Working Papers
- IMDEA WP No. 2011-19 (Download full text)
- Can policy make us happier? Individual characteristics, socioeconomic factors, and life satisfaction in Central and Eastern Europe
- by Andrés Rodríguez-Pose and Kristina Maslauskaite
In the last decade, Central and Eastern European (CEE) countries have witnessed a rapid economic convergence vis-à-vis Western Europe. However, this rapid growth has not been matched by a similarly rapid increase in life satisfaction, which has remained low in the European context. This paper sets out to address this conundrum, by looking at the individual and macro-level determinants of individual life satisfaction in ten CEE countries. The results highlight that while Central and Eastern Europeans share the same individual determinants of happiness as people in the West (despite some significant cross-country variation), macroeconomic and institutional differences are the key factors behind the lack of convergence in life satisfaction. On the macroeconomic side, GDP growth is still a source of increasing well-being, but the happiness bonus associated with it is becoming smaller. The different levels of individual happiness in CEE are therefore mostly determined by institutional factors such as corruption, government spending and decentralisation, making policies aimed at enhancing institutional quality capable of bringing about substantial improvements in the overall life satisfaction of the people in the region. - Created: 2011/11/10
- Keywords: Happiness; Convergence; Easterlin paradox; Institutions; Corruption; Decentralisation; Central and Eastern Europe
- Forthcoming in Cambridge Journal of Regions, Economy and Society
- IMDEA WP No. 2011-18 (Download full text)
- In search of the 'economic dividend' of devolution: Spatial disparities, spatial economic policy and decentralisation in the UK
- by Andy Pike, Andrés Rodríguez-Pose, John Tomaney, Gianpiero Torrisi and Vassilis Tselios
After a decade of devolution and amid uncertainties about its effects, it is timely to assess and reflect upon the evidence and enduring meaning of any 'economic dividend' of devolution in the UK. Taking an institutionalist and quantitative approach, this paper seeks to discern the nature and extent of any ‘economic dividend’ through a conceptual and empirical analysis of the relationships between spatial disparities, spatial economic policy and decentralisation. Situating the UK experience within its evolving historical context, we find: i) a varied and uneven nature of the relationships between regional disparities, spatial economic policy and decentralisation that change direction during specific time periods; ii) the role of national economic growth is pivotal in explaining spatial disparities and the nature and extent of their relationship with the particular forms of spatial economic policy and decentralisation deployed; and, iii) there is limited evidence that any ‘economic dividend’ of devolution has emerged but this remains difficult to discern because its likely effects are over-ridden by the role of national economic growth in decisively shaping the pattern of spatial disparities and in determining the scope and effects of spatial economic policy and decentralisation. - Created: 2011/10/14
- Keywords: Economic Dividend; Devolution; Spatial Disparities; Spatial Economic Policy; Decentralisation; UK
- IMDEA WP No. 2011-17 (Download full text)
- Learning processes and economic returns in European Cohesion policy
- by Andrés Rodríguez-Pose and Katja Novak
This paper evaluates whether the learning mechanisms of the European Cohesion policy have contributed to improve the economic impact of Structural Fund expenditure over time. It intends to show whether the evolution of the policy in response to greater internal monitoring and consultation and external scrutiny and criticism has resulted in a more efficient and better targeted Cohesion policy. This is tested using an econometric model which evaluates the effect of Structural Fund expenditure on the growth of regional GDP per capita – conditional on factor endowments, institutional quality and initial conditions – during the last programming periods for which full sets of data are available (1994-1999 and 2000-2006). The results of the analysis unveil an increase in the effectiveness of the policy in successive periods. This positive association is robust to controlling for the level of development of the country and the relative economic position of a region within a country. The results also show that, when structural factors are taken into consideration, Structural Fund investment tends to yield higher returns in better-off countries and wealthier regions within countries. - Created: 2011/09/30
- Keywords: Cohesion; regional development; economic growth, GDP per capita; regions; European Union
- IMDEA WP No. 2011-16 (Download full text)
- Income inequality, decentralisation and regional development in Western Europe
- by Vassilis Tselios, Andrés Rodríguez-Pose, Andy Pike, John Tomaney and Gianpiero Torrisi
This paper deals with the relationship between decentralisation, regional economic development, and income inequality within regions. Using multiplicative interaction models and regionally aggregated microeconomic data for more than 100,000 individuals in the European Union (EU), it addresses two main questions. First, whether fiscal and political decentralisation in Western Europe has an effect on within regional interpersonal inequality. Second, whether this potential relationship is mediated by the level of economic development of the region. The results of the analysis show that greater fiscal decentralisation is associated with lower interpersonal income inequality, but as regional income rises, further decentralisation is connected to a lower decrease in inequality. This finding is robust to the measurement and definition of income inequality, as well as to the weighting of the spatial units by their population size. - Created: 2011/09/16
- Keywords: Income inequality; income per capita; fiscal and political decentralization; interaction; regions; Europe
- IMDEA WP No. 2011-15 (Download full text)
- The case for regional development intervention: Place-based versus place-neutral approaches
- by Fabrizio Barca, Philip McCann and Andrés Rodríguez-Pose
The paper examines the debates regarding place-neutral versus place-based policies for economic development. The analysis is set in the context of how development policy thinking on the part of both scholars and international organizations has evolved over several decades. Many of the previously accepted arguments have been called into question by the impacts of globalization and a new response to these issues has emerged, a response both to these global changes and also to non-spatial development approaches. The debates are highlighted in the context of a series of major reports recently published on the topic. The cases of the developing world and of the European Union are used as examples of how in this changing context development intervention should increasingly focus on efficiency and social inclusion at the expense of an emphasis on territorial convergence and how strategies should consider economic, social, political and institutional diversity in order to maximize both the local and the aggregate potential for economic development.
