Theoretical economic geography and spatial econometrics: dynamic perspectives

Theoretical economic geography has received significant newimpetus from so-called ‘new economic geography’theory, and this provides the basis of the spatial econometricmodel developed in this paper. The model, which is seen as partof an attempt to bridge the gap that presently exists betweenthis new body of theory and reality, is fitted using 3SLS todata on manufacturing productivity growth data for 178 regionsof the EU covering the periods 1975–81, 1981–89,1989–95. The resulting estimates point to the continuedexistence over time of increasing returns, and thus providessupport for one of the main tenets of new economic geographytheory. The results also highlight urbanization, peripherality,the initial level of technology and across-region spilloversas determinants of regional productivity growth variations,operating via the rate of technical progress and labour efficiencyvariations. There is no evidence that these variables are diminishingin significance systematically over time, leading to the conclusionthat spatial polarization in productivity will persist. Thepaper points to the need for further testing of fundamentalassumptions of the underlying theory, and for developments inthe theory to accommodate interdependence between model parametersand the socio-economic context within which the process is operating.     

LOCAL INPUT AND PRODUCTIVITY GROWTH IN U.S. MANUFACTURING: 1972–2002*

ABSTRACT This research analyzes manufacturing growth and decline across metropolitan and nonmetropolitan regions during the 1972–2002 period. We decompose real value added growth across local labor market areas in the lower 48 U.S. states into contributions from labor, capital, and total factor productivity. We then estimate a model describing the long‐run growth of labor, capital, and productivity and find that increased productivity increases the growth of labor and capital, as well as a positive correlation between labor and capital stock growth. We also find evidence that human capital investment and agglomeration economies encourage productivity growth, while unionization discourages it.     

Mind the Gaps: The Evolution of Regional Earnings Inequalities in the U.K., 1982–1997

In this paper we apply earnings equations for U.K. regions over 1982–1997. We find evidence of rapid convergence across regions regarding the determinants of individual wages (i.e., regional fixed-effects, gender gaps, and returns to education and experience). In contrast, data on average regional earnings point to a worsening of U.K. regional inequalities and a rise in the North-South gap. Education accounts for most of the discrepancy between aggregate divergence and disaggregated convergence. First, London gained because its workforce became relatively more educated over the period. Second, returns to education increased nationwide, which favored the most educated regions (i.e., London). Third, returns to education were initially lower in London but they (partially) caught up with the rest of the country. Had returns to education and their distribution across U.K. regions remained stable over the period, the U.K. North-South divide would have decreased.     

Location and Growth in the Brazilian Northeast

Abstract Clustering of economic performance across jurisdictions has generated considerable research on the spillovers and linkages among geographical neighbors. Much of this work, however, has been aspatial, implying that the influence of location attributes on growth has been largely ignored. In this paper, we examine the contribution of location to regional economic growth using municipio‐level data for the Brazilian Northeast—a historically lagging region of the country. We test if productivity among northeastern municipios is converging to a steady state and whether spatial externalities are linked to productivity growth in individual municipios. We find that, conditional on structural characteristics, productivity among municipios is converging at about 3 percent per year. Further, productivity in individual municipios is positively associated with own‐structural characteristics but negatively associated with productivity growth in neighboring municipios. This means that there are negative spatial externalities coming from productivity improvements in neighboring regions.     

The role of path-dependence in the resilience of EU regions

The paper studies the role of path-dependence in the resilience of EU regions. Particularly, employing a nonparametric analysis, the paper demonstrates that historical adjustments of EU regions materialized by productivity improvements, primarily in the manufacturing sector and incidentally in the sectors of construction, financial and non-market services, during the period 1995–2008 secured high(er) levels of regional resilience during the economic crisis period 2008–2013. Such a finding provides implications not only for theory but also for policy. Policies aiming at boosting regional productivity and competitiveness, which through a positive regional performance of high growth rates is concealed, a well-structured and robust production restructuring, might affect regional resilience in a way that shields regional economies not only from current imbalances but also from any future downturns.     

