nep-geo New Economics Papers
on Economic Geography
Issue of 2018‒09‒17
seven papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. Why do Industries Coagglomerate? How Marshallian Externalities Differ by Industry and Have Evolved Over Time By Dario Diodato; Frank Neffke; Neave O'Clery
  2. What kind of related variety for long-term regional growth? By Kadri Kuusk; Mikhail Martynovich
  3. Institutions vs. ‘first-nature’ geography: what drives economic growth in Europe's regions? By Ketterer, Tobias D.; Rodríguez-Pose, Andrés
  4. Inter-city trade By Mori, Tomoya; Wrona, Jens
  5. Agglomeration externalities in Ecuador. Do urbanisation and tertiarisation matter? By Carolina Guevara; Stéphane Riou; Corinne Autant-Bernard
  6. Rethinking Detroit By Owens, Raymond E.; Rossi-Hansberg, Esteban; Sarte, Pierre-Daniel G.
  7. Market access, agricultural productivity and selection into trade: evidence from Colombia By Margarita Gafaro; Heitor S. Pellegrina

  1. By: Dario Diodato; Frank Neffke (Center for International Development at Harvard University); Neave O'Clery (Center for International Development at Harvard University)
    Abstract: The fact that firms benefit from close proximity to other firms with which they can exchange inputs, skilled labor or know-how helps explain why many industrial clusters are so successful. Studying the evolution of coagglomeration patterns, we show that which type of agglomeration benefits firms has drastically changed over the course of a century and differs markedly across industries. Whereas, at the beginning of the twentieth century, industries tended to colocate with their value chain partners, in more recent decades the importance of this channels has declined and colocation seems to be driven more by similarities industries' skill requirements. By calculating industry-specific Marshallian agglomeration forces, we are able to show that, nowadays, skill-sharing is the most salient motive in location choices of services, whereas value chain linkages still explain much of the colocation patterns in manufacturing. Moreover, the estimated degrees to which labor and input-output linkages are reflected in an industry's coagglomeration patterns help improve predictions of city-industry employment growth.
    Keywords: Coagglomeration, Marshallian externalities, labor pooling, value chains, manufacturing, services, regional diversification
    JEL: J24 O14 R11
    Date: 2018–02
  2. By: Kadri Kuusk; Mikhail Martynovich
    Abstract: We investigate the evolution of relatedness linkages between Swedish industries during five sub-periods between 1991 and 2010. Distinguishing between the stable ties (present in all sub- periods) and non-stable ties (emerging, disappearing, etc), we demonstrate that the relatedness linkages change considerably over time. Furthermore, we show that the changes in the relatedness matrix matter for the impact of related variety on regional employment growth. We argue, therefore, that the relatedness linkages have a ?best before date? and that the choice of what relatedness indicator to apply and how deserves more consideration than it is usually given.
    Keywords: relatedness, evolution, related variety, regional growth, skill relatedness, Sweden
    JEL: L16 O33 R11 R12
    Date: 2018–09
  3. By: Ketterer, Tobias D.; Rodríguez-Pose, Andrés
    Abstract: The debate on whether institutions or geography prevail in driving economic growth has been rife (e.g., Sachs 2003 vs. Rodrik et al. 2004). Most of the empirical analyses delving into this debate have focused on world countries, whose geographical and institutional conditions differ widely. Subnational analyses considering groups of countries with, in principle, more similar institutional and geographical conditions have been limited and tended to highlight that geography is more important than institutions at subnational level. This paper aims to address whether this is the case by investigating how differences in institutional and ‘first-nature’ geographical conditions have affected economic growth in Europe's regions in the period 1995–2009. In the analysis we use a newly developed dataset including regional quality of government indicators and geographical charactersitics and employ two-stage least squares (2SLS) and instrumental variables-generalized method of moments (IV-GMM) estimation techniques with a number of regional historical variables as instruments. Our results indicate that at a regional level in Europe institutions rule. Regional institutional conditions – and, particularly, government effectiveness and the fight against corruption – play an important role in shaping regional economic growth prospects. This does not imply, however, that geography is irrelevant. There is evidence of geographical factors affecting regional growth, although their impact is dwarfed by the overriding influence of institutions.
