nep-geo New Economics Papers
on Economic Geography
Issue of 2015‒01‒03
thirty-one papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. The empirics of agglomeration economies By Combes, Pierre-Philippe; Gobillon, Laurent
  2. Theoretical approaches of regional development By Antonescu, Daniela
  3. Trade and Interregional Inequality By Georg Hirte; Christian Lessmann
  4. Spatial Methods By Gibbons, Steve; Overman, Henry G; Patacchini, Eleonora
  5. Technology, Learning, and Long Run Economic Growth in Leading and Lagging Regions By Amit Batabyal; Peter Nijkamp
  6. Creative Class vs. Individual Creativity ? A Multi-level Approach to the Geography of Creativity By Christoph Alfken
  7. Regional productivity growth in Europe: a Schumpeterian perspective By Roberto Basile
  8. Tax Competition with Heterogeneous Firms By Baldwin, Richard; Okubo, Toshihiro
  9. How to woo the smart ones? Evaluating the determinants that particularly attract highly qualified people to cities By Buch, Tanja; Hamann, Silke; Niebuhr, Annekatrin; Rossen, Anja
  10. Taxes in Cities By Brülhart, Marius; Bucovetsky, Sam; Schmidheiny, Kurt
  11. Firm heterogeneity in productivity across Europe. What explains what? By Francesco Aiello; Fernanda Ricotta
  12. Dynamic Spatial Competition Between Multi-Store Firms By Aguirregabiria, Victor; Vicentini, Gustavo
  13. The impact of knowledge spillovers on regional total factor productivity. New empirical evidence from selected European countries By Paula Puskarova; Philipp Piribauer
  14. The choice of migration destinations: cultural diversity versus cultural distance By Zhiling Wang; Thomas de Graaff; Peter Nijkamp
  15. Unequal cities: Self-selection, matching, and the distribution of income By Dmitry Pokrovsky; Kristian Behrens
  16. Fatal Attraction: health care agglomeration and its consequences. By Stephen Sheppard; Michael Hellstern
  17. Spatial patterns and size distributions of cities By Tomoya Mori; Wen-Tai Hsu; Tony E. Smith
  18. Regional Economic Transformation: The role of clusters in specialised diversification By Jonatan Paton; Jaime Del Castillo; Belen Barroeta
  19. Human capital development, knowledge spillovers and local growth: Is there a quality effect of university efficiency? By Zotti, Roberto; Barra, Cristian
  20. Regional differences in housing price dynamics: Panel data evidence By Elias Oikarinen; Janne Engblom
  21. Which countries benefit most from emerging technological opportunities? By Ali Maleki; Alessandro Rosiello
  22. Entrepreneurial Clusters and the Co-agglomeration of Related Industries: Spinouts in Portuguese Plastics and Molds By Rui Baptista; Carla Costa
  23. Innovation and Regional Growth in Mexico: 2000-2010 By Rodriguez-Pose, Andres; Villarreal Peralta, Edna Maria
  24. Spatial Competition and Flexible Manufacturing with Spatially Discriminatory Pricing By Wen-Jung Liang; Kuang-Cheng Wang; Hong-Ren Din
  25. Cultural diversity and entrepreneurship in England and Wales By Hardy, Daniel; Rodriguez-Pose, Andres
  26. New policymaking in a context of Smart specialisation governance By Jaime Del Castillo; Jonatan Paton; Belen Barroeta
  27. Evaluation of the structure of the services sector in Brazil: a regional approach By Verônica Cardoso; Fernando Perobelli
  28. The Impact of Brazilian Regional Development Funds on Regional Economic Growth: A spatial panel approach By Guilherme Resende; Tulio Cravo; Alexandre Carvalho
  29. Spatial regression-based model specifications for exogenous and endogenous spatial interaction By Manfred M Fischer; James P. LeSage
  30. Regularization for Spatial Panel Time Series Using the Adaptive LASSO By Clifford Lam; Pedro Souza
  31. Clustering of Territorial Areas: A Multi-Criteria Districting Problem By Maria da Conceição Rego; Rui Fragoso; Vladimir Bushenkov

  1. By: Combes, Pierre-Philippe; Gobillon, Laurent
    Abstract: We propose an integrated framework to discuss the empirical literature on the local determinants of agglomeration effects. We start by presenting the theoretical mechanisms that ground individual and aggregate empirical specifications. We gradually introduce static effects, dynamic effects, and workers' endogenous location choices. We emphasise the impact of local density on productivity but we also consider many other local determinants supported by theory. Empirical issues are then addressed. Most important concerns are about endogeneity at the local and individual levels, the choice of a productivity measure between wage and TFP, and the roles of spatial scale, firms' characteristics, and functional forms. Estimated impacts of local determinants of productivity, employment, and firms' locations choices are surveyed for both developed and developing economies. We finally provide a discussion of attempts to identify and quantify specific agglomeration mechanisms.
    Keywords: agglomeration gains; density; learning; location choices; sorting
    JEL: J31 R12 R23
    Date: 2014–09
  2. By: Antonescu, Daniela
    Abstract: This article is a theoretical review regarding to specialised literature of regional development, trying to provide an answers to a general and actual question of cohesion policy: why some regions develop more swiftly than the others? The answers are given preponderantly by the regional economic science, which was supported during its development by other sciences (mathematics, geography, sociology, etc.). The regional theories and policies had changes in the last time in their attempt to meet the new challenges triggered by the expansion of the European Community. Currently, concepts such as endogenous development are already “exiled” by the new theoretic approaches, which are more complex and sophisticated, using notions such as knowledge regions (those regions able to develop based on own resources and adapt to the new competitiveness conditions imposed by globalisation). From this perspective, the new trends of regional policy, after 1990, were focused on regional networks (clusters) and innovation, without losing from sight the development and potential specifics and differences of each area.
