Economic Linkages across Space

Abstract

Overman H. G., Rice P. and Venables A. J. Economic linkages across space, Regional Studies. A diagrammatic framework is developed to study the economic linkages between regions or cities. Hitherto, such linkages have not been a focus of the literature. The framework is used to analyse the impact of shocks that occur in one region (for example, productivity improvements or increases in housing supply) on other regions, highlighting the key adjustment mechanisms and their long-run implications for incomes, the cost of living, and the spatial distribution of population. The approach is linked to both the New Economic Geography and urban systems literatures and empirical studies are reviewed that quantify the key mechanisms that are identified.

Spatial linkages Urban systems New Economic Geography Urban and regional policy

Overman H. G., Rice P. et Venables A. J. Des maillons géographiques économiques, Regional Studies. On construit un cadre schématique afin d'étudier les maillons interrégionaux ou interurbains économiques. Jusqu'ici, de tels maillons n'ont pas été le point de mire de la documentation. On se sert de ce cadre pour analyser l'impact des chocs qui ont lieu dans une région (p.e. des améliorations de la productivité ou des augmentations de l'offre de logement) sur d'autres régions, soulignant les mécanismes d'ajustement essentiels et leurs impacts de longue durée sur les revenus, le coût de la vie et la distribution géographique de la population. L'approche se voit lier à la fois à la documentation sur la Nouvelle géographie économique et les Systèmes urbains, et fait la critique des études empiriques qui quantifient les mécanismes essentiels identifiés.

Maillons géographiques Systèmes urbains Nouvelle géographie économique Politiques urbaine et régionale

Overman H. G., Rice P. und Venables A. J. Wirtschaftliche Verknüpfungen zwischen Räumen, Regional Studies. Wir entwickeln einen diagrammatischen Rahmen zur Untersuchung der wirtschaftlichen Verknüpfungen zwischen Regionen oder Städten. Bisher waren solche Verknüpfungen kein Schwerpunkt der Literatur. Mit Hilfe dieses Rahmens analysieren wir die Auswirkungen von Schocks in einer Region (z. B. eine verbesserte Produktivität oder ein erhöhtes Wohnungsangebot) auf andere Regionen, wobei wir die wichtigsten Anpassungsmechanismen und ihre langfristigen Auswirkungen auf Einkommen, Lebenshaltungskosten und die räumliche Verteilung der Bevölkerung herausarbeiten. Unseren Ansatz verknüpfen wir mit der Literatur der neuen Wirtschaftsgeografie und urbanen Systeme; ebenso werten wir empirische Studien aus, in denen die wichtigsten von uns identifizierten Mechanismen quantifiziert werden.

Räumliche Verknüpfungen Urbane Systeme Neue Wirtschaftsgeografie Stadt- und Regionalpolitik

Overman H. G., Rice P. y Venables A. J. Vínculos económicos en el espacio, Regional Studies. Desarrollamos una estructura esquemática para estudiar los vínculos económicos entre regiones o ciudades. Hasta ahora no se había prestado mucha atención a estos vínculos en la literatura. Con ayuda de esta estructura analizamos las repercusiones de los choques que ocurren en una región (p. ej., mejoras de productividad o aumentos en la oferta de hogares) en otras regiones, destacando los mecanismos de ajuste principales y sus efectos a largo plazo para los ingresos, el coste de la vida y la distribución espacial de la población. Unimos nuestro planteamiento con las literaturas de la Nueva Geografía Económica y los Sistemas Urbanos y analizamos los estudios empíricos que cuantifican los mecanismos clave que hemos identificado.

Vínculos espaciales Sistemas urbanos Nueva geografía económica Política urbana y regional

JEL classifications:

• R00
• R58

Acknowledgements

This paper is based on research undertaken for the UK Office of the Deputy Prime Minister (ODPM) (now the Department for Communities and Local Government, DCLG). The work was supported by the UK Economic and Social Research Council (ESRC)-funded Centre for Economic Performance at the London School of Economics (LSE). Thanks to a referee and seminar participants for helpful comments.

Notes

Exogenous differences can be captured by region-specific parameters. Some sources of endogenous variation can be captured in the present reduced-form relationships (for example, participation depends on the wage, which in turn depends on λ), but for clarity these forces are left in the background.

If the production function is Cobb–Douglas and other factors are fixed, then + 1 is equal to the elasticity of output with respect to labour.

With non-constant returns-to-scale, it is also possible that the shape of these functions depends on the total population.

Comparative static analysis of a change in productivity parameters would then shift this relationship, an effect that is ignored in the fourth section, but discussed in the Appendix.

An additional complication, which could be more easily incorporated, arises from the presence of a fixed cost of moving. In this case, the migration equilibrium schedule would be characterized by a band with the upper curve of that band identifying real wage differences that are sufficiently high to overcome the fixed cost of moving and lead to migration from north to south (and vice versa for the lower band). All points within this band would then represent possible long-run equilibria, but with the remaining analysis essentially unchanged.

This requires that the elasticity of the HH curve varies. This would happen if, for example, congestion rises faster with population for small cities (perhaps because it is inefficient to offer public transport) and large cities than for medium size cities. Varying elasticity on the EE curve could also achieve this if there were diminishing returns over some range of city sizes and increasing returns over others.

This assumes that the productivity shock does not have any direct effect on the cost of living. This assumption is relaxed in the Appendix.

Factor prices are invariant with respect to a region's endowment (Levinsohn and Leamer, 1995).

The fundamental market failure in the model is increasing returns at the level of the firm, meaning that firms do not divide their production between all regions.

This direct interaction is in addition to the equilibrium interactions of the model.

Henderson and Au (2006) provide evidence that productivity effects in China follow an inverted ‘U’-shape so that productivity (and hence wages) are only increasing over some range of city sizes.

The first attempt to combine Krugman's model with increasing land prices was by Helpman (1998).

The elasticity of house prices with respect to population is given by:

where is the elasticity of demand for housing with respect to population; is the price elasticity of demand for housing; and is the price elasticity of supply of housing.