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Regional Economics Applications Laboratory

Abstracts of Discussion Papers: Technical Series

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REAL 16-T-3

What Factors Motivate Foreign Countries to Initiate an Antidumping Investigation against China? 
Xiaolei Wang

Abstract: This paper used the data of antidumping investigations against China from 1990 to 2014, and established a Negative Binomial Regression Model to make an empirical analysis on the factors affecting foreign countries imposing antidumping investigations against China. The purpose of this paper is to design a hypothesis framework by factors including macroeconomic pressure factors, pattern change factors, strategic factors and Chinese policy factors, and analyze the effect of Chinese international trade policy and foreign investment policy on building capability to reduce the antidumping investigations initiated by foreign countries. The result of empirical model shows that when the macroeconomic circumstance of foreign countries were worse, they would tend to initiate more antidumping investigations against China; when foreign countries imported more Chinese products or exported less products to China, they would launch more antidumping filings against China; the traditional and new antidumping policy users would initiate more antidumping investigations against China than any other foreign countries, and the global antidumping contagion is the reason for the growth of the number of antidumping cases on China; furthermore, China’s initiating antidumping policy against foreign countries as an international trade policy is useless, but the usage of foreign investment policy to attract more foreign direct investment from foreign countries into China can help reduce the number of antidumping investigations initiated by foreign countries against China, and this result showed that foreign investment policy could be a well remedy and coordination when the international trade policy of China lost its effect.     
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REAL 16-T-2

Modeling Regional Productive Performance Using a Spatial Stochastic Frontier Approach: New Evidence for Europe (1995-2007) 
Julián Ramajo and Geoffrey J. D. Hewings

Abstract: The literature on the measurement of regional convergence at different spatial scales and over different time periods is extensive.  This study explores the potential role of variations in European regional technical efficiency as a contributing factor in providing explanation for convergence or divergence.  To control for spatial dependence among regions, the paper uses a spatial stochastic frontier approach that integrates spatial econometric techniques with stochastic frontier models, also allowing for non-linear technical progress jointly with time and cross-sectional varying technical efficiency. From the estimated production function, we obtain estimates of the technical efficiency of the investigated 120 NUTS-2 regions of the European Union over the period 1995-2007.  Our findings show that geographical externalities affect the EU frontier level, and that European regions have been converging to the frontier at a rate of about 0.8% per year.  However, the analyses of the efficiency scores reveal that there is a strong geographic pattern of regional efficiency while the degree of average regional efficiency has increased steadily year by year. Overall, it appears that European regions have converged during the 1995-2007 period in terms of their ability to utilize physical capital and labor to produce gross value added.    
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REAL 16-T-1

Effects of a reduction in employers’ Social Security contributions: Evidence from Spain
Campoy-Muñoz, P., Cardenete, M.A., Delgado, M.C., Hewings, G.J.D.

Abstract: Programs to reduce employers’ Social Security contributions are being widely discussed in both the political arena and academic forums as tools for promoting economic growth and boosting employment.  This paper employs a Computable General Equilibrium model to assess the economic impact on the national economy of the proposals from the Spanish Confederation of Enterprise Organizations about reducing the Social Security contributions paid by employers.  The results show that the proposals fail to reduce unemployment when they are combined with compensation by revenues from indirect taxes; whereas compensation through increased personal income taxes shows positive results on unemployment in exchange for decreases in private consumption.   
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REAL 15-T-11

A Multi-Regional Input-Output Analysis of the Impact of Federally-Funded Investments in Science, Research and Technology in Arizona    
Jaewon Lim and Sandy Dall’erba    

Abstract: This paper uses a multi-regional input-output (MRIO) approach to highlight the spatial and social heterogeneity in the economic impact of federally-funded research and development (R&D) investments in the state of Arizona. Overall, the $ 526.9 million allocated to the state in 2010 have led to a statewide output multiplier of 2.18. However, the multiplier effects vary across the two largest metro areas (Phoenix and Tucson) and across socio-economic groups. Indeed, our calculations find returns that are between 0.23 to 0.88 point greater in Phoenix than in Tucson. The “rest of Arizona” reports an even greater gap w.r.t. Phoenix because of a lack of skilled workers and infrastructure. We also find the presence of social returns as investments in scientific innovation lead to job creation even for the labor force with just a high school degree. However, the main beneficiaries are the workers with the highest levels of education. 
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REAL 15-T-10

An examination of the role of local and distant knowledge spillovers on the US regional knowledge creation   
Dongwoo Kang and Sandy Dall’erba   

Abstract: This paper examines the role of academic and private R&D spending in the frame of a knowledge production function estimated across 3,109 US counties. We distinguish the role of local, face-to-face, knowledge spillovers that are determined by geographical proximity from distant spillovers captured by a matrix of patent creation-citation flows. The advantage of the latter matrix is its capacity to capture the direction of the spillovers. We control for the spatial heterogeneity between metropolitan and non-metropolitan counties as well as between states. Our empirical results show that spillovers due to private knowledge contribute to higher returns in metropolitan counties than in non-metropolitan regions. On the other hand, knowledge created in the academia leads to spillovers displaying spatially homogeneous returns. Our results imply that future innovation policies need to grasp more fully the role of distant knowledge spillovers, especially those generated in the academia, and recognize better the presence of heterogeneity in the sources and location of knowledge creation.
[Download; The latest version is forthcoming in International Regional Science]

REAL 15-T-9

Does Federal Expenditure Promote Growth in the Recipient Counties?   
Irving Llamosas-Rosas and Sandy Dall’erba  

Abstract: Based on a unique dataset from the Consolidated Federal Fund Report, we measure the return of 15 types of federal expenditure on county growth. We control for the endogeneity of public spending and find that overall expenditure promotes growth. Accounting for the significant difference in the growth dynamics of the metropolitan and non-metropolitan counties, we conclude that, in the latter, supporting farmers, rural areas and health fosters growth while programs for the poor and education reduce it. We also discover that traditional measurements of human and physical capital suffer from a selection bias when trying to proxy public spending. 
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REAL 15-T-8

The Impact of Climate Change on Agriculture in the Southwestern United States: the Ricardian Approach Revisited   
Sandy Dall’erba and Francina Dominguez  

Abstract: This paper estimates a Ricardian model of farmland value across the counties of the semiarid Southwestern United States. Compared to previous contributions, we focus on one climate zone and include the presence of extreme weather events and of farm subsidies in our analysis. We also control for heterogeneity and for various types of spillover effects. Once calibrated, the model is used to project changes due to future climate conditions. We find that the probability of a loss is great in highland counties while gains and losses are relatively equally probable in lowland counties where climate impacts farmland value less.
[Download; The latest version is forthcoming in Spatial Economic Analysis]

REAL 15-T-7

Exploring the spatially varying innovation capacity of the US counties in the framework of Griliches’ knowledge production function: a Mixed GWR approach  
Dongwoo Kang and Sandy Dall’erba 

Abstract: Griliches’ knowledge production function has been increasingly adopted at the regional level where location-specific conditions drive the spatial differences in knowledge creation dynamics. However the large majority of such studies relies on a traditional regression approach that assumes spatially homogenous marginal effects of knowledge input factors. This paper extends the authors’ previous work (Kang and Dall’erba, 2015) to investigate the spatial heterogeneity in the marginal effects by using nonparametric local modeling approaches such as Geographically Weighted Regression (GWR) and Mixed GWR with two distinct samples of the US Metropolitan Statistical Area (MSA) and non-MSA counties. The results indicate a high degree of spatial heterogeneity in the marginal effects of the knowledge input variables, more especially for the local and distant spillovers of private knowledge measured across MSA counties. On the other hand, local academic knowledge spillovers are found to display spatially homogenous elasticities in both MSA and non-MSA counties. Our results highlight the strengths and weaknesses of each county’s innovation capacity and suggest policy implications for regional innovation strategies.
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REAL 15-T-6

A Meta-Analysis of the Estimated Impact of Structural Funds on Regional Growth 
Sandy Dall’erba and Fang Fang

