Footloose Capital Research Articles

An urban experiment in small town sustainability in the UK: the case of Cittaslow

Member towns of the international network of slow cities are recent examples of the working out of development approaches that aim to involve local communities in the maintenance of the unique environmental and cultural heritage of individual locations. Formalised as Cittaslow, over the last two decades these towns are having to respond to a range of issues brought on by the increasing pace of life associated with globalisation and, conversely, stagnation due to being by-passed by footloose capital. The charter requirements of Cittaslow offer a means by which third-tier towns may address sustainable development. Having bought into the ideas for action promoted by Cittaslow International, ten towns in the UK have worked towards developing support in the community for a package of complex, connected technical measures. They have done so over a period marked by a shift from government to governance, and in an economic climate characterised by austerity. Evidence from local government officers points to the challenges of maintaining support for a view of sustainable development formulated elsewhere and which many people find hard to grasp. Quality of life and local uniqueness are nonetheless broad goals, around which communities can be anticipated to continue to organise in processes of governance for sustainable development.

Symmetric tax competition and welfare with footloose capital

AbstractThis paper examines the tax competition for mobile capital between two symmetric countries in a monopolistic competition economy. Taxation generates its own distortions of location and consumption as long as consumers/governments deviate from the symmetric equilibrium. Taking all possible distortions into account, this paper finds that the equilibrium tax rate may be positive and increasing when trade costs are high while it is negative and decreasing when trade costs are low if consumers have additively separable preferences displaying an increasing relative love for variety. This nonmonotonic relationship of tax rate with trade costs is further accompanied by welfare loss when market integration starts. The procompetitive effect and the income effect are both crucial to deriving the results.

Outsourced urban governance as a state rescaling strategy in Hyderabad, India

In the years since liberalization, state power has been rescaled in India's polity and this is both a cause and consequence of greater inter-state competition for footloose capital. In this context, some state governments are designing special regulatory tools to attract and concentrate investments by easing ‘doing business’ for private investors and leveraging land resources—primarily in their largest cities. Equally important, they ensure public investments are channelled to these select spaces and that resources are available for maintaining high standards of infrastructure. In Hyderabad, the ‘Industrial Area Local Authority’ (IALA) is a powerful tool that allows privatised management by state and non-state actors of recently constructed productive spaces, mainly concentrating globalised service sector activities, including by collecting local tax revenues and various development charges to be spent exclusively within the industrial area. In this way, governance and fiscal functions are outsourced to non-elected bodies, outside the purview of democratic institutions. By essentially replacing municipal authorities, the IALA framework produces new forms of governance at the same time that it generates fragmentation of the institutional fabric of urban spaces. In effect, it creates a tool for by-passing urban politics, or in the case of periurban spaces does not allow an urban politics to emerge. Building on recent research, this paper examines the implications of IALAs in Hyderabad on urban governance and local state sovereignty.

Trade integration and regional income disparities in a growth model with the service sector and footloose capital

ABSTRACTThis paper proposes a North–South growth model of endogenous industry location which is consistent with recent empirical work showing that regional income disparities have increased in many countries with the process of trade integration. The model incorporates a service sector that benefits from intersectoral knowledge spillovers from the manufacturing sector. We find that, when these spillovers are local, trade integration leads to an increase in interregional real income inequality.

Country Marketing and Planning Implications of the European Soccer Championship EURO 2004

ABSTRACTSports championships are major events capable of changing the image of cities and countries. Countries use these mega-events mostly to enhance economic development opportunities, to attract foreign investment, to generate tourism revenues, to regenerate parts of cities, and to increase the population’s self-esteem. However, the major boost seems to come from the marketing strategies. Host countries promote their images as modern, cosmopolitan, and attractive places, ideal to attract footloose capital. The EURO 2004 European Soccer Championship in Portugal was one such mega-event. Portugal constructed new and renovated old stadiums to host the championship. I argue that EURO 2004 was above all a country marketing strategy conducted by the political elite, supposedly with benefits for the country as a whole; nonetheless, the benefits had distinct geographical and societal impacts within a limited timeframe. The key finding is that the EURO 2004 belonged to the same category of events as the EXPO’98 and the Porto 2001, which helped change the image of Portugal, nationally and internationally; however, a constant reliance on mega-events to modernize and make a country more competitive is not sustainable in the long run.

Labor Market Regulation, International Trade and Footloose Capital

I examine the effects of globalization in countries where the employed workers support the unemployed and the governments control wages by regulating the workers' relative bargaining power. I use a general oligopolistic equilibrium model of two integrated countries with two inputs: labor and potentially footloose capital. National competition for jobs by labor market deregulation creates a distortion with suboptimal wages. The mobility of capital aggravates that distortion by increasing the wage elasticity of labor demand, which decreases wages and welfare even further. The delegation of labor market regulation to an international agent eliminates that distortion, increasing wages and aggregate welfare.

