nep-geo New Economics Papers
on Economic Geography
Issue of 2018‒08‒20
thirteen papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. An Evolutionary Perspective on the British Banking Crisis By Neill Marshall; Stuart Dawley; Andy Pike; Jane Pollard; Mike Coombes
  2. A prospective review on New Economic Geography By José M. Gaspar
  3. Spatial Persistence of Agglomeration in Software Publishing By George Deltas; Dakshina Garfield De Silva; Robert McComb
  4. Spatial competition for students: what does (not) matter? By Diogo Lourenço; Carla Sá
  5. Ageing labour: How does demographic change affect regional human capital? By Paula Prenzel; Simona Iammarino
  6. The impact of Brexit on trade patterns and industry location: a NEG analysis By Pasquale Commendatore; Ingrid Kubin; Iryna Sushko
  7. Fostering place-based innovation and internationalization – the new turn in German technology policy By Dohse, Dirk; Fornahl, Dirk; Vehrke, Julian
  8. Transport liberalization and regional imbalances with endogenous freight rates By Francesco Di Comite
  9. Location as an Asset By Bilal, Adrien; Rossi-Hansberg, Esteban
  10. "But For" Percentages for Economic Development Incentives: What percentage estimates are plausible based on the research literature? By Timothy J. Bartik
  11. Pollution Haven and Corruption Paradise By Fabien Candau; Elisa Dienesch
  12. Guiding investments in place-based development. Priority setting in regional innovation strategies By Gunter Clar
  13. The IT Revolution and the Globalization of R&D By Lee G. Branstetter; Britta M. Glennon; J. Bradford Jensen

  1. By: Neill Marshall; Stuart Dawley; Andy Pike; Jane Pollard; Mike Coombes
    Abstract: Developing an evolutionary perspective towards the changing anatomy of the banking sector reveals the enduring tensions and contradictions between spatial centralisation and the possibilities for decentralisation before, during and after the British banking crisis. The shift from banking boom to crisis in 2007 is conceptualised as a significant and on-going moment in the long-term evolution of the historical institutional-spatial dominance of London over other city-regions in Britain. The analysis demonstrates the importance of the institutional and geographical legacies of the British national political economy and variegation of capitalism established in the later nineteenth and early twentieth centuries in shaping contemporary geographical outcomes. Regulatory changes combined with financial innovation in the latter years of the twentieth century to create an opportunity for English regional and Scottish banks excluded from previous institutional-spatial centralisation to expand excessively and consequently several failed in the banking crisis. The paper considers the future trajectory of institutional-spatial centralisation in the banking sector amidst the continued spatial restructuring of the banking crisis, involving a re-drawing of organisational boundaries, overlapping institutional and technological changes and unprecedented uncertainty about the impact of Brexit on Britain?s wider political and economic landscape.
    Keywords: Banking crisis, evolutionary geographical political economy, cities and regions, uneven development
    JEL: R10 R12 R23 J21 J24
    Date: 2018–08
  2. By: José M. Gaspar (ISEG, University of Lisbon. CPBS and CEGE, Universidade Católica Portuguesa. CEF.UP.)
    Abstract: This paper serves as an orientation towards the understanding of the theoretical limitations in New Economic Geography and seeks to provide a prospective assessment of new avenues of research along which the field could improve and develop. We identify many of the persistent features and assumptions which have thwarted the evolution of New Economic Geography and led to a sprawl of criticism within the field. This criticism has opened a discussion towards the identification of new possible directions, some of which are being progressively undertaken, while others raise issues that are difficult to overcome both analytically and empirically.