Abstract: This paper offers a meta-analysis of the controversial impact of EU structural funds on the growth of the recipient regions. It identifies the factors that explain the heterogeneity in the size of 323 estimates of their impact recorded in 17 econometric studies. Differences are found to come from several data characteristics, from controlling for the endogeneity of the funds and from the presence of some regressors in the primary studies. We complement this approach by an ordered probit model to uncover the factors that affect the probability of estimating a significantly positive return of the funds.
[Download; The latest version is forthcoming in Regional Studies]

REAL 15-T-5

The Economic Impact of a New Solar Power Plant in Arizona: Comparing the Input-Output Results generated by JEDI vs. IMPLAN
Jinwon Bae and Sandy Dall’erba

Abstract: As an increasingly adopted renewable energy resource, solar power has a high potential for carbon emission reduction and economic development. This paper calculates the impact on job, income and output creation of a new solar power plant in an input-output framework. The contribution is twofold. First, we compare the multipliers generated by the construction and operation/maintenance of a plant located in California with those it would have generated had it been built in Arizona. Second, we point out the differences in the results obtained with the popular IMPLAN software from those we get with the solar photovoltaic model of JEDI.
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REAL 15-T-4

Bayesian Estimation of Labor Demand by Age: Theoretical Consistency and an Application to an Input-output Model
Kijin Kim and Geoffrey J.D. Hewings

Abstract: This paper finds that a static labor demand model restricted with theoretical requirements yields empirically coherent wage elasticities of labor demand when the recent Census data are used. A Bayesian approach is used for more straightforward imposition of regularity conditions. The Bayesian model confirms elastic labor demand for youth workers, which is consistent with what past studies find. Comparison with other conventional methods suggests that monotonicity and concavity must be checked and addressed particularly in the case where one or more factor shares are so small that monotonicity is likely to be violated. Additionally, to explore the effects of changes in age structure on a regional economy, we integrate the estimated age-group-specific labor demand model into a regional input-output model. The new model suggests that ceteris paribus aging population attributes to lowering aggregate economic multipliers due to the rapidly growing number of elderly workers who earn less than younger workers.
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REAL 15-T-3

A Short Exercise to Assess the Consequences of Temporal and Spatial Aggregation on the Observed Spatial Interactions
Sungyup Chung and Geoffrey J.D. Hewings

Abstract: Since our observation of the regional economy depends on the scale of temporal/spatial units, even under the same underlying disaggregated level data generating process, we can encounter different neighborhood effects or spillovers. In this paper, the amount of spillover is defined by the forecast error variance decomposition (FEVD), and the direction of spillover is defined by the long-run sign of the cumulative impulse response function (CIRF). From an exercise using a constructed regional economic system, the size of spillover was found to decrease with spatial aggregation in a multi-level structure regional economic system. However, no monotonic trend was found in terms of the relative portion of positive/negative spillovers. In addition, the results from the real world data using different levels of aggregations, and the results drawn from the exercise on the constructed regional economic system are compared. From this comparison, a multi-level structure model which assumes the existence of higher level common factor affecting the regional units was found to concord with logical experiments conducted over the constructed regional economic system.  
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REAL 15-T-2

Household disaggregation and forecasting in a regional econometric input-output model
Kijin Kim, Geoffrey J. D. Hewings and Kurt Kratena

Abstract: The overwhelming attention to disaggregation of the interindustry components of the regional economy has neglected the problems generated by the adoption of the representative household in the modeling of economic impacts and forecasting in many regional economic models. Drawing on a recently modified regional econometric input-output model (REIM) for the Chicago metropolitan region in which households were disaggregated by age (Kim et al, 2014), this paper provides an assessment of the differences generated by consumption of a representative and disaggregated households using data at the corresponding level of aggregation. The results reveal that the total effects of disaggregation that can be ascribed to population ageing vary by a much smaller extent than those generated by model specification and data. The disaggregate REIM with heterogeneous households by age yields smaller RMSEs than the aggregate REIM with a representative household, but a statistical testing suggests that forecasting gains from disaggregation are modest compared to the aggregate model.  
[Download; A final version is available at Letters in Spatial and Resource Sciences]

REAL 15-T-1

A Social-Environmental Regional Sequential Interindustry Economic Model for Energy Planning: Evaluating the Impacts of New Power Plants in Brazil
Andre F. T. Avelino, Geoffrey J. D. Hewings and Joaquim J. M. Guilhoto

Abstract: Energy planning is a multidimensional problem as it affects the economy, environment and local population in a spatially heterogeneous fashion. In this paper, we propose an integrated social-environmental economic model for energy planning analysis that estimates economic, emissions and public health impacts at different regional levels. By combining the traditional I-O framework with electrical and dispersion models, dose-response functions and GIS data, our model aims at expanding policy makers' scope of analysis and providing an auxiliary tool to assess energy planning scenarios in Brazil both dynamically and spatially. A case study for wind power plants in Brazil was performed and the results highlight the unbalance between economic benefits and negative health effects across the wealthiest and poorest regions in the country.  
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REAL 14-T-2

Assessing the Regional Business Cycle Asymmetry in a Multi-level Structure Framework: A Study of the Top 20 U.S. MSAs
Sungyup Chung and Geoffrey J.D. Hewings

Abstract: Evaluating the impact of a national shock, such as a monetary/fiscal policy, on a regional economy requires an understanding of the dependency of the regional business cycle on the national business cycle. Dating the regional business cycle phases using a Markov-switching model revealed that the regional cycle phase transition depends on the national cycle phase, but the propagation speed of the national phase into a regional cycle varies across the regions. The estimation of the national factor loadings on regional economies showed that the response of a regional economy to a national impact is mostly greater during a national contraction phase.  
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REAL 14-T-1

Estimating Housing Price Indices for Small Metropolitan Statistical Areas (SMSAs)
Esteban Lopez and Minshu Du

Abstract: In an economy that proved to be highly sensitive to housing prices fluctuations it is at least intriguing why the U.S. has accurate housing price indices for the top 20 Metropolitan Statistical Areas (MSAs) only. This is an important informational gap since in most states, housing sales in Small Metropolitan Statistical Areas (SMSAs) account for at least 30% of the total state sales. This paper uses matching methods and Fisher Indices to estimate Housing Price Indices (HPIs) using data for Illinois MSAs. The main results suggest that co-movements between Big and Small MSAs are different than the expected.  
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REAL 13-T-6

Economies of Scale and Technological Progress in Electric Power Production: The Case of Brazilian Utilities
Mauricio Marins Machado, Maria da Conceição Sampaio de Sousa and Geoffrey J.D. Hewings

Abstract: This paper examined the cost structure of the electricity generation companies in Brazil during the period 2000-2010 by using a translog cost function that imposes no restrictions on production technology and allows for the existence of non-homotheticity. The hypothesis that economies of scale are a typical feature of the generation market in Brazil and, in general, are not exhausted at lower levels of production is not rejected. This result supports the vision that indivisibilities restrict efficiency gains from free-market competition in the Brazilian electricity generation and most of the last restructuring in the industry regulation was based on this assumption. Furthermore, over the sample period, technological progress led to cost reductions in electric power supply. These technological improvements take the form of both a neutral technological effect as well as a non-neutral fuel effect, which prevails over the capital and labor saving technical changes.  
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REAL 13-T-5

The Extended Econometric Input-output Model With Heterogeneous Household Demand System
Kijin Kim, Kurt Kratena and Geoffrey J.D. Hewings

Abstract: This paper proposes an extension to the regional econometric input-output model (REIM; Conway, 1990) to which a demand system with age and income parameters is integrated. The extended model addresses concerns about household heterogeneity that has been limited to one representative in the existing REIMs. The initial testing is conducted with a model for the Chicago metropolitan area. First, using aggregate expenditure data by income and age groups, a system of demand equations is constructed: the almost ideal demand system (AIDS) with group fixed effects. Next, the estimated demand systems are linked to the REIM to reflect long-term changes in the age and income distribution of households. The long-range simulation from the extended model takes into account structural changes in expenditure type stemming from changing demographic composition. The extended model further broadens the scope of impact analysis under various scenarios associated with age and income changes.  
[Download; A final version is available at Economic Systems Research]

