Regional costs-of-living with congestion and amenity differences: an economic geography perspective

Standard models of the “new economic geography” predict that costs-of-living are low in the central and high in peripheral region, due to the fact that consumers in the periphery have to bear transportation cost for manufacturing varieties. In reality, however, only some goods are cheaper in economic centres, whereas the overall costs-of-living (including housing costs) tend to be higher. In this paper we use an analytically tractable economic geography model with an immobile housing stock, so that regional agglomeration drives up housing prices. We show that a core-periphery structure can endogenously emerge in which the core is the more expensive area in equilibrium. We also analyse the efficiency of spatial cost-of-living differences and augment the model to include an exogenous regional difference in the form of a consumption amenity.     

Effects of the tax on retail sales of some fuels on a regional economy: a computable general equilibrium approach

This study simulates the effects on the economy of Extremadura that are produced by a new tax on retail sales of some fuels. A computable general equilibrium model involving various labour market scenarios is employed as a modelling framework. Model parameters are obtained by calibration, using a social accounting matrix for Extremadura updated to the year 2000. Further, we also include an additional simulation in which a hypothetical regional tax rate, to finance environmental policies, is considered. This second simulation assumes constant fiscal revenues. The results of the first simulation show that the effects of this tax are modest. The simulation shows household welfare losses, decreasing activity levels and generalised price reductions, except in production sectors more directly linked to the oil products sector. In addition, we also observe that this hypothetical additional regional fuel tax rate would reinforce the effects produced by the national tax rate. This work has been supported by the Spanish Institute for Fiscal Studies. The first author also acknowledges the financial support by Spanish Ministry of Science and Technology (SEC2003-06080) and by the Generalitat de Catalunya (2004XT00095). The second author thanks SEC2003-05112 from Spanish Ministry of Science and Technology and XT0095-2004 from Generalitat de Catalunya. Finally, we also thank Antonio Manresa, Ferran Sancho and two anonymous referees their useful comments. All errors are our responsibility.     

Labor and household mobility: efficiency and equilibrium

This paper considers the allocation of resources when people choose separately their residence and the place of work. The purpose of the paper is threefold. First, it derives necessary conditions for an efficient distribution of workers and residents. Second, besides efficient allocations market equilibria are discussed. Third, the paper also develops a spatial model with local public goods and discusses within the framework the impact of local public goods on the distribution of people and vice versa.

Regional economics in its 1950s: recent theoretical directions and future challenges

Regional economics has just entered in its 1950s. It is a young discipline compared to other branches of the economy, yet much work has been done in this field. A vast and rich number of theoretical and methodological approaches exists nowadays to incorporate space into logical schemes, laws and models which regulate and interpret the formation of prices, demand, productive capacity, levels of output and development, growth rates, and the distribution of income in conditions of unequal regional endowments of resources. This contribution provides the state of the art in Regional Economics with the aim to highlight the scientific achievements obtained so far and the theoretical and methodological gaps which still need to be filled out. Aspects that run counter to general beliefs emerge by reading the original contributions of wellknown theoreticians, and will be presented. Future challenges will emerge from a critical approach to the milestones achieved so far. This paper is at the basis of a keynote lecture given at the 46° ERSA Conference, held in Volos, 30 August–3 September 2006.     

Cost differentials and mixed strategy equilibria in a Hotelling model

We introduce heterogeneity of production costs into the location-price Hotelling model discussed by d’Aspremont et al. (Econometrica 47:1145–1150, 1979). Maximum differentiation appears if the cost difference between two firms is small, whereas no pure strategy equilibrium exists if it is large. We examine the mixed strategy equilibria when no pure strategy equilibrium exists. We find that the following simple symmetric mixed strategy equilibrium exists, which never becomes an equilibrium if no cost differential exists: each firm chooses to locate at the two edges of the linear city randomly.     

Urbanization process and land use policy

Within a framework of NEG model, this paper intends to show that urbanization rate is determined as a synthetic result of rational behavior of each socio-economic agent. In particular, a model is constructed with bearing in mind to explain the urbanization process in China such that the role of government in managing land use is explicitly incorporated and policy effects can be evaluated. Some results of theoretical analysis and numerical simulation analysis are contrasted with the ones of Fujita-Krugman (Reg Sci Urban Econ 25: 505–528, 1995) incorporating land into a NEG model as well.     

