nep-geo New Economics Papers
on Economic Geography
Issue of 2012‒05‒15
twenty-two papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Human Capital and Regional Development By Nicola Gennaioli; Rafael Laporta; Florencio López-de-Silanes; Andrei Schleifer
  2. Exaggerated Death of Distance: Revisiting Distance Effects on Regional Price Dispersions By Kano, Kazuko; Kano, Takashi; Takechi, Kazutaka
  3. Structural Reforms and Regional Convergence By Natasha Xingyuan Che; Antonio Spilimbergo
  4. The spatial development of India By Desmet, Klaus; Ghani, Ejaz; O'Connell, Stephen; Rossi-Hansberg, Esteban
  5. Mapping local productivity advantages in Italy: industrial districts, cities or both? By Valter Di Giacinto; Matteo Gomellini; Giacinto Micucci; Marcello Pagnini
  6. A Comparative Perspective on Italy's Human Capital Accumulation By Giuseppe Bertola; Paolo Sestito
  7. Where is the economics in spatial econometrics? By Corrado, L.; Fingleton, B.
  8. “The Institutional, Economic and Social Determinants of Local Government Transparency” By Daniel Albalate
  9. Technological Dynamics and Social Capability: Comparing U.S. States and European Nations By Jan Fagerberg; Maryann Feldman; Martin Srholec
  10. Together we stand ? agglomeration in Indian manufacturing By Fernandes, Ana M.; Sharma, Gunjan
  11. Multiplant strategy under core-periphery structure By Tsubota, Kenmei
  12. Economic analysis of resilience: a framework for local policy response based on new case studies By Regibeau, Pierre; Rockett, Katharine
  13. Structural Change, Urban Congestion, and the End of Growth By Volker Grossmann
  14. Spatial Competition in Quality, Demand Induced Innovation, and Schumpeterian Growth By Raphael Auer; Philip Sauré
  15. Government Spending and Re-election: Quasi-Experimental Evidence from Brazilian Municipalities By Stephan Litschig; Kevin Morrison
  16. Ambition, Human Capital Acquisition and the Metropolitan Escalator By Ian Gordon
  17. On Fiscal Illusion and Ricardian Equivalence in Local Public Finance By H. Spencer Banzhaf; Wallace E. Oates
  18. Accounting for Big City Growth in Low Paid Occupations: Immigration and/or Service Class Consumption By Ian Gordon; Ioannis Kaplanis
  19. Financing Local Development: Quasi-Experimental Evidence from Municipalities in Brazil, 1980-1991 By Stephan Litschig
  20. Migrations, public goods and taxes By Jean J. Gabszewicz; Salome Gvetadze; Skerdilajda Zanaj
  21. Roads to prosperity or bridges to nowhere? theory and evidence on the impact of public infrastructure investment By Sylvain Leduc; Daniel Wilson
  22. Examining the roots of homelessness: The impact of regional housing market conditions and the social environment on homelessness in North Rhine-Westphalia, Germany By Kröll, Alexandra; Farhauer, Oliver

  1. By: Nicola Gennaioli; Rafael Laporta; Florencio López-de-Silanes; Andrei Schleifer
    Abstract: We investigate the determinants of regional development using a newly constructed database of 1569 sub-national regions from 110 countries covering 74 percent of the worlds surface and 96 percent of its GDP. We combine the cross-regional analysis of geographic, institutional, cultural, and human capital determinants of regional development with an examination of productivity in several thousand establishments located in these regions. To organize the discussion, we present a new model of regional development that introduces into a standard migration framework elements of both the Lucas (1978) model of the allocation of talent between entrepreneurship and work, and the Lucas (1988) model of human capital externalities. The evidence points to the paramount importance of human capital in accounting for regional differences in development, but also suggests from model estimation and calibration that entrepreneurial inputs and human capital externalities are essential for understanding the data.
    Keywords: productivity, entrepreneurial education, regional externalities
    JEL: I25 O11 O15
    Date: 2011–09
  2. By: Kano, Kazuko; Kano, Takashi; Takechi, Kazutaka
    Abstract: This paper empirically establishes the significant roles of transport costs in price dispersions across regions. We identify and estimate the iceberg-type distance-elastic transport costs as a parameter of a structural model of cross-regional price differentials featuring product delivery decisions. Utilizing a data set of wholesale prices and product delivery patterns of agricultural products in Japan, our structural estimation approach finds large distance elasticities of the transport costs. The result confirms that geographical barriers are an economically significant contributor to the failures of the law of one price.
