nep-geo New Economics Papers
on Economic Geography
Issue of 2012‒10‒20
fifteen papers chosen by
Vassilis Monastiriotis
London School of Economics

  1. Regional Disparity, Transitional Dynamics and Convergence in China By Tsun Se Cheong; Yanrui Wu
  2. Monocentric Cities, Endogenous Agglomeration, and Unemployment Disparities By Ulrich Zierahn
  3. The Patterns of Regional Inequality in China By Tsun Se Cheong
  4. Intra-Provincial Inequality in China: An Analysis of County-Level Data By Tsun Se Cheong; Yanrui Wu
  5. The growth effects of EU cohesion policy: a meta-analysis By Benedicta Marzinotto
  6. The Impact of Urban Enterprise Zones on Establishments' Location Decisions: Evidence from French ZFUs By Thierry MAYER; Florian MAYNERIS; Loriane PY
  7. Regional Origin of Manufacturing Exports: Inter-State Patterns in India By Pradhan, Jaya Prakash; Das, Keshab
  8. Locational signaling and agglomeration By Berliant, Marcus; Yu, Chia-Ming
  9. Economic integration and agglomeration in a customs union in the presence of an outside region By Pasquale Commendatore; Ingrid Kubin; Carmelo Petraglia; Iryna Sushko
  10. Including Spatial Interdependence in Customer Acquisition Models: a Cross-Category Comparison By P. BAECKE; D. VAN DEN POEL
  11. Improved tests for spatial correlation By Robinson, Peter M.; Rossi, Francesca
  12. Regional inflation dynamics and inflation targeting in Peru By Winkelried, Diego; Gutierrez, José Enrique
  13. The role of distances in the World Trade Web By Francesco Picciolo; Tiziano Squartini; Franco Ruzzenenti; Riccardo Basosi; Diego Garlaschelli
  14. On the internal mobility of Indians: Knowledge gaps and emerging concerns By S. Chandrasekhar; Ajay Sharma
  15. The Geography of the Great Recession By Enoch Hill; Alessandra Fogli; Fabrizio Perri

  1. By: Tsun Se Cheong (Business School, University of Western Australia); Yanrui Wu (Business School, University of Western Australia)
    Abstract: Most studies of regional inequality in China are based on provincial level data with a few papers focusing on intra-provincial regional inequality. The objective of this study is to fill the void in the literature by using county-level data which cover 1485 counties and county-level cities in 22 provinces for the period of 1997-2007. This paper makes several contributions to the literature. First, the disparity between city and county subgroups within each province is examined. Second, the transitional dynamics of regional inequality are investigated for different spatial groups using the Markov transition matrix approach. Third, the stochastic kernel technique is applied to investigate convergence of the county-level units as a whole. The findings in this paper show high persistence in many spatial groups. Thus the poor county-level units may remain relatively poor over time. The model provides very little evidence of convergence to the mean income in various spatial groups. The empirical analysis highlights differences in transitional dynamics between cities and counties.
    Date: 2012
  2. By: Ulrich Zierahn (University of Kassel/ HWWI)
    Abstract: The literature on the wage curve provides considerable evidence in favor of a negative relationship between unemployment and wages. It is thus often seen as a refutation of the Harris-Todaro model, who point to a positive relationship. This paper shows that both strands of literature are special cases of a more general approach by combining a New Economic Geography model with monocentric cities and effciency wages. Whether the relationship is positive or negative depends on the transportation costs between the cities and commuting costs within them. The model helps explain whether and under which conditions the agglomeration of economic activity is associated with higher unemployment and why controls for agglomeration should be included in wage curve regressions
    Keywords: New Economic Geography, Urban Economics, Effciency Wages, Unemployment, Disparities, Regional Migration
    JEL: R12 R14 R23
    Date: 2012
  3. By: Tsun Se Cheong (Business School, University of Western Australia)
    Abstract: This paper presents the inequality measures for different spatial groupings in China from 1997 to 2007. The intra-provincial inequality within each province, that is, the inequality amongst the county-level units within each province, is derived. It is found that the levels of inequality in the nation, the coastal and inland regions, the four economic zones, and most of the provinces increased over the study period. The levels of inequality amongst the county-level units in the eastern and western zones were higher than that in the other zones over the study period. The results show that the provinces with a high level of inequality are mostly situated in the northern part of China. The provinces are observed to have very different patterns of inequality, even if they are in the same economic zone. Moreover, it is found that Jiangsu had the highest level of intra-provincial regional inequality in 2007.
