Working Paper: CEPR ID: DP3109
Authors: Moshe Justman; Jacques-François Thisse; Tanguy Van Ypersele
Abstract: Regions can benefit by offering infrastructure services that are differentiated by quality, thus segmenting the market for industrial location. Regions that compete on infrastructure quality have an incentive to increase the degree of differentiation between them. This places an upper bound on the number of regions successfully able to participate in the location market, and limits the dissipation of regional surplus through Tiebout competition. It indicates a process of fiscal agglomeration, through which regional concentrations arise, which does not depend on the circular causation underlying much of the recent literature on economic geography.
Keywords: Fiscal Competition; Regional Development; Technological Infrastructure; Vertical Differentiation
JEL Codes: H73; O38; R12; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| infrastructure quality (H54) | regional competitiveness (R11) |
| infrastructure quality (H54) | attraction of firms (F23) |
| infrastructure quality differentiation (L15) | limits on regional surplus dissipation (R11) |
| firm capabilities (L10) | regional surplus (R13) |
| firm capabilities (L10) | competition dynamics (L13) |
| firm heterogeneity (D21) | regional competition outcomes (R11) |
| regional competition (R11) | segmentation of the market (D49) |