    Keywords: Law of one price, Regional price dispersion, Transport cost, Geographical distance, Agricultural wholesale price, Sample-selection bias
    JEL: F11 F14 F41
    Date: 2012–05
  3. By: Natasha Xingyuan Che; Antonio Spilimbergo
    Abstract: Which structural reforms affect the speed the regional convergence within a country? We found that domestic financial development, trade/current account openness, better institutional infrastructure, and selected labor market reforms facilitate regional convergence. However, these reforms have mixed effects on the growth of regions closer to the country’s development frontier. We also document that regional income disparity and average income are inversely correlated across countries so that speeding up regional convergence increases national income. We also present a theoretical model to discuss these results.
    Keywords: Cross country analysis , Economic models , Euro Area , Europe , Fiscal reforms , Labor market policy , Labor market reforms ,
    Date: 2012–04–27
  4. By: Desmet, Klaus; Ghani, Ejaz; O'Connell, Stephen; Rossi-Hansberg, Esteban
    Abstract: In the last two decades the Indian economy has been growing unabatedly, with memories of the Hindu rate of growth rapidly fading. But this unprecedented growth has also resulted in widening spatial disparities. While cities such as Hyderabad have emerged as major clusters of high development, many rural areas have been left behind with little development benefits accruing to them. India's mega-cities have continued to grow. This situation raises a number of important policy questions. Should India aim to spread development more equally across space? Are India's cities becoming too large? Should the government invest in infrastructure in the large cities to reduce congestion or in medium-sized locations to facilitate the emergence of new economic clusters? What are the tradeoffs between agglomeration economies and congestion costs? How different is India’s experience compared with China and USA?
    Keywords: Labor Markets,Urban Slums Upgrading,Housing&Human Habitats,E-Business,Labor Policies
    Date: 2012–05–01
  5. By: Valter Di Giacinto (Bank of Italy); Matteo Gomellini (Bank of Italy); Giacinto Micucci (Bank of Italy); Marcello Pagnini (Bank of Italy)
    Abstract: We compare the magnitude of local productivity advantages associated with two different spatial concentration patterns in Italy – urban areas and industrial districts. The former have high population density and host a wide range of economic activities, while the latter are marked by a high concentration of small firms producing relatively homogenous goods. Using data from a large sample of Italian manufacturing firms observed over the 1995-2006 period, we detect local productivity advantages for both urban areas and industrial districts. However, firms located in urban areas reap a larger productivity premium than those operating within districts. The advantages of industrial districts have declined over time; those of urban areas have remained stable. Differences in the composition of firm employees between white- and blue-collars explain a small fraction of the urban productivity premium. The quantile regressions show how more productive firms gain larger benefits by locating in urban areas. Our analysis raises the question of whether Italian industrial districts are less fit than urban areas to prosper in a world characterized by advancing globalization and the growing use of ICT.
    Keywords: urban areas, industrial districts, agglomeration economies, productivity, white- and blue-collars, Italian economy
    JEL: C52 D24 R12
    Date: 2012–01
  6. By: Giuseppe Bertola (Edhec Business School and CEPR); Paolo Sestito (Bank of Italy)
    Abstract: This paper reviews the evolution of educational institutions and outcomes over the 150 years since Italy's unification, and discusses their interaction with national and regional growth patterns. While initial educational conditions contributed to differentiate across regions the early industrial take off in the late 19th century, and formal education does not appear to have played a major role in the postwar economic boom, the slowdown of Italy's economy since the 1990s may be partly due to interactions between its traditionally low human capital intensity and new comparative advantage patterns, and to the deterioration since the 1970s of the educational system's organization.
    Keywords: Education systems, tracking, economic growth, regional convergence
    JEL: N30
    Date: 2011–10
  7. By: Corrado, L.; Fingleton, B.
    Abstract: Spatial econometrics has been criticized by some economists because some model speci ca- tions have been driven by data-analytic considerations rather than having a rm 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 signi cance of a spatially lagged dependent variable involving W may be misleading, since it may be simply picking up the e¤ects 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, spatially dependent errors, network dependence, externalities, the W matrix, panel data with spatial effects, multilevel models with spatial effect,
    Date: 2011
  8. By: Daniel Albalate (Faculty of Economics, University of Barcelona)
    Abstract: Interest in public accountability and government transparency is increasing worldwide. The literature on the determinants of transparency is evolving but is still in its early stages. So far, it has typically focused on national or regional governments while neglecting the local government level. This paper builds on the scarce knowledge available in order to examine the economic, social, and institutional determinants of local government transparency in Spain. We draw on a 2010 survey and the transparency indexes constructed by the NGO Transparency International (Spain) in order to move beyond the fiscal transparency addressed in previous work. In so doing, we broaden the analysis of transparency to the corporate, social, fiscal, contracting, and planning activities of governments. Our results on overall transparency indicate that large municipalities and left-wing local government leaders are associated with better transparency indexes; while the worst results are presented by provincial capitals, cities where tourist activity is particularly important and local governments that enjoy an absolute majority. The analysis of other transparency categories generally shows the consistent impact of these determinants and the need to consider a wider set of variables to capture their effect.
