New Economic Geography Model Research Articles

Economic geography of talent migration and agglomeration in China: A dual-driver framework

The long-standing debate on the role of economic factors and amenities on talent migration and redistribution foreshadows the importance of spatial economic theoretical thinking in resolving the effects of duality, a point yet to be conclusively addressed in the existing literature. Situated within the framework of new economic geography (NEG), this article introduces an innovative theoretical model – the Dual-Driver (DD) framework– aiming at comprehending the nuanced dual impact of economic and amenity factors on talent movements between regions. While the DD framework retains the mechanisms of increasing returns to scale, iceberg transportation cost, and talent agglomeration presented in the NEG models, it depicts, for the first time, the self-reinforcing mechanisms between non-traded goods (i.e., amenities) and talent agglomeration. The model describes a logic of talent movements influenced by the dual drivers of regional economic factors (nominal wage, the diversity of local manufacturing products) and amenities (the diversity and quality of amenities, transfer payment for talent), among which the economic effects play a predominant role versus the amenity effects. Empirical evidence has been given by the geographical analysis of China's internal talent migration between 2000 and 2015 and the corresponding econometric analysis using the Poisson pseudo-maximum likelihood (PPML) estimation. Our findings furnish a theoretical perspective for comprehending talent geography and offer policy insights into China's logic of talent migration.

A Continuous Space Model of New Economic Geography with a Quasi-Linear Log Utility Function

A Continuous Space Model of New Economic Geography with a Quasi-Linear Log Utility Function

Big or small? A new economic geography model with an endogenous switch in the market structure

We present a new economic geography (NEG) model with a linear demand function where firms may change the perception of their relative dimension with respect to the local market. If they perceive themselves as big, they behave as Cournot oligopolists, otherwise they behave as monopolistic competitors. We first compare the pure cases in which only one market form prevails in the two-region economy. Comparing these pure cases of monopolistic and oligopolistic competition only a quantitative difference emerges. Subsequently, we assume that firms switch behavior and start to interact strategically when the number of local firms is below a threshold; in that case, the market form evolves endogenously. Results change substantially. ‘Break’ and ‘sustain’ points are separated as in standard NEG models with an isoelastic demand function leading to a co-existence of equilibria. Stable partial agglomeration and oscillations with small amplitude are possible. The dynamics are described by a 1D piecewise smooth map, which can be continuous (in the pure monopolistic or oligopolistic cases) or discontinuous (when the market structure evolves endogenously). We analyze the bifurcation structure of the parameter space of the map comparing these cases. We show that the continuous maps have rather standard dynamics, while the discontinuous map is characterised by border collision bifurcations of fixed points and cycles, which lead to rich and complex bifurcation structures.

Spatial Spillover Effects of Agricultural Transport Costs in Peru

The role of agricultural transport costs in core-periphery structures has habitually been ignored in New Economic Geography (NEG) models. This is due to the convention of treating the agricultural good as the numéraire, thus implying that agricultural transportation costs are assumed to be zero in these models. For more than three decades, this has been the standard setting in spatial equilibrium analysis. This paper examines the effects of agricultural transport costs on the spatial organisation of regional structures in Peru. In doing so, Krugman’s formulation of iceberg transport costs is modified to introduce agricultural transport costs into the dynamic of the NEG models. We use exploratory spatial flow data analysis methods and non-spatial and spatial origin-destination flow models to explore how the regional spatial structure changes when real transportation data for agricultural goods are included into the iceberg transport costs formulation. We show that agricultural transport costs generate flows that are systematically associated with flows to or from nearby regions generating thus the emergence of spatial spillovers across Peruvian regions. The results of the paper support the contention that NEG models have overshadowed the role of agricultural transport costs in determining the spatial configuration of economic activities.

The persistence of apartheid regional wage disparities in South Africa

Abstract In this article, we use a new economic geography (NEG) model to estimate the extent to which the persistence in apartheid regional wage disparities in South Africa is an outcome of economic forces such as market access. We estimate a structural wage equation derived directly from the NEG theory for 354 regions over the period 1996 to 2011. We find support for an augmented NEG model in explaining regional wage disparities across regions in South Africa, although the market access effects are highly localised in view of high distance coefficients. We also find, even after controlling for NEG and other region-specific characteristics, a persistent wage deficit in the former homelands, where under apartheid black South Africans were forcefully relocated according to their ethnic groups. Average wages of workers in homelands remained approximately 17% lower than predicted between 1996 and 2011, despite the reintegration of these regions into South Africa and the implementation of regional policies after the end of apartheid.