Regional Wage Rigidity: The European Union and United States Compared

In recent years it has been pointed out that regional unemployment disparities are much more entrenched across member states of the European Union (E.U.) than they are in the U.S. A 'conventional wisdom' has emerged to the effect that this difference is due in part to the greater degree of wage rigidity in E.U. regions. In this paper we explore this issue by estimating short run and long run real wage (in)flexibility for the regions in five core E.U. countries (Germany, France, Italy, the United Kingdom, and the Netherlands) and for the U.S. states for the period 1976–1994. We find that real wage (in)flexibility varies across regions both in the E.U. and the U.S., but that, on average, regional wages are no less flexible in E.U. core regions than in U.S. states. The paper also examines some of the possible correlates ofregional variations in wage (in)flexibility.     

TOTAL FACTOR PRODUCTIVITY GROWTH IN MANUFACTURING FURTHER EVIDENCE FROM THE STATES*

In this paper, we first develop a measure of total factor productivity (TFP) growth and summarize a source-of-growth analysis for the manufacturing sector of 48 states. As have others, we find little association between TFP growth differentials and output growth differentials for census regions. At the staterather than the regional level, however, we find a positive association between TFP growth and output growth. We use cross-sectional data to estimate the determinants of the variation in TFP growth. Two results emerge that are important for regional policy and for understanding national productivity trends. First, state investments in education and in transportation infrastructure may affect TFP growth. Second, energy price increases in the early 1970s had no differential effects on productivity growth across states. We also explore the determinants of manufacturing output growth and find that TFP growth, demand growth, wage growth, wage levels, and state corporate income tax rates are significant.     

A NOTE ON THE DIFFERENTIAL REGIONAL EFFECTS OF INCOME INEQUALITY: EMPIRICAL EVIDENCE USING U.S. COUNTY‐LEVEL DATA

This note examines the correlation between income inequality and economic growth using a panel of income distribution data for 3,109 counties of the U.S. Using the System Generalized Method of Moments (GMM) approach, we find that for the entire sample of 3,109 counties, an increase in a county's level of inequality has a significant negative relationship with future economic growth. In reality, however, the magnitude, sign, and significance of this relationship is not necessarily uniform across all regions of the U.S., motivating the need to examine regional differentials in the relationship between inequality and growth. Consequently, we split our dataset into metropolitan and nonmetropolitan counties, into the eight Bureau of Economic Analysis regions, and into regions of different political affiliation and economic‐dependence typology. Our results show considerable heterogeneity in the relationship between inequality and growth across these regions.     

TECHNOLOGICAL CATCH‐UP AND GEOGRAPHIC PROXIMITY*

ABSTRACT This paper examines productivity catch‐up as a source of establishment productivity growth. We present evidence that, other things equal, establishments further behind the industry frontier experience faster rates of productivity growth. Geographic proximity to frontier firms makes catch‐up faster. Our econometric specification implies a long‐run relationship between productivity levels, where nonfrontier establishments lie a steady‐state distance behind the frontier such that their rate of productivity growth including catch‐up equals productivity growth at the frontier. We use our econometric estimates to quantify the implied contribution to productivity growth of catch‐up to both the national and regional productivity frontiers.     

Increasing returns to scale in the towns of early Tudor England

Abstract

Urban agglomeration economies make cities central to theories of modern economic growth. There is historical evidence for the presence of Smithian growth and agglomeration effects in English towns c.1450-1670, but seminal assessments deny the presence of agglomeration effects and productivity gains to Early Modern English towns. This study evaluates the presence of increasing returns to scale (IRS) in aggregate urban economic outputs—the empirical signature of feedbacks between Smithian growth and agglomeration effects—among the towns of 16th century England. To do so, we test a model from settlement scaling theory against the 1524/5 Lay Subsidy returns. Analysis of these data indicates that Tudor towns exhibited IRS—a finding that is robust to alternative interpretations of the data. IRS holds even for the smallest towns in our sample, suggesting the absence of town size thresholds for the emergence of agglomeration effects. Spatial patterning of scaling residuals further suggests regional demand-side interactions with Smithian-agglomeration feedbacks. These findings suggest the presence of agglomeration effects and Smithian growth in pre-industrial English towns. This begs us to reconsider the economic performance of Early Modern English towns, and suggests that the qualitative economic dynamics of contemporary cities may be applicable to premodern settlements in general.     