Potential gains from more efficient spending on Texas highways

The Federal Highway Administration developed a state-level version of its Highway Economic Requirements System (HERS-ST) model to help states plan and manage their highway systems. Unlike frameworks that consider engineering sufficiency criteria only, the HERS-ST model also allows economic evaluation based on benefit-cost analysis. This study employs the model to address two questions about the level and allocation of investment spending on Texas highways: (1) Does the level of spending fall short of what is economically warranted and, if so, by how much? (2) Could a reallocation of spending between urban and rural areas, and among the highway functional classes produce substantial benefits? The results suggest that Texas is indeed under-investing in highway by a substantial amount. TxDOT expenditure on highway investments within the scope of HERS-ST averaged $2.7 billion per year during the 5 years starting FY 2000, and continuation of recent trends would bring the annual average for the 20 years starting in that year to about $3.4 billion. Relative to this 20 -year projected level of spending, our estimates from HERS-ST indicate that a near doubling would be economically warranted. The results also indicate that reallocation of investment spending, relative to the recent historical pattern, would produce substantial benefits. These gains are estimated at over $5.6 billion per year from reallocating funds from rural to urban areas, and over $1.0 billion per year from reallocating urban and rural funding among highway classes. The estimates are only broad indications, however, and numerous caveats apply.     

Regional variations in the price of building land: a spatial econometrics approach for West Germany

In this paper, we analyze the enormous variation in the price of building land across West German regions. We outline a theoretical model that ties a household’s willingness to pay for building land to the inter-temporal value of employment. Using data for NUTS 3 regions the theoretically derived impact of labor market variables and other influences is investigated. We show that spatial dependence through spatially lagged variables plays a crucial role. According to our findings, the variation in the price of building land can be explained reasonably well if one adequately takes into account the specific patterns of spatial interaction.     

Fiscal decentralization and regional income disparities: evidence from the Colombian experience

Using the Colombian experience, this paper introduces new empirical evidence about the relationship between fiscal decentralization and regional income disparities. The study has made some advances in the empirical analysis of this relationship. First, a panel data approach is introduced to catch the dynamics of adjustment involved in a fiscal decentralization policy. Secondly, the analysis is based on a country experience rather than a cross-country analysis, so the effects of fiscal decentralization are estimated more objectively than previous research that exhibits cultural, historical, and institutional variation. Finally, other limitations observed in previous work, such as the absence of spatial dependence and sensitivity of the conclusions to the measures of fiscal decentralization used, are addressed in this paper.

Regional implications of the 2001 recession

This paper investigates the 2001 recession on a state by state basis. The approach used for this investigation measured the state by state severity of the 2001 recession and identifies the contribution that each state made to the overall U.S. GDP Okun gap. State by state long-term growth rates for both output and employment were calculated and an “Okun gap contribution” for the 2001–2005 period was estimated for each state. Each state’s Okun gap contribution for output and employment was expressed in relative terms allowing for comparisons of volatility between states with respect to the 2001 recession. Finally, for both output and employment regressions were estimated using the relative Okun gap contribution as the dependent variable and selected demographic and economic measures as explanatory variables to explain the state and regional differences in cyclical performance. The results of the regression analysis provide insight into the factors that tend to increase state and regional cyclical volatility and the factors that tend to smooth volatility.     

Sequencing and scheduling highway network expansion using a discrete network design model

The motive behind this paper is to produce an NDP model that prescribes the final shape of a transportation network and the sequence and schedule of facility construction during the planning span as well. The proposed bi-level NDP model fills the gap between existing NDP models and practitioners’ needs because, in practice, planners have to select investment projects on a year-by-year basis. Conversely, existing models suggest only the optimal network configuration for a planning horizon. A genetic algorithm and a simulated annealing algorithm are proposed along with an exhaustive search algorithm as solution algorithms. Testing these algorithms with an example problem revealed that the simulated annealing worked superiorly to the genetic algorithm. The paper also demonstrates that the model is applicable to a real world problem by showing that the computational time needed to solve the example problem is not prohibitively large.     

Population,technological conversion,and optimal environmental policy

We consider an economy comprising two production sectors. A manufactured goods sector emits environmental pollutants during production. The other sector is an agricultural goods sector producing with constant returns to scale. It is used as numeraire. In our model, moreover, it is possible for the firms in the manufactured goods sector to select the production technology of intermediate goods out of two technologies: a “classical technology” with constant returns to scale or “modern technology” with increasing returns to scale. We explain the environmental Kuznets curve, which is described in many empirical studies of environmental economics, by using our theoretical model and show some relations between the technological conversion and the generating factor of the environmental Kuznets curve. Moreover, we consider a case in which a population can move freely between regions and in which this technological conversion affects the population distribution in the long run.     

Redispersion is different from dispersion: spatial economy of multiple industries

In the literature of new economic geography, it is observed that the manufacturing sector disperses because of high transportation costs, agglomerates for intermediate transportation costs, and redisperses for low transportation costs. This paper examines a model with multiple manufacturing industries and finds that the redispersion process is different from the dispersion process. More precisely, there is at most one industry that disperses in the redispersion process while all industries disperse in the dispersion process. Furthermore, it is shown that the interaction of demand, increasing returns, and transportation costs is enough to derive a separating equilibrium where at least two industries agglomerate in different regions.