- Created: 2011/09/06
- JEL-Codes: R11; R58; O18; P48
- Keywords: place-based; development; policy; institutions; globalization; economic geography
- Forthcoming in Journal of Regional Science
- IMDEA WP No. 2011-12 (Download full text)
- Firm collaboration and modes of innovation in Norway
- by Rune Dahl Fitjar and Andrés Rodríguez-Pose
This paper examines the sources of firm product and process innovation in Norway. It uses a purpose-built survey of 1604 firms in the five largest Norwegian city-regions to test, by means of a logit regression analysis, Jensen et al.'s (2007) contention that firm innovation is both the result of 'science, technology and innovation' (STI) and 'doing, using and interacting' (DUI) modes of firm learning. The paper classifies different types of firm interaction into STI-mode interaction (with consultants, universities, and research centres) and DUI-mode interaction, distinguishing between DUI interaction within the supply-chain (i.e. with suppliers and customers) or not (with competitors). It further controls for the geographical locations of partners. The analysis demonstrates that engagement with external agents is an important source of firm innovation and that both STI and DUI-modes of interaction matter. However, it also shows that DUI modes of interaction outside the supply chain tend to be irrelevant for innovation, with frequent exchanges with competitors having a detrimental effect on a firm's propensity to innovate. Collaboration with extra-regional agents is much more conducive to innovation than collaboration with local partners, especially within the DUI mode.This paper examines the sources of firm product and process innovation in Norway. It uses a purpose-built survey of 1604 firms in the five largest Norwegian city-regions to test, by means of a logit regression analysis, Jensen et al.'s (2007) contention that firm innovation is both the result of 'science, technology and innovation' (STI) and 'doing, using and interacting' (DUI) modes of firm learning. The paper classifies different types of firm interaction into STI-mode interaction (with consultants, universities, and research centres) and DUI-mode interaction, distinguishing between DUI interaction within the supply-chain (i.e. with suppliers and customers) or not (with competitors). It further controls for the geographical locations of partners. The analysis demonstrates that engagement with external agents is an important source of firm innovation and that both STI and DUI-modes of interaction matter. However, it also shows that DUI modes of interaction outside the supply chain tend to be irrelevant for innovation, with frequent exchanges with competitors having a detrimental effect on a firm's propensity to innovate. Collaboration with extra-regional agents is much more conducive to innovation than collaboration with local partners, especially within the DUI mode. - Created: 2011/07/06
- Keywords: Innovation; firms; suppliers; customers; competitors; universities; STI; DUI; R&D; geography; Norway
- IMDEA WP No. 2011-07 (Download full text)
- Decentralization, happiness and the perception of institutions
- by Luis Diaz-Serrano and Andrés Rodríguez-Pose
This paper analyses whether the different powers and resources at the disposal of local and regional governments across Europe deliver greater satisfaction with political institutions and lead to greater personal happiness. The analysis uses microdata from the four available waves of the European social survey (2002, 2004, 2006 and 2008), including more than 160,000 observations of individuals living in 29 European countries. Our results reveal that political and fiscal decentralization have a positive and significant effect on individuals' overall happiness. Fiscal decentralization also exerts a significant effect on the level of satisfaction with political and economic institutions and with the education and health systems, whereas the effect of political decentralization on these variables is more limited. The results show that citizens seem to be happier with the actual capacity of their local governments to deliver than with the general principle that they can have a say on their daily politics and policies. - Created: 2011/04/12
- JEL-Codes: H11; H77
- Keywords: Happiness; well-being; satisfaction; fiscal and political decentralization; Europe
- IMDEA WP No. 2011-05 (Download full text)
- When local interaction does not suffice: Sources of firm innovation in urban Norway
- by Rune Dahl Fitjar and Andrés Rodríguez-Pose
The geographical sources of innovation of firms have been hotly debated. While the traditional view is that physical proximity within city-regions is key for the innovative capacity of firms, the literature on 'global pipelines' has been stressing the importance of establishing communication channels to the outside world. This paper uses a specifically tailored survey of the level of innovation of 1604 firms of more than 10 employees located in the five largest Norwegian city-regions (Oslo, Bergen, Stavanger, Trondheim, and Kristiansand) in order to determine a) the geographical dimension of the sources of innovation and b) the factors behind the propensity to innovate in Norwegian firms. The results stress that while interaction with a multitude of partners within Norwegian city-regions or with other national partners has a negligible effect on firm innovation, those firms with a greater diversity of international partners tend to innovate more and introduce more radical innovations. The results also highlight that the roots of this greater innovative capacity lie in a combination of firm – size of firms, share of foreign ownership, and sector – and cultural – the level of open-mindedness of managers – characteristics. - Created: 2011/02/15
- Keywords: Innovation; radical innovation; interaction; pipelines; partnerships; firms; city-regions; Norway
- Published in Environment and Planning A 43(6), June 2011: 1248-1267
- IMDEA WP No. 2011-03 (Download full text)
- Reconciling top-down and bottom-up development policies
- by Riccardo Crescenzi and Andrés Rodríguez-Pose
Top-down and bottom up development policies have been generally sold as two irreconcilable ends of the development intervention spectrum. Top-down policies, solidly based in micro- and macroeconomic theories, but lacking the adequate flexibility and ‘place-awareness’ to respond to local complexity; bottom-up approaches much more responsive to diverse territorial needs, but devoid of a clear conceptual framework. In this paper we aim to show that this division need not remain still and that the foundations of top-down and bottom-up development policies can be reconciled in a joint 'meso-level' conceptual framework which can serve simultaneously as a deductive justification for bottom-up local and regional development policies and as a coordination device between different policies. - Created: 2011/01/05
- Keywords: development policies; top-down; bottom-up; integrated framework
- Published in Environment and Planning A 43(4), April 2011: 773-780
- IMDEA WP No. 2011-02 (Download full text)
- Can the economic impact of political decentralisation be measured?
