nep-geo New Economics Papers
on Economic Geography
Issue of 2021‒02‒08
nineteen papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. Trade and geography By Stephen J. Redding
  2. Place-based policies and spatial disparities across European cities By Maximilian v. Ehrlich; Henry G. Overman
  3. Urban Specialisation; from Sectoral to Functional By Antoine Gervais; James R. Markusen; Anthony J. Venables
  4. Quality of life in a dynamic spatial model By Gabriel M. Ahlfeldt; Fabian Bald; Duncan Roth; Tobias Seidel
  5. Prime locations By Gabriel M. Ahlfeldt; Thilo N. H. Albers; Kristian Behrens
  6. Local Job Multipliers in the United States: Variation with Local Characteristics and with High-Tech Shocks By Timothy J. Bartik; Nathan Sotherland
  7. Circular economy in cities: An economic theory to decouple economic development from waste By Kurita, Kenichi; Managi, Shunsuke
  8. City Minimum Wages and Spatial Equilibrium Effects By Perez Perez, Jorge
  9. No inventor is an island: social connectedness and the geography of knowledge flows in the US By Andreas Diemer; Tanner Regan
  10. Employment mobility and labour market flexibility in the EU By Vassilis Monastiriotis; Stylianos Sakkas
  11. Regional Borders, Commuting and Transport Network Integration By Gabriel Loumeau
  12. Should Place-Based Jobs Policies Be Used to Help Distressed Communities? By Timothy J. Bartik
  13. Understanding the European Union’s regional potential in low-carbon technologies By Enrico Bergamini; Georg Zachmann
  14. Strategic investment and industry location in a footloose capital model of economic geography By Kenji Fujiwara
  15. Place-Based Redistribution By Cecile Gaubert; Patrick M. Kline; Danny Yagan
  16. An intervention-logic approach for the design and implementation of S3 strategies: from place-based assets to expected impacts By Mathieu Doussineau; Christian Saublens; Nicholas Harrap
  17. Measuring Local Job Distress By Timothy J. Bartik
  18. How Long-Run Effects of Local Demand Shocks on Employment Rates Vary with Local Labor Market Distress By Timothy J. Bartik
  19. Are bigger banks better? Firm-level evidence from Germany By Kilian Huber

  1. By: Stephen J. Redding
    Abstract: This paper reviews recent research on geography and trade. One of the key empirical findings over the last decade has been the role of geography in shaping the distributional consequences of trade. One of the major theoretical advances has been the development of quantitative spatial models that incorporate both exogenous first-nature geography (natural endowments) and endogenous second-nature geography (the location choices of economic agents relative to one another) as determinants of the distribution of economic activity across space. These models are sufficiently rich to capture first-order features of the data, such as gravity equations for flows of goods and people. Yet they remain sufficiently tractable as to permit an analytical characterization of the properties of the general equilibrium and facilitate counterfactuals for realistic policy interventions. We distinguish between models of regions or systems of cities (where goods trade and migration take center stage) and models of the internal structure of cities (where commuting becomes relevant). We review some of key empirical predictions of both sets of theories and show that they have been remarkably successful in rationalizing the empirical findings from reduced-form research. Looking ahead, the combination of recent theoretical advances and novel geo-coded data on economic interactions at a fine spatial scale promises many interesting avenues for further research, including discriminating between alternative mechanisms for agglomeration, understanding the implications of new technologies for the organization of work, and assessing the causes, consequences and potential policy implications of spatial sorting.
    Keywords: trade, geography, local labor markets
    JEL: F1 J4 R1 R4
    Date: 2020–09
  2. By: Maximilian v. Ehrlich; Henry G. Overman
    Abstract: Spatial disparities in income levels and worklessness in the European Union are profound, persistent and may be widening. We describe disparities across metropolitan regions and discuss theories and empirical evidence that help us understand what causes these disparities. Increases in the productivity benefits of cities, the clustering of highly educated workers and increases in their wage premium all play a role. Europe has a long-standing tradition of using capital subsidies, enterprise zones, transport investments and other place-based policies to address these disparities. The evidence suggests these policies may have partially offset increasing disparities but are not sufficient to fully offset the economic forces at work.
