Remoteness equals backwardness? Human capital and market access in the European regions: insights from the long run

ABSTRACT

In a recent contribution, Redding and Schott [2003. “Distance, Skill Deepening and Development: Will Peripheral Countries Ever Get Rich?” Journal of Development Economics 72 (2): 515–541. doi:10.1016/S0304-3878(03)00118-4] add human capital to a two sector NEG model, highlighting that remoteness represents a penalty that gives disincentives to invest in human capital. But is this hypothesis consistent with long-term evidence? We test the persistence of this effect at the regional level in an historical setting. The results show that market access has a significant positive influence on human capital in OLS, Tobit and IV regression models. Thus, the paper confirms the ‘penalty of remoteness’ hypothesis for Europe in the long run.

KEYWORDS:

• Human capital
• new economic geography
• regional development
• market access

JEL:

• Codes: I21
• N33
• N93
• R11

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The views expressed are purely those of the writers and may not in any circumstances be regarded as stating an official position of the European Commission. We follow López-Rodríguez, Faíña, and López-Rodríguez (2007) and limit ourselves to the supply side of the model. For a complete presentation, see e.g., López-Rodríguez, Faíña, and López-Rodríguez (2005).

2. Given the variable ‘Distance to Luxembourg’, we have excluded Luxembourg in all our regressions and do not list it here.

3. These outliers are Ponte Delgada which is on the Azores Islands and far off the European continent. Moreover, we excluded Oral which is not located in the limits of today’s definition of Europe.

4. We are very well aware of the fact that World War II affected important portions of regional populations which may have a biasing effect on our estimates. However, authors such as Martí-Henneberg (2005) show that population concentrations are highly correlated at the regional level between 1870 and 2000 which suggests that data from 1950 are still a good approximation for 1930. 

5. Moriconi-Ebrard’s (1994) database includes agglomeration data from 1950 to 1990.

6. Clearly, it would be preferable to use an even closer theory-based measure, including regional price and interregional trade flow data. Yet, as López-Rodríguez, Faíña, and López-Rodríguez (2007) already emphasise, this measure is not available for today. Without surprise, it is not available for the past either, so that we have to rely on our alternative but fairly good proxy estimates.

7. Other economic measures, such as regional GDP data, are not yet available for an important part of European regions, in particular in Eastern Europe.

8. An exception is Greater London, where we had to use the NUTS 1 level due to unavailability of more disaggregated data.

9. Note that we have opted for the presentation of the results with the logarithmic form of the ABCC. We have also done all regressions without this transformation and obtained the same results (only the value of the coefficients changed which is a logical consequence of the transformation).

10. Similar to López-Rodríguez, Faíña, and López-Rodríguez (2007), we also explore the possibility of outliers that would have an effect on our results by computing Cook’s distance. According to Cook’s distance, there are no outliers (i.e. with a value > 1) in all the regressions.

11. Because we use the logarithmic form of the ABCC here, the upper limit (corresponding to 100) is approximately 4.6052.

12. Borders and countries in ca. 1850 are considered. Because we are interested in the domestic market and trade advantages, we consider Germany as being constituted by those countries that had joined the Zollverein (German Customs Union). Data on country sizes (in geographical square miles) come from Annuaire Statistique et Historique Belge (1857).

13. See Kirk (1946) for more information.

14. These countries are Denmark, Germany, Ireland, Netherlands, Norway, Sweden, Switzerland, United Kingdom and parts of Austria.