    Date: 2012
  4. By: Tsun Se Cheong (Business School, University of Western Australia); Yanrui Wu (Business School, University of Western Australia)
    Abstract: This study applies a decomposition technique to analyze China’s regional inequality using county-level data. It is shown that inter-provincial inequality increased significantly during 1997-2007. It is also shown that, although inter-county-level-unit inequality within all the provinces remained more or less the same during the period considered, its contribution to the overall inequality (based on the Theil-T index) amounted to about 60% in 2007. This means that intra-provincial regional inequality is the crux of the problem of regional inequality in China. According to the estimates of the Theil-T index, the increase in intra-provincial regional inequality contributed to 63% of the increase in overall inequality during over the period covered, whereas the provinces of Jiangsu, Hebei and Inner Mongolia together contributed 47%. The county-level data is then divided into city and county subgroups. Further decomposition based on the Theil-T index shows that the inter-county inequality component contributed a much higher proportion than the inter-city inequality component, whereas the component of the inequality between the city and county subgroups contributed the least to the intra-provincial regional inequality. The results from the decomposition also suggest that each province has its own characteristics and evolution pattern of inequality. The decomposition of the intra-provincial regional inequality for each province shows that provinces in the central and western zones should focus on the alleviation of inter-county inequality, while provinces in the north-eastern zone should concentrate on inter-city inequality. The provinces in the eastern zone should focus on both inter-county and inter-city inequalities. The provinces of Fujian, Jiangsu, Henan, Guizhou, and Qinghai should pay attention to the inequality between city and county subgroups.
    Date: 2012
  5. By: Benedicta Marzinotto
    Abstract: We run a standard income convergence analysis for the last decade and confirm an already established finding in the growth economics literature. EU countries are converging. Regions in Europe are also converging. But, within countries, regional disparities are on the rise. At the same time, there is probably no reason for EU Cohesion Policy to be concerned with what happens inside countries. Ultimately, our data shows that national governments redistribute well across regions, whether they are fiscally centralised or decentralised. It is difficult to establish if Structural and Cohesion Funds play any role in recent growth convergence patterns in Europe. Generally, macroeconomic simulations produce better results than empirical tests. It is thus possible that Structural Funds do not fully realise their potential either because they are not efficiently allocated or are badly managed or are used for the wrong investments, or a combination of all three. The approach to assess the effectiveness of EU funds should be consistent with the rationale behind the post-1988 EU Cohesion Policy. Standard income convergence analysis is certainly not sufficient and should be accompanied by an assessment of the changes in the efficiency of the capital stock in the recipient countries or regions as well as by a more qualitative assessment. EU funds for competitiveness and employment should be allocated by looking at each regionâ??s capital efficiency to maximise growth generating effects or on a pure competitive.
    Date: 2012–10
  6. By: Thierry MAYER (Sciences-Po, CEPII, CEPR); Florian MAYNERIS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Center for Operations Research and Econometrics (CORE)); Loriane PY (Banque de France)
    Abstract: In this paper, we study the impact of a French enterprise zones program the "Zones Franches Urbaines" (ZFUs) policy on establishments' location decisions. Our empirical analysis is based on a micro-geographic dataset which provides exhaustive information on the location of establishments in France over the period 2000-2007 at the census block level. We use a difference in difference approach combining spatial and time differencing. We also do triple difference estimations, using the fact that targeted urban areas have been selected in different waves over time. Finally, we exploit a discontinuity in the eligibility criteria of the policy as an exogenous source of variation to estimate the impact of the treatment. Our results show that the French ZFU policy has a positive and sizable impact on location choices. However, we also find that the policy mostly generates displacement effects, in particular through relocation of firms from the un-treated to the treated part within municipalities. Finally, the impact is shown to be highly heterogeneous across zones, firms and industries. The overall cost of moving establishments within municipalities is relatively high.
    Keywords: firm location, enterprise zones, spatial differencing
    JEL: R12 R38 R58
    Date: 2012–09–28
  7. By: Pradhan, Jaya Prakash; Das, Keshab
    Abstract: Regardless of exports’ increasing roles in national and state level economic growth performance, there are hardly any studies that analyze inter-state disparities in export activities. Constructing a unique dataset from a variety of published and unpublished sources of information, the study has estimated state level manufacturing exports for 1991–2008. It is the first ever attempt on estimating state level exports focusing on plant information. The estimation derived with reference to plant size information and covering majority of sub-national entities in India, has offered preliminary but useful findings for furthering policy understanding on inter-state disparities in firms’ export activities.