    Keywords: place based policy, cities, European Union
    JEL: R11 R12 R13
    Date: 2020–10
  3. By: Antoine Gervais; James R. Markusen; Anthony J. Venables
    Abstract: The comparative advantage of many cities is based on their efficiency in the production of ‘functions’, e.g., business services such as finance, law, engineering, or similar functions that are used by firms in a wide range of sectors. Firms that use these functions may choose to source them locally, or to purchase them from other cities. The former case gives rise to cities developing a pattern of sectoral specialization, and the latter a pattern of functional specialization. A two-city country trades with the larger world, and workers within the country are mobile between the two cities. Productivity in a given function varies across cities, giving rise to urban comparative advantage. This may be due to exogenous technological differences (Ricardian) or to city- and function-specific scale economies. Sectors differ in the intensity with which they use different functions, giving rise to a pattern of sectoral and functional specialisation. We generate a number of economic insights, and examine the model’s predictions empirically over a 20-30-year period for US states. As geographic fragmentation costs fall, both our theory and empirical analysis show that sector concentration and regional specialization fall for sectors and rise for functions (occupations).
    JEL: F12 F23 R11 R12 R13
    Date: 2021–01
  4. By: Gabriel M. Ahlfeldt; Fabian Bald; Duncan Roth; Tobias Seidel
    Abstract: We develop a dynamic spatial model in which heterogeneous workers are imperfectly mobile and forward-looking and yet all structural fundamentals can be inverted without assuming that the economy is in a stationary spatial equilibrium. Exploiting this novel feature of the model, we show that the canonical spatial equilibrium framework understates spatial quality of-life differentials, the urban quality-of-life premium and the value of local non-marketed goods. Unlike the canonical spatial equilibrium framework, the model quantitatively accounts for local welfare effects that motivate many place-based policies seeking to improve quality of life.
    Keywords: Covid-19, dynamic, housing, migration, rents, pollution, productivity, spatial equilibrium, quality of life, wages, welfare, economic geography, productivity, wages, wellbeing
    JEL: J2 J3 R2 R3 R5
    Date: 2020–12
  5. By: Gabriel M. Ahlfeldt; Thilo N. H. Albers; Kristian Behrens
    Abstract: We harness big data to detect prime locations - large clusters of knowledge-based tradable services - in 125 global cities and track changes in the within-city geography of prime service jobs over a century. Historically smaller cities that did not develop early public transit networks are less concentrated today and have prime locations farther from their historic cores. We rationalize these findings in an agent-based model that features extreme agglomeration, multiple equilibria, and path dependence. Both city size and public transit networks anchor city structure. Exploiting major disasters and using a novel instrument - subway potential - we provide causal evidence for these mechanisms and disentangle size- from transport network effects.
    Keywords: prime services, internal city structure, agent-based model, multiple equilibria and path dependence, transport networks, cities, economic geography
    JEL: R38 R52 R58
    Date: 2020–10
  6. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research); Nathan Sotherland (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper provides new estimates of local job multipliers, the ratio of total jobs generated to some initial number of jobs created from a demand shock. Multipliers greatly affect benefits versus costs of local job-creation policies. These new estimates rely on improved methodology and data. The methodology better captures dynamic effects of demand shocks, specifies the model so that demand shocks are more comparable, and is more general in the types of demand shocks that are considered. The data has more industry detail than that used in previous studies. The local job multipliers estimated tend to be about one-quarter lower than typically estimated local multipliers, closer to 1.5 than to 2.0. In addition, demand shocks to all industries matter, not just to tradable industries. Multipliers are similar across different types of geographic areas, with county multipliers being only one-quarter below commuting zone multipliers and state multipliers only one-quarter above commuting zone multipliers. Multipliers are not larger for larger commuting zones, but they increase in commuting zones that have lower initial employment to population ratios. Multipliers are higher for high-tech industries, particularly in commuting zones with a larger initial high-tech share. In such high-tech local economies, high-tech multipliers may be close to 3. While our high-tech multipliers are greater than for other industries, our estimated high-tech multipliers are less than in some prior studies.
    Keywords: Multipliers, agglomeration economies, congestion effects, high-technology industries
    JEL: R11 R23
    Date: 2019–03
  7. By: Kurita, Kenichi; Managi, Shunsuke
    Abstract: This paper constructs the economic model to consider the circular economy in cities from the waste management perspective. Specifically, we analyze the link between migration, natural capital, human capital, and waste management by extending the new economic geography model. We show the results; the population distribution pattern in the long run varies depending on the congestion effect of natural capital and waste management's technological level. In particular, a full agglomeration equilibrium realizes in the long-run for higher technological levels of waste management (lower congestion effects), an interior asymmetric equilibrium does for intermediate technological levels (intermediate congestion effects), and the symmetric dispersion equilibrium realizes for the lower technological levels (higher congestion effects).