REAL 13-T-4

Competitive and Complementary Relationship between Regional Economies: A Study of the Great Lake States
Sungyup Chung

Abstract: This paper uses a multi-level dynamic factor model suggested by Bai and Wang (2012) to identify the spatio-temporal dynamics of regional business cycles, focusing on six Great Lakes states,Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. The identification scheme suggested by Bai and Wang (2012) enables separate identification of the shock common to the Great Lakes region and the individual shock to each region as well as to assess the interactions between those shocks. The model is estimated using the Gibbs Sampling algorithm. Four monthly time-series variables for each state for the period of January 2003 to September 2012 were organized to implement a dual layer structure dynamic factor model for the Great Lakes region. The main advantage of using this multi-level structure model is that it is possible to assess the effect of a shock originating in one particular region on the other regions separately from the region common shock. In contrast, a single level structural model does not separate the region common shock from the region specific shock. By separating the common shock and the individual shocks, this estimation strategy prevents the possible misunderstanding or overestimation of regional interdependency induced from the co-movements of regional business cycles. Since each region is exposed to the region common shock, the degree of co-movement of each region’s business cycle is strong, possibly exaggerating or biasing the effect of region specific shocks. The simulation results show that incorporating the multi-level structure in a regional dynamic factor model significantly alters the regional interdependency relationship induced from the single level structure model. The variance decomposition shows that much of the region specific business activities can be explained by the region common shock, and the impulse response function shows that the effect of region specific shock is exaggerated or biased in the single level structure model.
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REAL 13-T-3

The Effects of the Clean Air Act on Local Industrial Wages in the Presence of Wage Spillovers
Kijin Kim

Abstract: This paper investigates the effects of the Clean Air Act on local manufacturing wages. Taking into account wage spillovers explicitly into the model distinguishes this paper from existing studies in which spillover effects were ignored or were not a major focus. Using the 1982-2007 Census of Manufactures and the historical pollutant-specific nonattainment status for all counties, a wage model has been constructed with fixed effects partly based on the model specification in Greenstone (2002). The wage reduction in emitters induced by the regulations ranged from 2% to 10% depending on the pollutant, which in the 2005 dollar amount are equivalent to loss of roughly $800~$4,000 a year on average relative to emitters in non-regulated counties. The regulation effects are not uniform across industries: petroleum & coal, chemical & allied products and paper & allied products are influenced most among emitters. Estimation results of spatial fixed effects model suggest that wage spillover effects are not strong when county or individual fixed effects are taken into account.
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REAL 13-T-2

Performance of the FGS3SLS Estimator in Small Samples: A Monte Carlo Study
Saket Sarraf, Kieran P. Donaghy and Geoffrey J.D. Hewings

Abstract: System of equations models with spatial lags in dependent variable and error terms can be estimated using the full information Feasible Generalized Spatial Three Stages Least Square (FGS3SLS) estimator proposed by Kelejian & Prucha (2004). The estimator is consistent and asymptotically normal, but its finite sample properties are not analytically determinable. In absence of very large samples as is the case in most applied work, it is difficult to interpret the results with confidence based on asymptotic results only. This paper evaluates the performance of the FGS3SLS estimator in finite samples and its sensitivity to varying degrees of spatial interaction and externalities using Monte Carlo simulations.
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REAL 13-T-1

The Externality of Stigmatized Property: What Does Hedonic Regression Tell Us Under Incomplete Information?
Taisuke Sadayuki

Abstract: A stigmatized property, or a psychologically impacted property, is a real estate property that suffers from an undesirable past event, such as a suicide or homicide, that affects the present property value. This paper provides the first empirical evidence of the existence of the negative externality of stigmatized property, based on data on rental housing and stigmatizing events recorded in Tokyo, Japan. Although the estimation result using the standard hedonic approach ensures the presence of the externality, it does not represent the degree of the implicit externality under complete information, in which prospective renters are fully informed. This is because property owners strategically assign offered rental prices by assuming that prospective renters face incomplete information about the surrounding stigmatized properties. Therefore, we examine the implications underlying the estimated hedonic functions by imposing several valid assumptions.
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REAL 12-T-5

An estimation of collective action cost in condominium reconstruction: the case of Japanese condominium law
Fukuju Yamazaki and Taisuke Sadayuki

Abstract: This paper presents an empirical examination of the cost of collective action problems inherent in condominium reconstruction in Japan. Because of property co-ownership, problems associated with the decision-making process arise among owners of condominium units. Further, mechanisms of condominium law in Japan potentially induce a holdout problem in the decision-making process, resulting in the development of more serious collective action problems. By comparing the price functions of Japanese condominiums with those of rental apartments in Japan and condominiums in the United States, we clarify the presence of a collective action cost in Japanese condominium reconstruction and confirm that a deficiency exists in Japanese condominium law.
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REAL 12-T-4

The evolution of U.S. regional inequality: A mixture model exploratory approach
Chenxi Yu

Abstract: This paper studies the emergence of convergence clubs in the United States since the 1980s. The finite mixture normal model is used to identify the clubs based on the per capita personal income dataset for 700 U.S. labor market areas from 1969 to 2009. The results reveal that the collection of high income areas, termed the "rich places club," was formed in the 1980s, and the share of the rich places club stabilized at around 10-12% of total labor market areas for the 1990s and 2000s. We also find that the gap between the rich places club and the "everywhere else club" has been increasing since the 1990s.
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REAL 12-T-3

Reinterpreting the Frisch Parameter in the Field of Personal Taxation: a Link between Taxable Capacity and Social Marginal Utility in Optimal Taxation
Andrés Faíña , Jesús López-Rodríguez and Laura Varela-Candamio

Abstract: A non-existent meaning in the field of personal taxation is given to the Frisch parameter. Using an Indirect Addilog System, we formulate a relationship between Frisch parameter and the discretionary income based on the different degree of urgency or priority of needs routed in the values of households’ consumption. As result, the concept of tax capacity can be interpreted in terms of utility, redefining and conciliating the approaches of taxable capacity and social welfare.
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REAL 12-T-2

Uncertainty in College-Town Housing Market: A case of the University of Illinois at Urbana-Champaign
Taisuke Sadayuki

Abstract: College students face mainly two kinds of uncertainty when making a housing decision; the first uncertainty emerges when they first come to campus as incoming students, and the other comes when they search for a better housing in subsequent years. This paper investigates empirically the cost that arises as a consequence of such uncertainties in the college-town housing market by using 777 housing units across 30 landlords in the Champaign-Urbana Metropolitan Area. First, I find that some first-year-graduate students are willing to pay 25~35% more to insure a feeling of security by living in housing provided by the University of Illinois. I also find that the rental price of housing, managed by landlords with more than 10 claims made in the past 5 years, is 7~12% lower than the rental price of others. These results show that landlords play a substantial role in college-town housing market, and suggest the importance of revealing information about housing providers for the efficiency of college-town housing market.
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REAL 12-T-1

Endogenous Growth of the Ageing Economy with Intra-Generational Heterogeneity over Migration Status
Tae-Jeong Kim and Geoffrey J.D. Hewings

Abstract: This paper seeks to examine the effects of the ageing population in Illinois with the inclusion of the household’s ex-ante intra-generational heterogeneity across migration status. The empirical results show that there are significant gaps in returns to education between migration statuses in Illinois; further, there exist significant relationships between a resident’s demographics and the probability of in- and out- migration to/from Illinois. Using a two-sector Overlapping Generations (OLG) model incorporated with the intra-generational heterogeneity over migration status, this paper projects the economic growth of Illinois in the future. This paper also shows that the effects of the government’s immigration policy, that aims at replacing low-productive international immigrants with native and relatively high-productive unemployed individuals who have been unemployed, are very limited in terms of per-capita income, welfare and aggregate productivity. On the contrary, a tax and transfer policy inducing international immigrants to invest more in their education works relatively better under the demographic transition. Furthermore, under this policy scheme, the native’s human capital stock also improves because of positive spillover effects even though the transfer systems direct beneficiary is the international immigrant group.
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REAL 11-T-11

