nep-geo New Economics Papers
on Economic Geography
Issue of 2017‒02‒05
sixteen papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. Quantitative spatial economics By Stephen J. Redding; Esteban Rossi-Hansberg
  2. Evaluating direct and indirect treatment effects in Italian R&D expenditures By Di Gennaro, Daniele; Pellegrini, Guido
  3. AGGLOMERATION By Tomoya Mori
  4. Technological Progress and (Un)employment Development By Blien, Uwe; Ludewig, Oliver
  5. Early Agglomeration or Late Agglomeration? Two phases of development with spatial sorting By Rikard FORSLID; OKUBO Toshihiro
  7. Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities By Michiel Gerritse; AndrŽs Rodr’guez-Pose
  8. The geography of wage inequality in British cities By Neil Lee; Paul Sissons; Katy Jones
  9. Cost-benefit analysis of transport improvements in the presence of spillovers, matching and an income tax By Eliasson, Jonas; Fosgerau, Mogens
  10. The Economic Effects of Density: A Synthesis By Gabriel M. Ahfeldt; Elisabetta Pietrostefani
  11. What drives employment growth and social inclusion in EU regions? By Marco Di Cataldo; AndrŽs Rodr’guez-Pose
  12. Does Industrialization Affect Segregation? Evidence from Nineteenth-Century Cairo By Lévêque, Christophe; Saleh, Mohamed
  13. City of Dreams By Jorge De la Roca; Gianmarco I. P. Ottaviano; Diego Puga
  14. When Hotelling meets Vickrey: Service timing and spatial asymmetry in the airline industry By André de Palma; Carlos Ordás Criado; Laingo M. Randrianarisoa
  15. Industrial Structure in Urban Accounting By OSHIRO Jun; SATO Yasuhiro
  16. The challenge of smart specialisation in less favoured regions By Kroll, Henning

  1. By: Stephen J. Redding; Esteban Rossi-Hansberg
    Abstract: The observed uneven distribution of economic activity across space is influenced by variation in exogenous geographical characteristics and endogenous interactions between agents in goods and factor markets. Until recently, the theoretical literature on economic geography had focused on stylized settings that could not easily be taken to the data. This paper reviews more recent research that has developed quantitative models of economic geography. These models are rich enough to speak to first-order features of the data, such as many heterogenous locations and gravity equation relationships for trade and commuting. Yet at the same time these models are sufficiently tractable to undertake realistic counterfactuals exercises to study the effect of changes in amenities, productivity, and public policy interventions such as transport infrastructure investments. We provide an extensive taxonomy of the different building blocks of these quantitative spatial models and discuss their main properties and quantification.
    Keywords: agglomeration; cities; economic geography; quantitative models; spatial economics
    JEL: F10 F14 R12 R23 R41
    Date: 2016–10
  2. By: Di Gennaro, Daniele; Pellegrini, Guido
    Abstract: During the last decades SUTVA has represented the "gold standard" for the identification and evaluation of causal effects. However, the presence of interferences in causal analysis requires a substantial review of the SUTVA hypothesis. This paper proposes a framework for causal inference in presence of spatial interactions within a new spatial hierarchical Difference-in-Differences model (SH-DID). The novel approach decomposes the ATE, allowing the identification of direct (ADTE) and indirect treatment effects. In addition, our approach permits the identification of different indirect causal impact both on treated (AITET) and on controls (AITENT). The performances of the SH-DID are evaluated by a Montecarlo Simulation. The results confirm how omitting the presence of interferences produces biased parameters of direct and indirect effects, even though the estimates of the ATE in the traditional model are correct. Conversely, the SH-DID provides unbiased estimates of both total, direct and indirect effects. On this basis, we provide empirical evidence on the effectiveness of public policies in Italy. The estimates show the additionality of the policies on R&D expenditures. Decomposing the ATE, we demonstrate positive and significant direct effects, while the indirect impact is negative and meaningful, even if limited to the treated.
    Keywords: policy evaluation; spatial interferences; spillover effects; spatial hierarchical approach
    JEL: O38 R12 R15 R38
    Date: 2016–12–20
  3. By: Tomoya Mori (Institute of Economic Research, Kyoto University)
    Abstract: This article provides a review of selected researches on the mechanism, spatial scale and spatial distribution of economic agglomeration. It starts with a classification of the existing models of agglomeration in terms of the sources of agglomeration force suggested by the Spatial Impossibility Theorem by Starrett (1978). It then discusses the tension between economies and diseconomies of agglomeration. Finally it briefly touches on the measures of agglomeration and dynamic aspect of agglomeration.
