COST IS1104 Lisbon WG1 Meeting 1

A review of new Economic Geography models: policies, multiregionality and EU themes

Pasquale CommendatoreTheresa Grafeneder-Weissteiner

Ingrid Kubin

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Structure of the review

• Introduction• Basic NEG framework• Multiregional models• Economic policy• Other EU themes• Conclusions

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Objectives of the review

The review should focus on NEG models which are relevant for the topics and aims of the Action:

multiregional models; in order to study the EU, it is necessary to develop a multi-country; multiregional framework

What are the effects of specific regional policies,other themes that are crucial to explain EU specific

problems and that can be dealt / or have been dealt within the NEG analytical structure.

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Basic NEG framework

• 2 (regions / countries) x 2 (sectors) x 2 (factors of production)

• Exogenous trade costs determine agglomeration and dispersion patters (via the interplay of centripetal and centrifugal forces)

• Central role of factor migration (workers, capital, entrepreneurs)

• Core-Periphery and interior equilibrium (symmetric and asymmetric models)

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Multi-regional models

• Pure 3-region • 2-country 3-region• 2-country 4-region • Exogenous or endogenous trade costs• Symmetric / Asymmetric

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3-Region symmetric models

Castro, S. B. S. D., Correia-da-Silva, J., & Mossay, P. (2012); Lopes (2012)

Commendatore & Kubin (2013)Commendatore, Kubin & Sushko (2013):More complicated structure3 C-P equilibria, 1 interior symmetricUnstable asymmetric 3-region equilibriaStable asymmetric 2-region equilibria Very ‘sensitive’ to initial conditions

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3-region asymmetric equilibria

• Krugman (1993): the hub effect• Baldwin et al. (2003); Forslid (2004), Brϋlhart

et al. (2004), Crozet and Koenig-Soubeyran (2004), Ago et al. (2006)

• Asymmetric trade costs can give an advantage to the more connected region

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2-country 3-region (symmetric)

• Home (H) country (2 symmetric regions, h1 and h2); Foreign (F) country (rest of the world)

• Krugman and Elizondo (1996): reducing trade costs favours dispersion between the two regions in H [the dispersion force does not depend on trade costs]

• Paluzie (2001): reducing trade costs favours agglomeration [the dispersion force depends on trade costs]

• Beherens (2011): following integration poor (better) domestic infrastructure determines regional divergence (convergence).

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2-country 4-region

• Behrens et al. (2007a) • Symmetric 2 Countries (H, F), 4 regions (h1, h2, f1, f2) • 2 Sectors• 2 production factors (mobile between regions skilled

workers, L, fully immobile unskilled workers, A)• Exogenous transport costs• Behrens et al . (2006): partly endogenous trasport

costs • Zeng and Zhao (2011) : asymmetric regions

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Towards a spatial network

• Behrens et al. (2005) – Multi-regional CP framework

• Behrens et al. (2007b) «the transportation infrastructure between countries is represented by a network along which shipping must occur».

• “graph representation of the space economy”

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Economic policy

• Basic compendium Baldwin et al. (2003) “Economic geography and public policy”;

• Several further contributions Some of the main topics:Strategic behaviour of local governmentsRole of a central governmentPolicy tools (taxation, subsidies, public

consumption, infrastructures, public goods

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Other EU themes

Demographic changeeconomic growth Institutions: labour marketslegislative systemelectoral system

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THANKS FOR YOUR ATTENTION !