An Exploration of the Effects of Different Policy Instruments in Colombian Agricultural Policy
Ricardo Arguello

Abstract: Recent changes in Colombian agricultural policy have focused on implementing do mestic support measures aimed at protecting farmers' income and enhancing sectoral productivity. However, estimates of expected impacts arising from the policy, measured as changes in value added, are small. As the policy uses several instruments for achieving its objectives, the question arises as to whether estimated impacts are dependent upon the way resources are allocated among them. We explore this issue for a set of three of the main policy instruments employed by the Colombian government, in a short run context, by means of a Computable General Equilibrium model. Our results indicate that in the presence of short term rigidities, specially capital fixity, all policy instruments lead to small estimated effects and that in a longer run scenario the behavior of investment seems critical for attaining more signifcant impacts and a better potential for reaching the policy's objectives.
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REAL 11-T-10

A Partial Appraisal of Agricultural Policy Changes in Colombia
Ricardo Arguello

Abstract: Starting in the decade of 1990, Colombian agricultural policy shifted from taxing to subsidizing agricultural activities on average. Support for the sector has been mainly done through border measures. However, with the inception in 2007 of a new program, domestic support has gained importance and has been justied on the grounds of protecting farmers' income and enhancing productivity. This research aims to provide a partial assessment of the outcomes of this program. For this we use results from a simulation with a Computable General Equilibrium Model and contrast them to the actual performance of the agricultural sector and to a recent microeconomic evaluation of the program. In light of this, we conclude that the new policy appears to have low leverage for fullling its objectives.
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REAL 11-T-9

Export, Migration, and Costs of Market Entry: Evidence from Central European Firms
Dieter Pennerstorfer

Abstract: In this article I analyze the export behavior of firms located in different Central European countries (Austria, Hungary, Czech Republic and Slovakia) with respect to migration. Ever since the seminal article by Gould (1994) on immigrant links to their home country and due to empirical research following his contribution, it is a well established result that immigrants from a particular country spur exports to and imports from that destination. Chaney (2008) shows that a decrease in fixed costs of exporting increases the number of exporters (extensive margin), whereas a reduction in variable costs also increases the volume exported by each exporting firm (intensive margin). Empirical contributions using firm-level data focus on various aspects influencing costs of exporting (like spillover effects of nearby firms (Sinani and Hobdari, 2010; Silvente and Geménez, 2007) or financial factors (Berman and Héricourt, 2010)), but leave out the issue of migration. I combine detailed information coming from a questionnaire conducted among 8,300 firms on the export behavior to different countries with regional data on migration from the European Labor Force Survey (LFS). I find evidence that both the propensity to export and – to a much smaller extent – the volume of sales of exporting firms to a particular destination is higher for firms located in regions with a larger number of immigrants from that country. I conclude that migrants mainly reduce fixed costs of exporting.
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REAL 11-T-8

Structural Change in the Chicago Region and the Impact on Emission Inventories in a Continuous Time Modeling Approach
Soo Jung Ha, Kieran Donaghy, Clifford R. Wymer and Geoffrey J.D. Hewings

Abstract: Motivated by both the need to model carefully recent structural economic changes and the need to understand better the nature of environmental-economic interactions, this paper introduces a continuous-time Regional Econometric Input-output Model (REIM) for the Chicago economy that can be used to analyze at disaggregated sectoral and temporal levels the economic and environmental implications of changes exogenous to the economy. The model’s solution yields estimates of emission inventories, which may be used to analyze environmental implications of various economic changes and policy restrictions. This model is the first integrated economic-environmental model of which we are aware that has been formulated and estimated in continuous time for the regional economy of a metropolitan area. We believe that the model’s formulation will enable it to enjoy greater compatibility with natural science-based models, which share such a formulation, and flexibility in projecting future emissions corresponding to alternative future economic scenarios and in evaluating emissions policies relevant to such scenarios.
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REAL 11-T-7

Construction of a Spatial Housing Price Index by Estimating an Almost Ideal Demand System
Víctor Iturra, Dusan Paredes

Abstract: The aim of this article is to build a spatial housing price index for the Chilean communities (the commune political body similar to a municipality or county). The first step is to recover hedonic prices of three housing attributes by estimating a mixed index model (Bowden, 1992) using a generalized method of moments procedure. Secondly, a censored almost ideal demand system (Deaton and Muellbauer, 1980) is estimated to build expenditures for every community and to compare them among different spatial units, while maintaining a constant utility level. Using micro data from the 2009 CASEN survey, we show that there are important differences in housing prices among Chilean communities and the axiomatic approach tends to understate spatial index compared to economic approach.
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REAL 11-T-6

Methodology to analyze ex ante macroeconomic policies: Linkages between CGE, Almost Ideal Demand System and labor participation models
Laura Atuesta

Abstract: This paper describes a methodology to analyze the impacts of macroeconomic shocks at the household level. Because the impact affects all the agents in the economy, the shock is analyzed using a CGE model. However, when the interest centers on poverty or welfare impacts at the household level, microeconometric models are needed in order to account for microeconomic behavior of households. The CGE model interacts with two microeconomic models: a labor participation model to measures migration decisions of households, and an Almost Ideal Demand System (AIDS) to estimate household demand and calculate welfare measures of different household groups. The interaction between the CGE model and the labor participation model considers feedback loops from top to bottom and behavioral responses from households at the microeconomic level. On the other hand, the interaction between the CGE and the AIDS could be described in two steps: the AIDS estimates the budget shares used in the CGE, and the changes in income and prices from the CGE are used in the AIDS to calculate the welfare measures of different household deciles.
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REAL 11-T-5

Public Capital and Regional Economic Growth: a SVAR Approach for the Spanish Regions
Miguel A. Márquez, Julián Ramajo and Geoffrey J.D. Hewings

Abstract: Recently, a significant share of the empirical analysis on the impact of public capital on regional growth has used multivariate time-series frameworks based on vector auto regressive (VAR) models. Nevertheless, not as much attention has been dedicated to the analysis of the long-run determinants of regional growth processes using multi-region panel data and applying panel integration and co-integration techniques.  This paper estimates the dynamic domestic effects of public infrastructures using a structural vector autoregressive (S-VAR) methodology for the Spanish regions.  From a methodological point of view, the paper contains several features that can be viewed as a contribution to the existing empirical literature.  First, the important issues of the stationarity of the data and the existence and estimation of cointegrating relationships in the long-run are addressed in the context of the analysis of panel data.  Secondly, the long-run cointegrating production function is embedded within structural vector error correction (S-VEC) short-run models to produce consistent estimates of impulse responses, contrary to many researchers who have estimated unrestricted VAR models in levels or VAR models in first differences. The estimates reveal new results with respect to the previous empirical evidence.
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REAL 11-T-4

Can NEG explain the spatial distribution of wages of Chile?
Dusan Paredes

Abstract:The New Economic Geography (NEG) has been tested to explain the spatial concentration of wages in developed countries, but it has not been evaluated for developing countries where the excessive spatial concentration seems to be related with negative consequences on the economic development. This paper covers this gap in the literature estimating by first time a NEG model for a developing country such as Chile, pursuing two research questions : 1) Can the NEG explain the spatial distribution of wages in a developing country as Chile?, and 2) How can the NEG be used to infer information about the future level of spatial concentration of wages in Chile? The results suggest that the case of Chile is poorly explained by the NEG and even higher level of spatial concentration should be expected in the future. These results indicate that the empirical application of NEG is not trivial for developing countries, and some considerations such as inclusion of the first nature or analysis at the micro data level must be incorporated by future researchers.
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REAL 11-T-3

The Improbable Nature of the Implied Correlation Matrix from Spatial Regression Models
Monalisa Sen and Anil K. Bera

