Is agglomeration really good for growth? Global efficiency,interregional equity and uneven growth

According to NEG literature, spatial concentration of industrial activities increases growth at the regional and aggregate level without generating regional growth differentials. This view is not supported by the data. We extend the canonical model with an additional sector producing non-tradable goods which benefits from localized knowledge spillovers coming from the R&D performing industrial sector. This view, motivated by the evidence, generates both an anti-growth and a pro-growth effect of agglomeration for both the deindustrializing and the industrializing regions and leads to two novel results: (1) when agglomeration takes place, growth is lower in the periphery; (2) agglomeration may have a negative effect on the growth rate of real income, both at the regional and at the aggregate level. Our conclusions have relevant policy implications: contrary to the standard view, current EU and US regional policies favouring industrial dispersion might be welfare-improving both at the regional and the aggregate level and may reduce regional income disparities.     

Interregional tax competition and intraregional political competition: The optimal provision of public goods under representative democracy

This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods under representative democracy à la Osborne and Slivinski, 1996, Besley and Coate, 1997. As an extension of Hoyt’s (1991) finding that intensified tax competition is always harmful and aggravates the extent to which public goods are undersupplied in a region, we show that intensified tax competition can be beneficial if political as well as tax competition is considered. In particular, we identify plausible conditions under which (i) there is an optimal intensity of tax competition such that the interaction between interregional tax competition and intraregional political competition will result in the optimal provision of public goods and (ii) intensified tax competition will be beneficial if and only if the degree of tax competition is less than this optimal intensity.     

Structural change and technological development

It is important for our understanding of sectoral and regional structural change to analyze the R & D-activities. In this paper we show that R & D should be analyzed as an endogenous, intermediate, public investment variable rather than as ordinary capital investment. The allocation of resources for R&D cannot be decentralized regionally or sectorally but should preferably be decided on as a problem of optimal taxation. It is shown that the optimal rate of taxation for R&D is determined by possibilities of substitution between ordinary capital investments and R&D, by the propensity to invest and by the productivity of the R&D- producing sector. A dynamic model with accessibility representation of knowledge is finally formulated. This interregional R&D-model also has equilibrium growth properties. The equilibrium rate of growth of all regions of this model can be raised by decreasing any interregional distance or by raising any regional propensity to invest.     

Regional knowledge production as determinant of high-technology entrepreneurship: empirical evidence for Germany

Similar to the creation and distribution of new knowledge through industrial R&D and university research, entrepreneurial activity tends to vary across regions. Therefore the regionalized production of new knowledge is a prerequisite of entrepreneurial innovation. Based on endogenous growth theory, in particular the so-called Griliches-Jaffe-Model of regional knowledge production, we investigate industrial and university characteristics as determinants of technologically oriented entrepreneurship. Using hand-collected data from multiple sources, our results clearly show that high-technology entrepreneurship is highly dependent on regional knowledge production by industry and university, while technology entrepreneurship does largely not dependent on these factors.     

Forecasting with approximate dynamic factor models: The role of non-pervasive shocks

This paper studies the role of non-pervasive shocks when forecasting with factor models. To this end, we first introduce a new model that incorporates the effects of non-pervasive shocks, an Approximate Dynamic Factor Model with a sparse model for the idiosyncratic component. Then, we test the forecasting performance of this model both in simulations, and on a large panel of US quarterly data. We find that, when the goal is to forecast a disaggregated variable, which is usually affected by regional or sectorial shocks, it is useful to capture the dynamics generated by non-pervasive shocks; however, when the goal is to forecast an aggregate variable, which responds primarily to macroeconomic, i.e. pervasive, shocks, accounting for non-pervasive shocks is not useful.     

A note on simultaneous equation estimation techniques applications with a regional econometric model

A large-scale regional econometric model is estimated using six estimation techniques, including Iterated Instrumental Variables and Iterated Two-Stage Least-Squares. Following estimation the model is simulated and a seventh technique called PANGLOSS is derived. The seven techniques are then compared in ex post and ex ante tests.     