    Keywords: Transparency; Local Government; Corruption. JEL classification: H11; H70; Z18.
    Date: 2012–05
  9. By: Jan Fagerberg; Maryann Feldman; Martin Srholec
    Abstract: This paper analyzes factors that shape the technological capabilities of individual U.S. states and European countries, which are arguably comparable policy units. The analysis demonstrates convergence in technological capabilities from 2000 to 2007. The results indicate that social capabilities, such as a highly educated labor force, an egalitarian distribution of income, a participatory democracy and prevalence of public safety, condition the growth of technological capability. The analysis also considers other aspects of territorial dynamics, such as the possible effects of spatial agglomeration, urbanization economies, and differences in industrial specialization and knowledge spillovers from neighboring regions.
    Keywords: innovation; technological capabilities; European Union; United States;
    JEL: R11 R12 O32 O33
    Date: 2012–03
  10. By: Fernandes, Ana M.; Sharma, Gunjan
    Abstract: This paper uses plant-level data to examine the impact of industrial and trade policy reforms on the geographic concentration of manufacturing industries in India from 1980 to 1999. First, the research shows that de-licensing and liberalization in foreign direct investment significantly reduced spatial concentration, but trade reforms had no significant effect on spatial concentration. Second, plants respond differently to policy reforms based on their size. Liberalization in foreign direct investment and de-licensing caused small plants to disperse, while trade liberalization had the opposite effect. However, for large plants trade liberalization led to lower spatial concentration.
    Keywords: Economic Theory&Research,Water and Industry,Industrial Management,Emerging Markets,Labor Policies
    Date: 2012–05–01
  11. By: Tsubota, Kenmei
    Abstract: A typical implicit assumption on monopolistic competition models for trade and economic geography is that firms can produce and sell only at one place. This paper fallows endogenous determination of the number of plants in a new economic geography model and examine the stable outcomes of organization choice between single-plant and multi-plant in two regions. We explicitly consider the firms' trade-off between larger economies of scale under single plant configuration and the saving in interregional transport costs under multi-plant configuration. We show that organization change arises under decreasing transportation costs and observe several organization configurations under a generalized cost function.
    Keywords: Industrial management, Business enterprises, Multi-plant firms, Transaction costs, New economic geography
    JEL: D21 F12 L23 R12
    Date: 2012–03
  12. By: Regibeau, Pierre; Rockett, Katharine
    Abstract: A recent set of case studies on resilience of ecocultures forms the basis for our review of and comment on the resilience literature. We note the diversity of definitions of resilience and the confusion this creates in implementing resilience studies. We develop a synthesis view that establishes a framework for defining resilience in an implementable way. This framework emphasises the importance of defining the source of and magnitude of shocks. Next, we outline measurement issues, including a variety of performance measures. We argue that self-determination and local ownership of resources is supported in the cases, and review the effectiveness of the informal insurance arrangements that are observed. We close with the variables suggested by the case studies to include in a resilience index and lessons for regional goverments developing resilience policy.
    Keywords: resilience; sustainability; ecoculture; governance; insurance; methodology
    JEL: R58 Z1 Q56 R11
    Date: 2011–10–01
  13. By: Volker Grossmann
    Abstract: This paper develops a two-sector R&D-based growth model with congestion effects from increasing urban population density. We show that endogenous technological progress causes structural change if there are positive productivity spillovers from the modern to the traditional sector and Engel’s law holds. In turn, urban congestion effects cause a productivity slowdown in the modern sector. Eventually, economic growth may cease in the long-run. We also show that land dilution from a higher workforce may give rise to negative scale effects on GDP per capita. Finally, we investigate how the optimal land allocation depends on the strength of urban congestion effects.