    Keywords: Agglomeration, Economic geography, Impossibility Theorem
    JEL: R12 R14 R19
    Date: 2017–01
  4. By: Blien, Uwe (Institute for Employment Research (IAB), Nuremberg); Ludewig, Oliver (Institute for Employment Research (IAB), Nuremberg)
    Abstract: In recent times the employment effects of technical progress raised much intention. Will recent productivity gains lead to technological unemployment or to a new prosperity? In our paper it is shown formally that under general and standard preconditions the price elasticity of demand on product markets is decisive: Technological progress leads to an expansion of employment if product demand is elastic. It is accompanied, however, by shrinkage of employment if product demand is inelastic. A transition from the elastic into the inelastic range of the demand function for the most important product(s) can already suffice to plunge a region into crisis. In our empirical analysis we use industry level time series data on output, prices, employment and national income for Germany provided by the Federal Statistical Office. We estimate Marshallian type demand functions using an instrumental variables estimator to derive the price elasticities for different industries and link this information to the regional labour market performance of the respective industries and regions.
    Keywords: labour market dynamics, productivity growth, structural change
    JEL: Q33 R11 J23
    Date: 2017–01
  5. By: Rikard FORSLID; OKUBO Toshihiro
    Abstract: This paper analyzes different development paths. Developing countries that limit the geographical movement of human capital (and firms) may end up on a different equilibrium path than countries that allow for geographical mobility. At the early stages of development (when transportation costs are high), the model has an equilibrium where low productive firms concentrate in the large market with abundant human capital, whereas the most productive firms agglomerate to the smaller region with a relatively high endowment of labor. We relate this type of equilibrium to countries in an early stage of development, where industrial productivity in periphery or small suburban cities is far higher than in capital mega-cities. As economies develop and transportation costs fall, the model switches to an equilibrium where productive firms concentrate in the larger and human capital-rich region. This corresponds to a modern equilibrium where highly productive firms concentrate in the largest and most human capital-rich regions as often seen in many developed countries.
    Date: 2017–01
  6. By: Tomoya Mori (Institute of Economic Research, Kyoto University)
    Abstract: Central place analysis is a collection of theoretical and empirical attempts, originated from the Central Place Theory by Christaller (1933) and Lösch (1940), aiming to explain the spatial coordination of the provision of goods and services. The goods and services whose production is subject to scale economies are called central goods, and they are supplied from central places, typically towns and cities. The degree of scale economies associated with each central good determines the hinterland size of each central place. The central places supplying the goods associated with larger scale economies are called higher-order central places. The theory predicts the spatial coordination of central places leading to the hierarchy principle which asserts that each central place supplies all goods provided in lower-order central places, and the spacing-out property that central places of a given order are equally spaced.
    Keywords: Central place theory, Cities, Market area, Hierarchy principle, Spacing-out property, Economic geography, Agglomeration, Increasing returns, Transport costs
    JEL: R12 R14 R19
    Date: 2017–01
  7. By: Michiel Gerritse; AndrŽs Rodr’guez-Pose
    Abstract: Government contracts are frequently courted by firms and governments alike as a solution to generate more jobs, income, and economic growth. However, the development impact of government contracts remains controversial. This paper uses georeferenced data on United States (US) federal contracts, distinguishing between the location of the recipient and the location of performance, for the years 2005-2014 in order to assess the extent to which federal government contracting has contributed to job and wealth generation and economic growth in metropolitan areas of the US. The results of the analysis show that individuals living in cities with a higher share of contract spending per capita witnessed improvements in employment. Aggregate GDP per capita also rose in cities hosting the companies receiving the contracts. However, the effects Ð once reverse causality and spurious trends are controlled for using a fine-scale fixed effect strategy and instrumentation Ð are very small, raising reasonable questions about the viability of federal contracting as a vehicle for economic development.Ê Length:
    Keywords: Federal contracting, government spending, jobs, wages, economic growth, urban development
    JEL: R11 R38 O23 E62 R58
    Date: 2017–01
  8. By: Neil Lee; Paul Sissons; Katy Jones
    Abstract: There is widespread concern about the scale and implications of urban inequality in Great Britain, but little evidence on which cities are the most unequal and why. This paper investigates patterns of wage inequality in 60 British cities. It has two principal goals: (1) to describe which cities are most unequal and (2) to assess the important determinants of inequality. The results show a distinct geography of wage inequality, the most unequal cities tend to be affluent and located in parts of the Greater South East of England. A central determinant of these patterns is the geography of highly skilled workers. Because of this, the geography of urban wage inequality reflects the geography of affluence more generally.