An empirical welfare approach to regional income distributions: Alternative specifications and estimates of income inequality measures

The paper attempts to develop a welfare theoretical approach to the analysis and comparison of regional income differences. Three types of alternative methods are discussed, viz. (a) an a priori method of inserting parameter values in a prespecified welfare function, (b) an ex post method of deriving parameter values of a welfare function on the basis of income statistics and (c) a canonical correlation analysis on the basis of a set of underlying explanatory variables. All these three methods are used to define an income inequality measure appropriate for interregional comparisons. The methods employed are illustrated by means of empirical applications to regional income statistics in the Netherlands.     

Intangible assets as drivers of innovation: Empirical evidence on multinational enterprises in German and UK regional systems of innovation

The sources of value creation are increasingly relying on intangible assets (IAs). IAs are the lifeblood of knowledge-intensive industries where the new value added is disproportionally based on specialized, non-repetitious activities. However, while the role of IAs is recognised as central to sustain the competitiveness of firms and innovation systems, the understanding of the mechanisms through which IAs display their effects has not yet been fully grasped.By focussing on the processes through which investments in IAs occur, this paper aims to explore the key dimensions through which two specific IAs - organisational and network capital - are enhanced and contribute to the innovativeness and embeddedness of Multinational Enterprises (MNEs) in regional innovation systems. On the basis of over forty in-depth interviews to leading staff of German and UK flagship MNEs operating in the automotive, life science and ICT sectors, the paper shows that MNEs adopt rather distinctive strategies to develop IAs; that MNE degree of local embeddedness is strictly related to both the kind of IA strategy and the local environment; and that causation mechanisms are at work between MNE embeddedness and regional creation of IAs.     

The stability of the demand for fossil fuels by electric utilities

The view that the regional demand for fossil fuels by electric utilities in the United States is characterized by stable relationships is subjected to an objective statistical test. The test utilizes a statistic which equals the ratio of the sum of squared residuals of one period prediction from the k + 1 period to the rth period to the sum of squared residuals of one period prediction from the k + 1 to the Tth period, where k is the number of estimated coefficients in the model and T is the sample size. The results suggest for the period 1973 through 1978, that the fossil fuel demand functions in Region II and Region VIII and the coal demand function in Region X became unstable around 1977. For the other regions, the results indicate no appreciable (statistically significant) change in the relative importance of the underlying determinants of the demand for fossil fuels.     

Mapping the innovation production process from accumulative advantage to economic outcomes: A path modeling approach

The research about the innovation production process (IPP) is burgeoning. Our understanding of the interdependent interactions between functionally distinct innovation activities during it from a systemic perspective is rather unclear, yet, which is beneficial to empirical innovation management. This study, based on systems thinking, presents a novel analytical framework to empirically and quantitatively map the IPP jointly associated with a path modeling approach, which helps in untangling the interactive mechanism between stage-specific innovation activities with distinct functions within an IPP from accumulative advantage to economic outcomes. We use the attractive analytical framework to guide an empirical investigation to the China's high-tech industries' IPP at the macro-regional level. Our empirical study confirms the dominant role of previous innovation capital accumulation in the whole IPP embedded into regional innovation systems of China's high-tech industries. That is, we prove the existence of accumulative advantage phenomenon in the regional IPP. The examination results show that there is a significant Matthew effect of technological innovation accumulation on technological innovation inputs as well as the Path dependence of technological innovation outputs/outcomes on technological innovation accumulation. This indicates that the innovation-practitioners should promote innovation capital accumulation for sustainable innovations and economic profits in a long time. At the same time, our findings suggest that, in order to alleviate the cross-regional unbalance of innovation development and promote radial innovations in China's high-tech industries, both policy-makers and innovation-practitioners should try to get rid of the dependence on the previous accumulated innovation capital.     

“Do incentives matter to promote high technology-driven entrepreneurial activity?”

A productive human capital is a necessary but not sufficient condition for regional economic growth. An additional condition is the adequate allocation of talented people in innovative entrepreneurial activities, which according to previous literature have a higher social value than traditional ones. Using a large and representative sample of small and medium enterprises (SMEs) located in the Basque Autonomous Community (Spain), we empirically analyze, separately in manufacture and services, whether individual incentives and market conditions are aligned in such a way that the talent is properly allocated in innovative entrepreneurial activities. Through a novel use of existing empirical methods we find that (i) entrepreneurs operating in high-tech sectors have, on average, more entrepreneurial talent and private returns than their counterparts; and that (ii) entrepreneurial talent and private returns are positively and significantly correlated. These novel insights suggest that private and social incentives are adequately aligned.     