BRAND AGRICULTURE AND ECONOMIC GEOGRAPHY: WHEN ARE HIGHLY DIFFERENTIATED PRODUCTS SUSTAINABLE IN THE REMOTE PERIPHERY?

This paper presents a general equilibrium model of new economic geography, incorporating brand agriculture that produces differentiated agricultural products. Focusing on the core‐periphery space, we show that highly differentiated brand agriculture can be sustained in the periphery even when access to the core market is not particularly good. This result supports the promotion of innovative products in rural areas in order to avoid direct price competition in generic commodities markets under unfavorable conditions.

How New Economic Geography Explains Provincial Wage Disparities: Generalised Methods of Moments Approach

In recent years, new and promising developments have made new economic geography (NEG) a popular framework for examining the spatial distribution of economic activity around the world. A major NEG prediction is that wages are higher in regions with a large market and easy access to suppliers of intermediate inputs. Based on this principle, we examine this hypothesis by using provincial data in Vietnam. Since the Doi Moi reform in 1986, the Vietnamese economy has successfully transformed from a centrally planned to a market-based economy. The Vietnamese experience has been seen as a valuable case study for other economies in transition. This paper estimates a structural model of NEG using Vietnamese provinces data for the period 2000 — 2012. Using instrumental variables based on the principle of generalised method of moments (GMM), we take account of potential endogeneity problem between regressors. We provide evidence that the industrial linkages and trade costs are statistically significant and quantitatively important in explaining variation in provincial wages. This finding is robust to controlling for a wide range of considerations. Moreover, local governments need to strengthen human capital as the first step towards improving average wages. Indeed, a better education system is not only instrumental to raising average earnings per worker, but also crucial for minimizing income inequality in the long run.

Prospect on China’s Urban System by 2020: Evidence from the Prediction Based on Internal Migration Network

China’s rapid urbanization has aroused substantial attention all over the world. Though there exists a strong connection between urban system and intercity migration, an overall prediction of China’s urban population of all cities based on migration network has rarely been conducted. This study proposes an extended NEG (New Economic Geography) model to simulate China’s urban system evolution with actual data and further predicts the future development of China’s urban system under three different urbanization scenarios. We discover that China’s future development trend is centralized urbanization dominated by large cities with a population of above 1 million. This prediction result is of great significance to provide scientific evidence for China’s population flow management and new-type urbanization planning.

Agglomeration Economies and Regional Competitiveness (Book Review)

Even if the sectorial incidence of agglomeration economies (localization and urbanization) is an issues that has not been settled yet, we find many arguments for the fact that agglomeration externalities and net benefits obtained through localization should be taken into consideration by decision-makers for spatial policy development. Romanian regional policy should be based on analyses including all centripetal (links, market, knowledge diffusion) and centrifugal (real estate agents, rentals/commuting, congestion) factors from the models of new economic geography.

新経済地理と課税競争

This paper investigates Tiebout's conjecture on the role of heterogeneity in tastes for local public goods in the context of income-tax competition and Helpman-type model of New Economic Geography (NEG, hereafter). We identify two symmetric regions that compete for capital, which is mobile instantaneously between regions and is combined with an immobile factor, land, to produce the housing service. Following the literature of tax competition, it is assumed that each local government spends the tax revenue for providing local public goods in its region. Workers are producing differentiated private goods that facilitate the agglomeration economy as in NEG literature. They choose to migrate to the preferable region in the long run. We assume that uniform distribution is carried out according to the degree of attachment to public goods. We show that agglomeration economies tend to appear when transportation costs are high, which is similar to the result of Helpman-type NEG model, while it is also shown that heterogeneity of preferences for public goods works as either centripetal or centrifugal force, depending on the parameters in simulations. That is, the heterogeneity of households might not work as the dispersion force such as immobile workers in Krugman-type NEG model. This result implies that many patterns might exist in population arrangement that Tiebout's conjecture asserts under the settings of income-tax competition and the agglomeration forces in private sectors.

