The dilemma of “Twin Cities”: is the suburban dependence hypothesis applicable?

Abstract

The question of whether or not public investment and financial aid should be massively concentrated in a specified central city associated with a rising suburb has provoked a great deal of public controversy. The purpose here is to analyze the interaction between a central city and the surrounding suburban area based on employment and population, which is widely cited in “the Chicken and the Egg” problem. The results of our examination of Taipei City and its suburb reveal that Taipei-City’s employment as the engine of the metropolitan economy fully supports the suburban dependence hypothesis and hence the provision of more financial resources in Taipei City is beneficial to the overall metropolitan area, including its suburban area. However, our concern is that the recent policy decision regarding the appointment of Taipei County as another first-tier city, rather than merging it into a united metropolitan government, will further worsen the economic and political conflicts between “Twin Cities” and eventually reduce metropolitan competitiveness on the basis of New Regionalism.

Keywords:

• central city
• suburb
• chicken–egg problem
• suburban dependence hypothesis

Acknowledgements

I wish to express my thanks to two anonymous referees and the editor for the valuable policy advice. I am also indebted to Shang-hsien Chiang, my father and my family both for adhering to and inspiring my innovative idea. Finally, the financial support is offered by national science council (NSC101-2410-H-033-044).

Notes

1. In fact, Taipei County has successfully prevailed in terms of receiving aid from the central government as evidenced by the big increase from NT$ 34.2 to NT$ 60.3 billion in 2008 while Taipei City obtained NT$ 58.4 billion (a slight increase of only NT$ 0.21 billion) under total annual revenues for Taipei City and Taipei County of NT$ 146 billion and NT$ 91 billion, respectively, at the same year. However, this victory still did not satisfy Taipei County, only making the bilateral relationship increasingly worse.

2. Engle and Yoo (1987) found that in comparison with the VAR, ECM can reduce forecasting errors more efficiently.

3. For details of the ADF test for the unit roots, co-integration, IRF, and VD, the interested reader can refer to several econometric texts, for example Enders (2010), Harris (1995) or Judge et al. (1988).