THE STRUCTURE OF METROPOLITAN FACTOR AND PRODUCT MARKETS*

ABSTRACT. In this study we use a translog profit function and iterate seemingly unrelated regressions to estimate a system of factor demand and output supply functions for metropolitan economies. Our sample includes all metropolitan areas defined by the Census in 1977 for the period 1962 to 1982. Estimation shows that all price elasticities are elastic and that the signs are as expected. These results hold true for virtually all model specifications. Our findings indicate that federal, state, and local tax policies have significant impacts on factor demand and output supply. Public investment plays a positive and significant, but small, role in increasing output and in complementing other factors, although this influence has declined over time. Additionally, capital provided by the private sector has a substantially larger impact on output and employment than does capital provided by the public sector.     

The Regional Allocation of Public Investment: Efficiency or Equity?

In this paper we examine the effect of public investment on the regional economies of Japan. The efficient policy for regional allocation of public capital is to invest in highly productive regions, whereas the actual policy pursues equity goals by allocating more public investment to depressed regions. We determine the effects of this equity- oriented allocation by estimating the aggregate regional production function and calculating the productivity of public capital stock for each region, using a cross-sectional time-series data set. Our results show that the marginal productivity of public capital has recently declined in most depressed regions, whereas the productivity in developed regions (e.g., Tokyo, Osaka) has increased slightly. We compare alternative policies of allocating public investment and their effects on the regional and national economies using numerical simulations. We then quantitatively describe the trade-off between the efficient and the equitable allocation of public investment.     

THE IMPACTS OF TRANSPORTATION INFRASTRUCTURE ON PROPERTY VALUES: A HIGHER-ORDER SPATIAL ECONOMETRICS APPROACH

ABSTRACT.  We evaluate the impacts of enhanced transportation systems on property values for U.S. manufacturing firms, allowing for higher-order spatial error correlation. We use a state-level model of production cost and input demand that recognizes the productive contribution of public transportation infrastructure stocks. Our findings include significant impacts on property shadow values and input composition from both public highway and airport investment. We also find that these effects have a spatial dimension that depends on the proximity of the transport system; at least one and as many as three spatial error lags are significant in our estimating equations. Further, recognizing production growth from transportation system improvements augments the associated incentives for private capital investment.     

THE DEBT/TAX CHOICE IN THE FINANCING OF STATE AND LOCAL CAPITAL EXPENDITURES*

ABSTRACT. State and local governments commonly finance investment in public capital by issuing bonds and by using current revenues. This paper presents a model of state and local governments' reliance on borrowing in which the optimal share of debt in the financing of capital investment depends on the relative costs of tax and debt finance. Equations are derived and estimated for spending on public capital and the share of debt in the financing of that spending. The results reveal that the level of private incomes plays an important role in both the capital investment and financial decisions of the jurisdiction. Even after controlling for Sunbelt-Snowbelt differences in incomes, grants, outstanding debt and certain demographic factors, the results indicate that state and local governments located in the Snowbelt rely more heavily on bond issues to finance capital investment. Finally, the estimated invariance of the level of state and local capital investment to the share of debt in the financing of the investment suggests that investment decisions are not greatly affected by factors influencing the willingness to issue bonds.     

The effects of public capital on private sector performance in Turkish regional manufacturing industries1

This article investigates the impact of public capital formation on private manufacturing sector performance in the seven geographical regions of Turkey and in aggregate. A vector autoregression (VAR) model has been employed to estimate long run accumulated elasticities of private sector variables with respect to public capital for the time period 1980–2000. The results show that public capital affects private output positively in aggregate and in all regions apart from the Black Sea and Mediterranean regions. The results also reveal that only in the Marmara region, the impact is positive both on input and output. The public capital crowds in private sector inputs in some regions.     