    Keywords: Circular economy; Waste management; Economic geography; Agglomeration; Natural capital
    JEL: F18 Q53 R11 R12
    Date: 2021–01
  8. By: Perez Perez, Jorge
    Abstract: Local minimum wage laws are becoming common across U.S. cities, and their effects may be different from the effects of state or national minimum wage policies. This paper studies the effect of changes in the minimum wage on spatial equilibriums in local labor markets. Using residence and workplace data for the United States, I analyze how commuting, residence, and employment locations change across city and state borders if the minimum wage changes on one side of the border. I find that areas in which the minimum wage increases receive fewer low-wage commuters. A 10 percent increase in the minimum wage reduces the inflow of low-wage commuters by about 2.5 percent. Rises in the minimum wage are also associated with employment relocation across borders toward areas that did not witness an increase in the minimum wage. I formulate a spatial equilibrium gravity model to explain the distribution of workers between low- and high-minimum wage areas. I calculate counterfactual equilibriums with a higher minimum wage for U.S. counties with cities considering an increase, highlighting the role of commuting and migration responses. About two-fifths of the counties considering increases would receive fewer low-wage commuters. Employment relocation away from high-minimum wage areas drives the commuting losses.
    Date: 2020–12–24
  9. By: Andreas Diemer; Tanner Regan
    Abstract: Do informal social ties connecting inventors across distant places promote knowledge flows between them? To measure informal ties, we use a new and direct index of social connectedness of regions based on aggregate Facebook friendships. We use a well-established identification strategy that relies on matching inventor citations with citations from examiners. Moreover, we isolate the specific effect of informal connections, above and beyond formal professional ties (co-inventor networks) and geographic proximity. We identify a significant and robust effect of informal ties on patent citation. Further, we find that the effect of geographic proximity on knowledge flows is entirely explained by informal social ties and professional networks. We also show that the effect of informal social ties on knowledge flows: has become increasingly important over the last two decades, is higher for older or `forgotten' patents, is more important for new entrepreneurs or `garage inventors', and is somewhat stronger across distant technology fields.
    Keywords: knowledge flows, diffusion, social connectedness, informal networks
    JEL: O33 R12 Z13
    Date: 2020–11
  10. By: Vassilis Monastiriotis (London School of Economics); Stylianos Sakkas (European Commission - JRC)
    Abstract: Does employment flexibility facilitate cross-regional adjustments via labour mobility? Or is it instead a hinderance to cross-regional equilibration in the labour market? We examine this, drawing on a sample of 11 European countries belonging to different 'varieties' of European capitalism. We identify two opposing potential effects of employment flexibility on outmigration (a negative necessitating effect and a positive facilitating effect) and provide original evidence on the ways in which employment flexibility impacts of the responsiveness of inter-regional outmigration to regional unemployment. We find that employment flexibility is at large associated with less cross-regional adjustability. This is especially so for numerical aspects of flexibility (non-standard forms of employment contracts) and more true for countries in the European south and Scandinavia; while for internal aspects of employment flexibility (irregular hours and patterns of work), as well as for countries of the Continental 'variety' (coordinated market economies), employment flexibility appears to be more synergetic to cross-regional adjustability (via outmigration). We draw implications for our understanding of cross-regional equilibration and for labour market and wider EU policies.
    Keywords: Employment flexibility, regional migration, labour market adjustment
    JEL: R11 R23 J08 J61
    Date: 2021–01
  11. By: Gabriel Loumeau (ETH Zurich, Switzerland)
    Abstract: I study how and why economic activity varies around regional borders. Spatial quasi-experimental variation around French departmental borders reveals discontinuous commuting and residential patterns. To tackle the endogenous border placement problem, I exploit a geometric border design proposed during the French Revolution. I then calibrate a spatial quantifiable general equilibrium framework to structurally match the quasi-experimental estimates. The commuting and residential discontinuities are well explained by a 7km bilateral distance penalty when crossing regional borders, which is the consequence of the decentralized planning and development of local transport networks. Policy simulation shows that integrating local transport networks leads to a 11.7% average growth in real per capita residential income.
    Keywords: Border, Commuting, Discontinuity, Transport network, Decentralization
    JEL: R12 R42 O18
    Date: 2020–12
  12. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research)
    Abstract: Should policymakers seek to increase jobs in particular local labor markets? Yes, but only if these policies are well targeted and designed. Encouraging job growth in distressed places can cause persistent gains in employment-to-population ratios. But our current place-based jobs policies, under which state and local governments provide long-term tax incentives to megacorporations, are poorly targeted and designed. Such incentives are as large in nondistressed areas as in distressed areas, and they are excessively costly. What reforms are needed? First, job growth policies should target distressed areas. Second, tax incentives should be focused on high-multiplier businesses, such as high-tech firms. Third, officials can more effectively promote local job creation by relying less on tax incentives and more on public services. These include customized business services, infrastructure, land development policies, local education, and job training. The federal government can use taxes and intergovernmental grants to discourage city or state officials from giving excessive state and local incentives to the largest firms. The federal government can also provide block grants to state and local governments to provide services that promote job growth in distressed places.