    Keywords: Congestion, Endogenous growth, Engel’s law, Structural change, Urbanization
    Date: 2011–09
  14. By: Raphael Auer; Philip Sauré
    Abstract: We develop a general equilibrium model of vertical innovation in which multiple firms compete monopolistically in the quality space. The model features many firms that each hold the monopoly to produce a unique quality level of an otherwise homogenous good and consumers who are heterogeneous in their valuation of the good’s quality. If the marginal cost of production is convex with respect to quality, multiple firms coexist and their equilibrium markups are determined by the degree of convexity and the density of quality-competition. To endogenize the latter, we nest this industry setup in a Schumpeterian model of endogenous growth. Each firm enters the industry as the technology leader and successively transits through the product cycle as it becomes superseded by further innovations. The intrinsic reason of why innovation happens in our economy is not one of displacing the incumbent, but rather, innovation is a means to differentiate oneself from existing firms and target new consumers. Aggregate growth arises if, on the one hand increasingly wealthy consumers are willing to pay for higher quality and on the other hand, private firms’ innovation generates income growth by enlarging the set of available technologies. Since the frequency of innovation determines the toughness of product market competition, in our framework the relation between growth and competition is reversed compared to standard Schumpeterian framework. Our setup does not feature business stealing in the sense that already marginal innovations grant non-negligible profits. Rather, innovators sell to a set of consumers that was served relatively poorly by pre-existing firms. Never the less, "creative destruction" prevails as new entrants make the set of available goods more differentiated, thereby exerting a pro-competitive effect on the entire industry.
    Date: 2011–09
  15. By: Stephan Litschig; Kevin Morrison
    Abstract: Does additional government spending improve the electoral chances of incumbent political parties? This paper provides the first quasi-experimental evidence on this question. Our research design exploits discontinuities in federal funding to local governments in Brazil around several population cutoffs over the period 1982-1985. We find that extra fiscal transfers resulted in a 20% increase in local government spending per capita, and an increase of about 10 percentage points in the re-election probability of local incumbent parties. We also find positive effects of the government spending on education outcomes and earnings, which we interpret as indirect evidence of public service improvements. Together, our results provide evidence that electoral rewards encourage incumbents to spend part of additional revenues on public services valued by voters, a finding in line with agency models of electoral accountability.
    Keywords: Government spending, voting, regression discontinuity
    JEL: H40 H72 D72
    Date: 2012–02
  16. By: Ian Gordon
    Abstract: This paper examines the relation between ambition, as a form of dynamic human capital, and the escalator role of high order metropolitan regions, as originally identified by Fielding (1989). It argues that occupational progression in such places particularly depends on concentrations both of people with more of this asset and of jobs offering preferential access to valued elements of tacit knowledge, interacting in thick, competitive labour markets. This is partially confirmed with analyses of BHPS data on long term progression showing that only the more ambitious gain from residence in the extended London region, and that they only progress faster there.
    Keywords: Escalator region, migration, urban labour market, London, social mobility, human capital
    JEL: J24 J61 J62 R23
    Date: 2012–04
  17. By: H. Spencer Banzhaf; Wallace E. Oates
    Abstract: We re-evaluate two forms of fiscal illusion in local public finance: debt illusion and renter illusion. The Ricardian Equivalence Theorem for local governments suggests the form of finance of a public program (tax or debt finance) has no effects on substantive outcomes. For the local case, this results from the capitalization of local fiscal differentials into property values. We show that this version of the model is quite restrictive. In particular, in the U.S, context, where state and local interest is exempt from federal taxation, rational behavior may be inconsistent with Ricardian equivalence if local governments can borrow on more favorable terms than individuals. We also suggest a new test for renter illusion (or the renter effect). In particular, whether or not renters are more likely to support public investments in general, the renter effect suggests that renters are more likely to support them when financed with property taxes than with sales taxes. Using data from hundreds of open space referenda in the U.S. using a variety of finance mechanisms, we find evidence that households do prefer debt financing to tax financing, but find no evidence of the renter effect.
    JEL: H3 H4 H7 Q2 R2 R5
    Date: 2012–05
  18. By: Ian Gordon; Ioannis Kaplanis
    Abstract: Growth of 'global cities' in the 1980s was supposed to have involved an occupational polarisation, including growth of low paid service jobs. Though held to be untrue for European cities, at the time, some such growth did emerge in London a decade later than first reported for New York. The question is whether there was simply a delay before London conformed to the global city model, or whether another distinct cause was at work in both cases. This paper proposes that the critical factor in both cases was actually an upsurge of immigration from poor countries providing an elastic supply of cheap labour. This hypothesis and its counterpart based on growth in elite jobs are tested econometrically for the British case with regional data spanning 1975-2008, finding some support for both effects, but with immigration from poor countries as the crucial influence in late 1990s London.
