Spatial Effects on the Aggregate Demand

Abstract

The main aim of this paper is to analyse if determined variables related with transportation, demography and geography can cause fluctuations in the aggregate demand function and hence affect the prices,employment and output levels in an economy.The panel data to carry out this analysis includes 64 countries (19 european, 14 african, 17 asian, 14 american) during 21 years (1978-98).The specification of the model is based in to relate the Baumol-Tobin model for demand money transaction, with the central places theory for obtaining a relationship between money velocity and variables such as population density, passenger-kilometers and net tons-kilometers transported by railway, the first city population, and several ratios corresponding with road transportation. Panel data techniques have been aplyed and estimation results indicate that all explanatory variables are significant and all cause Granger on money velocity during this period. Unit roots test of Harris-Tzavalis and cointegration test of Chiwa Kao notify that the relationship between money velocity and this explanatory variables is not spurious and it is a long run relation. But money velocity at long run is a component of the slope of LM curve, and hence fluctuations in the explanatory variables can cause movements in the LM curve and in the aggregate demand function affecting the output level and prices.