    Keywords: distressed places, regional development policies, local labor markets
    JEL: R58 R23 H73 H77
    Date: 2019–08
  13. By: Enrico Bergamini; Georg Zachmann
    Abstract: This research identifies existing and potential specialisation in green technologies in European Union regions, and proposes an approach to identify policies that can help to realise this potential. Using the Organisation for Economic Cooperation and Development’s REGPAT database for regionalised patent data, we estimate the potential advantage European NUTS2 regions could have in 14 green technologies. We use network proximity between technologies and between regions to understand technological/regional clusters, and...
    Date: 2020–11
  14. By: Kenji Fujiwara (School of Economics, Kwansei Gakuin University)
    Abstract: This paper examines how strategic investment of capitalists affects the industry location in a footloose capital model. We show that the home market effect is robust but is moderated when capitalists strategically invest. That is, the industry location is closer to dispersion when capitalists are strategic than when they are atomic.
    Keywords: Footloose capital model, Strategic investment, Industry location
    JEL: F12 R12
    Date: 2021–02
  15. By: Cecile Gaubert; Patrick M. Kline; Danny Yagan
    Abstract: Governments around the world redistribute to distressed areas by conditioning taxes and transfers on location. We show that when poor households are spatially concentrated, transfers from one location to another can yield equity gains that outweigh their efficiency costs, even when income-based transfers are set optimally. Expressions for the optimal transfer size depend on the mobility of households, the earnings responses of movers, and sorting patterns. Surveys find support for targeting tax credits to poor Americans who live in distressed places. A calibration exercise finds optimal transfers of the same order of magnitude as prominent American zone policies.
    JEL: H20 R10
    Date: 2021–01
  16. By: Mathieu Doussineau (European Commission - JRC); Christian Saublens (Saublens & Saublens); Nicholas Harrap
    Abstract: Smart specialisation is conceptualised as research and innovation policymaking encompassed in a holistic place-based view of development. It combines an organisational bottom-up approach with a structural approach, stressing interactions among local and international actors that participate and facilitate reflexive learning processes. The issue of governance is key and multi-level governance is instrumental for advancing with the goal of the strategy on the ground. The need to connect top-down EU policies with place-based facts and ambitions that translate into competitive advantage, generating growth and jobs, makes governance the cornerstone of the smart specialisation process. In the context of the revision of the existing strategies the need to reassess the coherence of policy intervention is of crucial importance to address the local but also the global challenges faced by EU territories.
    Keywords: Smart specialisation, regional policy, intervention logic, evaluation, methodology
    Date: 2021–01
  17. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research)
    Abstract: In this paper, estimates are presented on short-run effects of demand shocks on a local labor market’s employment to population ratio (employment rate). Based on the estimates, commuting zones (CZs) better define a local labor market than counties, because both employment and employment rate effects exhibit large spillovers across counties within a CZ. In addition, the estimates suggest that demand shock effects vary, by an amount that is both statistically and substantively significant, with a CZ’s prior overall employment rate.
    Keywords: Local labor markets, distressed regions, job creation benefits, local labor demand
    JEL: R23
    Date: 2021–01
  18. By: Timothy J. Bartik (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper estimates that long-run changes in a county’s prime-age employment rate are significantly affected by labor demand shocks to both the county and its overlying commuting zone (CZ). The overall benefits of labor demand shocks are due more to CZ demand shocks than county demand shocks. A lower preexisting county employment rate increases the effects of CZ demand shocks. Simulations suggest that low prior employment rate CZs, versus higher-rate CZs, will have much larger employment rate effects from demand shocks. Targeting jobs at more distressed counties within a CZ has modest effects, much lower than the effects of targeting jobs at more distressed CZs.
    Keywords: Local labor markets, job creation benefits, local labor demand, regional distress
    JEL: R23
    Date: 2021–01
  19. By: Kilian Huber
    Abstract: The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.
    Keywords: bank regulation, big banks, bank size, economic growth, Brexit, economic geography, employment, globalisation, productivity,technological change
    JEL: E24 E44 G21 G28
    Date: 2020–12

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