor rich regions over poor regions. We also find that regional economic growth has no significant impact on FDI. These findings support the existence of the Lucas paradox in the PRC. We demonstrate that this paradox is not driven by government policy and explore possible explanations for its existence.
    Keywords: Governance infrastructure, the PRC, FDI flows, location
    JEL: F21
    Date: 2011–11
  7. By: Berliant, Marcus; Yu, Chia-Ming
    Abstract: Canonical analysis of the classical general equilibrium model demonstrates the existence of an open and dense subset of standard economies that possess fully-revealing rational expectations equilibria. This paper shows that the analogous result is not true in urban economies under appropriate modifications for this field. An open subset of economies where none of the modified rational expectations equilibria fully reveals private information is found. There are two important pieces. First, there can be information about a location known by a consumer who does not live in that location in equilibrium, and thus the equilibrium rent does not reflect this information. Second, if a consumer’s utility depends only on information about their (endogenous) location of residence, perturbations of utility naturally do not incorporate information about other locations conditional on the consumer’s location of residence. Existence of equilibrium is proved. Space can prevent housing prices from transmitting information from informed to uninformed households, resulting in an inefficient outcome.
    Keywords: Urban Economics; General Equilibrium; Private Information; Rational Expectations
    JEL: R13 D82 D51
    Date: 2012–03–05
  8. By: Gianmarco I. P. Ottaviano
    Abstract: This paper studies how firm heterogeneity in terms of productivity affects the balance between agglomeration and dispersion forces in the presence of pecuniary externalities through a selection model of monopolistic competition with variable mark-ups. It shows that firm heterogeneity matters. However, whether it shifts the balance from agglomeration to dispersion or the other way round depends on its specific features along the two defining dimensions of diversity: 'richness' and 'evenness'. Accordingly, the role of firm heterogeneity in selection models of agglomeration cannot be fully understood without paying due attention to various moments of the underlying firm productivity distribution.
    Keywords: agglomeration, trade, heterogeneity, selection, economic geography
    JEL: F12 R11 R12
    Date: 2012–02
  9. By: Vatter, Johannes
    Abstract: This paper examines regional differences in subjective well-being (SWB) in Germany. Inferential statistics indicate a diminishing but still significant gap between East andWest Germany, but also differing levels of SWB within both parts of Germany. The observed regional pattern of life satisfaction reflects macroeconomic fundamentals, where labour market conditions play a dominant role. Differing levels of GDP and economic growth have contributed rather indirectly to well-being such that the period since the reunification can be considered as a period of joyless growth. Moreover, the effects of unemployment and income differ in size between regions in such a way that one can assume increasing marginal disutility of unemployment. In total, approximately half of 'satisfaction gap' between East and West Germany can be attributed to differing macroeconomic conditions. In contrast, the comparably high levels of life satisfaction in Northern Germany are driven mostly by couples and go along with significantly higher fertility rates. Overall, I conclude that comparisons of SWB within a single country provide valid information. --
    Keywords: subjective well-being,regional disparities,unemployment,economic growth,fertility rate
    JEL: R10 I31
    Date: 2012
  10. By: Baskaran, Thushyanthan
    Abstract: Theory suggests that transfers should have an effect on local fiscal policy that is similar to an equivalent increase in local incomes. Yet much of the empirical literature shows that local governments use transfers primarily to increase expenditures. Recent contributions have revisited this so called flypaper effect by using quasi-experimental methods, and some have found that the evidence for the flypaper effect dissipates once endogeneity of transfer receipts is accounted for. This paper contributes to the growing body of quasi-experimental research on the flypaper effect by exploiting a natural experiment in the German state of Hesse. Using discontinuities in the Hessian municipal transfer allocation formula to construct a set of instruments for municipal transfer receipts during the 2001-2010 period, it provides strong evidence in favor of the flypaper effect.
    Keywords: Equalization transfers; Local fiscal policy; Population thresholds
    JEL: H70 H72 H71
    Date: 2012–03
  11. By: Andrea Filippo Presbitero (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Gregory F. Udell (Kelly School of Business, Indiana University); Alberto Zazzaro (Universit… Politecnica delle Marche, Department of Economics, MoFiR)
    Abstract: A major policy issue is whether troubles in the banking system re ected in the bankruptcy of Lehman Brothers in September 2008 have spurred a credit crunch and, if so, how and why its severity has been different across markets and firms. In this paper, we tackle this issue by looking at the Italian case. We take advantage of a dataset on a large sample of manufacturing firms, observed quarterly between January 2008 and September 2009. Thanks to detailed information about loan applications and lending decisions, we are able to identify the occurrence of a credit crunch in Italy which has been found to be harsher in provinces with a large share of branches owned by distantly-managed banks. Inconsistent with the flight to quality hypothesis, however, we do not find evidence that economically weaker and smaller firms suffered more during the crisis period than during tranquil periods. By contrast, we find that large and healthy firms, the segment of borrowers which, according to theoretical predictions, are cream-skimmed by distantly-headquartered banks, were more intensely hit by the credit tightening in functionally distant credit markets than in the ones populated by less distant banks. This last result is consistent with the hypothesis of a home bias on the part of nationwide banks.
    Keywords: Banking, Credit crunch, Distance, Flight to quality, Home bias
    JEL: F33 F34 F35 O11
    Date: 2012–03
  12. By: Boudhayan Sen (Yale School of Management); Jiwoong Shin (Yale School of Management); K. Sudhir (Cowles Foundation and Yale School of Management)
    Abstract: We illustrate an approach to measure demand externalities from co-location by estimating household level changes in grocery spending at a supermarket among households that also buy gas at a co-located gas station, relative to those who do not. Controlling for observable and unobserved selection in the use of gas station, we find significant demand externalities; on average a household that buys gas has 7.7% to 9.3% increase in spending on groceries. Accounting for differences in gross margins, the profit from the grocery spillovers is 130% to 150% the profit from gasoline sales. The spillovers are moderated by store loyalty, with the gas station serving to cement the loyalty of store-loyal households. The grocery spillover effects are significant for traditional grocery products, but 23% larger for convenience stores. Thus co-location of a new category impacts both inter-format competition with respect to convenience stores (selling the new category) and intra-format competition with respect to other supermarkets (selling the existing categories).
    Keywords: Revenue economies of scope, Demand externalities, One stop shopping, Co-location, Selection, Retail industry
    Date: 2012–02

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