The Impact of Public Capital Stock on Regional Convergence in Turkey

The effect of public capital on regional output and private sector productivity has been the subject of considerable research in the field of regional development literature. However, there have been only a few studies that develop linkages between public capital and regional economic convergence. This study examines the dynamic effects of public capital and transportation capital stocks on output per capita in terms of regional convergence in Turkey at NUTS 2 level. A conditional convergence model based on per capita gross domestic product and per capita public capital and transportation capital stocks is estimated using the panel data set for the Turkish regions for the time period of 1980–2001. The results reveal that public capital has a positive and significant effect on output per capita and thus on regional convergence in some of the models in the Turkish regions,. However, the transportation component of public capital stock has a negative effect on regional convergence in all models employed in the study. This implies that transportation capital stock leads to larger regional disparities between the Turkish regions.     

Evidence on economies of scale in local public service provision: A meta-analysis

The standard theory of optimal jurisdictional size hinges on the existence of economies of scale in the provision of local public goods and services. However, despite its relevance for forced local amalgamation programs and related policies, the empirical evidence on the existence of such economies of scale remains elusive. The main goal of this paper is to produce an updated and comprehensive quantitative review of the existence of economies of scale in the provision of local public goods using a meta-analysis approach to systematize the wide range of empirical approaches and modeling frameworks found in the previous literature. Our analysis confirms the presence of moderately increasing to constant returns to scale in the provision of local services with no reduction in the average costs of production in the delivery of most local public services beyond a certain, modest jurisdictional size, which many studies have estimated at 10,000 residents. Also, the potential for economies of scale differs at least across three traditional services: education, water and sanitation, and garbage collection, being highest for education and lowest for garbage collection. Our analysis also offers guidelines for future empirical research in this area. Physical output and production cost data should be used, together with translog specifications for the modeling of cost functions. Last, we find evidence that the determinants of output cost elasticity include bidirectional publication bias and population density but do not include the presence or absence of modern “lean” production technologies or the (perceived) capital intensity of the sector, contrary to conventional wisdom. These findings have significant policy implications for countries considering jurisdictional consolidation programs.     

ANALYZING THE IMPACT OF PUBLIC CAPITAL STOCK USING THE NEG WAGE EQUATION: A SPATIAL PANEL DATA APPROACH

ABSTRACT This paper examines the relationship between the level of public infrastructure and the level of productivity using panel data for the Spanish provinces over the period 1985–2004, a period that is particularly relevant due to the substantial changes occurring in the Spanish economy at that time. The underlying model used for the data analysis is based on the wage equation, which is one of a handful of simultaneous equations which when satisfied correspond to the short‐run equilibrium of New Economic Geography (NEG) theory. This is estimated using various spatial panel models with either fixed or random effects to allow for individual heterogeneity. Using these models, we find consistent evidence that productivity depends directly on the public capital stock endowment of each province, but also there is evidence of negative spillover effects from changes in capital stock in neighboring provinces.     

STATE, CLASS AND INTERNATIONAL CAPITAL 2: THE DEVELOPMENT OF THE BRASILIAN STEEL INDUSTRY

This paper examines the forces underlying the development and form of the Brasilian steel industry since the 1930s. Foreign direct investment has been limited by Brasilian nationalist policies and by higher costs of steel production, but large scale, integrated plants could not be built by private capital due to insufficient resources. Thus the Brasilian steel industry combines large scale state owned plants (financed by foreign capital) and smaller scale privately owned plants. The operations of the plants are coordinated to reduce market uncertainty, permit the steel sector to advocate its own expansion plans, and delimit the spheres of public and private capital while excluding foreign commodity and productive capital. Even so, in the 1980s the steel industry in Brasil has faced a crisis of declining local demand, prompting a rapid expansion of exports.     

