Transcript PowerPoint-presentatie

Modeling the spatial pattern of economic
activities in the New Economic Geography I
Lecture 1: 9.00 - 11.00
July 4, 2007
Dimetic workshop
Pécs, Hungary
Mark Thissen
NETHERLANDS
INSTITUTE
FOR
SPATIAL
RESEARCH
1
Contents
• Introduction to the New Economic Geography
• Agglomeration economies: Policy relevance
• A NEG application: RAEM a Spatial Applied
General Equilibrium model
• The size of agglomeration effects
• Policy implications
2
NEG and Economies of Agglomeration:
Literature
Overview
Baldwin, R., Forslid, R., Martin, P., Ottaviano, G., and Robert-Nicoud, F.
(2003), Economic Geography and Public Policy, Princeton University
Press, Princeton, New Jersey.
Fujita, M., and Thisse J.F. (2002), Economics of Agglomeration: Cities,
Industrial Location and Regional Growth, Cambridge University Press,
Cambridge.
Krugman, P. (1980,1991), Several Articles.
Labour market
Pissarides, C.A. (2000), Equilibrium Unemployment Theory, MIT Press,
Cambridge Massachussetts.
Applied Spatial CGE and Monopolistic competition
Venables, A.J. and M.Gasiorek, 1996, Evaluating Regional
Infrastructure: A Computable Equilibrium Approach, Mimeo, London
School of Economics, UK
Venables, A. (1996), Equilibrium Locations of Vertically Linked
Industries, International Economic Review 37, pp. 341-359.
3
NEG: Stylized facts
• Agglomerations; city’s and size differences
• Income and productivity differences among
region’s
• Trade; comparable products (intra-sector
trade)
- Yellow and green pencils
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Space and perfect competition:
The spatial impossibility theorem
•
Homogeneous space
• No trade because of transport costs
• No cities because of land prices
• “Back-yard capitalism”
Solutions
• Homogeneous space and indivisibilities
• No equilibrium possible (people move or firms move)
•
Heterogeneous space
• The rise and decline of cities (explanation and why not
more often?; no path dependency)
• Are spatial differences large enough
• Intra-sector trade
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NEG: Imperfect competition and economies of
scale
•
Love of Variety
• Demand for slightly different (unique) products
• Consequence: Economies of scale and market power
•
Monopolistic competition
• Many different firms and products
• Endogenous number of firms
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NEG: Why Cities and Agglomerations
•
Agglomeration effects: Locate close to large market
• Market-access: firms minimize transport costs
• Variety effect: benefit of many varieties
• Cost of living effect: consumers minimize transport costs
•
Dispersion effects: Locate far away from large market
• Market-crowding: firms try to escape competition
• Housing costs: consumers search for low housing prices
• Congestion: communication and transaction costs
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Welfare
NEG, Economics in Space and Time
Infrastructure investment
Transport innovations
Industrial investment
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Infrastructure and NEG: An Example
Congestion
Versus
Space
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The Firm and Agglomeration effects
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The Firm: Increasing city size
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The Firm: A new road
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Agglomeration economies: Spatial Dynamics
over time.
•
Urbanisation and agglomeration
• In the presence of agglomeration effects there are large
gains to be made by increasing agglomeration size.
• There is place for different size of agglomerations at
different locations (not only one big agglomeration).
• Multiple solutions and path dependency.
•
However: First Welfare Theorem is no longer valid
• External effects of our behaviour are not taken into account
in our decisions. These effects may be negative or positive.
• Negative outcomes if there are agglomeration forces driving
migration with strong congestion effects.
• The dynamics of the path determine the outcomes via path
dependency.
• Other markets?
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Agglomeration economies: Policy relevance
•
First Welfare Theorem
• We Need a Government!
•
Spatial Planning
• Housing and city size; construction for the unemployed
• Value of open space and the environment
•
Social Policy
• Supporting the perifery: Poor scientists and Rich cleaning
ladies?
•
Infrastructure
• Making Agglomerations
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Infrastructure: Roads to development?
1. How large are agglomeration economies in
the Netherlands?
- Benefits of infrastructure projects only based on demand
curve?
2. How does accessibility affect economies of
agglomeration?
- Should we open up the periphery?
3. Where are the largest benefits from
agglomeration economies?
- Which road improvements give us the largest additional
benefits
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NEG: RAEM A Regional Applied Equilibrium
Model for the Netherlands
Imperfect competition
• Production:
• Intermediate
Cobb Douglas
Varieties
• Consumption:
Varieties
• Market:
Monopolistic competition
• Transport:
Separate sector
(no iceberg costs)
• Labour:
Search behavior
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Indirect effects: Internalized External Effects
•
Varieties on Consumption and product markets
# varieties
production/utility
Amount of variety
•
Substitution elasticity
Labour market (Spatial Beveridge curve)
unemployed
commuting
Vacancies
travel time
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The Empirical Research: RAEM
•
Estimate ‘Direct Effect’ by use of transport demand
function
• Direct effect: Benefit to all users of roads
• Equals perfect competition outcome
•
Regions
• Region connectivity (40 simulations)
• Between regions (1600 simulations)
•
Estimate ‘Total Effect’ with RAEM model
• NEG and Labour market imperfections
•
results:
• Multiplier = total effect divided by direct effect
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Multiplier = total effect divided by direct effect
indicator for:
• the size of the agglomeration effect
All multipliers would be equal to 1 in the
absence of agglomeration effects and imperfect
markets
• The return on infrastructure investment
Investments in infrastructure in the Netherlands
are based on so-called direct effects. Marginal
direct effects are expected to be equal in
equilibrium and proportional to the costs of
Infrastructure
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Results Regional Analysis (Commuting)
•
Strong agglomeration
economies in “Randstad”
–
–
–
•
Amsterdam
Rotterdam
Utrecht
A
Negative effects
–
Pushing labour out of
agglomeration
R
U
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Amsterdam versus Zaanstreek
Out-Commuting
•
In-Commuting
Commuting
The Zaanstreek Labor market
–
–
Difference in Out- and In-commuting
Total effect lower (double counting internal commuting)
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Results Inter-Regional Analysis (Commuting)
•
Agglomeration
economies in Regions
–
•
Shift of Jobs
Identify agglomerations
–
–
–
Definition (National)
Inflows are important
No Rotterdam
ArnhemNijmegen
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Inter-Regional Analysis (Commuting & Trade)
•
Longer distances
important
–
Regional specialization
and economies of
agglomeration
•
Intra-regional
connection less
important
•
Relations to the east
more important
•
Agglomeration larger
–
Randstad
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Main Roads
Commuting
Commuting & Freight
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Conclusions
1. Agglomeration economies are important in the
Netherlands, with Amsterdam the Core
agglomeration.
2. Short distances within cities are more important for
commuting than longer distances
•
Spatial Shift of jobs
3. Long distances are more important for trade in goods
•
Specialization and Agglomeration
4. Underestimation of benefits:
•
Multipliers on important roads between 1.25 and 1.75
5. Overestimation of benefits:
•
Mutlipliers on non-important roads between 0.25 and 0.75
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Questions on NEG and emperics
1. Migration and agglomeration effects. Are
congestion effects taking over? What about the
first welfare theorem? In other words: are the
benefits of the migrant still larger then the
disbenefits of the people in the agglomeration.
2. Regional distribution and Governance. Do we get
rich people and poor regions or vice versa?
3. Agglomeration effects are due to what? We need
more theory and more empirics!
• Knowledge spillovers?
• Linkages?
• Labour market?
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