- by Roberto Ezcurra and Andrés Rodríguez-Pose
This paper examines whether, given the increasing salience of subnational governments, political decentralisation has an impact on overall economic performance. It uses panel data analyses in order to determine the association between a number of the different indices of political decentralisation developed over the last decade and a half with two basic measures of economic performance: changes in aggregate GDP per head and the evolution of within country territorial inequalities. The results highlight that, in the case of economic growth, the perception we may have of how political decentralisation affects economic performance is highly contingent on the index we use, with results ranging from a mildly positive to a neutral influence of political decentralisation on economic growth. For regional inequalities, political decentralisation seems to lead to a rise in disparities, regardless of how political decentralisation is measured. - Created: 2011/01/05
- JEL-Codes: H70; R11; R59
- Keywords: political decentralisation; economic growth; regional disparities; regions; Europe
- IMDEA WP No. 2011-01 (Download full text)
- Welfare regimes and the incentives to work and get educated
- by Andrés Rodríguez-Pose and Vassilis Tselios
This paper examines whether differences in welfare regimes shape the incentives to work and get educated. Using microeconomic data for more than 100,000 European individuals, the results show that welfare regimes make a difference for wages and education. First, people- and household-based effects (internal returns to education and household wage and education externalities) generate socioeconomic incentives for people to get an education and work, which are stronger in countries with the weakest welfare systems, i.e. those with what is known as 'Residual' welfare regimes (Greece, Italy, Spain and Portugal). Second, place-based effects, and more specifically differences in regional wage per capita and educational endowment and in regional interpersonal income and educational inequality, also influence wages and education in different ways across welfare regimes. Place-based effects have the greatest incidence in the Nordic Social-Democratic welfare systems. These results are robust to the inclusion of a large number of people- and place-based controls. - Created: 2011/01/05
- JEL-Codes: H53; H75; I31; I38; J38
- Keywords: education; employment; wages; welfare; regions; European Union
- Published in Environment and Planning A 44(1), January 2012: 125-149
- IMDEA WP No. 2010-24 (Download full text)
- Urban accounting and welfare
- by Klaus Desmet and Esteban Rossi-Hansberg
This paper proposes a simple theory of a system of cities that decomposes the determinants of the city size distribution into three main components: efficiency, amenities, and frictions. Higher efficiency and better amenities lead to larger cities, but also to greater frictions through congestion and other negative effects of agglomeration. Using data on MSAs in the United States, we parametrize the model and empirically estimate efficiency, amenities and frictions. Counterfactual exercises show that all three characteristics are important in that eliminating any of them leads to large population reallocations, though the welfare effects from these reallocations are small. Overall, we find that the gains from worker mobility across cities are modest. When allowing for externalities, we find an important city selection effect: eliminating differences in any of the city characteristics causes many cities to exit. We apply the same methodology to Chinese cities and fi nd welfare effects that are many times larger than in the U.S. - Created: 2010/12/21
- IMDEA WP No. 2010-22 (Download full text)
- Economists as geographers and geographers as something else: On the changing conception of distance in geography and economics
- by Andrés Rodríguez-Pose
In the lifetime of the Journal of Economic Geography geographers and economists have followed diverging paths to the study of the location of economic activity which, paradoxically, have resulted in very similar spatial configurations: a world dominated by large metropoli, where intermediate and peripheral spaces tend to matter less and less. These similar outcomes hide, however, different explanations and lead to different and contradictory policies. Such a situation raises both important questions and highlights the limitations of narrowly-defined disciplinary approaches, calling for a greater interaction between the two disciplines. - Created: 2010/11/30
- Published in Journal of Economic Geography 11(2), March 2011: 347-356
- IMDEA WP No. 2010-15 (Download full text)
- Do clusters generate greater innovation and growth? An analysis of European regions
- by Andrés Rodríguez-Pose and Fabrice Comptour