    Keywords: regional labour markets, wages, employment, international migration, consumer demand
    JEL: J21 J23 F22 R12
    Date: 2012–04
  19. By: Stephan Litschig
    Abstract: This paper uses a regression discontinuity design to estimate the impact of additional unrestricted grant financing on local public spending, public service provision, schooling, literacy, and income at the community (municipio) level in Brazil. Additional transfers increased local public spending per capita by about 20% with no evidence of crowding out own revenue or other revenue sources. The additional local spending increased schooling per capita by about 7% and literacy rates by about 4 percentage points. The implied marginal cost of schooling accounting for corruption and other leakagesamounts to about US$ 237, which turns out to be similar to the average cost of schooling in Brazil in the early 1980s. In line with the effect on human capital, the poverty rate was reduced by about 4 percentage points, while income per capita gains were positive but not statistically significant. Results also suggest that additional public spending had stronger effects on schooling and literacy in less developed parts of Brazil, while poverty reduction was evenly spread across the country.
    Keywords: Intergovernmental grants, decentralization, economic development
    JEL: D70 H40 H72 O15
    Date: 2011–12
  20. By: Jean J. Gabszewicz (CORE Université catholique de Louvain); Salome Gvetadze (CREA, University of Luxembourg); Skerdilajda Zanaj (CREA, University of Luxembourg)
    Abstract: This paper examines how and why people migrate between two re- gions with asymmetric size. The agglomeration force comes from the scale economies in the provision of local public goods, whereas the disper- sion force comes from congestion in consumption of public goods. Public goods considered resemble club goods (or public goods with congestion) and people are heterogeneous in their migration costs. We find that the large countries can be destination of migrants for sufficiently high provision of public goods, even when the large country taxes too much. The high provision of public good offsets the congestion effect. While, the small country can be the destination of migrants for two reasons. Firstly, when public good supply is intermediate, people move to avoid congestion in the large country and to benefit from low taxation in the small one. Finally, when the provision of public goods is low, people move towards the small countries just to avoid congestion.
    Keywords: Migration, public goods, congestion.
    JEL: H0 F3
    Date: 2011
  21. By: Sylvain Leduc; Daniel Wilson
    Abstract: We examine the dynamic macroeconomic effects of public infrastructure investment both theoretically and empirically, using a novel data set we compiled on various highway spending measures. Relying on the institutional design of federal grant distributions among states, we construct a measure of government highway spending shocks that captures revisions in expectations about future government investment. We find that shocks to federal highway funding has a positive effect on local GDP both on impact and after 6 to 8 years, with the impact effect coming from shocks during (local) recessions. However, we find no permanent effect (as of 10 years after the shock). Similar impulse responses are found in a number of other macroeconomic variables. The transmission channel for these responses appears to be through initial funding leading to building, over several years, of public highway capital which then temporarily boosts private sector productivity and local demand. To help interpret these findings, we develop an open economy New Keynesian model with productive public capital in which regions are part of a monetary and fiscal union. We show that the presence of productive public capital in this model can yield impulse responses with the same qualitative pattern that we find empirically.
    Keywords: Infrastructure (Economics) ; Public investments
    Date: 2012
  22. By: Kröll, Alexandra; Farhauer, Oliver
    Abstract: "Despite large-scale governmental efforts to combat homelessness, homelessness rates can only be reduced but not eliminated completely by the measures usually applied. Hence, there is an obvious need to investigate additional factors which contribute to homelessness and gain insights on how to further reduce homelessness. To begin with, the relationship between the conditions prevailing on the housing market and homelessness levels is made out with the help of a theoretical model. From this model, a critical income ensuring positive housing consumption can be deduced; individuals with an income below this critical threshold end up homeless. The empirical analysis draws on a panel data set comprising information on all districts (Kreise) of North Rhine-Westphalia from 2004-2009. The regression analysis underpins the theoretical results: High (net market) rents as well as low vacancy rates among small flats lead to rising homelessness. Homelessness also increases when the share of long-term unemployed and of those with a monthly income below EURO 700 is higher, since this makes it more difficult to reach the critical income needed to rent a flat. Finally, some policy conclusions resulting from the analysis are pointed out." (Author's abstract, IAB-Doku) ((en))
    JEL: R21 R31 R38 I38
    Date: 2012–05–08

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