    Keywords: regional development theory
    JEL: R0 R11
    Date: 2014–11–17
  3. By: Georg Hirte; Christian Lessmann
    Abstract: We study the effect of international trade and freeness of trade on interregional inequality within countries. While most studies focus on single countries and only some use a small panel of countries, we use the two largest databases available to examine these issues. One database is provided by Gennaioli et al. (2013) and covers 105 countries with 1569 regions in 2005. The second data base is collected by Lessmann (2011) and covers 56 countries with 835 sub-national regions for the period 1980-2009. We estimate a model derived from a structural economic geography approach where interregional inequality depends on weighted trade shares and trade costs and where we can derive an aggregate freeness of trade measure. These measures are instrumented based on constructed trade shares and trade costs fitted from a gravity panel model of bilateral trade, that is also derived from the NEG model. We use data on 208 countries for the period 1948--2006 to estimate bilateral trade and bilateral freeness of trade. The results are used to construct proxies for trade to GDP and aggregate freeness of trade of a country. Next, we carry out cross section analyses on the huge data base of Gennailoli et al. (2013) where we use the constructed proxies as instruments. IV estimates provide ambiguous evidence that both a higher trade to GDP ratio and a higher freeness of trade raise interregional inequality. Applying the same approach to the Lessmann data confirms the findings also for his selection of countries. We take this as sign that the Lessmann data do not suffer from a selection bias in comparison to the Gennaioli et al. data. This raises our confidence that using the Lessmann data in a panel approach provides general findings. FE, Panel IV and dynamic panel regressions confirm our findings concerning the trade to GDP ratio. In contrast these within estimates do not provide significant results for the freeness of trade. Because the latter is an indicator for integration in the world markets, we conclude that more integration neutralizes the negative interregional distribution effects of the increase in trade. This implies, so our policy conclusion, that the negative impact of trade on inequality could be reduced by raising trade with countries that are highly integrated in the world market and characterized by a high freeness of trade.
    Keywords: Regional inequality; trade; gravity model; panel data; new economic geography
    Date: 2014–11
  4. By: Gibbons, Steve; Overman, Henry G; Patacchini, Eleonora
    Abstract: This paper is concerned with methods for analysing spatial data. After initial discussion on the nature of spatial data, including the concept of randomness, we focus most of our attention on linear regression models that involve interactions between agents across space. The introduction of spatial variables in to standard linear regression provides a flexible way of characteristing these interactions, but complicates both interpretation and estimation of parameters of interest. The estimation of these models leads to three fundamental challenges: the ‘reflection problem’, the presence of omitted variables and problems caused by sorting. We consider possible solutions to these problems, with a particular focus on restrictions on the nature of interactions. We show that similar assumptions are implicit in the empirical strategies - fixed effects or spatial differencing - used to address these problems in reduced form estimation. These general lessons carry over to the policy evaluation literature.
    Keywords: agglomeration; neighbourhood effects; spatial analysis; spatial econometrics; weights matrix
    JEL: C1 C5
    Date: 2014–09
  5. By: Amit Batabyal; Peter Nijkamp
    Abstract: We use a dynamic model to study the effects of technology and learning on the long run economic growth rates of a leading and a lagging region. New technologies are developed in the leading region but technological improvements in the lagging region are the result of learning from the leading region's technologies. Our analysis sheds light on four salient questions. First, we determine the long run growth rate of output per human capital unit in the leading region. Second, we define a lagging to leading region technology ratio, study its stability properties, and then use this ratio to ascertain the long run growth rate of output per human capital unit in the lagging region. Third, for specific parameter values, we analyze the ratio of output per human capital unit in the lagging region to output per human capital unit in the leading region when both regions have converged to their balanced growth paths. Finally, we discuss the policy implications of our analysis and then offer suggestions for extending the research described here.
    Keywords: Economic Growth; Lagging Region; Leading Region; Learning; Technology
    JEL: R11 R58 O33
    Date: 2014–11
  6. By: Christoph Alfken
    Abstract: For more than ten years the topics creative class, creative industries and creative regions are on the agenda in economic geography literature. Contributions mainly focus on the distribution, mobility and economic impact of creative individuals or companies from a regional perspective. It is believed that the spatial concentration of creative individuals lead to positive regional economic effects and those creative individuals agglomerated in urban and amenity-rich regions characterised by a climate of tolerance. Above all, it is the work of Florida, who gives attention to creative individuals. His quantitative occupational approach can be seen as the prototype and dominant approach, which was adopted in a wide range of other studies. More recently, there is a growing body of literature empirically testing Florida's hypotheses for regions outside the U.S. However, previous empirical studies relied on occupation or industry based definitions as a proxy to identify creative individuals and aggregated regional numbers (e.g. share of creative class). Thus, results are potentially distorted. Instead of observing creative individual's behaviour there are occupation or industry specific characteristics in a region that might correlate with a concentration of these individuals. Moreover, using aggregated data bears the risk of ecological fallacy. Hitherto, economic geographers seem to have ignored insides from other disciplines studying creativity. In psychology it is not a dichotomy of creative and non-creative individuals, instead it is acknowledged that creativity is a matter of degree. The five-factor model ? or big five model ? is a well-recognized concept from psychology to describe an individual's personality based on five basic dimensions: extraversion, agreeableness, conscientiousness, neuroticism, and openness to experience. The dimension openness captures creative, innovative and artistic performance and interest of an individual. Hence, it should be a more direct measure to identify creative individuals than the approximation by occupations. Thus, the article builds upon insights from psychology and the data of the German Socio-Economic Panel to directly identify creative individuals based on their personality traits. Applying multilevel regression analysis, hypotheses derived from the creative class literature are tested comparing creative individuals with the rest of the workforce. The analysis controls for the individual and industry level to isolate the influence of regional characteristics. The empirical results show some evidence for Florida's hypotheses. Individual characteristics turn out to be the most significant differences, followed by characteristics at the industry level. Regional factors are less important, but urbanity and the share of bohemians are significant predictors. However, the location of creative class can be explained more precisely by their level of human capital and the location of the industries they are working in.