The analysis of clusters has attracted considerable interest over the last few decades. The articulation of clusters into complex networks and systems of innovation – generally known as regional innovation systems – has, in particular, been associated with the delivery of greater innovation and growth. However, despite the growing economic and policy relevance of clusters, little systematic research has been conducted into their association with other factors promoting innovation and economic growth. This paper addresses this issue by looking at the relationship between innovation and economic growth in 152 regions of Europe during the period between 1995 and 2006. Using an econometric model with a static and a dynamic dimension, the results of the analysis highlight that: a) regional growth through innovation in Europe is fundamentally connected to the presence of an adequate socioeconomic environment and, in particular, to the existence of a well-trained and educated pool of workers; b) the presence of clusters matters for regional growth, but only in combination with a good ‘social filter’, and this association wanes in time; c) more traditional R&D variables have a weak initial connection to economic development, but this connection increases over time and, is, once again, contingent on the existence of adequate socioeconomic conditions. - Created: 2010/07/12
- Keywords: clusters; regional innovation systems; innovation; regional economic growth; socioeconomic conditions; regions; European Union
- Forthcoming in Professional Geographer
- IMDEA WP No. 2010-14 (Download full text)
- Cohesion policy in the European Union: Growth, geography, institutions
- by Thomas Farole, Andrés Rodríguez-Pose and Michael Storper
Since the reform of the Structural Funds in 1989, the EU has made the principle of cohesion one of its key policies. Much of the language of European cohesion policy eschews the idea of tradeoffs between efficiency and equity, suggesting it is possible to maximise overall growth whilst also achieving continuous convergence in outcomes and productivity across Europe’s regions. Yet, given the rise in inter-regional disparities, it is unclear that cohesion policy has altered the pathway of development from what would have occurred in the absence of intervention. This paper draws on geographical economics, institutionalist social science, and endogenous growth theory, with the aim of providing a fresh look at cohesion policy. By highlighting a complex set of potential tradeoffs and inter-relations – overall growth and efficiency; inter-territorial equity; territorial democracy and governance capacities; and social equity within places – it revisits the rationale of cohesion policy, with particular attention to the geographical dynamics of economic development. - Created: 2010/06/25
- Published in Journal of Common Market Studies 49(5), September 2011: 1089-1111
- IMDEA WP No. 2010-13 (Download full text)
- Trade and regional inequality
- by Andrés Rodríguez-Pose
This paper examines the relationship between openness and within-country regional inequality across 28 countries over the period 1975-2005, paying special attention to whether increases in global trade affect the developed and developing world differently. Using a combination of static and dynamic panel data analysis, it is found that while increases in trade per se do not lead to greater territorial polarisation, in combination with certain country-specific conditions, trade has a positive and significant association with regional inequality. In particular, states with higher interregional differences in sectoral endowments, a lower share of government expenditure, and a combination of high internal transaction costs with a higher degree of coincidence between the regional income distribution and regional foreign market access positions have experienced the greatest rise in territorial inequality when exposed to greater trade flows. This means that changes in trade regimes have had a more polarising effect in low and middle income countries, whose structural features tend to potentiate the trade effect and whose levels of internal spatial inequality are, on average, significantly higher than in high income countries. - Created: 2010/06/25
- JEL-Codes: F11; O18; R12; R58
- Keywords: trade; regional inequalit; low and medium income countries
- Forthcoming in Economic Geography
- IMDEA WP No. 2010-09 (Download full text)
- Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries
- by Andrés Rodríguez-Pose and Roberto Ezcurra
The global drive towards decentralization has been increasingly justified on the basis that greater transfers of resources to subnational governments are expected to deliver greater efficiency in the provision of public goods and services and greater economic growth. This paper examines whether this is the case, by analysing the relationship between decentralization and economic growth in 21 OECD countries during the period between 1990 and 2005 and controlling not only for fiscal decentralization, but also for political and administrative decentralization. The results point towards a negative and significant association between fiscal decentralization and economic growth in the sample countries, a relationship which is robust to the inclusion of a series of control variables and to differences in expenditure preferences by subnational governments. The impact of political and administrative decentralization on economic growth is weaker and sensitive to the definition and measurement of political decentralization. - Created: 2010/05/24
- JEL-Codes: H71;H72;H77
- Keywords: fiscal decentralization;political decentralization;administrative decentralization;economic growth;OECD
- Published in Journal of Economic Geography 11(4), July 2011: 619-643
- IMDEA WP No. 2010-02 (Download full text)
- Do institutions matter for regional development?