    Keywords: Manufacturing exports; Indian states
    JEL: O53 O24 F10
    Date: 2012–10–07
  8. By: Berliant, Marcus; Yu, Chia-Ming
    Abstract: Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at that location. When workers' marginal willingness to pay for housing is negatively correlated with their productivity, skill-biased technological change causes a core-periphery equilibrium where only the core-periphery (partially stratified) equilibria are stable. When workers' marginal willingness to pay for housing and their productivity are positively correlated, skill-biased technological improvements will never result in a core-periphery equilibrium. Location can at best be an approximate rather than a precise sieve for high-skill workers.
    Keywords: Agglomeration; Adverse Selection; Asymmetric Information; Locational Signaling
    JEL: R13 D82 D51
    Date: 2012–10–08
  9. By: Pasquale Commendatore (University of Naples “Federico II”, Italy); Ingrid Kubin (Department of Economics, Vienna University of Economics and Business); Carmelo Petraglia (University of Basilicata, Italy); Iryna Sushko (Institute of Mathematics, National Academy of Sciences of Ukraine)
    Abstract: New Economic Geography (NEG) models do not typically account for the presence of regions other than the ones involved in the integration process. We explore such a possibility in a Footloose Entrepreneur (FE) model aiming at studying the stability properties of long-run industrial location equilibria. We consider a world economy composed by a customs union of two regions (regions 1 and 2) and an “outside region” which can be regarded as the rest of the world (region 3). The effects of economic integration on industrial agglomeration within the customs union are studied under the assumption of a constant distance between the customs union itself and the third region. The results show that higher economic integration does not always implies the standard result of full agglomeration of FE models. This incomplete agglomeration outcome is due to the fact that the periphery region keeps a share of industrial activities in order to satisfy a share of “external demand”. That is, the deindustrialization process brought about by economic integration in the periphery of the union is mitigated by the demand of consumers living in the rest of the world. In general, the market size of the third region affects the number of the long-run equilibria, as well as their stability properties. In addition to the standard outcomes of FE models, we describe the existence of two asymmetric equilibria characterised by unequal distribution of firms between regions 1 and 2, with no full agglomeration though. Interestingly, these equilibria are stable and therefore can be regarded as a likely long-run equilibrium state of the economy.
    Keywords: industrial agglomeration, three-region NEG models, footloose entrepreneurs
    JEL: C62 F12 F2 R12
    Date: 2012–10
    Abstract: Within analytical customer relationship management (CRM), customer acquisition models suffer the most from a lack of data quality because the information of potential customers is mostly limited to socio-demographic and lifestyle variables obtained from external data vendors. Particularly in this situation, taking advantage of the spatial correlation between customers can improve the predictive performance of these models. This study compares an autoregressive and hierarchical technique that both are able to incorporate spatial information in a model that can be applied on a large dataset, typical for CRM. Predictive performances of these models are compared in an application that identifies potential new customers for 25 products and brands. The results show that when a discrete spatial variable is used to group customers into mutually exclusive neighborhoods, a multilevel model performs at least as well as, and for a large number of durable goods even significantly better than a more often used autologistic model. Further, this application provides interesting insights for marketing decision makers. It indicates that especially for publicly consumed durable goods neighborhood effects can be identified. Though, for the more exclusive brands, incorporating spatial information will not always result in major predictive improvements. For these luxury products, the high spatial interdependence is mainly caused by homophily in which the spatial variable is a substitute for absent socio-demographic and lifestyle variables. As a result, these neighborhood variables lose a lot of predictive value on top of a traditional acquisition model that typically is based on such non-transactional variables.
    Keywords: Customer Intelligence • Data Mining • Autologistic Model • Multilevel Model • Neighborhood effects • Spatial Interdependence
    Date: 2012–05
  11. By: Robinson, Peter M.; Rossi, Francesca
    Abstract: We consider testing the null hypothesis of no spatial autocorrelation against the alternative of first order spatial autoregression. A Wald test statistic has good first order asymptotic properties, but these may not be relevant in small or moderate-sized samples, especially as (depending on properties of the spatial weight matrix) the usual parametric rate of convergence may not be attained. We thus develop tests with more accurate size properties, by means of Edgeworth expansions and the bootstrap. The finite-sample performance of the tests is examined in Monte Carlo simulations.