    Keywords: regional economic growth; institutions; geography; quality of government; NUTS 2 regions; Europe
    JEL: N0
    Date: 2018–03–01
  4. By: Mori, Tomoya; Wrona, Jens
    Abstract: We propose and apply a new theory-consistent algorithm, which uses disaggregated inter-city trade data to identify a pyramidic city system with central places and associated hinterlands. Because central places possess more industries than the cities in their hinterlands, and because industries, which are exclusive to central places, are more likely to export to the small, peripheral cities in the central place's hinterland, we find that aggregate exports from central places to their hinterlands are two to five times larger than predicted by gravity forces. Using a simple decomposition approach, we show that this upward bias results from aggregation along the extensive industry margin, which is why the bias is much smaller and only marginally significant if estimation is conducted in a theory-consistent way at the disaggregated industry level.
    Keywords: inter-city trade,central place theory,gravity equation,aggregation bias
    JEL: F14 F12 R12
    Date: 2018
  5. By: Carolina Guevara (Departamento de Matematica, Facultad de Ciencias, Escuela Politecnica Nacional, Ecuador); Stéphane Riou (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France); Corinne Autant-Bernard (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France)
    Abstract: The paper investigates whether the tertiarisation and the rapid urbanisation faced by developing countries favour agglomeration economies. Focusing on Ecuadorian cantons, a productivity equation is estimated using the GMM model with instruments controlling for endogeneity. The varying impact of industrial concentration, diversity, competition and density across industries is investigated and for the first time, the implication of the level of urbanisation on agglomeration externalities is studied. Stronger effects are found for services. The threshold of urbanisation at which diversity, density and competition agglomeration externalities all generate positive effects was 33% while they seem challenged by congestion in highly urbanised cantons.
    Keywords: agglomeration externalities, productivity, urbanisation, tertiarisation, Latin America
    JEL: O54 L80 O18 L60
    Date: 2018
  6. By: Owens, Raymond E. (Federal Reserve Bank of Richmond); Rossi-Hansberg, Esteban (Princeton University); Sarte, Pierre-Daniel G. (Federal Reserve Bank of Richmond)
    Abstract: We study the urban structure of the City of Detroit. Following many decades of decline, the city’s current urban structure is clearly not optimal for its size, with a business district immediately surrounded by a ring of largely vacant neighborhoods. We propose a model with residential externalities that features multiple equilibria at the neighborhood level. In particular, developing a residential area requires the coordination of developers and residents, without which it may remain vacant even if its fundamentals are sound. We embed this mechanism in a quantitative spatial economics model and use it to rationalize current city allocations. We then use the model to evaluate existing strategic visions to revitalize Detroit, and to design alternative plans that rely on ‘development guarantees’ to yield better outcomes. The widespread effects of these policies underscore the importance of using a general equilibrium framework to evaluate policy proposals.
    JEL: F0 H0 R0
    Date: 2018–08–07
  7. By: Margarita Gafaro (Banco de la República de Colombia); Heitor S. Pellegrina (NYU Abu Dhabi)
    Abstract: We study the impact of the selection of farmers into trade on agricultural productivity using new data on the universe of farms in Colombia. To guide our analysis, we formulate a spatial economy model where better market access induces high skill farmers to switch from subsistence to cash crops that are traded in urban centers. We estimate reduced form effects of market access using distance to historical settlements as an instrument and calibrate our model according to these effects. Structural estimates indicate that the selection of farmers into trade have a large effect on agricultural productivity. **** RESUMEN: En este documento estudiamos la elección que hacen los agricultores entre la producción de cultivos comerciales con altos costos fijos y la producción de cultivos de subsistencia con menores costos de producción. Formulamos un modelo de economía espacial en el que un mejor acceso al mercado induce a agricultores de mayor habilidad a pasar de la producción de cultivos de subsistencia a la producción de cultivos que se comercializan en los centros urbanos. Probamos las predicciones del modelo utilizando datos para Colombia que provienen del Tercer Censo Nacional Agropecuario. Explotamos la variación exógena en la ubicación de los asentamientos indígenas en el siglo XVI para estimar efectos de forma reducida del acceso al mercado sobre la decisión de producir cultivos comerciales. Utilizamos los resultados de estas estimaciones para calcular los efectos sobre la productividad agrícola de la existencia de altos costos fijos en la producción de cultivos comerciales. Los restados sugieren que las barreras a la entrada que imponen estos costos fijos en la producción de cultivos comerciales tienen un efecto importante sobre la productividad del sector agrícola en Colombia.
    Keywords: Agricultural Trade, Spatial Economics, Selection into trade, Comercio en agricultura, Economía espacial, selección en comercio
    JEL: F14 J43 N56 O13 Q12 Q17 R14
    Date: 2018–09

This nep-geo issue is ©2018 by Andreas Koch. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.