Do Amenities and Diversity Encourage City Growth? A Link Through Skilled Labor

The share of skilled workers in urban populations has steadily increased since 1970 in US metropolitan areas, but more in some cities than in others. A higher concentration of skills is a sought after asset for cities as it affects population growth positively, also when the initial share is instrumented for by using land-grant colleges. However, skilled cities may attract more skilled workers, but not because they are more skilled initially: increasing returns are rejected when controlling for fixed effects and bias due to inclusion of a lagged dependent variable. Several amenities such as a low-skilled personal service sector do affect the concentration of skills positively. Although firms seem to benefit from externalities, there is no convincing case for an effect on the concentration of college graduates in a city.urban and city growth, human capital, skills, spillovers, externalities, concentration, diversity, amenities

The Volatility Curse: Revisiting the Paradox of Plenty

The volatility of unanticipated output growth in income per capita is detrimental to long-run development, controlling for initial income per capita, population growth, human capital, investment, openness and natural resource dependence. This effect is significant and robust over a wide range of specifications. We unravel the effects of volatility by opening the black box and conditioning the variance of growth shocks on several country characteristics. Natural resource dependence, physical and institutional barriers to trade and associated policy shocks increase volatility sharply and harm growth through this indirect channel. The robust indirect effect of natural resources through volatility trumps any direct effects on economic development, even if natural resource dependence is measured net of extraction costs. Financial development appears to mitigate the harmful causes of volatility. Our panel data estimation confirms our cross-country results, but we also offer evidence that well developed financial systems amplify the effect of short-term terms-of-trade volatility on macroeconomic volatility.volatility, growth, resource curse, financial development

Urban Growth Across Three Continents: The Blessing of Human Capital and the Curse of Volatility.

This dissertation is concerned with the empirical determinants of urban growth in developed countries, and the effects of macroeconomic volatility in less developed countries, on urbanization and long run income growth. Four chapters are presented. Chapters 2 and 3 deal with urban population growth in the USA and employment growth in Germany. In both cases metropolitan areas grow faster if the initial concentration of highly skilled workers is higher. Chapter 2 looks at which city characteristics lead some cities to attract more skilled workers than others, resulting in a diverging pattern of skill concentration among cities. The chapter shows that this is not a selfreinforcing process. One of the more robust findings is that a personal services sector is a positive amenity. The number of skilled workers is expected to increase faster in metropolitan areas where this sector is abundant. The personal services sector is intensive in low-skilled labor which gives a new sound to the popular belief that only a highly-skilled culture sector will attract more skilled workers. The second chapter shows that divergence of the concentration of skills and its effect on metropolitan growth is very similar in Germany. It also shows that there may be positive interaction effects between similar but different skill levels. For example, workers with vocational training have a larger effect on total employment growth if the local concentration of technical professionals is high as well. In Chapter 4 we turn to the developing world. Cities in developing countries have been growing very fast, but surprisingly also in periods when economic growth to create manufacturing jobs was absent. Rural-urban migration is modeled as a response to aggregate volatility. Households in rural areas cannot cope with negative shocks and are forced to move to cities which offer more diverse sources of income, because financial markets are incomplete and households have credit constraints. We furthermore show from country-panel evidence that rural natural resource production (including agriculture) is much more risky than urban manufacturing sectors. Shocks come from natural causes such as rainfall, and from volatile world resource prices. This mechanism may be more important than the traditional view which models urbanization as a transitory process when countries move from an agricultural base to a manufacturing base. Chapter 5, in collaboration with Frederick van der Ploeg, probes deeper into the ii detrimental effects of aggregate volatility. The high volatility of world prices of natural resources causes severe volatility of output per capita growth in countries that depend heavily on them. This has a robust negative effect on long-run growth itself and presents a new explanation to the natural resource curse. Volatility can fortunately be substantially reduced provided that countries have a sound financial system to cope with large and sudden fluctuations in resource income. The curse can even be turned into a blessing because we find evidence for a positive direct effect of natural resource dependence on growth after controlling for volatility. However, the indirect negative effect of resource dependence on growth, via volatility, is much larger than any direct positive effect.Urban economics; Cities and towns -- Growth;

