nep-geo New Economics Papers
on Economic Geography
Issue of 2023‒01‒23
five papers chosen by
Andreas Koch
Institut für Angewandte Wirtschaftsforschung

  1. Innovation through inter-regional interaction in a spatial economic model By Jos\'e M. Gaspar; Minoru Osawa
  2. A dynamic theory of spatial externalities By Raouf Boucekkine; Giorgio Fabbri; Salvatore Federico; Fausto Gozzi
  3. Labor Market Power Across Cities By Claudio Luccioletti
  4. The Anatomy of Intergenerational Income Mobility in France and its Spatial Variations By Gustave Kenedi; Louis Sirugue
  5. COVID-19 containment measures and stock market returns: An international spatial econometrics investigation By Christos Alexakis; Konstantinos Eleftheriou; Patroklos Patsoulis

  1. By: Jos\'e M. Gaspar; Minoru Osawa
    Abstract: This paper analyses a two-region model with vertical innovations that enhance the quality of varieties of the horizontally differentiated manufactures produced in each of the two regions. We look at how the creation and diffusion of knowledge and increasing returns in manufacturing interact to shape the spatial economy. Innovations occur with a probability that depends on the inter-regional interaction between researchers (mobile workers). We find that, if the weight of interaction with foreign scientists is relatively more important for the success of innovation, the model accounts for re-dispersion of economic activities after an initial stage of progressive agglomeration as transport costs decrease from a high level.
    Date: 2022–12
  2. By: Raouf Boucekkine (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, UCL IRES - Institut de recherches économiques et sociales - UCL - Université Catholique de Louvain = Catholic University of Louvain); Giorgio Fabbri (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Salvatore Federico (DEPS - Dipartimento di Economia Politica e Statistica - UNISI - Università degli Studi di Siena = University of Siena); Fausto Gozzi (Dipartimento di Economia e Finanza [Roma] - LUISS - Libera Università Internazionale degli Studi Sociali Guido Carli [Roma])
    Abstract: In this paper, we revisit the theory of spatial externalities. In particular, we depart in several respects from the important literature studying the fundamental pollution free riding problem uncovered in the associated empirical works. First, instead of assuming ad hoc pollution diffusion schemes across space, we consider a realistic spatiotemporal law of motion for air and water pollution (diffusion and advection). Second, we tackle spatiotemporal non-cooperative (and cooperative) differential games. Precisely, we consider a circle partitioned into several states where a local authority decides autonomously about its investment, production and depollution strategies over time knowing that investment/production generates pollution, and pollution is transboundary. The time horizon is infinite. Third, we allow for a rich set of geographic heterogeneities across states while the literature assumes identical states. We solve analytically the induced non-cooperative differential game under decentralization and fully characterize the resulting long-term spatial distributions. We further provide with full exploration of the free riding problem, reflected in the so-called border effects. In particular, net pollution flows diffuse at an increasing rate as we approach the borders, with strong asymmetries under advection, and structural breaks show up at the borders. We also build a formal case in which a larger number of states goes with the exacerbation of pollution externalities. Finally, we explore how geographic discrepancies affect the shape of the border effects.
    Keywords: Spatial externalities,Environmental federalism,Transboundary pollution,Differential games in continuous time and space,Infinite dimensional optimal control problems
    Date: 2022–03
  3. By: Claudio Luccioletti (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: Workers in larger cities are paid higher wages. The city-size wage premium may reflect the productivity gains from agglomeration or sorting of more productive workers in densely populated areas. However, local labor markets in large cities have more firms and are expected to be more competitive, which could also generate part of the urban earnings premium. I quantify the importance of this channel with rich administrative data for Spain using a spatial equilibrium model to guide the empirical strategy. To address the identification challenge posed by labor market power and wages moving endogenously with unobserved local productivity shocks, I first control for firms’ revenues per worker and for time trends that are heterogeneous across local labor markets. I then develop a new instrumental variable that leverages quasi-experimental variation in monopsony power stemming from changes over time in the size of local public firms. I conclude that 20–30% of the city-size wage premium and 6–15% of the employment gap between small and large cities can be attributed to differences in labor market power across locations.
    Keywords: Labor market power, city sizes, wage premium.
    JEL: R10 J42 R23
    Date: 2022–12
  4. By: Gustave Kenedi (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Louis Sirugue (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We provide new estimates of intergenerational income mobility in France for children born in the 1970s using rich administrative data. Since parents' incomes are not observed, we employ a two-sample two-stage least squares estimation procedure. At the national level, every measure of intergenerational income persistence (intergenerational elasticities, rank-rank correlations, and transition matrices) suggests that France is characterized by relatively strong persistence relative to other developed countries. Children born to parents in the bottom 20% of their income distribution have a 10.1% probability of reaching the top 20% as adults. This probability is of 39.1% for children born to parents in the top 20%. At the local level, we find substantial spatial variations in intergenerational mobility. It is higher in the West of France and particularly low in the North and in the South. We uncover significant relationships between absolute upward mobility and characteristics of the environment an individual grew up in, such as the unemployment rate, population density, and income inequality.
    Keywords: Intergenerational mobility, Measurement, Spatial variations, France
    Date: 2021–11
  5. By: Christos Alexakis (ESC [Rennes] - ESC Rennes School of Business); Konstantinos Eleftheriou (University of Piraeus); Patroklos Patsoulis (University of Piraeus)
    Abstract: We investigate the impact of governments' social distancing measures against the novel coronavirus disease 2019 (COVID-19) as this was reflected on 45 major stock market indices. We find evidence of negative direct and indirect (spillover) effects for the initial period of containment measures (lockdown).
    Keywords: COVID-19, Government policy responses, Spillover effects, Stock market volatility
    Date: 2021–03

This nep-geo issue is ©2023 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.