Environmental Regulation, Economic Network and Sustainable Growth of Urban Agglomerations in China

In this paper, we examine the influence of environmental regulation on sustainable economic growth from both theoretical and empirical perspectives. Our research is twofold. First, we apply a modified NEG (New Economic Geography) model to analyze how environmental regulation influences firms’ location choices and cities’ sustainable economic growth. Second, we test a spatial econometric model employing panel data of the three largest urban agglomerations in China from 2003 to 2013 to study the relationship between environmental regulation and sustainable economic growth as well as the spillover channels of economic activities. The results reveal a remarkable negative effect of environmental regulation on economic growth. In addition, we find no sufficient evidence to prove the existence of long-term effects of environmental regulation on economic growth in the three urban agglomerations. Furthermore, using different weight matrices to illustrate the different economic networks of the urban agglomeration, we validate the difference in spillover mechanisms across these three urban agglomerations. Specifically, the disparity in environmental regulation acts as a spillover channel for the Yangtze River Delta and the Pearl River Delta, while it is not significant for Jing-Jin-Ji.

Aerotropolis formation and evolution: insights from new economic geography

In current academic and commercial literature, the concept of aerotropolis refers to the area surrounding an airport that has been promoted in an effort to revitalise the urban area. However, this development has not attracted enough interest from urban planners and developers. This paper identifies the formation law and evolution mode of aerotropolis by applying the 'footloose entrepreneur' (FE) model of new economic geography. The FE model can be applied to the following: space-convergence of the airport as the cornerstone of the aerotropolis, while the path-dependence of an airport is the foundation of the aerotropolis. In addition, a '3A' formation model of aerotropolis is examined: the self-organising evolutionary feature of the aerotropolis, the endogenous and exogenous variables of aerotropolis' evolution and the two types of dynamic mechanism for aerotropolis are all discussed. Conclusions are applied to the concept of aerotropolis development in an effort to strengthen its place in the urban environment.

Can Neg Explain the Spatial Distribution of Wages of Chile?

AbstractThe new economic geography (NEG) has been tested to explain the spatial concentration of wages in developed countries, but it has not been evaluated for developing countries where the excessive spatial concentration seems to be related with negative consequences on the economic development. This paper covers this gap in the literature estimating by first time a NEG model for a developing country such as Chile, pursuing two research question: (1) Can the NEG explain the spatial distribution of wages in a developing country as Chile?; and (2) How can the NEG be used to infer information about the future level of spatial concentration of wages in Chile? The results suggest that the case of Chile is poorly explained by the NEG and even higher level of spatial concentration should be expected in the future. These results indicate that the empirical application of NEG is not trivial for developing countries, and some considerations such as inclusion of the first nature or analysis at micro data level must be incorporated by future researches.

Agglomeration in World Cities

World cities (or global cities) are defined by various aspects such as socioeconomic, political and cultural characteristics by several organizations. Some world cities have been growing rapidly, whereas others have not. The purpose of this paper is to investigate economic reasons for the variations in the growth of world cities. According to the literature, there are roughly two possible reasons for the variations: costs of transport and trade and spillover effects of knowledge and technologies.First, Martin and Ottaviano (1999) have developed a dynamic model of new economic geography, where accumulation of knowledge and technologies by research and development is the engine of economic growth. The accumulation of knowledge and technologies often spills over geographically limited regions. Although it is not easy to test the spillover effect of knowledge and technologies, we explore the effects of the economic growth (the GDP growth rate) and the trade dependency (the degree of dependence on foreign trade) as surrogate for knowledge spillover on urban agglomeration (the population share of the largest city).Second, Behrens, Gaigne, Ottaviano and Thisse (2007) have shown that the degree of spatial agglomeration depends not only on the level of transport costs within a country, but also trade costs between countries. More specifically, they have shown that agglomeration is sustained when the domestic transport costs are low and the international trade costs are high. This would be true in Japan because Japan is geographically small with improved transport systems and is imposing high import tariffs especially for agricultural products.On the other hand, this is not true in the United States because the United States is geographically large and is imposing low tariffs. We examine the effect of the trade openness on the degree of agglomeration to the largest city in order to see if the results by Behrens, Gaigne, Ottaviano and Thisse (2007) hold.We explore the reasons for agglomeration and dispersion in the world cities by regression analysis using the international data. We find that the factors affecting the level of agglomeration in the world cities differ from those affecting the change in agglomeration. We show that the level of agglomeration in the world city is negatively affected by the trade openness, while positively affected by the secondary and tertiary shares, and being a national capital. We also show that the change in agglomeration to the world city is strongly affected by economic development, weakly affected by the trade openness, and unaffected by being a national capital. Finally, we confirm that the country fixed effects are important factors of the changes in agglomeration to the world city.