Globalization and the Rise of Mega-Cities in the Developing World

Thomas Friedman has argued in The World is Flat that those who deny rapid globalization will not survive in the global economy. First, we critically discuss Friedman’s views and highlight the new globalization driven by outsourcing and vertical specialization. Second, we argue that Friedman pays insufficient attention to the spectacular growth of mega-cities in the developing world. The world is not flat, and the developing world certainly is not. Still, mega-cities tend to become too big. Their growth also goes hand in hand with formation of slums and congestion. We thus argue that there is a role for public policies.globalization, unbundling, off-shoring, mega-cities, congestion, public policies

Home Bank Intermediation of Foreign Direct Investment

This paper investigates the benefits of banks’ direct investment in foreign subsidiaries and branches for non-financial multinationals. The paper builds on the literature on international banks which has primarily focused on the implications for host countries, rather than for its international clients, and on the literature on foreign direct investment (FDI), which emphasizes significant costs of investment. Using a new detailed data set of non-stationary sector-level outward FDI, this paper finds that the volume of FDI by home market banks boosts FDI by non-financial firms from the same home market. Domestic and third-country foreign banking provide imperfect substitutes, especially in countries that are corrupt or have weak rule of law. The result rests on banks’ FDI in local branches and subsidiaries rather than cross-border lending. These findings are consistent with a role for home market multinational banks in intermediating information asymmetry in opaque foreign markets. The sale of a major international bank to third-country counter parties during the recent crisis may thus result in persistently lower volumes of outward FDI from the bank’s home market.outward sector-level FDI, banks, asymmetric information, panel non-stationarity

Inter-industry wage differentials in EU countries: what do cross-country time varying data add to the picture?

This paper documents the existence and main patterns of inter-industry wage differentials across a large number of industries for 8 EU countries at two points in time and explores possible explanations for these. The analysis uses the European Structure of Earnings Survey (SES), an internationally harmonised matched employer-employee dataset, to estimate inter-industry wage differentials conditional on a set of employee, employer and job characteristics. After investigating the possibility that unobservable employee characteristics lie behind the conditional wage differentials, a hypothesis which cannot be accepted, the paper investigates the role of institutional, industry structure and performance characteristics in explaining inter-industry wage differentials. The results suggest that inter-industry wage differentials are consistent with rent sharing mechanisms and that rent sharing is more likely in industries with firm-level collective agreements and with higher collective agreement coverage.inter-industry wage differentials;rent sharing;unobserved ability

Mining causes infrastructure bottlenecks that hurt nearby manufacturers

But mines tend to improve the business environment on a wider geographical scale, argue Ralph De Haas and Steven Poelhekk

Inter-industry wage differentials in EU countries: what do cross-country time varying data add to the picture?

This paper documents the existence and main patterns of inter-industry wage differentials across a large number of industries for 8 EU countries (Belgium, Germany, Greece, Hungary, Ireland, Italy, Netherlands, and Spain) at two points in time (in general 1995 and 2002) and explores possible explanations for these patterns. The analysis uses the European Structure of Earnings Survey (SES), an internationally harmonised matched employer-employee dataset, to estimate inter-industry wage differentials conditional on a rich set of employee, employer and job characteristics. After investigating the possibility that unobservable employee characteristics lie behind the conditional wage differentials, a hypothesis which cannot be accepted, the paper investigates the role of institutional, industry structure and industry performance characteristics in explaining inter-industry wage differentials. The results suggest that inter-industry wage differentials are consistent with rent sharing mechanisms and that rent sharing is more likely in industries with firm-level collective agreements and with higher collective agreement coverage. JEL Classification: J31, J41, J51inter-industry wage differentials, Rent sharing, unobserved ability

Inter-industry wage differentials in EU countries : What do cross-country time-varying data add to the picture ?

This paper documents the existence of inter-industry wage differentials across a large number of industries for eight EU countries (Belgium, Germany, Greece, Hungary, Ireland, Italy, the Netherlands and Spain) at two different points in time (in general, 1995 and 2002). It then looks into possible explanations for the main patterns observed. The analysis uses the European Structure of Earnings Survey (SES), an internationally-harmonised matched employer-employee dataset, to estimate inter-industry wage differentials conditional on a rich set of employee, employer and job characteristics. After investigating the possibility that unobservable employee characteristics lie behind the conditional wage differentials, a hypothesis which cannot be accepted, the paper considers the role of institutional features, as well as industry structure and performance in explaining inter-industry wage differentials. The results suggest that inter-industry wage differentials are consistent with rent-sharing mechanisms and that rent-sharing is more likely in industries with firm-level collective agreements and with higher collective agreement coverageinter-industry wage differentials, rent sharing, unobserved ability