Regional productivity and relative prices dynamics: the case of Italy

In this paper, we study the cointegrating space spanned by Italian regional relative prices and per capita GDPs. To this end, we combine panel data with vector error correction model estimation in an innovative approach which is still under development. The results are interesting: regional prices, which seem to persistently deviate from the law of one price (PPP), cointegrate with relative per capita GDPs. The estimated elasticity is not consistent with the Balassa–Samuelson hypothesis but is closer to supporting the classical supply-demand schedule. Weak-causality testing gives further details on linkages between the real and nominal side of Italy’s regionally diversified economy. Homogeneity of the coefficients, lacking at a national level, can be recovered at a more disaggregated macro-area level.     

Mexican northern border municipalities, financial dependence and institutions

Mexican northern border municipalities have experienced economic and populational growth rates that are much higher than other Mexican regions resulting in higher demand for public services and infrastructure. The different institutional framework, both fiscal and legal, faced by municipalities in every Mexican State might impact the fiscal behavior of local governments. This article examines whether border municipalities are more financially dependent on central authorities due to the high demand for public services in their jurisdictions and their inability to obtain sufficient funding. Several econometric models are estimated for 300 Mexican municipalities in the year 2000. A strong and negative relationship between income and financial dependence is found, as expected. We also learned that institutional and regional factors should not be omitted in the model specifications. Statistical theory based on the estimations shows that the border municipalities of Ciudad Juárez and Puerto Peñasco have systematically lower financial dependence than others. However, there is no general rule regarding border municipalities and financial dependence.     

The identification of functional regions: theory, methods, and applications

A functional region is characterised by a high frequency of intra-regional interaction. The text analyses how functional regions can be identified by using labour market data. Three approaches are applied in this task, named the local labour market, commuting zone, and accessibility approach, respectively. The text includes an application using the Fyrstad region. The situation is also studied at two points in time. The outcomes using the different approaches are compared, and the results combined have a richer flavour.

Interstate spillovers of private capital and public spending

The analysis estimates the economic returns on public spending by transportation and non-transportation functions vs. private capital, using a panel data set for 48 contiguous states from 1989 through 2002. These actual spending dollars are used as a more precise measure compared to apportioned state public capitals used in the existing literature. For each type of capital/spending, the interstate spillovers were constructed in such a way that different states are weighted by commodity flows across the states to reflect different degree of inter-state dependence. We find that when spending data rather than capital stock is used, all of the interstate spillover effects are negative and statistically significant, suggesting that infrastructure investment does not contribute to economic growth (at least not directly). Therefore, crowding out effects exist among states competing for both private and government funds, in particular if states are highly dependent on allocation of federal funds. These results confirm the finding that previously estimated positive coefficients reflect spurious correlation based on capital stocks and output.     

Testing the credit view with pooled data: dynamic links among state bank health, investment-oriented bank loans, and economic performance

This paper focuses on the “credit view” theory at the state level, which suggests that state-level banking sector health influences state-level real economic performance. Specifically, we extend typical analysis of the credit view theory, applying relevant state-level economic variables to consider whether the health of a state’s banking system affects capital investment loans and, in turn, whether growth of these loans affects a state’s economic performance. We develop a two-equation state-level model, use more refined measures of capital investment loans, and apply advanced dynamic pooled estimators to our panel of state data for the 1984–1993 period. Regression results support dynamic links among state bank health, state investment-oriented bank loans, and state economic performance, thus supporting existence of a state-level credit channel effect.

Subsidies and welfare maximization tradeoffs in bus transit systems

Under a maximum welfare objective, a fixed route bus system and a flexible route bus system are optimized subject to various financial constraints. For each bus system, the decision variables including fare, headway, route spacing, and service zone area are optimally solved to analyze unconstrained, break-even and subsidy cases. Numerical results and sensitivity analysis are presented in the paper. From the numerical evaluation, it is shown that the effects of subsidies on welfare are quite different for a fixed route bus system versus a flexible route bus system. For the fixed route bus system, the optimal welfare curve is very flat over a wide range of subsidies. However, for the flexible route bus system, the break-even constraint causes a large loss in the social welfare. Thus, with the welfare maximization objective, the break-even policy or low transit subsidy policy may be preferable for the fixed route bus system, but not for the flexible route bus system. The results derived from this study can support effective decision-making on bus transit systems in areas that may experience significant shifts in residential density, as well as geographic or physical changes in their street networks. This paper was presented at the 46th annual meeting of Western Regional Science Association in Newport Beach, California, 21–24 February 2007.     

Location incentives and the unintentional generation of employment instability:some evidence from Israel

This paper examines the effectiveness of location incentives designed to promote industrial investments in peripheral regions as a tool for creating employment opportunities in these regions and encouraging economic growth. The findings are based on Israeli empirical experience. We show that these popular incentives, in addition to being ineffective in securing their goals, also create employment instability in these regions as an undesirable side effect: they encourage the establishment of unstable enterprises that require ongoing support and revolving door enterprises that keep opening and closing down.