Organizing College Athletes Utilizing the Civil Rights Unionism Model

In January 2014, Northwestern University (NU) football players filed a certification election petition with the National Labor Relations Board’s (NLRB) Chicago regional office. After the NLRB ruled that they were employees having the legal right to unionize, the football players voted at the end of April 2014 with NU immediately appealing the regional director’s ruling after the balloting. In mid-August 2015, the Washington D.C. NLRB declined jurisdiction in this case, ending the football players’ unionization attempt. Because of the NLRB’s appellate ruling, however, unionization of college athletes remains a distinct possibility. Since a majority of U.S. collegiate basketball and football players are black, this paper argues that the model of unionism that should be adopted in any unionization attempt of these college athletes is civil rights unionism which represents a continuation of the historic, collective struggle of Black athletes to obtain their rights on athletic fields and in classrooms.     

Regional economic models and continuous programming

This paper is concerned with an optimal investment allocation problem in a simple N-regional economic model. The problem is described as a class of optimal control problem, and formulated into a continuous linear programming problem. Both the primal and dual problems are considered. The procedure finds an optimal regional allocation of investment derived in terms of continuous programming.     

A mechanism design approach to allocating central government funds among regional development agencies

To allocate central government funds among regional development agencies, we look for mechanisms that satisfy three important criteria: efficiency, (individual and coalitional) strategy proofness (a.k.a. dominant strategy incentive compatibility), and fairness. We show that only a uniform mechanism satisfies all three. We also show that all efficient and strategy proof mechanisms must function by assigning budget sets to the agencies and letting them freely choose their optimal bundle. In choosing these budget sets, the agencies’ private information has to be taken into account in a particular way. The only way to additionally satisfy a weak fairness requirement (regions with identical preferences should be treated equally) is to assign all agencies the same budget set, as does the uniform mechanism. Finally and maybe more importantly, we show that the central government should not impose constraints on how much to fund an activity (e.g. by reserving some funds only for a particular activity): otherwise, there are no efficient, strategy proof and fair mechanisms, no matter how small these constraints are.     

Exploring the development trend of internet finance in China: Perspective from club convergence

We first employ β-conditional convergence and log t regression tests based on nonlinear time-varying factor model and club clustering algorithm to analyze the convergence characteristics of the development level of Internet finance in 335 prefecture-level cities in China. The result of log t regression test illustrates that there is no convergence as a whole in the development level of China's Internet finance. However, seven convergence clubs and a divergent group have been formed, and the development level and growth rate of Internet finance among these convergence clubs have shown obvious differences. Moreover, we also employ the Ordered Probit to explore the formation mechanism of the convergence clubs. The results reveal that the regions with a higher level of economic development, traditional financial development, economic openness and Internet development are more inclined to converge in a club with a higher Internet finance development level. Alternatively, the regions that are interfered with more by the government or that have a lower degree of marketization, tend to converge in a club with a lower level. Finally, according to the conclusions, we propose corresponding policy recommendations for promoting the regional coordinated development of China's Internet finance.     

Project financing,entrepreneurial activity,and investment in the presence of asymmetric information

We analyze a two-period signaling model in which a representative entrepreneur in a regional economy has a project that generates a random cash flow and that requires investment that the entrepreneur raises from a competitive market. The project's type is known to the entrepreneur but not to the investors. Further, the entrepreneur is restricted to issuing debt only or equity only. We first show that there is no separating perfect Bayesian equilibrium (PBE) contract involving the issuance of equity only, that there exists a pooling PBE contract involving the issuance of equity only, and that a debt contract is preferred to an equity contract by our entrepreneur. Next, we suppose that the entrepreneur incurs a non-pecuniary cost of financial distress F > 0 whenever he is unable to make a repayment at time t = 1. We provide conditions on F under which a pooling PBE contract with debt exists and a separating PBE contract with debt and equity exists. Finally, we examine whether a high type entrepreneur will prefer a setting with a cost of financial distress (F > 0) or a setting in which there is no such cost (F = 0).     