Multi-Firm City Versus Company Town: A Micro Foundation Model of Localization Economies

When do we have a company town and when do we have a multi‐firm city? In this paper I analyze the impact of public infrastructure investment decisions on types of cities in a decentralized urban system. This is done in a one‐sector spatial general equilibrium model of a closed economy. Investment in public infrastructures reduces the fixed set up cost of all firms within the city resulting in multi‐firm cities. Thus, in this approach localization economies are modelled explicitly instead of assuming that larger industrial size within the city enhances productivity. On the other hand, when the infrastructure is not provided, a company town will be formed by a developer because of the fixed cost required by each firm. The decision of whether to invest in the provision of public infrastructures depends on the type of city that will provide households with the highest utility. This paper characterizes the conditions that lead to each of the two equilibrium configurations.     

Infrastructure shortfall in the United Kingdom: the private finance initiative and government policy

Investment infrastructure is essential for long term economic growth, sustainable regional economic development, and the quality of urban life. Yet the available evidence suggests a significant shortfall in current UK government investment on infrastructure, and a long term pattern of low investment compared to other European countries. Given the pre-occupation of the Labour government with managing expenditures within the parameters set by the previous government, and the vulnerability of any government to financial markets' valuation of current spending plans in relation to interest rates and currency exchange rates, there is little likelihood of major new public spending on infrastructure in the near future. In this context, the Private Finance Initiative (PFI) is very important for the government's plans to make up the shortfall. Although inherited from the previous Conservative government, the PFI has powerful advocates within the Labour government. The PFI is the formal mechanism by which government departments, agencies and instrumentalities, like the National Heath Service, utilise private sector investment capital and, in particular, pension fund assets, to revitalise public services. This paper sets out the institutional history of the PFI, beginning with the Thatcher government's Ryrie Rules, the efforts of the Major Conservative government to make it a viable operational practice, and the reasons why the new government supports PFI and has made significant moves to improve its effectiveness. Still we are sceptical about the future of the PFI. We show that the PFI has foundered upon fundamentally flawed design and the politicians' obsession with control of public sector spending. Notwithstanding recent `reforms', PFI may only succeed if the PFI process is decentralised and linked explicitly with regional development programmes. In any event, given the difficulties posed by the PFI process for private investors, perhaps different institutional responses to infrastructure shortfall should be contemplated, including the introduction of traded infrastructure bonds.     

Private rental investment and socio-spatial disadvantage in Sydney,Australia

This article unpacks the connection between a growing cohort of small-scale but purposive property investors and urban socio-spatial restructuring. We analyse private rental housing as a tenure share to demonstrate its spatial correlation with the suburbanisation of socio-economic disadvantage in Sydney, Australia, between 1991 and 2016. Then, we show how investors drive this emerging pattern by reference to the geography of property owners’ stated investment objectives—low capital outlay, rental yields, and capital growth prospects. We contend that the link between their small-scale activities and the city’s changing socio-spatial structure is an overlooked consequence of private rental sector (PRS) housing financialisation. Importantly, our focus on behaviours exhibited by small-scale rental property owners in PRS financialisation transcends existing analyses that have concentrated on corporate entity activity in this space. That focus also contrasts with framings of private rental growth as a residual outcome of developments elsewhere in the housing market. Such work is significant because it demonstrates the impacts of real estate investment on urban form.     

THE POLITICAL ECONOMY OF WORKER PENSION FUNDS

Increasing concentration of economic power within the corporate sector, as well as the extent of corporate control by a few financial institutions such as commercial banks, have been subjects of intense scrutiny and debate in recent years. However, the role of private and public worker retirement trusts in providing power for institutional investors has not been adequately addressed. Pension fund assets, which were relatively inconsequential prior to 1960, and their investment in and share of total corporate equities minor, have grown to over $l410 billion by the end of 1977. In their analysis of and interest in public and private pension trusts, scholars, employers and even employees have tended to emphasize narrow economic issues such as investment performance. It is the central argument of this article that workers’ funds have become a major source of capital in the American economy, and as such have been used to help create and/or sustain practices that adversely impinge on workers themselves. It is argued that pension assets have contributed to: 1) the increasing power of financial institutions; 2) growth of corporate profits that only minimally benefit some pension plan participants; 3)capital shortages for 'socially useful’ investments; and 4)support of corporate enterprises that refuse basic worker demands including unionization itself. The study further suggests that the rapidly growing pension assets have the potential to serve‘the public interest’ as well as the needs of workers. Threat of withdrawal of funds from selected money managers and corporations, and utilization of share–holder voting rights to influence corporate policies can be potent weapons for organized labor. Since this is an exploratory analysis, the aim of the article is to gather, present and clarify basic information on worker pension trusts and to propose alternative avenues for future research in this critical area.     