The effects of globalization on regional inequality in a model of semi-endogenous growth and footloose capital

We show that manufacturing firms tend to locate only in northern regions when transportation costs are not high, and in both northern and southern regions when transportation costs are high. We made this determination through the use of a semi-endogenous research and development growth model that reflects international trade, footloose capital, and local knowledge spillover. Regional income inequality—defined here as differences in per-capita expenditure relative to the price index—decreases in the former scenario following globalization, as the northern share of expenditure does not change. This lack of change stems from there being a constant and exogenous growth rate. Additionally, the northern price index does not change, even as the southern price index decreases.

Endogenous Protection within a framework of monopolistic competition à la Dixit–Stiglitz

The author studies the determination of trade policy by considering an imperfectly competitive market. The model adopts the political process developed by Grossman and Helpman (1994), but it also takes into account a different economic structure, which is based on the Footloose Capital model. Two new appealing insights come from the consideration of monopolistic competition. Firstly, in this setting, the interest group seems to be more worried to persuade the government to set a high tariff when it can charge a low mark-up. Secondly, the initial distribution of industry might also influence the structure of protection in one economy.

Agglomeration dynamics and first nature asymmetries

The standard footloose capital (FC) model, as well as the discrete time version, assumes that all capital units are internationally mobile between two regions. In this paper, we assume that in one of the two regions some of the blueprints/capital units may be immobile because their utilization requires some locally specific natural resource (first nature advantage). Mobile blueprints, instead, can be utilized in both regions. We focus on this asymmetric distribution of immobile firms/capital units, labeled first nature firms. The central question of our paper is how the existence of first nature asymmetry affects agglomerative processes framed in discrete time. This modification of the FC model leads to a one dimensional piecewise smooth map for which we show analytically that border collision bifurcations are pervasive and (even asymmetric) multistability is possible.

Union wage-setting and international trade with footloose capital

This paper sets up a general oligopolistic equilibrium model with two countries that differ in the centralization of union wage-setting. Being interested in the consequences of openness, we show that, in the short run, trade increases welfare and employment in both locations, and it raises income of capital owners as well as workers. In the long run, capital outflows from the country with the more centralized wage-setting generate winners and losers and make the two countries more dissimilar in terms of unemployment or welfare. Decentralization of wage-setting can successfully prevent capital outflow and the export of jobs.

Globalization, Democracy and English Studies

Globalization has been seen by both its promoters and detractors primarily as an expansion of global capital and money and commodity markets across national and regional borders, driving both capitalized and capital poor economies towards consumer-oriented production whose backward and forward linkages are determined _ indeed manipulated _ by developed economies of the West. In the process, traditional modes of production of weaker economies are neglected, which, in the end, lose out to high value production processes and products backed up by sophisticated technology and financial instruments. The deceptive investment portfolios from the West, described rather quizzically as "footloose capital," gain control of weaker economies and threaten to withdraw in the event of a government taking measures to protect its domestic business. The promotion of supply side and transnational economies has the ultimate goal of a market-led integration of global society. As Jurgen Habermas points out, "a state enmeshed in the transnational economic system would abandon its citizens to the legally secured negative freedoms of global competition, while essentially confining itself to providing, in business-like fashion, infrastructures that promote entrepreneurial activity and make national economic conditions attractive from the point of view of profitability" (78,79-80). Those opposed to globalization see in the power of the runaway markets -- and the involvement of the United States in World Trade Organization (WTO) negotiations with governments to pursue market-friendly policies _ the inevitability of the loss of autonomy of national states, and an erosion of their decision-making abilities. Indeed globalization's war cry now is "more market, less state interventions;" its aim is to see a free market society along with a minimal state. In countries that are variously described as third world, less developed or of weak economies, the World Bank, the International Monetary Fund (IMF), and their less well-off but equally high-handed cousin, the Asian Development Bank, work as allies of the forces of hegemonic globalization.

Offshoring, Globalization and Welfare

We investigate the issue of offshoring in a model of two countries and one sector of increasing returns to scale. Our model uncovers that in a setting of footloose capital, offshoring occurs and evolves in an inverted-U pattern when transport costs decline. This result can explain China's offshoring soaring in the past decades as well as its recent decline. We also provide an empirical support for it. More importantly, this simple framework can be applied to examine the welfare issue. We find that falling offshoring costs benefits the high-wage country but hurts the low-wage country. By contrast, trade liberalization benefits both.

The Effects of Opening Trade on Regional Inequality in a Model of Scale-Invariant Growth and Foot-Loose Capital

We consider a semi endogenous R & D growth model with international trade, foot-loose capital, and local and international knowledge spillovers in a closed economy and also international knowledge spillovers in an open economy. We show that by opening trade two regions diverge (converge) with (not) sufficiently high intertemporal knowledge spillover in the R & D sector and elasticity of substitution between modern goods, and not sufficiently high (sufficiently high) richer country A’s share of firm owned.

