nep-geo New Economics Papers
on Economic Geography
Issue of 2018‒08‒27
twelve papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. The role of industry, occupation, and location specific knowledge in the survival of new firms By C. Jara-Figueroa; Bogang Jun; Edward Glaeser; Cesar Hidalgo
  2. What drives employment growth and social inclusion in the regions of the European Union? By Di Cataldo, Marco; Rodríguez-Pose, Andrés
  3. Regional Market Integration and City Growth in East Africa: Local but no Regional Effects? By Andreas Eberhard-Ruiz; Alexander Moradi
  4. Labor Demand Shocks and Housing Prices across the US: Does One Size Fit All? By Osei, Michael J.; Winters, John V.
  5. How Do Regional Interactions in Space Affect China’s Mitigation Targets and Economic Development? By Wang Lu; Hao Yu; Wei Yi-Ming
  6. Institutional change and the development of lagging regions in Europe By Andrés Rodríguez-Pose; Tobias Ketterer
  7. The Spoils of War: Trade Shocks during WWI and Spain’s Regional Development By Simon Fuchs
  8. Deep-Rooted Culture and Economic Development: Taking the Seven Deadly Sins to Build A Well-Being Composite Indicator By Luis Cesar Herrero-Prieto; Ivan Boal-San Miguel; Mafalda Mafalda Gomez-Vega
  9. The Multiple Roles of Demand in Regional Development A Conceptual Analysis By Martin, Hanna; Martin, Roman; Zukauskaite, Elena
  10. The Virtual is Reality! On Physical and Virtual Space in Software Firms’ Knowledge Formation By Aslesen, Heidi Wiig; Martin, Roman; Sardo, Stefania
  11. Shift-Share Instruments and the Impact of Immigration By David A. Jaeger; Joakim Ruist; Jan Stuhler
  12. Location as an Asset By Adrien Bilal; Esteban Rossi-Hansberg

  1. By: C. Jara-Figueroa; Bogang Jun; Edward Glaeser; Cesar Hidalgo
    Abstract: How do regions acquire the knowledge they need to diversify their economic activities? How does the migration of workers among firms and industries contribute to the diffusion of that knowledge? Here we measure the industry, occupation, and location-specific knowledge carried by workers from one establishment to the next using a dataset summarizing the individual work history for an entire country. We study pioneer firms--firms operating in an industry that was not present in a region--because the success of pioneers is the basic unit of regional economic diversification. We find that the growth and survival of pioneers increase significantly when their first hires are workers with experience in a related industry, and with work experience in the same location, but not with past experience in a related occupation. We compare these results with new firms that are not pioneers and find that industry-specific knowledge is significantly more important for pioneer than non-pioneer firms. To address endogeneity we use Bartik instruments, which leverage national fluctuations in the demand for an activity as shocks for local labor supply. The instrumental variable estimates support the finding that industry-related knowledge is a predictor of the survival and growth of pioneer firms. These findings expand our understanding of the micro-mechanisms underlying regional economic diversification events.
    Date: 2018–07
  2. By: Di Cataldo, Marco; Rodríguez-Pose, Andrés
    Abstract: The European Union promotes development strategies aimed at producing growth with “a strong emphasis on job creation and poverty reduction”. 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 – infrastructure, human capital, innovation, quality of government – 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 – particularly in the less developed regions – and the promotion of inclusive employment growth across Europe.
    Keywords: social exclusion; employment; skills; regions; Europe
    JEL: J64 O52 R23
    Date: 2017–02–03
  3. By: Andreas Eberhard-Ruiz; Alexander Moradi
    Abstract: We investigate changes in the spatial concentration of economic activities after the establishment of a regional economic community between Kenya, Tanzania, and Uganda in 2001. Measuring city growth using satellite imagery of lights emanated out to space at night, we demonstrate that cities close to the community’s internal borders expanded more than other cities further away. The growth effect is temporary and also highly localized: only cities less than 90 minutes of travel from the border experience an acceleration in growth rates; after four years growth rates revert to their pre-treatment level. We show that this is consistent with an asymmetric reduction in trade costs for two types of trade modalities that co-exist in many parts of sub-Saharan Africa, local small-scale trade and regional large-scale trade, with a larger reduction in costs of the former. Yet, while local e?ects are relatively large, equivalent to a 5.6% higher GDP for cities near the EAC’s internal borders, they do not imply a large reorganisation of economic activity across space nor a substantial alteration of countries’ urban systems.