Abstract: Spatial lag dependence in a regression model is similar to the inclusion of a serially autoregressive term for the dependent variable in time-series context. However, unlike in the time series model, the implied covariance structure matrix from the spatial autoregressive model can have a very counterintuitive and improbable structure. A single value of spatial auto correlation parameter can imply a large band of values of pair-wise correlations among different observations of the dependent variable, when the weight matrix for the spatial model is specified exogenously. We illustrate this using cigarette sales data (1963-92) of 46 US states. We observe that two "close" neighbors can have very low implied correlations compared to distant neighbors when the weighting scheme is the first-order contiguity matrix. However, if the weight matrix can capture the underlying dependence structure of the observations then this unintuitive behavior of implied correlation gets corrected to a large extent. Keeping this in mind, we explore the possibility of constructing the weight matrix (or the overall spatial dependence in the data) that is consistent with the underlying correlation structure of the dependent variable.
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REAL 11-T-2

A Spatial Cost of Living Index for Colombia using a Microeconomic Approach and Censored Data
Laura Atuesta and Dusan Paredes

Abstract: This paper describes a methodology to calculate a spatial cost of living index using Colombian data for 2006 that takes into consideration the microeconomic behavior of households. Using the Almost Ideal Demand System and recovering the expenditure functions for the 23 main Colombian cities, the index proposed is compared to the traditional methodologies used to calculate the regional basket of goods in the country and to an alternative methodology proposed by Romero (2005). This comparison suggests that when the substitution effects are not considered, and the same basket of goods is evaluated in every city, the index is biased, and this bias increases when the difference between cities increases. For reducing the bias, we use a microeconomic approach that keeps the households' level of utility constant and allows substitution among different baskets of goods. According to our calculations, Bogota is still the most expensive city in the country followed by Armenia, Cali, Bucaramanga and Ibague.
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REAL 11-T-1

Impacts of Aging Population on Regional Economies Using an Interregional CGE Model of Korea
Euijune Kim, Geoffrey J.D. Hewings, Heedeok Cho and Changkeun Lee

Abstract: The purpose of this paper is to estimate the effects of aging population on regional economies using an Interregional CGE Model of Korea. The CGE model is developed for seven industrial sectors of two regions, namely the SMA and the rest of Korea. This paper showed that aging population has a comparatively negative effect on economic growth in domestic economy, but the regional disparity gets reduced due to serious reductions in the working population groups of the Seoul Metropolitan Area.
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REAL 10-T-8

Economic Remoteness and Wage Disparities in Romania
Andres Faiña, Jesús López-Rodríguez, Bolea Cosmin-Gabriel

Abstract: This paper looks at the link between wage disparities and market access for the Romanian counties. In first place, we derive an econometric specification which relates the income levels of a particular location with a weighted sum of the volume of economic activities of the surrounding locations (market access). Then, empirically, we estimate this econometric specification for a sample of 42 Romanian regions in the year 2006. The paper reports two main results: 1) market access is statistically significant and quantitatively important in explaining cross-county variation in Romanian wages, 2) incentives for human capital accumulation and innovation activities arising from market access size are also affecting the shaping of county wages in Romania. Finally some policy conclusions are also drawn.
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REAL 10-T-7

Assesing The Macroeconomic Effects of Reactive Land Use Controls: A simulation Study
Jae Hong Kim, Geoffrey J. D. Hewings and Brian Deal

Abstract: This study assesses the macroeconomic effects of minimum-lot-size requirements and building permit caps that have been implemented by some of the suburban municipalities in the Chicago metropolitan area. This is accomplished by using the spatial regional econometric inputoutput framework, which overcomes the shortcomings of traditional top-down approach to vertical regional economy – land use integration. The model simulation results reveal that the reactive land use regulations (minimum lot size zoning and permit caps), which bind local housing supply and population growth within the jurisdictions, 1) dampen the pace of regional economic growth considerably, although the actions are sometimes favorable to the long-term prosperity of the individual implementing municipalities; 2) tend to generate disproportionate impacts on different sectors of the economy – i.e. local sectors, which heavily depend on household expenditures, are affected more strenuously; and 3) induce effects that vary substantially by location and timing of the implementation.
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REAL 10-T-6

Integrating the Fragmented Regional and Sub-Regional Socio-Economic Forecasting and Analysis: A Spatial Regional Econometric Input-Output Framework
Jae Hong Kim and Geoffrey J. D. Hewings

Abstract: This study presents an integrated socio-economic forecasting and analysis framework: a spatial regional econometric input-output model, and its application to the Chicago metropolitan area. The new framework is designed to overcome some limitations of existing models, particularly 1) limited consideration of ‘population – employment’ interactions and 2) dominance of top-down approach to vertical integration of regional and sub-regional variables. It captures local and lower level conditions and their effects on macroeconomic variables by using a modified disequilibrium adjustment model that incorporates sub-regional dynamics into a regional econometric input-output model in a reciprocal, interactive manner, as opposed to a top-down allocation process. The framework also considers both region-wide and sub-regional level population – employment interactions more systematically.
[Full Document available at the Annals of Regional Science]

REAL 10-T-5
Land Use Planning as Information Production and Exchange: An Empirical Analysis of the Uncertainty Reduction Effect
Jae Hong Kim

Abstract:Land use planning practices have been economically justified as an efficient means of producing and distributing valuable information relevant to property markets and further reducing the intrinsic uncertainties and transaction costs involved in land development processes.  However, although this method of justification, in addition to traditional welfare-economics-based rationales, has been adopted to support government interventions in land use, not much empirical evidence for the claim has been reported.  In order to fill this gap, this study attempts to empirically validate the claim by focusing on a particular case, namely urban fringe land markets where farmland owners make decisions under uncertainties regarding the timing of potential land development for urban uses.  First, through the exploration of land use data in Oregon, distinct farmland use patterns are found, consistent with the expectation that land use planning for the fringe areas reduces the uncertainties and therefore helps farmland owners make informed decisions.  Furthermore, through cross-sectional regression analysis using 82 single-county MSAs' data, a positive effect of the presence of land use planning efforts on agricultural investment levels is detected; this may indicate planning's real contribution to uncertainty reduction. The effect is found to be statistically significant in MSAs with relatively larger shares of livestock and fruit production (as opposed to crops), which generally require a greater amount of sunk costs and a longer period of operation to result in profits.
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REAL 10-T-4
Land Use Regulation and Intraregional Population-Employment Interaction
Jae Hong Kim and Geoffrey J. D. Hewings

Abstract:Land use regulation often delays the development process and increases the cost of development, although it may contribute to addressing market failures and realizing a well-organized spatial structure. Raising barriers to development may prevent households from responding to job relocations or job growth at certain locations in a timely manner, by restricting local housing supply. Further, this situation may result in longer commuting distances, times, and costs as well as greater spatial mismatches. To examine the possible adverse effect of the regulation, this study analyzes how intraregional population-employment interaction varies by metropolitan areas having different degrees of land use regulations. First, through a correlation analysis, the results reveal that highly regulated regions are likely to show a lower correlation between intraregional population and employment changes and an increasing mean commuting time between 1990 and 2000. In addition, a spatial econometric analysis using a regional disequilibrium adjustment framework suggests that intraregional population and employment changes may not be well integrated in highly regulated metropolitan areas due to the lower household mobility, even though households and businesses consider accessibility to each other importantly in their location choices.
[Full Document available at the Annals of Regional Science]

REAL 10-T-3
Inter-Regional Endogenous Growth under the Impacts of Demographic Changes
Tae-Jeong Kim and Geoffrey J.D. Hewings