    Keywords: creative class; creativity; big five; personality traits; occupation; social psychology; economic geography
    JEL: O31 O18 R12
    Date: 2014–11
  7. By: Roberto Basile (Facoltà di Economia (Faculty of Economics), Seconda Università degli Studi di Napoli (Naples Second University))
    Abstract: Using data for the European regions at NUTS-2 level, we test the predictions of a microfounded Schumpeterian growth model with technological interdependence recently developed by Ertur and Koch (2011, EK11). Spatial interdependence is identified by means ofa semiparametric geoadditive spatial autoregressive model which permits us to disentanglethe effect of nonlinearities, spatial heterogeneity and spatial dependence. A control function approach is applied to estimate this particular SAR-type model using the spatial lag of the quality of regional governance and of its components (corruption, rule of law, government effectiveness and accountability) as instrumental variables for the endogenous term Wy. The results corroborate the predictions of EK11’s model: R&D investments and R&D spillovers are important divers of regional growth in Europe. However, spillover effects are much lower after controlling for spatial unobserved heterogeneity. Moreover, important nonlinearities in the effect of physical capital investments emerge, putting into question the strong homogeneity assumption and suggesting a threshold effect in growth behavior.
    Keywords: Regional growth, spatial dependence, nonlinearities, semiparametric models
    JEL: R11 R12 C14
    Date: 2014–11
  8. By: Baldwin, Richard; Okubo, Toshihiro
    Abstract: This paper studies tax competition in an economic geography model that allows for agglomeration economies with trade costs and heterogeneous firms. We find that the Nash equilibrium involves the large country charging a higher tax than the small nation. Lower trade costs lead to an intensification of competition, a drop in Nash tax rates, and a narrowing of the gap. Since large, productive firms are naturally more sensitive to tax differences in our model, large firms are the crux of tax competition in our model. This also means that tax competition has consequences for the average productivity of the big and small nations' industry; by lowering tax rates, the small nation can attract high-productivity firms.
    Keywords: average productivity; firm heterogeneity; Nash equilibrium tax; spatial sorting; tax cooperation
    JEL: H32 P16
    Date: 2014–05
  9. By: Buch, Tanja; Hamann, Silke; Niebuhr, Annekatrin; Rossen, Anja
    Abstract: Human capital is a driving factor of innovation and economic growth. Economic prospects of cities depend on high qualified workers' knowledge and therefore, attracting highly qualified workers plays a fundamental role for cities' prospects. This study contributes to the question which factors primarily determine the mobility-decision of highly qualified workers by investigating the determinants of the migration balance of German cities between 2000 and 2010. Furthermore, it compares the effects of several labour- and amenity-related variables on migration rates of highly qualified workers and the remaining workforce. Findings suggest that local labour market conditions influence the mobility decision but amenities matter too for the high-skilled. The preferences of the highly qualified workers partly differ from those of the rest of the workforce. However, there are also several factors that do not show systematic differences across skill groups.
    Keywords: migration,cities,qualification level,highly qualified,labour market conditions,amenities,Germany
    JEL: C23 J61 R23
    Date: 2014
  10. By: Brülhart, Marius; Bucovetsky, Sam; Schmidheiny, Kurt
    Abstract: Most cities enjoy some autonomy over how they tax their residents, and that autonomy is typically exercised by multiple municipal governments within a given city. In this chapter, we document patterns of city-level taxation across countries, and we review the literature on a number of salient features affecting local tax setting in an urban context. Urban local governments on average raise some ten percent of total tax revenue in OECD countries and around half that share in non-OECD countries. We show that most cities are highly fragmented: urban areas with more than 500,000 inhabitants are divided into74 local jurisdictions on average. The vast majority of these cities are characterized by a central municipality that strongly dominates the remaining jurisdictions in terms of population. These empirical regularities imply that an analysis of urban taxation needs to take account of three particular features: interdependence among tax-setting authorities(horizontally and vertically), jurisdictional size asymmetries, and the potential for agglomeration economies. We survey the relevant theoretical and empirical literatures, focusing in particular on models of asymmetric tax competition, of taxation and income sorting and of taxation in the presence of agglomeration rents.
    Keywords: agglomeration; cities; fiscal federalism; local taxation; population sorting; tax competition
    JEL: H71 H73 R28 R51
    Date: 2014–08
  11. By: Francesco Aiello; Fernanda Ricotta
    Abstract: There is a substantial heterogeneity in productivity when comparing individual firms. However, even when heterogeneity is found, some questions still remain unaddressed. For instance, when focusing on EU nothing is known about the importance of firms' heterogeneity compared with that of location. This is a point to be addressed on empirical grounds: location is expected to affect firms, but there is no evidence quantifying the magnitude of these two effects across Europe. How much the difference is due to individual heterogeneity and how much it is a result of territorial influences? We depart from these arguments and contributes to the issue of EU TFP divide by questioning if differences in TFP levels depend on firms and regional specific effects. In other words, does location matter in understanding TFP regional disparities across Europe? If it does, how much of TFP variability is the result of being located in a region instead of in another. And, what about country-effects? In order to answer to these questions, we proceed by using data of firms operating in the seven European countries comprised in the EFIGE dataset (Austria, France, Germany, Hungary, Italy, Spain, United Kingdom, henceforth, EU7-EFIGE countries). In this respect, when focusing on these countries, the role of being located in different regions will be investigated, net of the country-effect. Furthermore, a deep-analysis on the impact of regionalism within a given country, will be made by focusing on France, Italy and Spain. The key variable of the study is the TFP, which has been calculated at firm level by Bruegel for 2008 by employing the Levinsohn and Petrin (2003) approach. The empirical setting we propose is consistent with the type of analysis we carry out. Indeed, in order to explain the role of different factor in explaining firms' TFP, we consider the multilevel approach. This model allows us to evaluate whether and to what extent space matters in determining firms' performance. In fact, multilevel regressions combine different levels of data aggregation and relate them in ways that render the simultaneous existence of distinct level-one and level-two equations explicit. After having found high TFP heterogeneity across firms and regions, we confirm that firm-specific characteristics greatly affect individual TFP. They dominate to location. Another evidence regards the regional effect. It is high when estimations disregard the country-effects: in such a case, location across EU regions explains about 15.2% of the firms differences in TFP. After controlling for country-effects, we find that about 95.3% of the variance in European firms' TFP is due to firms' characteristics and 4.7% is ascribable to regionalism. These proportions slightly differ when considering the case of France, Italy and Spain and when regressions attempt to capture the role of sectoral membership.