    Keywords: Spatial Autocorrelation; Ordinary Least Squares; Hypothesis Testing; Edgeworth Expansion; Bootstrap
    JEL: C12 C21
    Date: 2012–06–22
  12. By: Winkelried, Diego (Banco Central de Reserva del Perú); Gutierrez, José Enrique (Superintendency of Banking, Insurance and Private Pension Funds)
    Abstract: The Central Reserve Bank of Peru (BCRP) has been targeting inflation for more than a decade, using Lima’s inflation as the operational measure. An alternative indicator is countrywide inflation, whose quality and real-time availability have improved substantially lately. Hence, given these two somehow competing measures of inflation, two interesting policy questions arise: what have been the implications for national inflation of targeting Lima’s inflation? Would shifting to a national aggregate significantly affect the workings of monetary policy in Peru? To answer these questions, we estimate an error correction model of regional inflations and investigate how shocks propagate across the country. The model incorporates (i) aggregation restrictions whereby each regional inflation is affected by an aggregate of neighboring regions, and (ii) long-run restrictions that uncover a single common trend in the system. The results indicate that a shock to Lima’s inflation is transmitted fast and strongly elsewhere in the country. This constitutes supporting evidence to the view that by targeting Lima’s inflation, the BCRP has effectively, albeit indirectly, targeted national inflation.
    Keywords: Regional inflation, inflation targeting, relative PPP, error correction model
    JEL: C32 C50 E31 E52 R10
    Date: 2012–10
  13. By: Francesco Picciolo; Tiziano Squartini; Franco Ruzzenenti; Riccardo Basosi; Diego Garlaschelli
    Abstract: In the economic literature, geographic distances are considered fundamental factors to be included in any theoretical model whose aim is the quantification of the trade between countries. Quantitatively, distances enter into the so-called gravity models that successfully predict the weight of non-zero trade flows. However, it has been recently shown that gravity models fail to reproduce the binary topology of the World Trade Web. In this paper a different approach is presented: the formalism of exponential random graphs is used and the distances are treated as constraints, to be imposed on a previously chosen ensemble of graphs. Then, the information encoded in the geographical distances is used to explain the binary structure of the World Trade Web, by testing it on the degree-degree correlations and the reciprocity structure. This leads to the definition of a novel null model that combines spatial and non-spatial effects. The effectiveness of spatial constraints is compared to that of nonspatial ones by means of the Akaike Information Criterion and the Bayesian Information Criterion. Even if it is commonly believed that the World Trade Web is strongly dependent on the distances, what emerges from our analysis is that distances do not play a crucial role in shaping the World Trade Web binary structure and that the information encoded into the reciprocity is far more useful in explaining the observed patterns.
    Date: 2012–10
  14. By: S. Chandrasekhar (Indira Gandhi Institute of Development Research); Ajay Sharma (Indira Gandhi Institute of Development Research)
    Abstract: This paper identifies key knowledge gaps on the issue of migration and commuting workers in India. First, we need to understand how the sources of income of rural households in India have changed over time. We need to be able to quantify the importance of remittances by migrants and economic contributions of commuting workers as a source of income. Second, we need to understand why estimates of various types of migration flows, in particular short migration flows, captured by official data are at variance with localized studies. It is important to identify and plug the source of this disconnect. Third, we do not fully understand the extent to which rural-urban migration contributes to the phenomenon of urbanization of poverty. And finally, given the concern over exclusionary urbanization we need to understand the legal and structural impediments to migration.
    Keywords: Internal Migration, Commuting by Workers, Exclusionary Urbanisation
    JEL: O15 J0
    Date: 2012–09
  15. By: Enoch Hill; Alessandra Fogli; Fabrizio Perri
    Abstract: This paper documents, using county level data, some geographical features of the US business cycle over the past 30 years, with particular focus on the Great Recession. It shows that county level unemployment rates are spatially dispersed and spatially correlated, and documents how these characteristics evolve during recessions. It then shows that some of these features of county data can be generated by a model which includes simple channels of transmission of economic conditions from a county to its neighbors. The model suggests that these local channels are quantitatively important for the amplification/muting of aggregate shocks.
    JEL: E32 R12
    Date: 2012–10

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