nep-geo New Economics Papers
on Economic Geography
Issue of 2019‒08‒26
seven papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. What drives the location choice of new manufacturing plants in Germany? By Krenz, Astrid
  2. Cities and space: Common power laws and spatial fractal structures By Tomoya Mori; Tony E. Smith; Wen-Tai Hsu
  3. Competition, Land Prices, and City Size By Sergey Kichko
  4. Spatial Misallocation: Evaluating Place-Based Policies Using a Natural Experiment in China By Binkai Chen; Ming Lu; Christopher Timmins; Kuanhu Xiang
  5. A Bayesian Spatial Autoregressive Logit Model With An Empirical Application to European Regional FDI Flows By Tamás Krisztin; Philipp Piribauer
  6. Diversifying in green technologies in European regions: does political support matter? By Artur Santoalha; Ron Boschma
  7. Firm organization with multiple establishments By Antoni, Manfred; Gumpert, Anna; Steimer, Henrike

  1. By: Krenz, Astrid
    Abstract: About 30 years after German reunification a persistent gap in different firm performance measures exists between East and West Germany. In this paper I focus on the differences in new German manufacturing plants' location choices across the German district-free cities and districts and investigate its regional determinants. For that purpose, I construct a novel, rich regional- and firm-level dataset based on the Official Firm Statistics from the German Federal Statistical Office and the Offices of the Laender. The analysis provides first time evidence how in particular the location decision of firms in the German economy is influenced by regional road infrastructure as well as regional structural funding. The effects are economically important and significant. The results reveal that a 10 percent increase in firm agglomeration increases the odds of a new plant to locate in the region by 12 percent. A 10 percent decrease of travel time on roads increases the odds of a plant to locate by 4 percent in overall Germany, by 7.6 percent among East German regions and by 26.5 percent in particular for large plants in the East German regions. A 10 percent larger population increases the odds to locate by 8.7 percent. A 10 percent increase in regional structural funding for infrastructure purposes increases the odds to locate in a region in East Germany by 8.3 percent in particular for large plants. Policy implications emerge that address in particular the improvement of infrastructure and support to reap off benefits that arise from agglomeration externalities.
    Keywords: firm location choice,regional road infrastructure,Germany,agglomeration economies,regional structural funding,East-West gap,conditional logit,nested logit
    JEL: D22 L25 R11 R12
    Date: 2019
  2. By: Tomoya Mori; Tony E. Smith; Wen-Tai Hsu
    Abstract: City size distributions are known to be well approximated by power laws across a wide range of countries. But such distributions are also meaningful at other spatial scales, such as within certain regions of a country. Using data from China, France, Germany, India, Japan, and the US, we first document that large cities are significantly more spaced out than would be expected by chance alone. We next construct spatial hierarchies for countries by first partitioning geographic space using a given number of their largest cities as cell centers, and then continuing this partitioning procedure within each cell recursively. We find that city size distributions in different parts of these spatial hierarchies exhibit power laws that are again far more similar than would be expected by chance alone -- suggesting the existence of a spatial fractal structure.
    Date: 2019–07
  3. By: Sergey Kichko
    Abstract: Larger cities typically give rise to two opposite effects: tougher competition among firms and higher production costs. Using an urban model with substitutability of production factors and pro-competitive effects, I study the response of the market outcome to city size, land-use regulations, and commuting costs. For industries with low input shares of land, larger cities host more firms setting lower prices whereas for sectors with intermediate land shares larger cities accommodate more firms charging higher prices. Softer land-use regulations and/or lower commuting costs reinforce pro-competitive effects, making larger cities more attractive for residents via lower prices and broader product diversity.
    Keywords: land prices, pro-competitive effects, city size, product diversity, land-use regulations
    JEL: L11 L13 R13 R32 R52
    Date: 2019
  4. By: Binkai Chen; Ming Lu; Christopher Timmins; Kuanhu Xiang
    Abstract: Using the mass closure of development zones in 2004 as a natural experiment, we examine the causal effect of development zones on firm level TFP in China. The difference-in-difference estimator shows that on average, loss of development zone policies results in 6.5% loss of firms’ TFP. Locational heterogeneity is important. Within 500 kilometers from the three major seaports in China, closure of zones reduced firm-level TFP by 9.62%, whereas closure of zones farther away did not show significant effects. Market potential and local within-industry spillover effects can explain much of this locational heterogeneity. We conclude that China’s strategy of using development zones as a place-based policy to encourage inland development may have led to spatial misallocation.
    JEL: O53 R1 R58
    Date: 2019–08
  5. By: Tamás Krisztin; Philipp Piribauer (WIFO)
    Abstract: In this paper we propose a Bayesian estimation approach for a spatial autoregressive logit specification. Our approach relies on recent advances in Bayesian computing, making use of Pólya-Gamma sampling for Bayesian Markov-chain Monte Carlo algorithms. The proposed specification assumes that the involved log-odds of the model follow a spatial autoregressive process. Pólya-Gamma sampling involves a computationally efficient treatment of the spatial autoregressive logit model, allowing for extensions to the existing baseline specification in an elegant and straightforward way. In a Monte Carlo study we demonstrate that our proposed approach significantly outperforms existing spatial autoregressive probit specifications both in terms of parameter precision and computational time. The paper moreover illustrates the performance of the proposed spatial autoregressive logit specification using pan-European regional data on foreign direct investments. Our empirical results highlight the importance of accounting for spatial dependence when modelling European regional FDI flows.
    Keywords: Spatial autoregressive logit, Bayesian MCMC estimation, FDI flows, European regions
    Date: 2019–08–19
  6. By: Artur Santoalha (University of Oslo, TIK); Ron Boschma (Utrecht University, Department of Human Geography and Planning, University of Stavanger, UiS Business School)
    Abstract: Regional diversification is a process characterized by past and place dependence: new activities tend to emerge and develop in a region in technological or industrial fields closely related to existing local activities. Recently, the relatedness concept has also been applied successfully to studies on green diversification of regions, providing new insights to the transition literature that is primarily focused on disruptive change. What has received little attention is a systematic approach that assesses the role of political support for the ability of regions to diversify into new green activities. This paper makes a first attempt to test the impact of regional capabilities and political support for environmental policy at the national and regional scale on the ability of 95 regions in 7 European countries to diversify into new green technologies during the period 2000-2012. We find evidence that related capabilities rather than political support in a region is associated with green diversification of regions in Europe. However, political support tends to moderate the role of regional capabilities.
    Date: 2019–08
  7. By: Antoni, Manfred; Gumpert, Anna; Steimer, Henrike
    Abstract: How do geographic frictions affect firm organization? We show theoretically and empirically that geographic frictions increase the use of middle managers in multi-establishment firms. In our model, we assume that a CEO's time is a resource in limited supply, shared across headquarters and establishments. Geographic frictions increase the costs of accessing the CEO. Hiring middle managers at one establishment substitutes for CEO time, which is reallocated across all establishments. Consequently, geographic frictions between the headquarters and one establishment affect the organization of all establishments of a firm. Our model is consistent with novel facts about multi-establishment firm organization that we document using administrative data from Germany. We exploit the opening of high-speed train routes to show that not only the establishments directly affected by faster travel times but also the other establishments of the firm adjust their organization. Our findings imply that local conditions propagate across space through firm organization.
    Keywords: firm organization; Geography; knowledge hierarchy; multi-establishment firm
    JEL: D21 D22 D24
    Date: 2019–07

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