Production fragmentation and trade integration: East Asia in a global context

This paper examines the implications of international production fragmentation for global and regional trade patterns, with special emphasis on countries in East Asia. It is found that, while trade in parts and components (fragmentation trade) has generally grown faster than total world manufacturing trade, the degree of dependence of East Asia on this new form of international specialization is proportionately larger than in North America and Europe. International production fragmentation has certainly played a pivotal role in the continuing dynamism of the East Asian economies and increasing intra-regional economic interdependence. There is, however, no evidence to suggest that this new form of international exchange has contributed to reducing the region's dependence on the global economy. On the contrary, growth dynamism based on vertical specialization depends inexorably on extra-regional trade in final goods, and this dependence has in fact increased over the years.     

Freedom and gross in-migration: an empirical study of the post-great recession experience

Determinants of migration, including policy variables such as tax rates, have been extensively studied by regional scientists over the past several decades. The development of the Economic Freedom of North America Index has allowed researchers to test the relationship between migration patterns and economic freedom, with recent studies finding that net in-migration is positively related to economic freedom. Using a new cross-section measure of economic and personal freedom at the state level, we investigate the relationship between gross in-migration and economic freedom on the one hand and then between gross in-migration and total freedom on the other hand. This empirical study of domestic U.S. migration during the post-Great Recession period finds clear evidence that migrants prefer to move to those states affording higher levels of economic freedom and higher levels of total freedom.     

Comparisons of aggregation procedures for interaction data: An illustration using a college student international flow table

Various approaches for developing regional schemes on the basis of geographic interaction data are discussed, using a 46 × 46 international flow table of college students as an example. The hierarchical clustering procedure employed by Masser and Brown to study movement data for London and Liverpool is compared with that utilized by Slater to analyze internal migration in several nations and is found to be more successful in the sense of explained interaction, a criterion Masser and Brown maximize in a stepwise—not necessarily optimal—manner. Slater's method, however, appears to be less subject to chaining—the sequential growth of a cluster— and more productive of distinct subgroups. It can also be interpreted as the fitting of a tree structure to a dissimilarity matrix. Both techniques are shown to yield highly significant functional regions, by comparing their results with those obtained through a large number of random partitionings of the 46 nations. The substantial value of the Ford-Fulkerson network flow algorithm in optimal partitioning and hierarchical clustering is discussed. This algorithm can also be used to define nodal in- and out-migration regions—i.e. collections of nations that have fewer people entering or leaving them as a whole than their nodal nations. To determine functional regions, the flow table is first doubly-standardized to have all row and column sums equal. Nodal regions—which cannot be hierarchically ordered—are found through study of the unadjusted flows themselves. Political, linguistic and geographic influences explain many of the international groupings obtained.     

An analysis of natural disasters’ effects – A global comparative study of ‘Blessing in Disguise’

This paper addresses the intriguing issue of whether natural disasters do not only generate negative impacts on society, but, in the long run – under favourable and effective policy and behavioural responses – also positive outcomes. This challenging and novel resilience question is formulated here as the ‘Blessing in Disguise’ hypothesis. There is quite some speculation in the literature on possible long-term and systemic effects of disasters, but there is little empirical evidence supported by solid quantitative analysis on expected positive outcomes. The challenging aim of the present study – to examine under what conditions natural hazards may lead to positive socio-economic outcomes in the long run (‘Blessing in Disguise’) – is empirically addressed from a resilience perspective. It integrates in one quantitative research framework (the ‘Pentagon model’), a Stimulus-Response approach and a Capability-Theory inspired framing of territorial opportunities in coping with natural disasters, and uses a mix of statistical and econometric analyses, such as multiple linear regression analysis, cluster analysis, and a Stimulus-Response adjusted Difference-in-Difference model. Our findings, based on a global comparative study, show that a ‘Blessing in Disguise’ scenario is frequently a valid proposition that may manifest itself differently in different geographic, social-economic, political and institutional contexts. Although there is not a single pattern of development specific in all cases, it is clear that positive recovery trends can be observed both at the state level, and also at the regional level. The analysed data show regularly incremental changes after recent natural disasters (especially in the long term) at country level, but more thorough positive changes can be identified at the regional scale. In conclusion, the management of disasters requires proper response capacities and appears to create a window of opportunity for improved capabilities, but it is only a conditional possibility that may be transformed into a sustainable form of new development.