    Keywords: Total Factor Productivity; Firms? Heterogeneity; Sectoral innovation; Geography; Cross-Classified Models;
    JEL: L60 L25 O33
    Date: 2014–11
  12. By: Aguirregabiria, Victor; Vicentini, Gustavo
    Abstract: We propose a dynamic model of an oligopoly industry characterized by spatial competition between multi-store retailers. Firms compete in prices and decide where to open or close stores depending on demand conditions and the number of competitors at different locations, and on location-specific private-information shocks. We develop an algorithm to approximate a Markov Perfect Equilibrium in our model, and propose a procedure for the estimation of the parameters of the model using panel data on number of stores, prices, and quantities at multiple geographic locations within a city. We also present numerical examples to illustrate the model and algorithm.
    Keywords: cannibalization; industry dynamics; spatial competition; spatial preemption; store location; sunk costs
    JEL: C73 L13 L81 R10 R30
    Date: 2014–11
  13. By: Paula Puskarova; Philipp Piribauer
    Abstract: This paper aims to identify the contribution of knowledge capital and its determinant - human capital - to total factor productivity differences among regions within a regression framework in general and the impact of their spillovers on regional total factor productivity in particular. The focus is laid on interregional spillovers between the Western and Eastern EU and namely, within the triangle of capital regions Vienna-Budapest-Bratislava. The results challenge some previous empirical studies in the sense that once the human capital is accounted for, the significance and magnitude of spillovers from conventional reservoirs of knowledge - patent stocks - falls. Vienna appears to be the largest contributor to the productivity increases in Bratislava. Budapest's productivity seems to be sensitive to knowledge and human capital endowments of EU, but not those of Vienna. Keywords: knowledge capital, knowledge spillover, human capital, human capital spillover, total factor productivity, spatial panel
    Keywords: knowledge capital; knowledge spillover; human capital; human capital spillover; total factor productivity; spatial panel
    JEL: O33 O47 R12
    Date: 2014–11
  14. By: Zhiling Wang; Thomas de Graaff; Peter Nijkamp
    Abstract: This study analyses the impact of cultural composition on regional attractiveness from the perspective of migrant sorting behaviour. We use an attitudinal survey to quantify cultural distances between natives and immigrants in the area concerned, and estimate the migrants¡¯ varying preferences for both cultural diversity and cultural distance. To account for regional unobserved heterogeneity, our econometric analysis employs artificial instrumental variables, as developed by Bayer et al. (2004a). The main conclusions are twofold. On the one hand, cultural diversity increases regional attractiveness. On the other hand, average cultural distance greatly weakens regional attractiveness, even when the presence of network effect is controlled for.
    Keywords: migration; cultural diversity; cultural distance; destination choice; sorting;
    JEL: R23 Z1
    Date: 2014–11
  15. By: Dmitry Pokrovsky; Kristian Behrens
    Abstract: We develop a model of a city populated by heterogeneous agents. Agents self-select into entrepreneurship, and entrepreneurs set up firms which hire workers. We characterize the equilibrium matching between firms and workers, as well as the within-city assignment of agents to locations. We then explore the implications of city size and the characteristics of the underlying skill distribution for selection into entrepreneurship, rent gradients, and city-wide inequality in disposable incomes. Agents self-select into occupations based on their earnings, we assume that highly productive agents have a comparative advantage in entrepreneurship, so that there exists some endogenously determined unique cutoff that separates workers from entrepreneurs. Workers are hired by entrepreneurs and are paid a match-specific wage, whereas entrepreneurs are the residual claimants to their firms' profits. All agents live in a linear city that stretches out on the finite interval. Both workers and entrepreneurs commute to the central business district (CBD) for work. Commuting entails costs, which we model parimoniously using an `iceberg' specification. In our model, agents differ by income. A commuting costs are paid as a fraction of income, it follows that richer agents will want to locate closer to the CBD to minimize their costs. We thus have to find the spatial distribution of agents in the city- the mapping of agent's talent to city locations, such that every agent picks his preferred location. We look at the case with a fixed lot size assumption: maximizing utility is equivalent to maximizing disposable income - income net of land rent and commuting costs. First, we will derive the comparative statics of the equilibrium variables with respect to exogenous parameters of the model like total population, commuting costs, and various moments of the talent distribution of the population. We expect that reducing commuting costs will lead to an increase in the density in a city, and that it will increase the share of entrepreneurs in the city. A larger share of entrepreneurs leads to tougher selection, which should magnify income inequality in the city. We have no a'priori intuition for the direction of change in "real" income inequality. Furthermore, a distribution of talent that is more skewed towards highly talented workers should increase the steepness of the rent gradient towards the city center. The reason is that more productive agents live closer to the center and compete for land there, and that a larger mass of highly talented agents will increase competition for land towards the center. Depending on how fast land prices go up for the rich compared to land prices for the poor, "real" income inequality may a'priori rise or fall as the distribution of talent gets more unequal within the city.
    JEL: D31 D43 L11 L13 L26 R14
    Date: 2014–11
  16. By: Stephen Sheppard (Williams College); Michael Hellstern (Williams College)
    Abstract: In this paper we focus on a fundamental tension between the economies of agglomeration available to health care organizations and the impacts of spatial concentration of health care organizations on overall health outcomes. We identify plausible measures of health care concentration and dispersion, and adapt them to the US urban context. We calculate these measures for nonprofit health organizations for all US metropolitan areas from 1989 to 2009. We use these data to test for signs that agglomeration economies are important for these organizations. We use mortality rates to serve as an indicator of health outcomes, and provide an analysis of the impacts of agglomeration on health outcomes in US cities. This analysis highlights some disturbing results. The analysis suggests that health care organizations in US cities are more clustered than desirable for achieving the best health outcomes.