International Factor Mobility and Dynamic Paths

The aim of this paper is to consider the adjustment process of the spatial structure in a two-country economy where both labor and capital are mobile. For this purpose, we combine the model of New Economic Geography with the phase diagram technique. We show that the agglomeration processes are not always monotonic since the mobile factors interact with each other. More specifically, even when both factors are eventually agglomerated to one country, it is possible that labor and capital move in opposite directions in the adjustment process. Differences in factor endowment ratio and market size play significant roles in this transition path.

Expectations and industry location: a discrete time dynamical analysis

The new economic geography (NEG) aims to explain long-term patterns in the spatial allocation of industrial activities. It stresses that endogenous economic processes may enlarge small historic differences leading to quite different regional patterns—history matters for the long-term geographical distribution of economic activities. A pivotal element is that productive factors move to another region whenever the anticipated remuneration is higher in that region. Given the long-term nature of NEG analyses and the crucial role of expectations, it is astonishing that most of the existing models assume only naive or myopic expectations. However, a recent stream of the literature in behavioral and experimental economics shows that agents often use expectational heuristics, such as trend extrapolating and trend reverting rules. We introduce such expectations formation hypotheses into a NEG model formulated in discrete time. This modification leads to a system of two nonlinear difference equations (corresponding, in the language of dynamical systems theory, to a 2-dimensional piecewise smooth map) and thus enriches the possible dynamic patterns: with trend extrapolating (reverting) the symmetric equilibrium is less (more) stable; and it may lose stability only via a flip bifurcation (or also via a Neimark–Sacker bifurcation) giving rise to a period-doubling cascade (or also to quasi-periodic orbits). In both cases, complex behavior is possible; multistability, that is, the coexistence of locally stable equilibria, is pervasive; and border-collision bifurcations are also allowed. In this sense, our analysis corroborates some of the basic insights of the NEG.

Evaluating benefits of transportation in models of new economic geography

In the presence of price distortions, cost-benefit analysis must include changes in the deadweight loss in addition to the direct benefits and costs to transportation users and nonusers. Advances in new economic geography (NEG) have highlighted the importance of price distortions associated with imperfect competition. This paper reviews recent contributions to cost-benefit analysis in NEG models, and explores which elements of the models have contributed to the differences in the results obtained.

Regional market size and the housing market: insights from a new economic geography model

The increased availability of information about housing and labour markets at finer spatial scales opens up possibilities for applied research to model various types of spatial relationships associated with housing affordability. The aim of this paper is to encourage empirical research to estimate the type of spatial relationships described by new economic geography (NEG) models. NEG models were designed to provide general equilibrium analysis of urban agglomeration, but may also be used to shed insights into the degree to which housing and labour markets could be integrated spatially. We extend the Helpman and Hanson NEG theoretical model by relaxing the stringent restrictions imposed on housing consumption and the size of the housing sector, so that it may be used to address the housing affordability issue. We highlight the differences that these refinements have on the implications for earnings, rents (house prices) and migration. In particular, simulations are undertaken to assess the conditions under which a responsive and non-responsive construction sector worsens or improves housing affordability and affects region size.

Relaxing Hukou: Increased labor mobility and China’s economic geography

China’s Hukou system poses severe restrictions on labor mobility. This paper assesses the possible consequences of relaxing these restrictions for China’s internal economic geography. We base our analysis on a new economic geography (NEG) model. First, we estimate the important model parameters using data on 264 of China’s prefecture cities. Second, we use these estimates as inputs in a simulation of the full NEG model under different labor mobility regimes. We find that increased labor mobility leads to more pronounced core–periphery outcomes. Beijing, Shanghai, Guangzhou and Chongqing in particular will further strengthen their dominant place in China’s urban hierarchy. In addition, two other groups of cities can be distinguished: those in China’s populous heartland offering preferential access to China’s enormous internal market, and more peripheral cities that are better shielded from competition with China’s economic heartland by virtue of their relative remoteness.

Central place theory and its reemergence in regional science

This paper presents an interdisciplinary review—from the perspectives of geography, economics, and urban planning—of the literature on central place theory (CPT) and its important role in regional science. Along the way, CPT is compared to a more recent description/explanation of the space economy, the new economic geography (NEG). The main arguments of the paper are that for a host of reasons: (i) CPT is ripe for reemergence and; (ii) NEG models are best viewed as complements to, not competitors of, CPT. Some general observations for future research in regional science follow from these conclusions.