Economic Geography and Public Policy

Economic Geography and Public Policy

by Richard Baldwin, Rikard Forslid, Philippe Martin, Gianmarco Ottaviano

ISBN-10: 069112311X

ISBN-13: 9780691123110

Pub. Date: 01/03/2005

Publisher: Princeton University Press

Research on the spatial aspects of economic activity has flourished over the past decade due to the emergence of new theory, new data, and an intense interest on the part of policymakers, especially in Europe but increasingly in North America and elsewhere as well. However, these efforts—collectively known as the "new economic geography"—have devoted


Research on the spatial aspects of economic activity has flourished over the past decade due to the emergence of new theory, new data, and an intense interest on the part of policymakers, especially in Europe but increasingly in North America and elsewhere as well. However, these efforts—collectively known as the "new economic geography"—have devoted little attention to the policy implications of the new theory.

Economic Geography and Public Policy fills the gap by illustrating many new policy insights economic geography models can offer to the realm of theoretical policy analysis. Focusing primarily on trade policy, tax policy, and regional policy, Richard Baldwin and coauthors show how these models can be used to make sense of real-world situations. The book not only provides much fresh analysis but also synthesizes insights from the existing literature.

The authors begin by presenting and analyzing the widest range of new economic geography models to date. From there they proceed to examine previously unaddressed welfare and policy issues including, in separate sections, trade policy (unilateral, reciprocal, and preferential), tax policy (agglomeration with taxes and public goods, tax competition and agglomeration), and regional policy (infrastructure policies and the political economy of regional subsidies). A well-organized, engaging narrative that progresses smoothly from fundamentals to more complex material, Economic Geography and Public Policy is essential reading for graduate students, researchers, and policymakers seeking new approaches to spatial policy issues.

Product Details

Princeton University Press
Publication date:
Edition description:
New Edition
Product dimensions:
5.60(w) x 8.80(h) x 1.20(d)

Table of Contents

Chapter 1Introduction1
1.1Logic of the Book's Structure2
1.2Readers' Guide3
1.3Empirical Evidence4
Part IPreliminaries7
Chapter 2The Core-Periphery Model9
2.2The Symmetric CP Model13
2.3Key Features33
2.4Concluding Remarks and Related Literature36
Appendix 2.AEverything You Wanted to Know about Dixit-Stiglitz but Were Afraid to Ask38
Appendix 2.BTechnicalities44
Appendix 2.CExogenous Asymmetries62
Chapter 3The Footloose Capital Model68
3.2The Symmetric FC Model69
3.3Key Features81
3.4Concluding Remarks and Related Literature84
Appendix 3.AFC Model with Exogenous Asymmetries84
Chapter 4The Footloose Entrepreneur Model91
4.2The Symmetric FE Model92
4.3Key Features101
4.4Concluding Remarks and Related Literature104
Appendix 4.ATechnicalities and Exogenous Asymmetries105
Chapter 5Linear Models110
5.2The Linear FC Model112
5.3The Linear FE Model122
5.4Congestion in the Linear FE Model129
5.5Concluding Remarks and Related Literature134
Chapter 6The Constructed Capital Model137
6.2The Symmetric CC Model138
6.3The CC Model with Capital Mobility147
6.4Key Features149
6.5Concluding Remarks and Related Literature153
Chapter 7Global and Local Spillovers Models155
7.2The Symmetric GS Model157
7.3The Symmetric LS Model173
7.4Concluding Remarks and Related Literature186
Chapter 8Vertical Linkages Models190
8.2The CPVL Model193
8.3The FCVL Model205
8.4The FEVL Model211
8.5Key Features of VL Models216
8.6Concluding Remarks and Related Literature218
Appendix 8.AFormal Stability Tests in Vertical-Linkage Models220
Part IIGeneral Policy and Welfare Issues225
Chapter 9Policy and Economic Geography: What's New?227
9.2Threshold Effects, Discontinuites and Hysteresis227
9.3General Non-Linear Effects232
9.4Interaction Terms: Trade Freeness Also Matters234
9.5Selection Effects236
9.6Coordination Effects237
9.7Concluding Remarks and Related Literature239
Appendix 9.AHeterogeneous Moving Costs among the Agents239
Chapter 10A Typology of Welfare Effects: Regional Perspective243
10.2Organizing Framework243
10.3Dixit-Stiglitz Preferences246
10.4Allowing for Variable Factor Supplies249
10.5Allowing for Endogenous Growth250
Chapter 11Efficiency, Equity and Optimal Agglomeration252
11.2Equity and Efficiency in the Footloose Capital Model253
11.3Symmetric Footloose Entrepreneur Model262
Part IIITrade Policy275
Chapter 12Unilateral Trade Policy277
12.2Price-Lowering Protection (PLP)278
12.3Liberalization and Industrialization297
12.4Industrial Development, Market Size and Compartive Advantage302
12.5Location and Policy Non-Equivalences306
12.6Concluding Remarks315
Chapter 13Reciprocal Trade Agreements317
13.2The Model317
13.3Symmetric Liberalization and Delocation319
13.4Trade Liberalization without Delocation321
13.5Avoiding Delocation via International Transfers327
13.6Concluding Comments328
Chapter 14Preferential Trade Agreements330
14.2The Multi-Nation Footloose Capital Model331
14.3Production Shifting and Investment Diversion334
14.4Domino Effects and Endogenous Bloc Size341
14.5Hubs and Spokes: The Hub Effect344
14.6Free Trade Areas and Internal Catastrophes347
14.7Concluding Remarks and Related Literature360
Part IVTax Policy363
Chapter 15Agglomeration with Taxation and Public Goods365
15.2The Standard Tax Competition Literature366
15.3Lumpy World Taxes: Immobility of Perfectly Mobile Capital372
15.4Agglomeration and the Tax Gap: the CP Thought Experiment374
15.5Taxes with Symmetric Countries377
15.6Tax-Financed Public Goods as a Destabilizing Force384
15.7Duelling Public Amenitis: a Modified Tiebout Hypothesis385
15.8Redistributive Taxes: Openness and Taxation of Mobile Factors387
15.9Concluding Remarks388
Chapter 16Tax Competition and Agglomeration391
16.2Tax Competition between Similar Countries: Simplest Case391
16.3Harmless Tax Competition: Tiebout and Agglomeration398
16.4Tax Competition and Capital Mobility402
16.5Tax Competition and Catastrophic Agglomeration407
16.6Uneven Tax Competition and Asymmetric Nations: Race to the Top and Bottom411
16.7Concluding Remarks and Related Literature421
Part VRegional Policy423
Chapter 17Infrastructure Policies and Economic Geography425
17.2Public Policies: Growth and Geography Effects425
17.3Agglomeration, Congestion and Growth436
17.4Non-Linear Effects of Public Policies441
17.5Concluding Remarks and Related Literature444
Chapter 18Political Economics of Regional Subsidies448
18.2The Augmented FC Model449
18.3The Vote Market Effect454
18.4The Role of the Electoral System in a Decentralized State464
18.5Legislative Bargaining and Strategic Delegation466
18.6Concluding Comments469
Chapter 19Concluding Remarks and Directions for Future Research472
19.1Summary of Insights472
19.2Future Research477

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