Working Paper: CEPR ID: DP6786
Authors: Henry G. Overman; Patricia Rice; Anthony J. Venables
Abstract: We develop a diagrammatic framework that can be used to study the economic linkages between regions or cities. Hitherto, such linkages have not been the primary focus of either the theoretical or empirical literatures. We use the framework to analyse the impact of shocks that occur in one region (eg productivity improvements or increases in housing supply) on other regions, highlighting the key adjustment mechanisms and their long run implications for incomes, the cost of living, and the spatial distribution of population. Our general approach provides a framework encompassing both the New Economic Geography and Urban Systems literatures. We link our approach to these literatures and review empirical studies that quantify the key mechanisms that we have identified.
Keywords: new economic geography; spatial linkages; urban and regional policy; urban systems
JEL Codes: R00; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Positive productivity shock in region S (O49) | Increased wages in region S (J39) |
| Increased wages in region S (J39) | Migration from lower-wage regions (e.g., region N) to region S (R23) |
| Migration from lower-wage regions (e.g., region N) to region S (R23) | Increased population and employment in region S (R23) |
| Increased population and employment in region S (R23) | Raised cost of living in region S (R11) |
| Positive productivity shock in region S (O49) | Decreased wages in region N (J39) |
| Increased wages in region S (J39) | Larger disparities in real wages between regions (J39) |
| Nature of the relationship between employment and earnings (J31) | Determines whether regions experience complementary or competitive effects from shocks (R11) |