    Keywords: inequality; wages; Great Britain; cities; travel-to-Work-Areas
    JEL: J3 R10 R13 R23
    Date: 2016
  9. By: Eliasson, Jonas; Fosgerau, Mogens
    Abstract: This paper addresses the problem of measuring the welfare benefits of a transport improvement. We formulate and analyze a rich spatial model that allows for spillovers, matching and income tax, in a setting with multiple work and residential locations and very general worker heterogeneity. The conventional consumer surplus captures part of the benefits and is calculated based on predictions of changes in travel demand and transport costs. The issue is to determine which so-called wider impacts to add to this. We find that adding the change in total output as a wider impact leads to double-counting of benefits. The output change due to spillovers should be added, while the output change due to matching is already partly included in the consumer surplus. These results are useful for applied cost-benefit analysis of transport policies.
    Keywords: Agglomeration; spillovers; matching; cost-benefit analysis; transport policy
    JEL: D6 H4 R1 R4
    Date: 2017
  10. By: Gabriel M. Ahfeldt; Elisabetta Pietrostefani
    Abstract: This paper synthesises the state of knowledge on the economic effects of density. We consider 15 outcome categories and 202 estimates of density elasticities from 102 studies. More than 50% of these estimates have not been previously published and have been provided by authors on request or inferred from published results in auxiliary analyses. We contribute own estimates of density elasticities of 16 distinct outcome variables that belong to categories where the evidence base is thin, inconsistent or non-existent. Along with a critical discussion of the quality and the quantity of the evidence base we present a set of recommended elasticities. Applying them to a scenario that roughly corresponds to an average high-income city, we find that a 1% increase in density in per capita and year terms is associated with a $1,400 increase in wage and a $2,426 increase in rent. The decrease in real wage net of taxes of $1,712 is partially compensated for by an aggregate amenity effect of $1,056 and there is a positive external welfare effect of $291. Density has important positive amenity and resource implications, but also appears to create a scarcity rent, which harms renters and first-time buyers.
    Keywords: compact, city, density, meta-analysis, elasticity, urban
    JEL: R38 R52 R58
    Date: 2017–01
  11. By: Marco Di Cataldo; AndrŽs Rodr’guez-Pose
    Abstract: The European Union promotes development strategies aimed at producing growth with Òa strong emphasis on job creation and poverty reductionÓ. However, whether the economic conditions in place in EU regions are ideal for the generation of high- and low-skilled employment and labour market inclusion is unclear. This paper assesses how the key factors behind EU growth strategies Ð infrastructure, human capital, innovation, quality of government Ð condition employment generation and labour market exclusion in European regions. The findings indicate that the dynamics of employment and social exclusion vary depending on the conditions in place in a region. While higher innovation and education contribute to overall employment generation in some regional contexts, low-skilled employment grows the most in regions with a better quality of government. Regional public institutions, together with the endowment of human capital, emerge as the main factors for the reduction of labour market exclusion Ð particularly in the less developed regions Ð and the promotion of inclusive employment growth across Europe. Length:
    Keywords: social exclusion, employment, skills, regions, Europe
    JEL: R23 J64 O52
    Date: 2017–01
  12. By: Lévêque, Christophe; Saleh, Mohamed
    Abstract: We investigate the impact of state industrialization on residential segregation between Muslims and non-Muslims in nineteenth-century Cairo using individual-level census samples from 1848 and1868. We measure local segregation by a simple inter-group isolation index, where Muslims' (non-Muslims') isolation is measured by the share of Muslim (non-Muslim) households in the local environment of each location. We find that relative to locations that did not witness changes in industrialization, the opening of Cairo railway station in 1856 differentially increased Muslims' isolation from non-Muslims (conversely, decreased non-Muslims' isolation) in its proximity and that the closures of textiles firms in 1848-1868 differentially decreased it. The results are arguably driven by a labor market mechanism, whereby state rms crowded in unskilled jobs that attracted greater net inows of rural immigrants and unskilled workers who were predominantly Muslims.