Knowledge Spillovers and Total Factor Productivity: Evidence Using a Spatial Panel Data Model

This article investigates the impact of knowledge capital stocks on total factor productivity (TFP) through the lens of the knowledge capital model proposed by Griliches (1979) , augmented with a spatially discounted cross-region knowledge spillover pool variable. The objective is to shift attention from firms and industries to regions and to estimate the impact of cross-region knowledge spillovers on TFP in Europe. The dependent variable is the region-level TFP, measured in terms of the superlative TFP index suggested by Caves, Christensen, and Diewert (1982) . This index describes how efficiently each region transforms physical capital and labor into output. The explanatory variables are internal and out-of-region stocks of knowledge, the latter capturing the contribution of cross-region knowledge spillovers. We construct patent stocks to proxy annual regional knowledge capital stocks for N =203 regions during 1997–2002. In estimating the effects, we implement a spatial panel data model that controls for spatial autocorrelation as well as individual heterogeneity across regions. The findings provide a fairly remarkable confirmation of the role of knowledge capital contributing to productivity differences among regions and add an important spatial dimension to discussions in the literature by showing that productivity effects of knowledge spillovers increase with geographic proximity.     

RETURNS TO SCALE AND REGIONAL GROWTH: THE STATIC‐DYNAMIC VERDOORN LAW PARADOX REVISITED*

ABSTRACT It has long been an article of faith amongst regional economists that increasing returns to scale are necessary to explain the punctiform location of economic activity and population. However, there is no consensus in the empirical literature over whether returns to scale are constant or increasing. A notable example of this lack of agreement is provided by the static‐dynamic Verdoorn law paradox. While the dynamic Verdoorn law (specified using growth rates) yields estimates of substantial increasing returns to scale, the static Verdoorn law (specified using log‐levels) indicates only the presence of constant returns to scale. In this paper, we explain the static‐dynamic Verdoorn law paradox by showing that estimates of returns to scale obtained using the static law are subject to a spatial aggregation bias, which biases the estimates towards constant returns to scale. We illustrate our arguments by means of simulation exercises. The results obtained hold general lessons for applied economic analysis using spatial data.     

INCORPORATING TECHNOLOGY DIFFUSION,FACTOR MOBILITY AND STRUCTURAL CHANGE INTO CROSS‐REGION GROWTH REGRESSION: AN APPLICATION TO CHINA*

ABSTRACT This paper advocates a spatial dynamic model that introduces technology diffusion, factor mobility, and structural change into the cross‐region growth regression. The spatial setting is derived from theory rather than spatial statistical tests. An application of this model to the study of cross‐province growth in China over the period 1980–2005 indicates that incomes are spatially correlated, which highlights the significance of technology diffusion and factor mobility. Furthermore, the integration of neoclassical growth empirics and the structural change perspective of development economics provide a much improved account of interprovincial variations in income levels and economic growth.     

Firm-level productivity growth returns of social capital: Evidence from Western Europe

We analyze the firm-level labor productivity growth returns of social capital—defined as a synthetic measure of “generalized trust,” “active participation,” and “social norms”—using a large sample of manufacturing firms in France, Germany, Italy, Portugal, and Spain. We find that firms' labor productivity growth is higher in areas with a better social capital endowment. The positive returns of social capital are, nevertheless, unevenly distributed across firms, with smaller, less productive, less capital-endowed, and low-tech firms benefitting the most from operating in strong social capital ecosystems.     