- by Andrés Rodríguez-Pose
This paper discusses whether institutions matter for regional development and how to integrate them in regional development strategies. It finds that while institutions are crucial for economic development, generating an institution-based regional development strategy is likely to be undermined by the lack of definition of what are adequate, solid, and efficient institutions. Problems related to the measurement of institutions, to their space and time variability, to the difficulties in establishing the right mix of formal and informal institutions, and to the endogeneity between institutions and economic development make one-size-fits-all approaches to operationalizing institutions difficult. Development strategies specifically tailored to the conditions of different regional institutional environments across regions may yield greater returns. - Created: 2010/01/11
- IMDEA WP No. 2010-01 (Download full text)
- Economic geographers and the limelight: The reaction to the 2009 World Development Report
- by Andrés Rodríguez-Pose
The reaction of economic geographers to the World Bank's World Development Report 2009 – Reshaping Economic Geography – has so far been a corporatist turf-protecting exercise. The report has been dismissed as the work of economists who completely ignore a rich tradition of work by "proper" economic geographers. However, this negative response has prevented geographers from engaging constructively with the World Bank's analysis and proposals. In this note I argue that, while the report presents an accurate diagnosis of recent development trends and should be praised for its flexibility in providing numerous policy alternatives, geographers can significantly contribute to promote a discussion around two key issues in the report: its treatment of institutions and its recommendation of spatially-blind policies. - Created: 2010/01/11
- Published in Economic Geography Economic Geography 86(4), October 2010: 361-370
- IMDEA WP No. 2009-18 (Download full text)
- Spatial development
- by Klaus Desmet and Esteban Rossi-Hansberg
We present a theory of spatial development. Manufacturing and services firms located in a continuous geographic area choose each period how much to innovate. Firms trade subject to transport costs and technology diffuses spatially across locations. The result is a spatial endogenous growth theory that can shed light on the link between the evolution of economic activity over time and space. We apply the model to study the evolution of the U.S. economy in the last few decades and find that the model can generate the reduction in the employment share in manufacturing, the increase in service productivity starting in the second part of the 1990s, the increase in the value and dispersion of land rents in the same period, as well as several other spatial and temporal patterns. - Created: 2009/12/16
- IMDEA WP No. 2009-17 (Download full text)
- The political economy of ethnolinguistic cleavages
- by Klaus Desmet, Ignacio Ortuño-Ortín and Romain Wacziarg
This paper proposes a new method to measure ethnolinguistic diversity and offers new results linking such diversity with a range of political economy outcomes — civil conflict, redistribution, economic growth and the provision of public goods. We use linguistic trees, describing the genealogical relationship between the entire set of 6, 912 world languages, to compute measures of fractionalization and polarization at different levels of linguistic aggregation. By doing so, we let the data inform us on which linguistic cleavages are most relevant, rather than making ad hoc choices of linguistic classifications. We find drastically different effects of linguistic diversity at different levels of aggregation: deep cleavages, originating thousands of years ago, lead to measures of diversity that are better predictors of civil conflict and redistribution than those that account for more recent and superficial divisions. The opposite pattern holds when it comes to the impact of linguistic diversity on growth and public goods provision, where finer distinctions between languages matter. - Created: 2009/12/16
- Published in Journal of Development Economics 97(2), March 2012: 322-338
- IMDEA WP No. 2009-16 (Download full text)
- On Spatial dynamics
- by Klaus Desmet and Esteban Rossi-Hansberg
It has long been recognized that the forces that lead to the agglomeration of economic activity and to aggregate growth are similar. Unfortunately, few formal frameworks have been advanced to explore this link. We critically discuss the literature and present a simple framework that can circumvent some of the main obstacles we identify. We discuss the main characteristics of an equilibrium allocation in this dynamic spatial framework, present a numerical example to illustrate the forces at work, and provide some supporting empirical evidence. - Created: 2009/12/16
- JEL-Codes: O3; O4; R1
- Keywords: dynamic spatial models; technology diffusion; spillovers; trade; factor mobility; growth
- Published in Journal of Regional Science 50(1), February 2010: 43-63
- IMDEA WP No. 2009-15 (Download full text)
- Returns to migration, education, and externalities in the European Union
- by Andrés Rodríguez-Pose and Vassilis Tselios
This paper uses microeconomic data for more than 100,000 European individuals in order to analyse whether the individual economic returns to education vary between migrants and non-migrants and whether any differences in earnings between these two groups are affected by household and/or geographical (regional and interregional) externalities. The results point out that while education is a fundamental determinant of earnings, European labour markets do not discriminate in the returns to education between migrants and nonmigrants. Household, regional, and supra-regional externalities influence the economic returns to education in a similar way for local, intranational, and supra-national migrants. The results are robust to the introduction of a large number of individual, household, and regional controls. - Created: 2009/11/03
- JEL-Codes: O15; R23
- Keywords: individual earnings; migration; educational attainment; externalities; household; regions; Europe
- Published in Papers in Regional Science 89(2), June 2010: 411-434
- IMDEA WP No. 2009-13 (Download full text)
- Innovating in the periphery: Firms, values, and innovation in Southwest Norway
- by Rune Dahl Fitjar and Andrés Rodríguez-Pose