Abstract:This paper attempts to project the economic paths for the individual Midwest states (Illinois, Indiana, Michigan, Ohio and Wisconsin, as well as the Rest of the US) in the near future when the population ageing becomes more pronounced. To accomplish this task, a dynamic general equilibrium model is developed so that it could incorporate the inter-regional transactions and endogenous growth mechanisms within the framework of an overlapping generations (OLG) model. Key parameter values associated with the regional interconnections were assigned by using multi-regional Social Accounting Matrix (SAM) of the Midwest states. Two different steady-state results were presented with two different age-cohort population structures corresponding to year 2007 and 2030. These steady-state results imply that the rate of declining of percapita output are projected to be heterogeneous across the regions due to the different developments of age-cohort population structures and consequently different levels of endogenously determined educational investment of workers. Also two steady-state simulation results revealed that the development of output price in a certain region reflects the dynamics of demographics of every region. Meanwhile, the dynamic simulation results reveal that the per-capita output of every region is projected to grow positively in the near future when the population ageing will be pronouncing. However, the growth rate of the per-capita output is projected to be heterogeneous across the regions: the regions with high-skilled workers hold the potential threat that population ageing could give more negative impacts on the economy due to the relatively sluggish growth of human capital stock. Also, the dynamic simulation results show that certain regions in Midwest will experience their terms-of-trade deteriorate in the near future, implying that careful attention should be given to their future trade conditions.
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REAL 10-T-2
Endogenous Growth of the Ageing Economy with Intra-Generational Heterogeneity over Race and Migration Status
Tae-Jeong Kim and Geoffrey J.D. Hewings

Abstract:This paper seeks to examine the effects of the ageing population in Illinois with inclusion of the household’s ex-ante intra-generational heterogeneity across race and migration status. For this, this paper empirically shows that there are significant gaps in returns to education between race and migration status in Illinois; and there exists significant relationships between a resident’s demographics and the probability of in- and out- migration around Illinois. Using a twosector Overlapping Generations (OLG) model incorporated with the intra-generational heterogeneity over race and migration status, this paper projects the economic growth of Illinois in the future. Also, this paper shows that an indirect educational policy, targeting the upgrading of the transmission channel of human capital stock from the old generation to the young generation, is more preferable than the direct employment policy in terms of long-run effects on per-capita income and social welfare under the population ageing phenomenon. This paper also shows that the effects of the government’s immigration policy, which aims at replacing low-productive international immigrants with native, relatively high-productive unemployed individuals who have been unemployed, are very limited in terms of per-capita income, welfare and aggregate productivity. On the contrary, tax and transfer policy inducing international immigrants to invest more in their education works relatively better under the demographic transition. Furthermore, under this policy scheme, the native’s human capital stock also improves significantly because of positive spillover effects even though the transfer system’s direct beneficiary is the international immigrant group.
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REAL 10-T-1
Endogenous Growth of Ageing Economy: Evidence and Policy Measures
Tae-Jeong Kim and Geoffrey J.D. Hewings

Abstract:This paper adopts the two-sector overlapping generation (OLG) model to capture the impact of population ageing on the regional economy and compares the effectiveness of government policy in an endogenous growth perspective. Comparing the computational results of a one-sector OLG model, where agent’s productivity is given exogenously, this paper confirms that endogenously determined investment in human capital significantly offsets the negative effects of the ageing population on the regional economy. This paper also attempts to check if there is room for the government to weaken and prevent the negative effects of the ageing population. For this, this paper examines the effects of two kinds of government transfer systems on the regional economy: money transfer and educational transfer systems. The money transfer, which is redistributed to agents by the government, could be used for an individual’s consumption, saving and educational investment. Educational transfer is given directly to the individual proportional to his or her opportunity cost stemming from education investment. The result shows that the educational transfer system is superior to money transfer system in the long-run in terms of growth of per-capita income, aggregate welfare and stabilizing the factor prices. However, the result implies that there exists a trade-off relationship in implementing an educational transfer system between economic growth and equity of income and wealth.
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REAL 09-T-7
Fragmentation and complexity: Analyzing structural change in the Chicago regional economy
Isidoro Romero, Erik Dietzenbacher and Geoffrey J.D. Hewings

Abstract:In this paper, two dimensions are differentiated within the fragmentation process: a spatial and a functional one. On the one hand, due to fragmentation and industrial relocation, regional and national economies might be losing some internal linkages. This spatial fragmentation determines a decrease in the complexity of the production systems. On the other hand, outsourcing, as a form of functional fragmentation, increases the density of transactions and linkages within an economy. The overall impact of fragmentation on the complexity of the regional and national economic systems depends on the net effect of these two fragmentation forces. In this paper, the effects of fragmentation on the complexity of the economy of the Chicago region are studied from a set of input-output tables estimated for the period 1978-2014 using Average Propagation Lengths (APLs).
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REAL 09-T-6
Housing price equality and mixed communities explained by the process of gentrification: Evidence from Chicago
Laura Atuesta

Abstract:During the decade of 1990s, cities in the US have undergone different gentrification processes. In Chicago, the process of gentrification cannot be studied as a unified phenomenon because the causes and consequences are different depending on the demographic characteristics and spatial location of the gentrified neighborhoods. When the gentrification process involves a mixture of ethnic and income groups, gentrified neighborhoods develop more housing price equality than non-gentrified neighborhoods. This is the case of gentrified tracts in the North and Northwest sides of the city, areas where most of the gentrified neighborhoods are located. While in the North and the Northwest, the gentrification was characterized by an influx of Hispanic population in white neighborhoods, in the South, it was driven by high-income blacks in predominantly black neighborhoods. Using a theoretical model originally developed by Epple and Sieg (1999), empirical evidence of heterogeneity of income and preferences in neighborhoods that have been gentrified will be presented, and housing price equality using quantile analysis will be conducted. The analysis will explore the effects of gentrification on different percentiles of the housing price distribution. Gentrification in the North and Northwest does not affect prices in the lower tail of the distribution allowing the lower-income Hispanic population to enjoy housing opportunities outside their ethnic enclaves, and increasing price equality in gentrified tracts. Keywords: gentrification, housing price inequality, mixed-income neighborhoods, quantile regression.
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REAL 09-T-5
Linking Land Use Planning and Regulation to Economic Development: A Literature Review
Jae Hong Kim

Abstract:This review examines how land use planning and regulation may affect the performance of regional economies and identifies a set of complex causal links that suggest the possibility of countervailing effects. On the one hand, land use regulation or planning practice may promote regional economic development by 1) mitigating negative externalities and implementing amenity improvements, 2) encouraging compact development that delivers not only environmental but also fiscal and economic benefits, 3) improving and/or broadening transportation options, and 4) reducing uncertainty and transaction costs involved in land development. On the other hand, it may hinder regional economic prosperity by 1) generating a mismatched pattern of development, if fragmented local governments seriously distort market processes, 2) dramatically increasing the prices of developable land, housing, and business spaces, and 3) preventing regions from meeting the increasing need for labor as well as housing in a timely manner. Overall, linking land use planning and regulation to economic development requires context-based management of land use that promotes potential positive effects and/or dampens negative effects rather than simply reducing government interventions in land development or trying to articulate a one-size-fits-all policy approach. [Full Document available at Journal of Planning Literature]

REAL 09-T-4
Introducing Input-Output Analysis at the Regional Level: Basic Notions and Specific Issues
Ana Lúcia Marto Sargento

Abstract:This paper reviews the literature on regional input-output model estimation with particular attention to the development of interregional input-output models under conditions of limited information.  The review covers simple nonsurvey estimation to more sophisticated approaches drawing on gravity and spatial interaction concepts, bi-proportional matrix adjustments and information theory applications.  The review considers issues in traditional interindustry and commodity-industry accounting frameworks.
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REAL 09-T-3
A Methodology to Compute Regional Housing Index Price Using Matching Estimator Methods
Dusan Paredes-Araya

Abstract:This paper proposes a methodology for a spatial cost index of housing that considers spatial heterogeneity in properties across regions. The index is built by combining three different techniques to reduce the spatial heterogeneity in housing: Quasi-experimental methods, hedonic prices and Fisher spatial price index. Using microdata from the Chilean survey CASEN 2006, it is shown that the quasi-experimental method called Mahalanobis metric within propensity score calipers (MMWPS) leads to a significant reduction in the potential bias. The technique matches dwellings of a particular region with other properties of similar characteristics in the benchmark region (Metropolitan region). Once the houses are matched, a hedonic price model is computed, and a regional housing price matrix is created using Fisher spatial price indices. The paper concludes the existence of price differentials for homogeneous houses across regions in Chile.
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REAL 09-T-2
Domestic and Cross-Border Effects of Public Capital: A SVAR Approach for the Spanish Regions
Miguel A. Márquez, Julián Ramajo, and Geoffrey J.D. Hewings