Stabilizing neoliberalism in Bolivia: popular participation and privatization

Neoliberal theorists and development practitioners contend that economic liberalization and privatization lead to increased private sector productivity and decentralization accompanied by administrative reforms lead to greater democracy, more efficient public sector investment, and faster local development. Examination of the Bolivian case, which has been promoted as a global model for neoliberal restructuring, presents a different picture. There, economic restructuring and privatization have led to a decline in government revenues and a continuing economic crisis. Privatization of public services has led to rate hikes, which, in turn, have generated massive social protests. Political restructuring through decentralization has as often resulted in the entrenchment of local elites as in increases in truly democratic control of resources and social investments. This economic and political restructuring has also served to territorialize opposition to privatization and neoliberal economic policies and, in some areas, reinforce regional social movements. When examined together, it becomes clear how economic and administrative restructuring has sought to provide transnational firms both access to Bolivian natural resources as well as the social stability necessary in which to operate. As privatization through the Law of Capitalization further opened the country’s borders to global capital, the decentralization program through the Law of Popular Participation served to focus the attention of popular movements from national to local arenas. While foreign investment has increased, the lack of benefits for the majority of the country has led to mounting regional social protests in the face of reduced government spending on social programs and increased prices for basic services.     

EFFECT OF ENVIRONMENTAL REGULATIONS ON STATE- LEVEL MANUFACTURING CAPITAL FORMATION*

ABSTRACT We quantify the effect of environmental regulations on regional capital formation in the manufacturing sector. Our model integrates environmental regulations into a choice-theoretic model derived from Tobin's q theory of investment. It is postulated that more stringent environmental regulations raise the firm's cost of production both directly and indirectly, thus reducing the firm's q value and lowering the rate of capital formation. The empirical results indicate that the effect of environmental regulations on net capital formation is modest. We do find that environmental regulations affect regions differently. More stringent environmental regulations will improve the relative position of manufacturers in the North-east, South Atlantic and West. Over one-fourth of the dollar losses in manufacturing capacity would occur in five states: Texas, California, Pennsylvania, Ohio and Michigan.     

Optimizing the Spatial Structure of the Agricultural Production Function

Important characteristics of spatial agricultural production functions are derived by introducing a non‐negative curvilinear spatial demand function for production input intensities. Given the usual neoclassical rationale assumptions of spatial demand for capital and labor inputs under competitive environment of farming in developing agricultural economies, the optimal production levels are determined by optimizing spatial demand for production inputs. Decreasing price‐to‐transport costs ratio (that is, decrease in the prices of capital goods or increase in freight rates) and increasing wage‐to‐travel costs ratio (that is, increase in labor wages or decrease in the travel rate) expand the limits of the (spatial) optimal boundary of the demand for agricultural capital goods and labor input respectively. These effects occur on account of the operation of (positive) spatial price gradient and (negative) wage‐gradient in the market region. It may be noted that elasticities of demand for production factors are spatially variant and have significant effects on the alterations in the structure of agricultural production. However, the spatial optimal solution of production has a complicated relationship with them. The price elasticity has negative and wage elasticity has positive spatial gradients in the market region. Farmers located in the periphery of the market region are not much affected by the proportionate changes occurring in the prices of agricultural capital goods but are more sensitive to the proportional changes in labor wages. Because of a decreasing trend in capital input demand and increase in labor input with distance from the market, capital‐product diminishes with a decreasing rate and labor‐product increases with an increasing rate in the spatial structure of agricultural production. As a result, capital‐labor ratio falls toward zero, which raises profit rate per unit of capital investment especially in the outer part of the market region. The equilibria of optimal production with price elasticity as well as of capital intensity with labor employment (that is, capital‐labor ratio as unity) determine spatial limits of the optimal production zone which is shifted outward subject to the provision of cheap transportation, stabilizing market prices and/or increasing wage rate at the market center. It will help in extending outwardly the optimal spatial limits of capital investment and will mobilize capital resources of farmers in the periphery for efficient and competitive capital‐dominated farming.     