    Keywords: new economic geography; limitations; future research;
    JEL: R10 R12 R23
    Date: 2018–07
  3. By: George Deltas; Dakshina Garfield De Silva; Robert McComb
    Abstract: We estimate the effects of industrial localization on the spatial persistence of employment in the software industry, using micro-data from Texas for the 2000-2006 period. Locations with an initial concentration of software employment retain an excess number of employees, beyond that expected from job turnover and job persistence at the establishment level. This is not driven by differential establishment growth or survival, but it is due to (a) the retention by establishments in a location of jobs lost by other establishments in that location, and (b) the propensity of software establishments to enter in locations with prior software establishment presence. These findings are more consistent with labor channel effects than with human capital spillovers.
    Keywords: Agglomeration economies, labor pools, knowledge spillovers, firm growth, spatial effects
    JEL: R32 L86 R12
    Date: 2018
  4. By: Diogo Lourenço (Faculdade de Economia Universidade do Porto); Carla Sá (Escola de Economia e Gestão Universidade do Minho)
    Abstract: Regional cohesion and competition for students has fostered interest in the decision-making process behind the selection of institution of higher education. We use a gravity model to estimate the impact of distance, socioeconomic profile of districts, and characteristics of higher education institutions on the migratory flows of candidates to undergraduate programmes in Portugal. Elasticity to distance is found to be close to -2, in line with the gravity equation. The characteristics of the district of destination are unimportant, contrasting with the characteristics of institutions. Indeed, we find a negative impact of graduate unemployment, a more than proportional impact of the number of vacancies, and a great advantage to universities when compared with polytechnics. Regarding the district of origin, outgoing flows are lower the greater the local supply of higher education and the larger the young population.
    Keywords: Gravity Models; Student Mobility; Institutional Competition
    JEL: I23 R23 O15
    Date: 2018–07
  5. By: Paula Prenzel; Simona Iammarino
    Abstract: Human capital investments are frequently suggested as policy measure to cope with smaller and older labour forces caused by demographic change across Europe. However, the availability and composition of human capital is fundamentally intertwined with demographic structures, especially at a regional level. This paper analyses how ageing is related to the regional composition of human capital for 332 German regions between 1996 and 2010. The findings show that labour force ageing is associated with lower educational attainment, and that older labour forces have higher shares of traditional vocational degrees. On a national level, education expansion still sufficiently compensates for the effects of population ageing, but regional human capital composition shows distinct trends.
    Keywords: demographic change, human capital, regional labour markets, regional development
    JEL: R10 R12 R23 J21 J24
    Date: 2018–08
  6. By: Pasquale Commendatore (University of Naples ‘Federico II’); Ingrid Kubin (Department of Economics, Vienna University of Economics and Business); Iryna Sushko (Institute of Mathematics, NASU, and Kyiv School of Economics)
    Abstract: We explore the effects of Brexit on trade patterns and on the spatial distribution of industry between the United Kingdom and the European Union and within the EU. Our study adopts a new economic geography (NEG) perspective developing a linear model with three regions, the UK and two separated regions composing the EU. The 3-region framework and linear demands allow for different trade patterns. Two possible ante-Brexit situations are possible, depending on the interplay between local market size, local competition and trade costs: industrial agglomeration or dispersion. Considering a soft and a hard Brexit scenario, the ante-Brexit situation is altered substantially, depending on which scenario prevails. UK firms could move to the larger EU market, even in the peripheral region, reacting to the higher trade barriers, relocation representing a substitute for trade. Alternatively, some EU firms could move in the more isolated UK market finding shelter from the competition inside the EU. We also consider the post-Brexit scenario of deeper EU integration, leading to a weakening of trade links between the EU and the UK. Our analysis also reveals a highly complex bifurcation sequence leading to many instances of multistability, intricate basins of attraction and cyclical and chaotic dynamics.
