Agglomeration and Knowledge Diffusion

According to New Growth Theory one can not rely on the convergence mechanisms inherent in traditional neoclassical constant returns to scale models. Convergence as well as divergence is possible, in general, depending on the assumptions about technology, factor mobility and ease of knowledge diffusion. The paper shows by a two-regions endogenous growth model under what conditions divergence, convergence or a stable centre-periphery structure emerge. The model allows for different degrees of knowledge diffusion as well as for different degrees of labor and capital mobility. The paper also evaluates dynamic market equilibria with respect to allocative efficiency. It is shown that the market solution tends to be under-agglomerated, except for parameter constellations generating particularly low agglomeration forces. If agglomeration forces are low enough, no concentration emerges, and this is also socially desirable. For higher agglomeration forces, however, concentration becomes desirable though the market may not bring it about or brings it about to an insufficient degree only. --Convergence,divergence,agglomeration,endogenous growth,knowledge diffusion

European Transport Policy and Cohesion - An Assessment by CGE Analysis

This paper studies the spatial impact of two main aspects of European transport policy, namely infrastructure investments and pricing. In its "White Paper: European Transport Policy for 2010: Time to Decide" the European Commission has laid down a comprehensive programme of transport policy within the EU, aiming at increasing the efficiency of the transport industry, developing the so-called trans-European infrastructure network and bringing the prices of transport services closer to the true marginal social cost. It is an important political issue whether the policy will enhance spatial cohesion in Europe or run counter the objective of a balanced economic development in the entire area of the EU. For one thing this is because spatial development objectives are themselves prominent goals among the catalogue of objectives to be attained by transport policy. Particularly infrastructure investments which are co-financed by the structural funds, are regarded a means of regional policy supporting less favoured regions. Furthermore, transport policies motivated by efficiency or environmental reasons may have undesired regional side effects, that could generate political backlash, unless one offers some compensation. The spatial impact of the two named policies is studied with the help of a spatial computable general equilibrium model, called CGEurope. It is a static model with a large number of regions covering the whole area of the EU including the new member states, plus neighbouring countries, some of them also subdivided by regions. Regions interact by trade flows. Interregional trade is costly, with trade costs depending inter alia on the state of infrastructure and on gasoline prices and infrastructure charges. Transport policies are simulated by varying the costs of transport and quantifying the impact on the welfare of households brought about by changes in goods and factor prices. We develop a series of policy scenarios and evaluate their impact an spatial equality or inequality using a whole bundle of indicators of spatial inequality. The paper documents theses scenarios, explains the modelling framework in brief, discusses the inequality indicators to be used and maps and tabulates the main results.

Spatial effects of transeuropean networks: Preliminary results from a spatial computable general equilibrium analysis

This paper quantifies regional welfare effects of new transport links, which are going to be established in the framework of Trans-European Networks (TEN). It is confined to the regional welfare effects resulting from the use of the new links for trading goods and services. Effects from the construction phase, from financing and maintenance are not considered. Use of the links for other than trade purposes, such as commuting, tourism, leisure trips et cetera are not considered either. Welfare implications of new transport links are quantified by simulating effects of transport distance reductions in a spatial computable general equilibrium model. We model a static equilibrium for two sectors (local goods and tradables) and many regions. Firms in the tradables sector supply a large number of symmetrical product varieties under monopolistic competition. Trade between regions is costly, with costs depending on transport distances through a given transport network as well as on national trade impediments. The paper explains the formal structure of the model, the calibration procedure, and the data basis for implementing the model to a system of more than 800 regions covering the entire European space. Numerical results for several scenarios regarding regarding the establishment of TEN links are presented. --transport infrastructure,computable equilibrium,spatial equilibrium,monopolistic competition

Spatial effects of transport infrastructure: The role of market structure

Theoretical reasoning shows that spatial effects of transport cost reductions may crucially depend on market structures in the tradables sector (degree of market power, strength of economies of scale, free or no free entry). The aim of this paper is to compare empirically the effects of transport cost reductions due to infrastructure investments, emerging under different market structures. To this end, a computable spatial general equilibrium model with costly interregional trade is presented, which is calibrated for a large number of regions covering Europe. Applying this model, transport cost reductions are simulated under two different assumptions with regard to the market structure prevailing in the tradables sector: (1) perfect competition with constant returns to scale, and (2) monopolistic competition with increasing returns and free entry. Results are compared in terms of money-metric measures of regional welfare changes. --transport,spatial computable general equilibrium,welfare,market structure.