Spatial inequality, globalization, and footloose capital

This paper shows the equivalence of spatial inequalities in industrial location and in income by revisiting the home market effect (HME) without any homogeneous good based on a reconstructed footloose capital model. In this simple framework, spatial inequalities in industrial location and in income are the HMEs in terms of firm share and wage, respectively. We show that the larger country has a more-than-proportionate share of firms and a higher wage. Furthermore, both the wage differential and the industrial location in the larger country evolve in an inverted U-pattern when transport costs decline. Finally, we analytically examine the effects of trade liberalization on the welfare and show that both countries may gain from globalization.

Border Collision Bifurcations in a Footloose Capital Model with First Nature Firms

In this paper we extend the discrete time Footloose Capital model analyzed in Commendatore et al. (Nonlinear Dyn Psychol Life Sci 11(2):267---289, 2007) by introducing "first nature firms", i.e., firms that use locally specific blueprints and, therefore, are immobile. Due to the presence of first nature firms (symmetrically distributed across the regions), the central dynamic map becomes a piecewise differentiable function: in addition to "standard" flip and pitchfork bifurcations also border collision bifurcations are possible and instances of multistability may emerge. Our analysis confirms and extends the results of Commendatore et al. (2007): (1) continuous time formulation hides complex dynamics patterns; (2) asymmetric distributions of industrial activity can be endogenously generated and are path dependent.

Spatial Inequality, Globalization and Footloose Capital

This paper revisits the home market effect (HME) without any homogeneous good by reconstructing the footloose capital model. This simple model analytically reproduces some typical results scattered in the existing literature, and also provides new insights. Firstly, we derive both spatial inequalities in industrial location and in income. They are the home market effect in terms of firm share and wage: the larger country has a more-than-proportionate share of firms and a higher wage. These two HMEs are shown to be equivalent. Secondly, both the wage differential and the industrial location in the larger country evolve in an inverted U-pattern when transport costs decline. Finally, we analytically examine the effects of trade liberalization on the welfare and show that both countries may gain from globalization.

Invest Locally or Globally? A Normative Analysis of Transport Policies in a Footloose Capital Model with Interregional Intraregional Transportation Costs

In this paper, we introduce a distinction between interregional and intraregional transportation costs, in a footloose capital model. This allows assessing more precisely the effects of different types of transport policies, on the spatial distribution of activities. From a normative point of view, we find that, in absence of regulation, the concentration of firms is too high in the center. We show what set of transport policies improves the equilibrium.

Place and Place-Making in Cities: A Global Perspective

Since the 1990s, interest in place (as opposed to space) has surged across a spectrum of social science disciplines including planning. But the empirical focus has been chiefly on cities along the Atlantic Rim even as vast new areas in Asia, Africa, and Latin America were undergoing accelerated urbanization. This essay outlines a planning perspective to global place-making in the face of fierce inter-city competition for footloose capital. The question of how a place can be defined, and what criteria might serve to delineate a place occupies the first part of this essay. The definition proposed encompasses both a physical/built environment at the neighborhood scale and the subjective feelings its inhabitants harbor towards each other as an emplaced community. Specific criteria are discussed, with brief illustrations from Taiwan and China. But the art of place-making has not informed planners of the swaths of the urban in the newly industrializing global regions of Asia and elsewhere. Their principal preoccupation has been with the branding of cities and the advanced infrastructure required by global capital. In the process, millions of ordinary folks have been displaced and their neighborhoods erased, as speed, movement, and power have been valued more than the fragile social infrastructure of place-based communities. The essay concludes with an argument that place-making is everyone's job, local residents as well as official planners, and that old places can be “taken back” neighborhood by neighborhood, through collaborative people-centered planning. Examples from Japan, China, and Canada are used to illustrate these propositions.

Do capital market and trade liberalization trigger labor market deregulation?

Over the past decades, product market deregulation has typically preceded labor market reforms in OECD countries. This paper incorporates labor market rigidities in a model of footloose capital in order to study how globalization might affect the trade-offs generated by labor market regulation and put pressure on labor market institutions. In this two-sector model, globalization ultimately reduces labor market rigidities through either one of two channels: capital mobility triggers a re-allocation of resources, which trade integration amplifies, away from the high-rent / highly-unionized sector; the threat of costly relocations encourages labor market deregulation. The latter channel is more efficient because it avoids sub-optimal sectoral specialization.

Source Versus Residence: A Comparison from a New Economic Geography Perspective

Recently, issues of international taxation have also been analysed from a New Economic Geography perspective. These discussions show that agglomerative forces play a non negligible role. In the paper, we introduce explicitly taxation into a Footloose Capital Model and compare implications of taxation according to the residence principle and the source principle from a New Economic Geography perspective. We confirm that agglomerative effects change the results substantially compared to the standard analysis and that the two taxation principles have different implications for industry agglomeration.