How do peripheral and relatively isolated regions innovate? Recent research has tended to stress the importance of agglomeration economies and geographical proximity as key motors of innovation. According to this research, large core areas have significant advantages with respect to peripheral areas in innovation potential. Yet, despite these trends, some remote areas of the periphery are remarkably innovative even in the absence of critical innovation masses. In this paper we examine one such case – the region of Southwest Norway – which has managed to remain innovative and dynamic, despite having a below average investment in R&D in the Norwegian context. The results of the paper highlight that innovation in Southwest Norway does not stem from agglomeration and physical proximity, but from other types of proximity, such as cognitive and organizational proximity, rooted in soft institutional arrangements. This suggests that the formation of regional hubs with strong connections to international innovative networks may be a way to overcome peripherality in order to innovate. - Created: 2009/10/09
- Keywords: innovation; institutions; distance; trust; open-mindedness; periphery; Norway
- Published in European Planning Studies 19(4), April 2011: 555-574
- IMDEA WP No. 2009-09 (Download full text)
- The magnitude and causes of agglomeration economies
- by Diego Puga
Firms and workers are much more productive in large and dense urban environments. There is substantial evidence of such agglomeration economies based on three aproaches. First, on a clustering of production beyond what can be explained by chance or comparative advantage. Second, on spatial patterns in wages and rents. Third, on systematic variations in productivity with the urban environment. However, more needs to be learned about the causes of agglomeration economies. We have good models of agglomeration through sharing and matching, but not a deep enough understanding of learning in cities. Despite recent progress, more work is needed to distinguish empirically between alternative causes. - Created: 2009/09/21
- JEL-Codes: R30
- Keywords: agglomeration economies
- Published in Journal of Regional Science 50(1), February 2010: 203-219
- IMDEA WP No. 2009-07 (Download full text)
- Individual earnings and educational externalities in the European Union
- by Andrés Rodríguez-Pose and Vassilis Tselios
This paper examines whether differences in educational externalities affect individual earnings across regions in the EU. Using microeconomic data from the European Community Household Panel, the analysis relies on spatial economic analysis in order to determine to what extent differences in individual earnings are the result of (a) the educational attainment of the individual, (b) the educational attainment of the other members of the household he/she lives in, (c) the educational endowment of the region where the individual lives, or (d) the educational endowment of the neighbouring regions. The results highlight that, in addition to the expected positive returns of personal educational attainment, place-based regional and supra-regional educational externalities generate significant pecuniary benefits for workers. These findings are robust to the inclusion of different individual, household, and regional control variables. - Created: 2009/07/23
- Keywords: individual earnings; educational attainment; externalities; households; regions; Europe
- Published in Regional Studies 46(1), January 2012: 1-151
- IMDEA WP No. 2009-06 (Download full text)
- The evolution of markets and the revolution of industry: A unified theory of growth
- by Klaus Desmet and Stephen L. Parente
This paper puts forth a unified theory of growth that captures a number of relevant features of countries’ transitions from stagnant, predominantly rural economies to vibrant, industrialized economies that have been overlooked by the literature. In our theory, increasing variety of consumer goods and increasing firm size, which are the consequence of a gradual expansion in the market, sow the seeds for process innovation and an economy’s take-off. We demonstrate this mechanism in a dynamic general equilibrium model calibrated to England’s long-run development, and explore how various factors affected the timing of its take-off. - Created: 2009/05/25
- JEL-Codes: O14; O33; O41; N33
- Keywords: unified growth theory; industrial revolution; innovation; competition; market revolution
- IMDEA WP No. 2009-05 (Download full text)
- Decentralization of social protection expenditure and economic growth in the OECD
- by Roberto Ezcurra and Andrés Rodríguez-Pose
This article examines the effect of the degree of decentralization of social protection expenditure on economic growth, using panel data for twenty OECD countries over the period 1990-2005. Our results show a positive impact of the subnational share of total government expenditure in social protection on economic performance. This finding is robust to the inclusion of additional explanatory variables in the analysis and is not driven by any specific country. - Created: 2009/05/25
- Keywords: decentralization; social protection expenditure; economic growth; OECD countries
- Published in Publius 41(1), January 2011: 146-157
- IMDEA WP No. 2009-04 (Download full text)
- Does decentralization matter for regional disparities? A cross-country analysis
- by Andrés Rodríguez-Pose and Roberto Ezcurra
This paper looks at the relationship between fiscal and political decentralization and the evolution of regional inequalities in a panel of 26 countries -- 19 developed and 7 developing -- for the period between 1990 and 2006. Using an instrumental variables method, it finds that whereas for the whole sample decentralization is completely dissociated for the evolution of regional disparities, the results are highly contingent on the level of development, the existing level of territorial inequalities, and the fiscal redistributive capacity of the countries in the sample. Decentralization in high income countries has, if anything, been associated with a reduction of regional inequality. In low and medium income countries, fiscal decentralization has been associated with a significant rise in regional disparities, which the positive effects of political decentralization have been unable to compensate. Policy preferences by subnational governments for expenditure in economic affairs, education, and social protection have contributed to this trend. - Created: 2009/05/14
- JEL-Codes: H11; H71; R11
- Keywords: fiscal decentralization; political decentralization; regional disparities; territorial inequality; fiscal redistribution