Prospecting for Economic Returns to Research: Adding Informational Value at the Market Fringe

Abstract.  Private markets constantly assess project investment opportunities across a spectrum of such possibilities. The market's perspective on the boundary of viable projects, however, may be more limited than socially optimal due to informational constraints. In the case of economic development projects in particular, this boundary could be extended by public researchers. This paper constructs a method to estimate the private and social value‐added of such research, providing a new means to understand and assess the public/private sector interface. The framework uses agents' evolving subjective perceptions through Bayesian updating to value research information, along with methods to estimate functional forms and relative optima. Two case studies of regional development research on value‐added agriculture in Colorado highlight the utility of the approach.     

Whose Wealth Is It Anyway? Mozambique's Outstanding Economic Growth with Worsening Rural Poverty

Despite rapid economic growth and massive inflows of aid, rural poverty in Mozambique is worsening. Agricultural production and productivity have not increased in the last decade. Use of chemical fertilizers and other modern technology is at a low level and decreasing. The present development model emphasizes that the role of government and donors is to provide human capital and infrastructure, while the private sector is responsible for economic development and ending poverty. The most recent national surveys confirm what is being seen elsewhere in Africa — that this non‐interventionist strategy does not raise agricultural productivity or reduce poverty. While 80 per cent of Mozambique's population is engaged in agriculture, this sector contributes only 20 per cent of GDP. This suggests that investments in agriculture are likely to generate pro‐poor growth, both to rural and urban dwellers. This policy failure is increasingly recognized, but donors and government have invested too much political capital in the current policy to change easily.     

Intermediaries in Regional Innovation Systems: High-Technology Enterprise Survey from Northern Finland

Intermediaries play an important role in national as well as in regional innovation systems, especially in innovation policy. In linking organizations within an innovation system, intermediaries are focusing on technology transfer, commercialization of ideas and funding. This research focuses on the role of intermediaries in high-technology product development in northern Finland. Based on a survey of 168 high-technology enterprises, funding services are regarded as the most important activity of intermediaries. Our results show that finance matters: a key actor within the Finnish innovation system in terms of direct funding and indirect collaborative resourcing, the Finnish Funding Agency for Technology and Innovation (TEKES), is considered the most important public sector organization in private sector product development. The survey also reveals that growth-driven companies with emphases on product innovation and high levels of investment in research and development for increasing their annual turnover benefit the most from intermediaries.     

Innovation Advantages of Cities: From Knowledge to Equity in Five Basic Steps

This paper explores the reasons why cities are often major centres of innovation, even in some less favoured regions and countries. It starts with an anatomization of the dominant factors that explain why key less favoured settings developed 'new economy' clusters through institutional interaction with Silicon Valley. The analysis concludes that public research resources and private commercialization funding are central, supported by a wide array of private but few public innovation support services. It then examines a number of cases from cities in less favoured regions and countries where innovation has occurred. The conclusions are that the research-venture capital model is present and explains innovation in each case. However, in some cases public venture capital has to substitute for private due to market failure, or a phenomenon termed 'Silicon Valley Offshore' has been induced. Cities are innovative where they concentrate the desired scientific and investment knowledge capabilities.