    Keywords: Health, agglomeration, nonprofits
    JEL: R38 I11 L30
    Date: 2014–11
  17. By: Tomoya Mori; Wen-Tai Hsu; Tony E. Smith
    Abstract: City size distributions are known to be well approximated by power laws across many countries. One popular explanation for such power-law regularities is in terms of random growth processes, where power laws arise asymptotically from the assumption of iid growth rates among all cities within a given country. But this assumption has additional consequences. Since all subsets of cities have the same statistical properties, each subset must exhibit essentially the same power law. Moreover, this common power law (CPL) property must hold regardless of the spatial relations among cities. Using data from the US, this paper shows first that spatial partitions of cities based on geographical proximity are significantly more consistent with the CPL property than are random partitions. It is then shown that this significance becomes even stronger when proximity among cities is measured in terms of trade linkages rather than simple geographical distance. These results provide compelling evidence that spatial relations between cities do indeed matter for city-size distributions. Further analysis shows that these results hinge on the natural â??spacing outâ? property of city patterns in which larger cities tend to be widely spaced apart with smaller cities organized around them.
    JEL: C49 L60 R12 R14
    Date: 2014–11
  18. By: Jonatan Paton; Jaime Del Castillo; Belen Barroeta
    Abstract: Regarding context conditions and the role of territories on competitiveness and innovation, clusters have become progressively a spreading phenomenon all around the world. Recently, the importance of clusters has been mixed with the concept of smart specialization, a territorial development model that seeks to increase the efficiency and effectiveness of economic systems with the aim of contributing to sustainable development. This new model has been strongly incorporated within the new Regional Policy logic defined by the European Commission for the period 2014-2020, in the shape of the upcoming Regional Smart Specialisation Strategies ?RIS3. The aim of this article is to analyse the concept of both cluster and smart specialization form a twofold perspective: the economic development theoretical approach and the policy perspective. In other words, the implications of new RIS3 strategies regarding clusters, and vice versa, as well as their role as policy instruments. To do so, the first chapter introduces briefly the traditional cluster approach, differentiating the development model behind it, as well as the cluster policy dimension that has led to the explosion of cluster initiatives around the world. The second chapter introduces the relationship between the clusters and the new smart specialization development model as two perspectives that mutually reinforce and share common elements that contribute one to another. The third chapter analyses deeply the potential involvement of cluster initiatives and cluster policies within the upcoming smart specialisation strategies that are being fostered by the European Commission for the new programming period 2014-2020. The fourth chapter analyses all these elements regarding clusters and smart specialisation into the Basque Country case, a region with a cluster policy since the 90s and where a reflection must be done regarding the upcoming RIS3. According to the results obtained Basque clusters seem to be drivers for higher productivity and exports, being interesting to consider them as catalysts for contributing to smart specialization principles higher degrees of specialization and open economy. In addition to these, they also could be the key for the third theme in a RIS3 focused on specialised diversification through related variety exploitation and entrepreneurial discoveries. Finally, from the results from the Basque case, a fifth chapter adds a number of generalised recommendations about how to reformulate cluster policies regarding smart specialisation model and the likely role of cluster initiatives within the new governance system that regions probably develop under smart specialisation strategies.
    Keywords: Technological Change: Choices and Consequences ? Diffusion Processes
    JEL: O33
    Date: 2014–11
  19. By: Zotti, Roberto; Barra, Cristian
    Abstract: In this paper, we test whether economic growth depends on human capital development using data disaggregated at territorial level and propose the use of efficiency estimates, measured using a non-parametric technique, as an alternative quality measure of higher education institutions (HEIs). The nature of knowledge spillovers is also taken into account to examine the existence of geographically localized spillovers, from the presence of efficient universities, on local growth. Results show that the efficiency of universities has a positive and significant effect on GDP per worker. Moreover, we find evidence that productivity gains are larger in areas in which the most efficient universities are located, suggesting that investment in tertiary education may affect geographical distribution of economic activity as well as its level.
    Keywords: Human capital; Higher education; Knowledge spillovers; Local economic development; Non-parametric technique.
    JEL: C14 C67 I21 I23
    Date: 2014–10
  20. By: Elias Oikarinen (Department of Economics, University of Turku); Janne Engblom
    Abstract: In this study, regional differences in housing price dynamics are examined empirically using panel data models. We concentrate on examining the momentum dynamics and the reversion speed towards fundamental price level. The analysis can be seen as a test for the validity of conventionally used fixed-effects panel models to analyse regional housing price dynamics. Based on data over 1988-2012, the findings indicate that the regional differences are generally quite small in the Finnish market. We find a notable difference between Helsinki, by far the greatest city in Finland, and the other cities regarding the strength of the momentum effect, though. The results also provide evidence of cointegration between regional housing prices and income. The long-term coefficient on income considerably varies across cities.