    Keywords: Market Integration; Trade; Cross-Border Trade; City Growth; Periphery; Africa
    JEL: F1 F14 F15 O17 O18 O55 R12
    Date: 2018
  4. By: Osei, Michael J. (Oklahoma State University); Winters, John V. (Iowa State University)
    Abstract: This paper examines whether effects of labor demand shocks on housing prices vary across time and space. Using data on 321 US metropolitan statistical areas, we estimate the medium- and long-run effects of increases in metropolitan statistical area-level employment and total labor income on housing prices. Instrumental variable estimates for different time periods, and also for coastal, non-coastal, large, and small metropolitan statistical areas are obtained using the shift-share instrument. Results suggest that labor demand shocks have positive effects on housing prices. However, these effects appear to vary across time periods and across different types of metropolitan statistical areas.
    Keywords: housing prices, labor demand shocks, labor market, housing market
    JEL: J23 O18 R12 R23 R31
    Date: 2018–06
  5. By: Wang Lu; Hao Yu; Wei Yi-Ming
    Abstract: China is faced with the big challenge of maintaining a remarkable economic growth in an environmental friendly manner; that is why forecasting the turning point is of necessity. Traditional econometric approaches do not consider the spatial dependence that inevitably exists in the economic units, which probably risks misspecification and generating a biased estimation result. This paper firstly constructs Theil index to measure the intra-and inter regional inequality of CO2 emissions, we find that difference in emissions between regions is narrowed but gap within the Western China is sharply expanding. Then the Spatial Durbin model is employed to shape the relationship between mitigation and economic growth using the panel data of 29 provinces ranging from 1995 to 2011. Results show that the peak of per capita carbon dioxide emissions in China would be seen when GDP per capita reaches between $USD 21594 to 24737 (at 2000 constant price), much smaller when compared with the estimations of models which ignore the spatial dependence. This implies that territorial policy and industry transfer, on one hand would favor those underdeveloped regions with investment, technology and labors transfer; on the other hand enables developed regions more potential to mitigation, thus, chances are that China achieves the emissions peak of carbon dioxide earlier than conventional wisdom.
    Keywords: Environmental Economics and Policy
    Date: 2017–06–14
  6. By: Andrés Rodríguez-Pose (Department of Geography and Environment, London School of Economics); Tobias Ketterer (International Center for Public Policy (Georgia State University) & Governance and Economics research Network (GEN))
    Abstract: The success of the policy in delivering greater economic convergence does not hide the fact that we are witnessing a decline in the returns of intervention in the three main growth axes. There is, for example, growing concern about a potential exhaustion of additional investments in transport infrastructure and of improvements in accessibility as drivers of growth in certain lagging regions of Europe (Crescenzi and Rodríguez-Pose, 2012). While this issue remains controversial, the truth is that physical capital, human capital, and technology can explain a waning share of the variation in regional economic growth in Europe. Growth theories that accounted for differences in economic performance relatively well two decades ago are becoming less capable of doing so. The residual factor is growing, meaning that, in spite of improvements in growth theory, we tend to know less about what determines regional growth in Europe.
    Date: 2018–02
  7. By: Simon Fuchs (Toulouse School of Economics)
    Abstract: This paper analyzes to what extent labor market frictions limit the gains from market integration. I use an external demand shock to the Spanish economy as a natural experiment to identify and quantify the effect of labor mobility costs on Spain’s development. Using newly digitized trade and labor market data, I show that during WWI (1914-1918) a large, temporary and sectorally heterogeneous de- mand shock emanated from belligerent countries, as a result of which Spain ex- panded its manufacturing employment and exports, while income growth between the north and south in Spain diverged. To quantify and analyse the role of mo- bility costs I build and estimate a multi-sector economic geography model that al- lows for sectoral and spatial mobility costs. Spatial mobility costs dominated with an estimated 80% of reallocation of labor taking place within rather than between provinces. I use the estimated model to calculate counterfactuals to examine the effects of and interaction between output and input market integration: Comparing to the non-shock counterfactual I find that the WWI-shock increased manufactur- ing employment by 10%, and induced highly uneven spatial development with the north growing 27% faster. The shock constituted a 6% increase in market size and increased aggregate real incomes by 20%. Lowering mobility costs by 10% increases real income gains from the WWI-shock by an additional 3%, and exceeds gains in the non-shock scenario, suggesting that labor market integration and output market integration are complements.
    Date: 2018
  8. By: Luis Cesar Herrero-Prieto (Department of Applied Economics, University of Valladolid); Ivan Boal-San Miguel (Department of Applied Economics, University of Valladolid); Mafalda Mafalda Gomez-Vega (Department of Applied Economics, University of Valladolid)
    Abstract: This work involves undertaking a reappraisal of the Seven Deadly Sins in order to construct synthetic indicators of well-being aimed at measuring spatial economic disparities and their link to economic development. The Seven Deadly Sins constitute a way of describing vices vis-Ã -vis Christian moral education. Yet they might also be viewed as general norms of social behaviour and interpreted today as notions related to the concept of well-being. For example, the level of concentration of wealth (greed), sustainability of resources (gluttony), safety index (wrath), problems adapting to the labour market or workplace absenteeism (sloth), etc. The Seven Deadly Sins have also yielded emblematic examples of artistic iconography and cultural production. How they are perceived and expressed may also differ depending on each group’s cultural idiosyncrasy, in the sense of a series of beliefs and attitudes forged over the centuries. Based on these premises, the current work first seeks to compile variables that reflect each conceptual dimension so as to later construct a synthetic indicator of well-being with territorial disaggregation. This enables us to explore spatial disparities and the extent to which they relate to economic development. This is applied to a group of countries in the European Union with NUTS 2 territorial disaggregation (regions). The sources of information are basically Eurostat. The method involves applying Data Envelopment Analysis to construct the synthetic indicator, and spatial econometrics to pinpoint spatial dependence effects.