    Keywords: capacity constraint, depreciation constraint, nonnegativity constraint, piecewise smooth system, border collision bifurcation, centre bifurcation
    JEL: C61 C63 F41
    Date: 2018–08
  7. By: Dohse, Dirk; Fornahl, Dirk; Vehrke, Julian
    Abstract: Since the mid-1990s German technology policy has experienced a paradigmatic shift from standard grant schemes towards a region-oriented and competition-based R&D policy. Currently, a new policy experiment, the InterClust contest, is under way, trying to simultaneously foster place-based innovation, R&D internationalization and the internationalization of innovative places. The current paper analyses the new policy, relating it to the recent literatures on heterogeneous firms and on cluster-life cycles, and presents results from a firm survey performed in 21 winner regions of InterClust. Findings show that the new funding scheme takes insights from recent theoretical developments into account and addresses important impediments to firm and cluster internationalization. Although it is too early for an overall assessment, it is argued that the long-term impact will critically depend on the inflow of heterogeneous knowledge and the strength of intra-regional mobilization effects.
    Keywords: industrial clusters,knowledge spillovers,technology policy
    JEL: O30 R11
    Date: 2018
  8. By: Francesco Di Comite (European Commission - JRC)
    Abstract: This paper develops a tractable two-region New Economic Geography model with footloose capital and endogenous freight rates to investigate the welfare implications and long-run industry reallocation patterns triggered by transport liberalization. Two policy scenarios are considered: one where a unique tariff per route is imposed, independently of the direction of shipment, and one of complete deregulation. Carriers in fully deregulated transport markets are shown to charge higher markups in shipments towards the periphery. This pricing behavior counterbalances the welfare-decreasing agglomeration forces associated with lowering trade costs and ensures welfare gains in both region in the short and long run.
    Keywords: Transport liberalization; endogenous transport costs; regional imbalances; Home Market Effect
    JEL: L98 R12 R58 O18
    Date: 2018–07
  9. By: Bilal, Adrien; Rossi-Hansberg, Esteban
    Abstract: The location of individuals determines their job opportunities, living amenities, and housing costs. We argue that it is useful to conceptualize the location choice of individuals as a decision to invest in a `location asset'. This asset has a cost equal to the location's rent, and a payoff through better job opportunities and, potentially, more human capital for the individual and her children. As with any asset, savers in the location asset transfer resources into the future by going to expensive locations with good future opportunities. In contrast, borrowers transfer resources to the present by going to cheap locations that offer few other advantages. As in a standard portfolio problem, holdings of this asset depend on the comparison of its rate of return with that of other assets. Differently from other assets, the location asset is not subject to borrowing constraints, so it is used by individuals with little or no wealth that want to borrow. We provide an analytical model to make this idea precise and to derive a number of related implications, including an agent's mobility choices after experiencing negative income shocks. The model can rationalize why low wealth individuals locate in low income regions with low opportunities even in the absence of mobility costs. We document the investment dimension of location, and confirm the core predictions of our theory with French individual panel data from tax returns.
    JEL: D14 E21 J61 R23
    Date: 2018–07
  10. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper reviews the research literature in the United States on effects of state and local “economic development incentives.” Such incentives are tax breaks or grants, provided by state or local governments to individual firms, that are intended to affect firms’ decisions about business location, expansion, or job retention. Incentives’ benefits versus costs depend greatly on what percentage of incented firms would not have made a particular location/expansion/retention decision “but for” the incentive. Based on a review of 34 estimates of “but for” percentages, from 30 different studies, this paper concludes that typical incentives probably tip somewhere between 2 percent and 25 percent of incented firms toward making a decision favoring the location providing the incentive. In other words, for at least 75 percent of incented firms, the firm would have made a similar decision location/expansion/retention decision without the incentive. Many of the current incentive studies are positively biased toward overestimating the “but for” percentage. Better estimates of “but for” percentages depend on developing data that quantitatively measure diverse changes in incentive policies across comparable areas.