- Published in Journal of Economic Geography 10(5), September 2010: 619-644
- IMDEA WP No. 2009-02 (Download full text)
- The productivity advantages of large cities: Distinguishing agglomeration from firm selection
- by Pierre Philippe Combes, Gilles Duranton, Laurent Gobillon, Diego Puga and Sébastien Roux
Firms are more productive on average in larger cities. Two explanations have been offered: agglomeration economies (larger cities promote interactions that increase productivity) and firm selection (larger cities toughen competition allowing only the most productive to survive). To distinguish between them, we nest a generalised version of a tractable firm selection model and a standard model of agglomeration. Stronger selection in larger cities left-truncates the productivity distribution whereas stronger agglomeration right-shifts and dilates the distribution. We assess the relative importance of agglomeration and firm selection using French establishment-level data and a new quantile approach. Spatial productivity differences in France are mostly explained by agglomeration. - Created: 2009/02/20
- JEL-Codes: C52; R12; D24
- Keywords: agglomeration; firm selection; productivity, cities
- IMDEA WP No. 2009-01 (Download full text)
- Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries
- by Diego Puga and Daniel Trefler
Increasingly, a small number of low-wage countries such as China and India are involved in incremental innovation. That is, they are responsible for resolving production line bugs and suggesting product improvements. We provide evidence of this new phenomenon and develop a model in which there is a transition from old style product cycle trade to trade involving incremental innovation in low-wage countries. The model explains why levels of involvement in incremental innovation vary across low-wage countries and across firms within each low-wage country. We draw out implications for sectoral earnings, living standards, the capital account and, foremost, international trade in goods. - Created: 2009/01/27
- JEL-Codes: F1
- Keywords: international trade; low-wage country innovation
- Published in Journal of Development Economics, 91(1), January 2010: 64-76
- IMDEA WP No. 2008-10 (Download full text)
- Bigger is better: Market size, demand elasticity and innovation
- by Klaus Desmet and Stephen L. Parente
This paper proposes a novel mechanism whereby larger markets increase competition and facilitate process innovation. Larger markets, in the sense of more people or more open trade, support a larger variety of goods, resulting in a more crowded product space. This raises the price elasticity of demand and lowers mark-ups. Firms, therefore, become larger to break even. This facilitates process innovation as larger firms can amortize R&D costs over more goods. We demonstrate this mechanism in a standard model of process and product innovation. In doing so, we question some important results in the new trade and endogenous growth literatures. - Created: 2008/10/27
- JEL-Codes: F12; L11; O31
- Keywords: trade; population; price elasticity; competition; innovation; firm-size; scale effects; Dixit-Stiglitz; Hotelling
- Published International in Economic Review 51(2), May 2010: 319-333
- IMDEA WP No. 2008-09 (Download full text)
- Mountains in a flat world: Why proximity still matters for the location of economic activity
- by Andrés Rodríguez-Pose and Riccardo Crescenzi
Thomas Friedman (2005) argues that the expansion of trade, the internationalization of firms, the galloping process of outsourcing, and the possibility of networking is creating a 'flat world': a level playing field where individuals are empowered and better off. This paper challenges this view of the world by arguing that not all territories have the same capacity to maximize the benefits and opportunities and minimize the risks linked to globalization. Numerous forces are coalescing in order to provoke the emergence of urban 'mountains' where wealth, economic activity, and innovative capacity agglomerate. The interactions of these forces in the close geographical proximity of large urban areas give shape to a much more complex geography of the world economy. - Created: 2008/10/15
- Published in Cambridge Journal of Regions, Economy and Society 1(3), July 2008: 371-388
- IMDEA WP No. 2008-08 (Download full text)
- Fiscal decentralization and economic growth in Central and Eastern Europe
- by Andrés Rodríguez-Pose and Anne Krøijer
The majority of the literature on fiscal decentralization has tended to stress that the greater capacity of decentralized governments to tailor policies to local preferences and to be innovative in the provision of policies and public services, the greater the potential for economic efficiency and growth. There is, however, little empirical evidence to substantiate this claim. In this paper we examine, using a panel data approach with dynamic effects, the relationship between the level of fiscal decentralization and economic growth rates across 16 Central and Eastern European countries over the 1990-2004 period. Our findings suggest that, contrary to the majority view, there is a significant negative relationship between two out of three fiscal decentralization indicators included in the analysis and economic growth. However, the use of different time lags allows us to nuance this negative view and show that long term effects vary depending on the type of decentralization undertaken in each of the countries considered. While expenditure at and transfers to subnational tiers of government are negatively correlated with economic growth, taxes assigned at the subnational level evolve from having significantly negative to significantly positive correlation with the national growth rate. This supports the view that subnational governments with their own revenue source respond better to local demands and promote greater economic efficiency - Created: 2008/10/10
- Keywords: fiscal decentralization; economic growth; efficiency; devolution; Central and Eastern Europe
- Published in Growth and Change 40(3), September 2009: 387-417
- IMDEA WP No. 2008-07 (Download full text)
- Family types and the persistence of regional disparities in Europe
- by Gilles Duranton, Andrés Rodríguez-Pose and Richard Sandall