    Keywords: cultural identity, welfare indicators, economic development, synthetic indicators, Deadly Sins, Europe
    JEL: Z11 Z13 R12 O12
    Date: 2018–07
  9. By: Martin, Hanna (Karlstad University,); Martin, Roman (Gothenburg University); Zukauskaite, Elena (Halmstad University)
    Abstract: This paper contributes to the literature on new regional industrial path development by highlighting the multiple roles that demand can play in regional development. We develop a conceptual framework relating different roles of demand to different types of new path development. Based on the literature on regional development, we differentiate among the role of demand as anonymous consumer, sophisticated buyer, active co-developer, public procurer, and norm and value setter. These roles influence different types of new path development, including path extension, path renewal and new path creation. New path development can be triggered by changing norms and values in the society (e.g. environmental concerns and the growing demand for cleaner technologies), public procurement for innovation (governments demand new products or services and thereby steer economic development) or by users modifying existing products or developing novel solutions that are not yet on the market (e.g. user innovations). In order to foster a new industrial growth path in a region, local firms need to sustain, establish and grow their market shares, focusing on the role of anonymous consumers. The various roles of demand, as well as its effect on new path development, depend on the geographical context. Changes of demand in one region might contribute to path extension, path renewal or new path creation in other regions. We argue that taking a nuanced view toward demand will add a novel dimension to the debate on new path development.
    Keywords: regional development; demand; innovation; new path development
    JEL: O10 O30 R11 R58
    Date: 2018–08–17
  10. By: Aslesen, Heidi Wiig (BI Norwegian Business School); Martin, Roman (Gothenburg University); Sardo, Stefania (BI Norwegian Business School)
    Abstract: To understand how knowledge is created, it is necessary to unwrap the role played by the physical and virtual spaces in knowledge exchange and formation. The extant research offers interesting findings when it comes to the relationships among regional institutional and organizational characteristics, innovation, and firms’ abilities to link up to global knowledge sources. A focus on the role of informal and low-cost mechanisms, both regional and global, has extended our understanding of their role in knowledge formation. However, the physical space has dominated the discussion in the literature on sources of knowledge formation, while the virtual space has seldom been addressed. The inclusion of the virtual space, both as an interaction space and as a different and complementary dimension, makes it possible to gain new insights into knowledge formation in a digitalizing world. Based on in-depth interviews with small and medium-sized software companies in two urban agglomerations in Norway and Sweden, this paper explores the use of physical and virtual spaces. The findings show that these spaces interact and mutually influence each other. The world is not ‘flattening’ due to ongoing digitalization. Rather, urban agglomerations are still important places in which these spaces are optimized and unified.
    Keywords: virtual space; knowledge sources; geographical proximity; software firm; Norway; Sweden
    JEL: L86 O30 O31
    Date: 2018–08–17
  11. By: David A. Jaeger (City University of New York Graduate Center); Joakim Ruist (University of Gothenburg); Jan Stuhler (Universidad Carlos III de Madrid)
    Abstract: A large literature exploits geographic variation in the concentration of immigrants to identify their impact on a variety of outcomes. To address the endogeneity of immigrants’ location choices, the most commonly-used instrument interacts national inflows by country of origin with immigrants’ past geographic distribution. We present evidence that estimates based on this “shift-share” instrument conflate the short- and long-run responses to immigration shocks. If the spatial distribution of immigrant inflows is stable over time, the instrument is likely to be correlated with ongoing responses to previous supply shocks. Estimates based on the conventional shift-share instrument are therefore unlikely to identify the short-run causal effect. We propose a “multiple instrumentation” procedure that isolates the spatial variation arising from changes in the country-of-origin composition at the national level and permits us to estimate separately the short- and long-run effects. Our results are a cautionary tale for a large body of empirical work, not just on immigration, that rely on shift-share instruments for causal inference.
    Keywords: immigration, geographic variation, shocks, multiple instrumentation, spatial analysis
    JEL: C36 J15 J21 J61
    Date: 2018–02
  12. By: Adrien Bilal; Esteban Rossi-Hansberg
    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 J62 R13 R23 R30
    Date: 2018–07

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