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.     

MODELING DYNAMIC INTERINDUSTRY REGIONAL GROWTH IN THE PRESENCE OF STRUCTURAL SHIFTS AND OUTLIERS*

ABSTRACT. Kraybill and Dorfman (1992) propose a model of intermediate and export demand which uses ordinary least-squares and linear systems techniques to produce a state-space representation of the time element of output change. Their model produces dynamic multipliers which trace the temporal path of regional growth, and has many advantages over previously employed time series methods. This study extends their methodology to accommodate structural shifts and outliers found in the least-squares relationship between industry and export output by using a recently-introduced technique–multiprocess mixture estimation. An application of the Kraybill-Dorfman method and the extensions proposed here to monthly time series data on Ohio employment is used to illustrate these issues.     

FROM THE FIRM GROUND OF RESULT AND FACT TO THE TOSSING SEA OF CAUSE AND THEORY: THE ROLE OF GOVERNMENT IN URBAN DEVELOPMENT*

Are government policies of any real significance in shaping the pattern of development in metropolitan regions? This essay summarizes the widely-held view that ‘economic forces’ determine the distribution of jobs and residences in urban areas, and argues that this conclusion involves serious conceptual difficulties. The essay then shows how the theory of political influence and related concepts can be used to clarify the issue of causation in urban development, and summarizes the authors' own substantive conclusions—that under certain specifiable conditions government activities do have a highly significant role in shaping metropolitan growth.     

THE WEBER PROBLEM: FREQUENCY OF DIFFERENT SOLUTION TYPES AND EXTENSION TO REPULSIVE FORCES AND DYNAMIC PROCESSES*

ABSTRACT. The frequency of occurrence of the different types of solutions to the Weber problem is studied. These solutions are: a location at an attraction point due to a dominant force, to incompatible angles, or to concavity; a location at infinity; a location inside the polygon; and a location outside the polygon. Situations involving both attraction and repulsion points are examined in the triangle and in the more-than-three-sided polygon context, and methods for solving the corresponding problems are compared. A trigonometric solution is proposed for the triangle case involving one repulsion and two attraction points. The variation in the frequency of a location at an attraction point when the number of attraction points increases while the number of repulsion points remains the same is observed as well. Implications of the results are studied for the analysis of dynamic location processes.     

EDUCATION AND INCOME INEQUALITY IN THE REGIONS OF THE EUROPEAN UNION*

ABSTRACT This paper provides an empirical study of the determinants of income inequality across regions of the EU. Using the European Community Household Panel dataset for 102 regions over the period 1995–2000, it analyses how microeconomic changes in human capital distribution affect income inequality for the population as a whole and for normally working people. The different static and dynamic panel data analyses conducted reveal that the relationship between income per capita and income inequality, as well as between a good human capital endowment and income inequality is positive. High levels of inequality in educational attainment are also associated with higher income inequality. The above results are robust to changes in the definition of income distribution and may be interpreted as a sign of the responsiveness of the EU labor market to differences in qualifications and skills. Other results indicate that population ageing, female participation in the labor force, urbanization, agriculture, and industry are negatively associated to income inequality, while unemployment and the presence of a strong financial sector positively affect inequality. Finally, income inequality is lower in social‐democratic welfare states, in Protestant areas, and in regions with Nordic family structures.     

THE INTRAMETROPOLITAN DISTRIBUTION OF R&D ACTIVITIES: THEORY AND EMPIRICAL EVIDENCE*

ABSTRACT. The paper presents a first attempt to unveil the underlying determinants of the geography of R&D labs within contemporary metropolises. To this end, the study builds on the premise of contemporary intraurban location and pricing models, suggesting that intraurban variations in property rents must reflect the imputed location preferences of firms or their workforce, as well as the extent to which local institutional constraints hinder these preferences. Against this background, the study proceeds with the econometric analysis of R&D property rent differentials within Greater Los Angeles. The empirical results indicate that access to research and nonresearch universities, transportation access, access to a host of worker amenities, as well as zoning and other local regulations play a critical role in shaping the intraurban geography of R&D labs.     

THE LOCATION THEORY OF THE PLANTATION*

ABSTRACT This paper develops a method for studying noninfinitesimal operational units, with the Thünen location and land use model. With constant returns to scale and perfect divisibility of nonland inputs, all operational units would occupy only a point on the landscape. The present model uses increasing returns to scale to generate large operational units, called “plantations” and studies the comparative statics. The setting of the model is an agricultural operation in which some processing of raw crop must be conducted prior to shipment to market. The processing is assumed to have increasing returns to scale.     

SOCIAL COST MINIMIZATION: A NATIONAL POLICY APPROACH TO THE PROBLEMS OF DISTRESSED ECONOMIC REGIONS*

This paper makes a distinction between output maximizing and cost minimizing approaches to national economic policy. The paper argues that because the benefits of economic activity and its cost are frequently conferred upon distinct groups in society, it is not automatically true that output maximization is the best strategy, as is presently assumed. This result is especially true when the problems of distressed economic regions are the focus of our concern. The national and multi-national firms which make decisions pertaining to the economic life of local communities make those decisions not on the basis of the costs and benefits to the community, but with regard to their private balance sheet. As a result, it frequently happens that communities of individuals must bear social costs far in excess of the private gains to the firms in question. From a policy standpoint, this is not an efficient use of our social and economic resources. In the absence of any type of comprehensive economic planning a rational market-oriented economic strategy would be one which seeks to minimize social costs.