This paper examines the association between one of the most basic institutional forms, the family, and a series of demographic, educational, social, and economic indicators across regions in Europe. Using Emmanuel Todd’s classification of medieval European family systems, we identify potential links between family types and regional disparities in household size, educational attainment, social capital, labor participation, sectoral structure, wealth, and inequality. The results indicate that medieval family structures seem to have influenced European regional disparities in virtually every indicator considered. That these links remain, despite the influence of the modern state and population migration, suggests that either such structures are extremely resilient or else they have in the past been internalized within other social and economic institutions as they developed. - Created: 2008/10/08
- JEL-Codes: J12; O18; R11
- Keywords: institutions; family types; education; social capital; labor force
- Published in Economic Geography 85(1), January 2009: 23-47
- IMDEA WP No. 2008-05 (Download full text)
- Labour pooling as a source of agglomeration: An empirical investigation
- by Henry G. Overman and Diego Puga
We provide empirical evidence on the role of labour market pooling in determining the spatial concentration of UK manufacturing establishments. This role arises because large concentrations of employment iron out idiosyncratic shocks and improve establishments' ability to adapt their employment to good and bad times. We measure the likely importance of labour pooling by calculating the fluctuations in employment of individual establishments relative to their sector and averaging by sector. Our results show that sectors whose establishments experience more idiosyncratic volatility are more spatially concentrated, even after controlling for a range of other industry characteristics that include a novel measure of the importance of localized intermediate suppliers. - Created: 2008/06/23
- JEL-Codes: R30; R12
- Keywords: labour market pooling; spatial concentration
- Published in Agglomeration Economics, edited by Edward L. Glaeser, 133-150. Chicago, IL: University of Chicago Press, April 2010
- IMDEA WP No. 2007-17 (Download full text)
- Education and income inequality in the regions of the European Union
- by Andrés Rodríguez-Pose and Vassilis Tselios
This paper provides an empirical study of the determinants of income inequality across regions of the EU. Using the European Community Household Panel data-set for 102 regions over the period 1995-2000, it analyses how micro-economic changes in human capital distribution affect income inequality for the population as a whole and for normally working people. The different static and dynamic panel data analyses conducted reveal that, while the relationship between income inequality and income per capita is positive, the relationship between income inequality and educational attainment is not clear. Across European regions high levels of inequality in educational attainment are associated with higher income inequality. This may be interpreted as the responsiveness of the EU labour market to differences in qualifications and skills. The above results are robust to changes in the definition of income distribution. Other results indicate that population ageing and inactivity are sensitive to the specification model, while work access and latitude are negatively associated to income inequality. Urbanisation has a negative impact on inequality, but for the population as a whole only, and the relationship between unemployment and income inequality is positive. Female participation in the labour force is negatively associated with inequality and explains a major part of the variation in inequality. Finally, income inequality is lower in social-democratic welfare states, in Protestant areas, and in regions with Nordic family structures. - Created: 2007/09/24
- Keywords: Income inequality; educational attainment; educational inequality; regions; Europe
- Published in Journal of Regional Science 49(3), August 2009: 411-437
- IMDEA WP No. 2007-12 (Download full text)
- Social capital, rules, and institutions: A cross-country investigation
- by Thomas Farole, Andrés Rodríguez-Pose and Michael Storper
Research on the institutional foundations of economic development emphasizes either rulebound systems of exchange or informal bonds between individuals and within small groups. This corresponds to a classical division in social science, between the forces of society and those of community. This cleavage largely ignores their interactions, which are likely to shape the institutions that underpin economic development in decisive ways. This paper operationalises and tests how the interaction of the forces of community (or social capital) and society (or rules) impact three types of institutions: those involved in problem solving, those that shape microeconomic efficiency and those that influence social policy, across fiftyeight countries. We find that both community and society are important determinants across all institutional domains, and are in many cases mutually reinforcing, but that different specific aspects of community and society are most relevant to different institutional domains. Instrumental associationalism, whether formal or informal, and a robust rules environment are the most important determinants of positive institutional outcomes. - Created: 2007/04/27
- Published in Scienze Regionali (Italian Journal of Regional Science) 10(2), July 2011: 31-70
- IMDEA WP No. 2007-09 (Download full text)
- Ruggedness: The blessing of bad geography in Africa
- by Nathan Nunn and Diego Puga
There is controversy about whether geography matters mainly because of its contemporaneous impact on economic outcomes or because of its interaction with historical events. Looking at terrain ruggedness, we are able to estimate the importance of these two channels. Because rugged terrain hinders trade and most productive activities, it has a negative direct effect on income. However, in Africa rugged terrain afforded protection to those being raided during the slave trades. Since the slave trades retarded subsequent economic development, in Africa ruggedness has also had a historical indirect positive effect on income. Studying all countries worldwide, we find that both effects are significant statistically and that for Africa the indirect positive effect is at least as large as the direct negative effect. Looking within Africa, we also provide evidence that the indirect effect operates through the slave trades. - Created: 2007/03/01
- JEL-Codes: O11; O13; N50; N40
- Keywords: terrain ruggedness, slave trades, Africa, geography, economic development
- Published in Review of Economics and Statistics 94(1), February 2012: 20-36
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