    Keywords: housing price, dynamics, panel data, momentum, bubble
    JEL: R21 R31 C33
    Date: 2014–08
  21. By: Ali Maleki; Alessandro Rosiello
    Abstract: Which countries benefit most from emerging technological opportunities? An enquiry into the changing geography of knowledge base complexity in the upstream petroleum industry This article aims to unravel the relationship between dynamics of knowledge base complexity and the international geography of innovation with particular emphasis on understanding catch-up processes. Putting the distinction between breadth and systemic complexity at the centre of analysis of the sectorial knowledge base, this research contributes to our understanding of the changing geography of knowledge base complexity. We argue that systemic complexity implies higher geographical proximity, because coordination and integration of different pieces of knowledge is challenging over long distances when there are intensive interactions. However, if the complexity is more of the breadth type and systemic interactions are limited, the possibility of geographical dispersion is higher. This distinction clarifies some of the ambiguities and inconsistencies in the literature with regard to the geographical implications of complexity. In fact, different dimensions of complexity have different geographical impacts. As formulated in our research hypothesis, we expect a higher number of new entries and more opportunities for latecomer catch-up, and therefore more rapid geographical dispersion, when systemic complexity is low and breadth complexity is dominant. In contrast, increasing systemic complexity implies higher barriers to entry, fewer catch-up opportunities, and slower geographical dispersion (or even higher geographical concentration). Relying on patent data, we found empirical evidence to support the hypothesis in the upstream petroleum industry. In addition, the results suggest that in dealing with systemic complexity, the cognitive and organizational proximity available in internal networks of big multinational companies may be more important than geographical proximity. The empirical results also offer some theoretical insights about the dynamics of geographical patterns of innovation. In the last period studied, we observed a high geographical dispersion of innovative activities in conjunction with a highly concentrated ownership structure. This is consistent with the nature of systemic complexity which dominated in that period, creating scale, scope and agglomeration economies. This conditions favour big multinational companies of advanced countries. Although their innovative activities are geographically distributed, in terms of ownership, they control a lion share of innovative activities in the sector. These findings offer valuable insights regarding the development of a dynamic theory of the geography of knowledge base complexity, as an interesting area for further research.
    Keywords: geography of innovation; knowledge base complexity; petroleum industry
    JEL: O30
    Date: 2014–11
  22. By: Rui Baptista; Carla Costa
    Abstract: The success of ?entrepreneurial clusters' has led policymakers towards extensive efforts to seed local entrepreneurship. A particularly important determinant of the ?supply of entrepreneurs' are industry linkages within cities or regions. Indeed, studies consistently find that the most powerful predictor of future entrepreneurship for a city or region is the presence and strength of incumbent firms in the same or in related industries. This study examines how co-agglomeration (or collocation) of entrepreneurial firms in related industries influences cluster growth. Two types of effects are considered that may drive collocation: the inheritance of capabilities from local incumbents by spinout founders; and agglomeration benefits stemming from local access to supply-side spillovers. These effects are examined for the Portuguese molds and plastics industries. If agglomeration economies explain industry collocation, one would expect firms from related industries to collocate in the agglomerated region. Firms locating in the agglomerated region should perform better than firms located elsewhere, independently of their background. If heritage is the main force behind collocation, then spinouts will locate close to parent firms regardless of their region of origin. Spinouts from parent firms in the same or a related industry perform better than other startups. Our methodology is twofold. We first present a historical account of the evolution of the Portuguese molds and plastics industries, focusing on the location and genealogy of firms. Second, we conduct an econometric analysis of detailed data on firms, founders, and workers in the Portuguese molds and plastics industries covering the period 1986-2009. In order to test the predictions derived from agglomeration and organizational heritage theories, two main types of models are estimated, regarding: I. the probability of firms in molds and plastics industries cross-spawning entrants in those industries; II. the determinants of the performance of entrants, according to their geographical origin and founder background (i.e. spinouts vs. independent startups), using survival and sales growth models. Results suggest that the transmission of capabilities from parent firms to spinouts locating in the same region is the foremost driver of collocation and performance for the molds and plastic injection industries. The presence of the plastics industry has a positive impact on the molds industry but not the inverse, implying that while collocation with molds is not a requirement for the plastics industry to flourish, collocation with plastics is important for the molds industry.
    Keywords: Clusters; Spinouts; Regional development; Agglomeration Economies; Organizational Heritage
    JEL: L26 M13 R30
    Date: 2014–11
  23. By: Rodriguez-Pose, Andres; Villarreal Peralta, Edna Maria
    Abstract: This paper looks at the factors driving regional growth in Mexico, paying special attention to the potentially growth-enhancing role of innovation and innovation policy. The analysis combines innovation variables with indicators linked to the formation of adequate social conditions for innovation (the social filter), and spillovers for 31 Mexican states and the Mexico City capital district (the Distrito Federal) during the period 2000-2010. The results indicate that regional economic growth across Mexican states stems from direct investment in R&D in areas with favorable social filters and which can benefit not only from knowledge spillovers, but also from being surrounded by rich neighbors with good social conditions. The results stress that, although Mexican innovation policy has been relatively well targeted in order to generate greater economic growth, its relatively modest size may have undermined the attainment of its main objectives.