Investment Subsidies and Regional Welfare: A Dynamic Framework

Subsidising investment in lagging regions is an important regional policy instrument in many countries. Some argue that this instrument is not specific enough to concentrate the aid towards the regions that are lagging behind most, because investment subsidies benefit capital owners who might reside elsewhere, possibly in very rich places. Checking under which conditions this is true is thus highly policy relevant. The present paper studies regional investment subsidies in a multiregional neoclassical dynamic framework. We set up a model with trade in heterogeneous goods, with a perfectly integrated financial capital market and sluggish adjustment of regional capital stocks. Consumers and investors act under perfect foresight. We derive the equilibrium system, show how to solve it, and simulate actual European regional subsidies in computational applications. We find that the size of the welfare gains depends on the portfolio distribution held by the households. If households own diversified asset portfolios, we find that the supported regions gain roughly the amounts that are allocated to them in the form of investment subsidies. If they only own local capital stocks, a part of the money is lost through the drop in share prices. From the point of view of total welfare, the subsidy is not efficient. It can lead to a welfare loss for the EU as a whole and definitely leads to welfare losses in the rest of the world, from where investment ows to the supported EU regions

Regionalökonomik

Gegenstand der Regionalökonomik sind die Verteilung der ökonomischen Aktivität, die Austauschbeziehungen sowie differenzierte Wachstums- und Schrumpfungsprozesse im geographischen Raum. Die positive Theorie erklärt, warum sich aus rein ökonomischen Gründen Agglomerationen auf der einen und dünn besiedelte Räume auf der anderen Seite herausbilden und wie sich die räumliche Wirtschaftsstruktur im Zeitablauf entwickelt. Die normative Theorie beurteilt die aus Marktprozessen resultierenden Raumstrukturen unter Effizienz- und Verteilungsgesichtspunkten, um raumpolitische Handlungsempfehlungen abzuleiten

Stadtökonomik

Die - auf Überlegungen Alonsos basierende - Stadtökonomik analysiert urbane Räume, erklärt deren innere Struktur und betrachtet die Ursachen für die Stadtbildung

Welfare effects of a transport subsidy in a spatial price equilibrium

The paper shows that in a spatial price equilibrium under monopolisitc competition welfare can be increased by subsidising transport. Therefore transport can be said to exert a positive (pecuniary) externality. This is demonstrated by introducing a subsidy into a partial spatial price equilibrium of the Hotelling-Smithies type in one-dimensional space. Two varieties of demand are analysed, linear and negative exponential. The welfare effect of a transport subsidy is shown to be decomposable into three effects, the expansion effect, the competition effect and the market size effect. Numerical results and decompositions are presented. --transport,externality,spatial price equilibrium,welfare.

Do the selected Trans European transport investments pass the Cost Benefit test?

This paper assesses the economic justification for the selection of priority projects defined under the auspices of the Trans-European transport network. In analyzing the current list of 30 priority projects, we apply three different transport models to undertake a cost-benefit comparison. We find that many projects do not pass the cost-benefit test and only a few of the economically justifiable projects would need European subsidies to make them happen. Two remedies are proposed to minimize the inefficiencies in future project selection. The first remedy obliges each member state or group of states to perform a cost-benefit analysis (followed by a peer review) and to make the results public prior to ranking priority projects. The second remedy would require federal funding to be available only for projects with important spillovers to other countries, in order to avoid pork barrel behaviour.transport infrastructure, cost benefit analysis, Europe Union

Do the selected Trans European transport investments pass the cost benefit test?.

This paper assesses the economic justification for the selection of priority projects defined under the auspices of the Trans-European transport network. In analyzing the current list of 30 priority projects, we apply three different transport models to undertake a cost-benefit comparison. We find that many projects do not pass the cost-benefit test and only a few of the economically justifiable projects would need European subsidies to make them happen. Two remedies are proposed to minimize the inefficiencies in future project selection. The first remedy obliges each member state or group of states to perform a cost-benefit analysis (followed by a peer review) and to make the results public prior to ranking priority projects. The second remedy would require federal funding to be available only for projects with important spillovers to other countries, in order to avoid pork barrel behaviour.