Abstract:Within the approaches that have been applied to assess the impact of public capital on economic growth, this paper estimates the dynamic effects of public infrastructures using a structural vector autoregressive (SVAR) methodology for the Spanish regions. From a methodological point of view, our work contains different innovative features with respect to the previous studies using VAR models. The most relevant contribution is to propose a new way (through bi-regional models) to estimate the spillover effects of public capital in a region on the economic growth of the rest of regions of the country. From a policy perspective, the results highlight how these new models could contribute to the allocation of public investments in order to give promote balanced regional growth, shedding new insights into the analysis of regional economic growth processes.
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REAL 09-T-1
The Journey to safety: Conflict-Driven Migration Flows in Colombia
Nancy Lozano-Gracia, Gianfranco Piras, Ana Maria Ibáñez and Geoffrey J.D. Hewings

Abstract:While there is a growing econometrics literature on the modeling of conflict and the interactions with trade, there has been relatively little evidence modeling the interregional migration behavior of individuals internally displaced by conflicts.  The present paper models the flows of households forced to leave their residence because of violent conflicts in Colombia.  Results shed light on the main determinants of what we call journey to safety.  Violence appears to be one of the most relevant pushing effects together with the absence of institutions and the dissatisfaction with the provision of basic needs.  Furthermore, for regions with extreme violence levels, individuals appear to be willing to relocate to more distant locations.  On the destination side, most populated regions are more attractive as well as areas with a sufficient level of fulfillment of basic needs.
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REAL 08-T-5
Agglomeration Economies and Two Contrasting Transportation Costs: Complementary and Substitution Perspectives
Daisuke Nakamura

Abstract: Two contrasting attributes of transportation costs are introduced in this analysis.  These are categorized as internal and external to the firm or the industry.  It is shown that the trade-off interaction between agglomeration economies and transportation costs in established location theory solely refers to the external nature of transportation costs to the firm.  This paper reveals that there is another type of transportation costs which is internal to the firm and plays an important role in the structure of the production linkages within the industry.  An alternative model is demonstrated to clarify the roles of these two types of transportation costs as substitute and complementary effects to agglomeration economies.
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REAL 08-T-4
Economic Geography and Spatial Wage Structure in Spain
Jesús López-Rodríguez, Miguel A. Márquez
and Andres Faiña

Abstract: In this paper, the nominal wage equation of a Core-Periphery model of New Economic Geography is derived.  In order to show empirical evidence of the resulting hypothesis, the nominal wage equation is estimated for the Spanish provinces in the year 2003.  Our results illustrate that the market access variable is statistically significant and quantitatively important in the explanation of the spatial wage structure observed in Spain.  Moreover, we show that there are at least three channels through which market access might be affecting Spanish wages: human capital, productive capital and the size of R&D activities.
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REAL 08-T-3
Incorporating Sectoral Structure into Shift-Share Analysis
Geoffrey .J.D. Hewings, Miguel A. Márquez
and Julián Ramajo

Abstract: The objective of this paper is to present a way to incorporate sectoral structure within the measures of regional growth provided by the traditional shift-share analysis.  The new tool makes it possible to considerer in the decomposition analysis three new effects: sectoral national effect, sectoral structural effect, and sectoral differential effect.  To illustrate the analysis of sectoral structure through this extension of the shift-share method, an application is provided using sectoral data for Extremadura, a Spanish region, for the period 1990-2004.  The results highlight how these new effects can shed light on the analysis of regional economic performance.
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REAL 08-T-2
Industrial Agglomeration Effects on Regional Economic Growth:
A Case of Japanese Regions
Akihiro Otsuka and Norihiko Yamano

Abstract:  This paper sheds empirical light on the relationship between industrial agglomeration economies and regional economic growth and its impact on the convergence of the regional disparities in productivity.  An empirical analysis, based on Japanese prefectural data for the period 1980–2002, indicates that industrial agglomeration has significant effects on regional growth.  Furthermore, industrial agglomeration contributes to economic convergence in the manufacturing industry, while it contributes to increasing disparities across regions in the non-manufacturing industry.  These results suggest that an increase in the share of non-manufacturing sectors has the potential to create such regional disparities.
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REAL 08-T-1
Regional Business Cycles in Japan
Motonari Hayashida  and Geoffrey J. D. Hewings

Abstract: In previous studies of regional business cycles in Japan, there were the critical differences of the amplitudes and the turning points among each business cycle by region.  However, there is a problem in the previous studies; they relied on one series, typically an index of industrial production in manufacturing sectors, and neglected the performance of the other sectors in the region.  Burns and Mitchell (1946) noted that business cycles consist of a pattern of recurrent, serially correlated and cross-correlated movements in many economic activities.  Therefore it is necessary to include information on sectors other than manufacturing in order to provide a more complete measure the business conditions of a region.  Specifically, we extract each regional business index from four business indicators using the principal components method, and applied the regime-switching model to identify the turning points in regional business cycles.  Our result shows that the sector that relatively generates the greatest influence on the business cycles is different by region.  Chubu, Hokuriku, Chugoku and Kyushu are more influenced by production activity and consumption change; Tohoku, Kanto and Shikoku are by production activity and employment situation.  Kansai and Hokkaido are influenced by all factors of production activity, consumption change and employment situation.  Furthermore, different regions have different features also from the viewpoint of the turning points of business cycles.  The average duration of a business cycle in Kanto and Kansai is similar to that of the national cycle while those in Hokkaido, Chubu, Hokuriku, Chugoku and Shikoku are shorter.  The share of the expansion phase in Tohoku and Kyushu are higher than that of the nation-wide business cycle. 
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REAL 07-T-10
Investment in Human Capital in the Development of Clusters: A Theoretical Approach
Carlos Eduardo Lobo e Silva  and Geoffrey J. D. Hewings 

Abstract: The main objective of this work is to analyze the investment in human capital in the development of clusters.  The starting point of the analysis is to understand the concept of general and specific training proposed by Gary Becker (1964) in a dynamic perspective, where what begins as specific becomes general as the cluster develops.  In the beginning of the process, a cluster is not formed yet and a single firm provides specific training.  As the cluster grows and new firms of the same sector come, the training becomes less specific and more general once now other firms can use the skills of those trained workers.  Consequently, firms will be less willing to invest in human capital and the suboptimal equilibrium may be overcome only if a third party comes to offer training to all workers.  
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REAL 07-T-9
The Changing Structure of Trade and Interdependence in a Mature Economy: The US Midwest
Geoffrey J. D. Hewings and John B. Parr

Abstract: Four questions are addressed in this paper.  First, as regions mature, what happens to their overall economic trade relationships, both internally and with other regions?  Second, is the process similar at all spatial scales, i.e. for metropolitan, regional, macroregional and national economies?  Third, are regions becoming more alike in terms of economic structure?  Fourth, what are the implications for regional competition and policy intervention, as regions become more similar and interdependent?  Analysis begins with attention on the Midwest economies, exploring changing in the nature and strength of interregional trade with analysis of changes in intra- and inter-industry trade, specialization and feedback loops.  The second part of the paper explores trade relationships within the Chicago region and finds that a different form of spatial interdependence arises.  The paper concludes with some evaluation of policy implications.
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REAL 07-T-8
The Locational Implications of Management and Production Fragmentation
Carlos Eduardo Lobo e Silva and Geoffrey J. D. Hewings 