    Keywords: economic growth; innovation; Mexico; regional convergence; socio-economic conditions
    JEL: O32 O33 R11 R12
    Date: 2014–09
  24. By: Wen-Jung Liang; Kuang-Cheng Wang; Hong-Ren Din
    Abstract: Spatial Competition and Flexible Manufacturing with Spatially Discriminatory Pricing Abstract This paper develops a two-dimensional spatial framework to explore the firms¡¦ optimal locations and optimal attributes of basic products under linear transportation costs, in which firms have the technique of flexible manufacturing and engage in spatially discriminatory pricing. We can observe in the real world that the technique of flexible manufacturing has been widely adopted by most major manufacturing industries. As indicated by Eaton and Schmitt (1994), the key feature of flexible manufacturing is economies of scope, which can be represented by the production of an array of differentiated products extended by a basic product using the same manufacturing process. The production of the basic product incurs a sunk cost of product development, whose feature can be described by a point on Hotelling¡¦s attribute line. This basic product can be modified to produce extended variant products by incurring additional costs. The additional cost of producing an extended variant product is denoted by a per-unit modification cost that is proportional to the distance of the attribute line between the attribute addresses of the basic product and the extended variant product. The game in question is a three-stage game. Firms simultaneously select their equilibrium locations in the first stage. Then, they simultaneously choose the optimal attributes of the basic products in the second stage. Finally, firms engage in spatially discriminatory pricing in the third stage. The main findings of the paper are as follows. First of all, we show that the two firms will agglomerate at the center of the location line and the optimal attributes of the two basic products will be located at the first and third quartiles of the attribute line, respectively, when the ratio of the marginal modification rate to the transport rate is high. Secondly, the two firms will locate separately on the location line and the optimal attributes of the two basic products will remain at the first and third quartiles when this ratio is moderate. Moreover, the two firms will locate at the first and third quartiles of the location line, respectively, and the optimal attributes of the basic products will agglomerate at the center of the attribute line when this ratio is low. JEL Classification: R32, L22 Keywords: Spatial Agglomeration; Flexible Manufacturing; Spatially Discriminatory Pricing
    Keywords: Spatial Agglomeration; Flexible Manufacturing; Spatially Discriminatory Pricing;
    JEL: R32 L22
    Date: 2014–11
  25. By: Hardy, Daniel; Rodriguez-Pose, Andres
    Abstract: British regions are becoming increasingly culturally diverse, with migration as the main driver. Does this diversity benefit local economies? This research examines the impact of cultural diversity on the entrepreneurial performance of UK regions. We focus on two largely overlooked factors, the measurement of diversity, and the skills composition of diverse populations. First, more that demonstrating the importance of cultural diversity for entrepreneurship, we show that the type of cultural diversity measured is a decisive factor. Second, the skill composition of diverse populations is also key. Diversity amongst the ranks of the highly skilled exerts the strongest impact upon start-up intensities. The empirical investigation employs spatial regression techniques and carriers out several robustness checks, including instrumental variables specifications, to corroborate our findings.
    Keywords: cultural diversity; entrepreneurship; high-skilled migration; knowledge spillovers
    JEL: F22 J24 L26 M13
    Date: 2014–11
  26. By: Jaime Del Castillo; Jonatan Paton; Belen Barroeta
    Abstract: In the current new competitive environment, smart specialization has emerged strongly as a territorial development model to increase the efficiency and effectiveness of economic systems. An aspect from which it differs from previous models is the special emphasis on governance. In this framework, new RIS3 smart specialization strategies represent an opportunity to lay the foundations of a new governance to generate regional innovation systems that are more coordinated, efficient and effective. However, all this raises an important sophistication from the point of view of the system and the process. Thus, a smart specialisation governance requires considering a multidimensional scale of not only agents and relations, but also policies from different competence fields (e.g. innovation, education, employment, environment, etc.). The aim of this article is to analyse the concept of governance under the frame of the new competitive context that territories are facing, and more specifically towards the territorial development model of smart specialization, from the opportunity that its multidimensional approach can offer. This can be translated into the search for new policies and processes from the combination of the traditional ones in innovation, education, employment policies. In the first chapter, an overview of the major determinants of the current context is provided. In the second chapter, our definition of governance is presented referred to a regional innovation system, understood as a system of actors and relationships covering the different dimensions regional development must consider from a coordinated, efficient and effective way. In the third chapter, our definition of governance and its elements are taken to the field of smart specialization, and the implications for innovation systems and RIS3 strategic processes are discussed. The fourth chapter seeks to go beyond the theoretical definition of governance and presents a first set of issues to consider, difficulties and recommendations arising from the implementation on the territory. Finally, the article ends with some conclusions to be considered for those exercises that are currently being put in place to move towards a regional smart specialization and that require a more sophisticated governance that will give response to its theoretical and practical implications
    Keywords: P48 Political Economy ? Legal Institutions ? Property Rights ? Natural Resources ? Energy ? Environment ? Regional Studies
    Date: 2014–11
  27. By: Verônica Cardoso; Fernando Perobelli
    Abstract: The accelerated growth of the service sector is one of the characteristics of the actual pattern of global growth. In Brazil, it is possible to point to a move towards a 'service economy' following the global standard. However, it cannot say that Brazil is regionally services intensive, ie, the national pattern of development of the sector cannot be seen in all regions of the country. In the same way, the regional development is not uniform throughout the country; the development of the service sector also is not. That is what this study aims to assess. The service sector taking into account the spatial and structural characteristics. Thus, the main aim is divided into four parts: 1) establish a functional inter-regional hierarchy and understand the influence of services in the Brazilian urban polarization process; 2) understand and map the productive structure of the service sectors in Brazil from hierarchy built; 3) analyzing the intrinsic relationship between the industrial and service sectors; and 4) understand the process of growth of services sectors identifying agglomerative constraints that influence this process. The study used a data from 1995 and 2011 for Brazilian municipalities and grouped a number of methodologies strategies to reach the goals. Starting with a regionalization methodology to define the poles of concentrators services and their regions of influence, through an analysis of the production structure and income of the service sectors from variables constructed that characterize these regions, ending with a spatial econometric model which seeks to understand the growth of the service sector from these variables. The results indicate that the Brazilian regional setting, as regards the ability of polarization from the service sector, has not undergone very significant changes, with service activities, ie, the central goods, concentrated in the same large pole that 20 years ago and these same large pole polarizing large regions that also have changed little. The results also indicate a spatial pattern of distribution of services sectors. There is a North-South pattern of concentration of sectors. The South representing concentration of the most dynamic sectors and providing greater diversity of services, as well as larger sizes of firm, ie, greater economies of scale. Already the north axis of the country, especially the influence areas located in the northeast region, showed lower diversification of services and a strong concentration of 'Public Administration' sector. It was also possible to note that the hypothesis of agglomeration and scale population contributing to the development of the service sector was reaffirmed, as well as an eventual correlation between industrial activity and service activity more densely.