    Keywords: local segregation; industrialization; Middle East; railways; slums
    JEL: N35 R23
    Date: 2016–11
  13. By: Jorge De la Roca (University of Southern California); Gianmarco I. P. Ottaviano (LSE and University of Bologna); Diego Puga (CEMFI)
    Abstract: Higher ability workers benefit more from bigger cities while housing costs there are higher for everyone. However, there is little sorting on ability. We show this is partly because young individuals have an imperfect assessment of their ability, and, when they learn about it, early decisions have had a lasting impact and reduce their incentives to move. We formalize this idea through an overlapping generations model of urban sorting by workers with heterogeneous ability and self-confidence. Using data from the NLSY79, we find that the citysize choices of individuals vary with ability and self-confidence in line with our theoretical predictions.
    Keywords: Cities, sorting, agglomeration, self-confidence, ability, learning.
    JEL: R10 R23
    Date: 2016–12
  14. By: André de Palma; Carlos Ordás Criado; Laingo M. Randrianarisoa
    Abstract: This paper analyzes rivalry between transport facilities in a model that includes two sources of horizontal differentiation: geographical space and departure time. We explore how both sources influence facility fees and the price of the service offered by downstream carriers. Travellers’ costs include a fare, a transportation cost to the facility and a schedule delay cost, which captures the monetary cost of departing earlier or later than desired. One carrier operates at each facility and schedules a single departure time. The interactions in the facility-carrier model are represented as a sequential three-stage game in fees, times and fares with simultaneous choices at each stage. We find that duopolistic competition leads to an identical departure time across carriers when their operational cost does not vary with the time of day, but generally leads to distinct service times when this cost is time dependent. When a facility possesses a location advantage, it can set a higher fee and its downstream carrier can charge a higher fare. Departure time differentiation allows the facilities and their carrier to compete along an additional differentiation dimension that can reduce or strengthen the advantage in location. By incorporating the downstream carriers into the analysis, we also find that a higher per passenger commercial revenue at one facility induces a lower fee charged by both facilities to their carrier and a lower fare charged by both carriers at their departure facility, while a lower marginal operational cost for one carrier implies a higher fee at its departure facility, a lower fee at the other facility served by the rival carrier and a lower fare at both facilities.
    Keywords: Airline and facility competition, Horizontal differentiation, Location model, Spatial asymmetry, Service timing.
    JEL: D43 L13 L22 L93 R4
    Date: 2017
  15. By: OSHIRO Jun; SATO Yasuhiro
    Abstract: We develop a multisector general equilibrium model of a system of cities to study the quantitative significance of industrial structure in determining spatial structure. We first identify three types of wedges that capture the extent to which the standard urban economic model fails to explain empirically: efficiency and labor wedges, and amenity. We then calibrate the model to Japanese regional data and run counterfactual exercises to identify the significance of each wedge in each sector. Our analysis shows that (i) the labor wedge plays the primary role in determining the spatial structure, and (ii) the secondary sector is the most influential.
    Date: 2016–12
  16. By: Kroll, Henning
    Abstract: [Introduction] Inherent in its conception, the smart specialisation approach carries an intrinsic tension between its alleged place-based nature at the meso-level of regions and the fact that it was derived from theoretical premises that derive from the analysis of competition between nations (Foray et al. 2009; 2011). Implicitly, therefore, it presupposes a certain degree of completeness and variety in economic and innovation systems as is commonly assumed in international comparative analysis between nations – debatable as this suggestion may in itself be. Obviously, the actual innovation systems of European regions are often much more fragmented (Capello and Kroll 2016; Isaksen 2014; Kroll 2015; Technopolis et al. 2012; Tödtling and Trippl 2005). At the same time, it borrows concept of exploration and discovery from the analysis of the world of business (Hausman and Rodrik 2003) which cannot easily be transferred to the world of governance, leave alone government. While, possibly, it can most easily be read as promoting the public triggering of such processes where their absence constitutes an obstacle to economic development and their better guidance in others (Landabaso 2012; 2014), this ambition is neither an easy task in practice nor theoretically very well understood to start with. Overall, there has been limited differentiation between processes that are merely discursive and those that amount to actual co-creation and joint discovery. [...]
    Date: 2017

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