    Keywords: Tax incentives, business location decisions, local economic development
    JEL: R30 R12 H71
    Date: 2018–07
  11. By: Fabien Candau (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Elisa Dienesch
    Abstract: In this paper, we propose a new perspective to analyze the impact of institutions, environmental standards, and globalization on relocations of polluting firms in countries with lax environmental regulation (called pollution havens). Via a simple theoretical extension from the Economic Geography literature, we characterize the main features of pollution havens: a good market access to high-income countries and corruption opportunities. Using structural and reduced-form estimations, we analyse these determinants by exploiting a unique database on the number of European affiliates located abroad. A 1% increase in access to the European market from a pollution haven fosters relocation there by 0.1%. We also fifind that corruption in these countries lowers environmental standards, which strongly attract polluting fifirms: a 1% increase in this indirect effect of corruption fuels relocation by 0.28%. We test the economic significance of these empirical fifindings via simulations. The protection of the European market (e.g., a carbon tax on imports) to stop relocations to pollution havens must be high (a decrease of the European market for Morocco and Tunisia equivalent to 13%) not to say prohibitive (31% for China).
    Keywords: Trade, Europe,Multinational firms, Environmental regulation, Corruption, Market access
    Date: 2016–10
  12. By: Gunter Clar
    Abstract: Optimising priority setting for higher returns on investment. As the Structural Funds (ESIF) constitute a large part of the EU budget, considerable contributions to the overall EU2020 Growth Strategy are expected. In the 2014-2020 programming period, there is a strong focus on Research and Innovation (R&I) with the aim to boost ESIF impact on competitiveness and broader benefits (public and private returns) across the EU. Towards this larger aim, R&I Strategies for Smart Specialisation (RIS3) are means to concentrate investments in place-based, innovation-oriented activities, which are well positioned vis-Ã -vis global value chains, and also related to territorial or sectoral strategies with other regions. Recent assessments show that the concentration of investments towards this goal has not everywhere been optimally achieved, which is often traced back to the types of priorities selected. At first sight, this can be attributed to the nature of the strategy processes, the innovation actors involved, and their methodological and strategic competences. Looking deeper, especially where Managing Authorities and ESIF applicants/recipients had little former experience with R&I priority setting, weaknesses lie in understanding state-of-the-art concepts underlying R&I strategies, in applying the broad spectrum of R&I support tools, and in the ability to guide a range of R&I related interaction processes continually and competently. Against this backdrop, the report sets out to synthesise the dispersed knowledge on a range of issues relevant for the success of priority setting processes and practices in innovation policies and strategies. Outlining changing contexts, rationales and approaches of priority setting in R&I policies leads to the "new prioritisation logic" guiding RIS3 exercises. This is followed by two main lines aiming to facilitate improved priority setting: better understanding the wider innovation policy context of RIS3, and making better use of Strategic Policy Intelligence (SPI) and other support tools (including learning from private sector strategies) to structure and guide policy cycles, and to implement place-appropriate policy mixes. Evidence (case studies) on effective priority setting processes in RIS3-type exercises and policy recommendations complete the report.
    Keywords: Priority setting, Regional innovation strategies, Place-based policies
    Date: 2018–07
  13. By: Lee G. Branstetter; Britta M. Glennon; J. Bradford Jensen
    Abstract: Since the 1990s, R&D has become less geographically concentrated, and has seen especially fast growth in emerging markets. One of the distinguishing features of the R&D globalization phenomenon is its concentration within the software/IT domain; the increase in foreign R&D has been largely concentrated within software and IT-intensive multinationals, and new R&D destinations are also more software and IT-intensive multinationals than traditional R&D destinations. In this paper we document three important phenomena: (1) the globalization of R&D, (2) the growing importance of software and IT to firm innovation, and (3) the rise of new R&D hubs. We argue that the shortage in software/IT-related human capital resulting from the large IT- and software-biased shift in innovation drove US MNCs abroad, and particularly drove them abroad to “new hubs” with large quantities of STEM workers who possessed IT and software skills. Our findings support the view that the globalization of US multinational R&D has reinforced the technological leadership of US-based firms in the information technology domain and that multinationals’ ability to access a global talent base could support a high rate of innovation even in the presence of the rising (human) resource cost of frontier R&D.
    JEL: F23 O32 O57
    Date: 2018–06

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