    Keywords: Service sector; regional development; Brasilian economy; structural analysis
    JEL: L80 L89 O14 R12 C31
    Date: 2014–11
  28. By: Guilherme Resende; Tulio Cravo; Alexandre Carvalho
    Abstract: In Brazil, the regional development policy is directed by the regional development funds for the Northeast (FNE), the North (FNO), and the Central-West (FCO), which invested more than ?36 billion in lagging regions between 2004 and 2010. This policy seeks to facilitate the economic and social development of lagging regions by offering loans below market interest rates, primarily, to small-scale farmers and small industrial firms. This paper evaluates the economic impact of these Regional Funds using for the first time unique and recent data provided by the Brazilian Government. The study uses the different spatial scales of municipalities and micro-regions to analyse the impact of Regional funds on GDP per capita growth between 2004 and 2010. The results of the panel data estimations suggest that constitutional funds have some positive impact on GDP per capita growth mainly at municipality level, which is the smallest spatial scale. Nevertheless, the results estimated by fixed effect estimations neither control for spatial dependence nor provide evidence on the magnitude of the spatial spillover stemming from the Regional Constitutional Funds. Thus, to control for these caveats, this paper also applies the Spatial Econometrics estimator for panel data suggested by Elhorst (2010). The results indicate that different modalities of FCO, FNO and FNE affect regional growth differently and the spatial estimations did not indicate the existence of spatial spillovers stemming directly from the constitutional funds.
    Keywords: impact evaluation; regional development; regional funds; Brazil;
    JEL: C52 R58
    Date: 2014–11
  29. By: Manfred M Fischer; James P. LeSage
    Abstract: Spatial interaction models represent a class of models that are used for modelling origin-destination flow data. The focus of this paper is on the log-normal version of the model. In this context, we consider spatial econometric specifications that can be used to accommodate two types of dependence scenarios, one involving endogenous interaction and the other exogenous interaction. These model specifications replace the conventional assumption of independence between origin-destination flows with formal approaches that allow for two different types of spatial dependence in magnitudes. Endogenous interaction reflects situations where there is a reaction to feedback regarding flow magnitudes from regions neighbouring origin and destination regions. This type of interaction can be modelled using specifications proposed by LeSage and Pace (2008) who use spatial lags of the dependent variable to quantify the magnitude and extent of the feedback effects, hence the term endogenous interaction. Exogenous interaction represents a situation where spillovers arise from nearby (or perhaps even distant) regions, and these need to be taken into account when modelling observed variations in flows across the network of regions. In contrast to endogenous interaction, these contextual effects do not generate reactions to the spillovers, leading to a model specification that can be interpreted without considering changes in the long-run equilibrium state of the system of flows. As in the case of social networks, contextual effects are modelled using spatial lags of the explanatory variables that represent characteristics of neighbouring (or more generally connected) regions, but not spatial lags of the dependent variable, hence the term exogenous interaction. In addition to setting forth expressions for the true partial derivatives of non-spatial and endogenous spatial interaction models and associated scalar summary measures from Thomas-Agnan and LeSage (2014), we propose new scalar summary measures for the exogenous spatial interaction specification introduced here. An illustration applies the exogenous spatial interaction model to a flow matrix of teacher movements between 67 school districts in the state of Florida.
    Keywords: Log-normal spatial interaction model; spatial dependence among OD-flows; exogenous spatial interaction specifications; endogenous spatial interaction specifications; interpreting estimates
    Date: 2014–11
  30. By: Clifford Lam; Pedro Souza
    Abstract: This paper proposes a model for estimating the underlying cross-sectional dependence structure of a large panel of time series. Technical difficulties meant such a structure is usually assumed before further analysis. We propose to estimate this by penalizing the elements in the spatial weight matrices using the adaptive LASSO proposed by Zou (2006). Non-asymptotic oracle inequalities and the asymptotic sign consistency of the estimators are proved when the dimension of the time series can be larger than the sample size, and they tend to infinity jointly. Asymptotic normality of the LASSO/adaptive LASSO estimator for the model regression parameter is also presented. All the proofs involve non-standard analysis of LASSO/adaptive LASSO estimators, since our model, albeit like a standard regression, always has the response vector as one of the covariates. A block coordinate descent algorithm is introduced, with simulations and a real data analysis carried out to demonstrate the performance of our estimators.
    Keywords: spatial econometrics, adaptive LASSO, sign consistency, asymptotic normality, non-asymptotic oracle inequalities, spatial weight matrices
    JEL: C33 C4 C52
    Date: 2014–11
  31. By: Maria da Conceição Rego; Rui Fragoso; Vladimir Bushenkov
    Abstract: Endogenous resources, economic profile and socio-economic issues are the criteria that define the level of development and identifying features of a territorial unit. The territorial units that organize the country, in political and administrative terms ? parishes and counties ?, have a hierarchical structure, which initially reflected the organization of productive activities as well as the traditional State organization. The success of development policies addressed to territorial agglomerates depends on the homogeneity of their territorial units. In this context, the clustering of territorial areas can be stated as a multi-criteria districting problem. Thus, this paper aims to propose a framework for obtaining homogenous territorial clusters based on a Pareto frontier that includes multiple criteria related to territories' endogenous resources, economic profile and socio-cultural features. This framework is developed in two phases. First, the criteria correlated with development at the territorial unit level are determined through statistical and econometric methods. Then, a multi-criteria approach is developed to allocate each territorial unit to a territorial agglomerate, according to the Pareto frontier established. The framework is applied to a set of parishes and counties of the Central Alentejo region in southern Portugal. Results are presented and discussed in the scope of a regional development strategy. The results of multiple linear regression analysis show us the most important variables in explaining the differences in development in the area considered. We conclude, as expected, that the more elderly the population or the higher the school drop-out rate, the lower the area's development. On the other hand, the greater the active population or the rate of employment in tertiary social activities, the greater is the development. In the 2nd part of the analysis, we started from the current situation in terms of administrative organization of parishes. The results of the Max-p-model show that tests to increase the homogeneity between parishes, using the variables of population size and area, it is possible to reduce the disparity between parishes, reducing the number of units. The simulations show that the number of parishes may be lower if the variable of analysis is population size. This result takes into account the wide disparity of the population in current parishes, as well as the small number of inhabitants in most places.
    Keywords: Alentejo; Cluster; Districting; Multi-criteria
    JEL: C31 R12
    Date: 2014–11

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