Are the most productive regions necessarily the most successful? Local effects of productivity growth on employment and earnings

Economists typically celebrate productivity growth as the chief way to improve living standards. Productivity growth may reduce costs, improve quality, or lead to innovation and new products, but if demand is insufficiently elastic, productivity growth can lead to weakening of labor markets. We study county‐level effects of productivity growth and productivity levels on growth in employment, income, and earnings. The results suggest that productivity growth generally suppresses job growth but has boosting effects on earnings and, to a lesser degree, on per‐capita income, although there is considerable variation across geographies and specific outcomes.     

European Corridors as Carriers of Dynamic Agglomeration Externalities?

Transport corridors are viewed as a promising way forward in European Union (EU) transport policy, assumed to contribute positively to regional economic development. However, the validity of this assumption is not evident. The aim of this paper is to empirically test whether agglomeration economies in European transport corridor regions are positively related to indicators of regional economic development compared to regions outside the scope of corridors. The results build on the notion that the type of agglomeration economy in combination with the structure of the economy matters for prospects of structural economic growth in different regions. In this way, the analysis not only contributes to enhancing the empirical scrutiny of the corridor concept in EU transport policy, but also provides new insights into how corridors contribute to regional economic growth. We find only limited evidence for a corridor effect across European regions on productivity and employment growth externalities. Instead, we find a large degree of spatial heterogeneity interacting with corridors—a heterogeneity that has been little recognized in EU policies. We suggest that recent attention to place-based development strategies may accord well with the kinds of agglomeration effects related to corridor development observed in this study.     

省际边界区域中心城市的构建:怀化个案

省际边界区域应打造区域中心城市,培育区域增长极,扩大边界区域"中心市场"的质量和数量,发挥省际边界区域的扩张效应,促进经济的协调发展。怀化具备成为湘鄂渝黔桂省际边界区域的中心城市的前景,应积极推动边区经济协作向深层次发展;加快发展步伐,构建区域增长极,大力推动企业跨区兼并、收购和联合,制定政策法规,促进区域市场一体化。     

ECONOMIC DEVELOPMENT TRENDS IN THE USSR, 1970-1988: PART I (PRODUCTION AND PRODUCTIVITY)

The first of two articles devoted to spatial and temporal trends in economic development and levels of living within the USSR focuses on changes in the pattern of absolute and per capita economic output—national income produced and gross value of industrial output (at the republic and economic regional level, respectively). It then investigates the question of whether divergence or convergence has occurred among republics and economic regions in terms of these indicators. Finally, it assesses patterns of change in labor and capital productivity across Soviet republics.     

REGIONAL LABOR PRODUCTIVITY IN THE NETHERLANDS: EVIDENCE OF AGGLOMERATION AND CONGESTION EFFECTS*

ABSTRACT This paper studies the impact of localization, urbanization, and diversification on regional labor productivity levels and growth. We find substantial effects, accounting for roughly half of the explained variation in the labor productivity differences within the Netherlands in the 1990s. Diversification, urbanization, and localization effects are significant and positive for productivity levels. These levels appear cointegrated. The error correction specification of productivity growth surprisingly reflects negative agglomeration effects. From the theoretical model it follows that congestion effects must have taken precedence over agglomeration effects during this period. Both agglomeration and congestion effects are dampened by job density in neighboring regions. Finally, policy simulations with the estimated model show that spatial concentration is more harmful to national productivity growth than spatial dispersion.     

Diversity and employment growth in Canada, 1971–2001: can diversification policies succeed?

In this paper, we explore the link between diversity in the local economy, the process of diversification and employment growth. To do so, we first examine diversification trends between 1971 and 2001 across 382 Canadian areas (urban and rural). We then examine whether or not the more diversified areas display faster employment growth. Over some periods and for some types of area they do, but over other periods they do not. Furthermore, there is no clear link between the process of diversification and growth. Also, proximity to a large diversified economic unit (metropolitan areas) tends to be associated with growth; thus, it is not only the local characteristics of regions that determine their growth levels. Our evidence suggests that economies associated with diversity can occur concurrently with economies associated with specialisation. In the light of these complex relationships, we conclude that diversification policies are difficult to justify on the grounds of employment growth and would in any case be difficult to implement successfully due to the overall inertia observed in diversity levels.