Abstract:The main objective of this work is to show that (1) communication costs within the firm and (2) managerial structures affect both the production fragmentation process and the economic specialization of cities.  More specifically, as either communication costs diminish or managerial structures become more flexible, manufacturing plants tend to move from the large to medium-sized cities, while headquarters and business services tend to agglomerate in the metropolitan area.  Analyzing the internal organization of firms, the present paper adds new dimensions (management and communication costs) to the fragmentation process that have been ignored by the literature. 
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REAL 07-T-7
Location, Communication, and Control Within a Vertically Integrated Firm
Carlos Eduardo Lobo e Silva and Geoffrey J. D. Hewings

Abstract: The main purpose of the paper is to provide a link between the location decision and the internal organization of firms.  In the model that focuses on the relationship among agents within the firms, the owner of the firm makes two decisions: who will have the formal authority (the owner or the controller) and where the manufacturing plant will be located (near or far from the owner).  The results show that those two decisions are interdependent.  More than that, for certain parameters, the corporation goes from the second best to the first best only if it changes the decision about both aspects; changing just either the delegation scheme or location may drive it to an inferior outcome.  In these cases, a flexible managerial structure turns out to be a necessary condition for firms to benefit from locational advantages.  The positive correlation between the decentralization of decision-making and geographic decentralization predicted by the model is supported by empirical research.  Finally the recent headquarter location decision by the Boeing company is used to illustrate the results obtained. 
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REAL 07-T-6
Does a Change in Retirement Age Affect a Regional Economy? Evidence from the Chicago Economy
Seryoung Park and Geoffrey J. D. Hewings

Abstract: This paper continues the exploration of the impacts on an aging population on an economy employing a two region computable general equilibrium model that is linked with an overlapping generations framework.  Two regions are specified, the Chicago metropolitan area and the Rest of the US (ROUS).  A series of experiments is conducted; first, the impacts of changes in retirement age are considered, incrementing retirement from 65 to age 69.  Secondly, the impacts of reduction in pension benefits are examined, reducing the replacement rate from 50% (baseline) to zero percent.  Thereafter, an attempt is made to explore some optimal combinations of policies that include changing retirement age, reducing pension benefits and increasing immigration.  A final set of experiments explores the impact of retiree out-migration.  While the focus of attention is on the Chicago economy, some of the impacts on the ROUS are presented.  The results reveal that, in combination, the results are not monotonic – for different policy mixes at one point in time and over time.  A larger number of immigrants into the Chicago region and more generous pension benefits do not necessarily result in more desirable (welfare) benefits while an increase in the retirement age turns out to monotonically improve average welfare.
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REAL 07-T-5
Immigration, Aging and the Regional Economy
Seryoung Park and Geoffrey J. D. Hewings

Abstract: Using a two-region (Chicago and the Rest of the US) computable general equilibrium model integrated with an overlapping generations model, the analysis explores the implications for changes in the level of immigration into the Chicago on a variety of indicators.  Initially and not surprisingly, wages fall as a result of increased immigration.  This finding is consistent with an equilibrium view of a market receiving a supply shock and a fall in the capital/labor ratio; but after 2040, the effects appear to be reversed.  One reason for this can be traced to the retirement of the first wave of immigrants but more importantly, increasing numbers of immigrants will provide contributions to taxes that will reduce the social security tax burden and thus increase the after-tax income of native workers.  Over time, the model assumes that immigrants and their offspring begin to accumulate skills in such a way that they become undifferentiable from the native population.  In terms of regional macroeconomic impacts, immigration would appear to reverse a projected decline in gross regional product that would occur essentially as a result of an aging population with no stimulus provided by immigration.  However, in per capita GRP terms, the positive effects only occur once the immigrants (cumulatively) acquire skills to elevate their productivity levels.  The Chicago region, under an asymmetric immigration policy (Chicago gains more immigrants as a percentage of its base population than the US as a whole), actually increases its share of Gross National Domestic Product.  One might expect that, given these findings, the effect on the social security tax rate would be “positive” in the sense of either muting increases or actually decreasing the rate.  This is true until the immigrants start to retire in significant numbers after 2050; this result stems from the fact that over time, the impacts of immigration begin to diminish – a finding that is revealed in the results for the US as a whole
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REAL 07-T-4
Aging and the Regional Economy: Simulation Results from the Chicago CGE Model
Seryoung Park and Geoffrey J. D. Hewings

Abstract: The first goal in this study is to improve our understanding about economic and intergenerational welfare conditions given the future demographic changes, with particular focus at the regional level.  The second goal is to provide the sensitivity of these outcomes to selected policy reforms and suggest the policy implications to both local and federal government.  This study would be the first attempt to rigorously quantify the dynamic effect of demographic changes on the regional economies.  Attention will be directed to a discussion of the link between demographic changes and their economic impacts, with some empirical analysis derived from the Chicago economy.  A review of the received theory and some prior empirical work that has explored formal demographic-economic interactions will be provided.  The model is presented next and then the results focus on graphical presentation of the results of two scenarios, one in which no aging process is assumed and the other in which the expected pattern of aging is modeled.  The analysis is centered on a two-region model of the Chicago economy (Chicago and the Rest of the US) although the results ignore the influence of migration.
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REAL 07-T-3
An Integrated Framework of the Market Areas and Supply Areas: Combining Market-Area Systems with Supply-Area Systems
Daisuke Nakamura

Abstract: There is a potential theoretical problem in the established framework of market-area and supply-area analysis when both approaches are investigated in an integrated framework with respect to firm location.  It is argued that the mechanism of the problem is illustrated by insufficient inclusions of the notion of internal and external economies.  The alternative model formulates the spatial duality theory, which enables us to internalize these economic elements into the existing theoretical framework.  The impact of the additional elements is summarized by comparative-static methods, examining the spatial equilibrium of market-area and supply-area competitions.
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REAL 07-T-2
The Impact of Industrial Specialization or Diversity on Employment and Wage Growth: An Analysis of the Brazilian Case in the 1990s
Silvia Harumi Toyoshima and Geoffrey J.D. Hewings

Abstract: The objective of this paper was to verify if the specialization in a given industrial sector generated positive externalities in the Brazilian microregions. Analysis explored whether specialization had a greater impact on employment and wage variation in the microregions than industrial diversity, during the 1990s, when the focus upon specialized agglomerations was reinforced as the way to promote local economic development. The method utilized was adapted from the Glaeser et al. model, an externalities generation model applied to the USA case. The results showed that changes that occurred in the Brazilian industrial sector in the 1990s influenced the impact of specialization and diversity on employment and wages, and that there are many differences across the regions of the country. On the whole, the outcome showed that the specialized microregion was important to foster employment in a region where the clusters were consolidated. In a region where the clusters formation was initiated in the 1990s, the tendency was to decrease the employment and increase the wages, indicating a process of productivity augmentation. The implication is that mature industrial concentrations can foster growth more than other locations at least in Brazilian case, confirming the principal hypothesis about the presence of increasing returns in specialized locations.
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REAL 07-T-1
Industrial Clusters in the Input-Output Economic System
Michael Sonis, Geoffrey J.D. Hewings and Dong Guo

Abstract: The topological principles of the well-known Atkin Q-analysis are applied to the identification of clusters of industries using input-output systems.  The operational methodology of Q-analysis is presented in detail and supported by empirical application to the analysis of the Chicago economy in 2000.  The central point of the paper is the interpretation of the structural chains of highest dimension as the most significant input-output industrial clusters.  This new methodology provides a new way for visualizing economic complexity through the process of structural economic complication.
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REAL 06-T-13
The European Regional Growth Process Revisited: Increasing Returns and Spatial Dynamic Setting
Sandy Dall'erba, Marco Percoco and Gianfranco Piras

Abstract: Most of the recent contributions based on spatial econometrics which measure convergence among regions rely on a cross-sectional estimation of the Solow’s (1956) model. However, this type of approach presents two main drawbacks. The first one is the lack of consideration for increasing returns to scale, which are at the origin of endogenous growth and new economic geography models. The second one is that it does not consider explicitly the role of space on the development process. In that purpose, we find more appropriate to use Fingleton’s (2001) model which links manufacturing labor productivity growth to manufacturing output growth and technology gap. We extend this specification to the case of 244 European regions over 1991-2003. In addition, we develop a spatial method to endogenously detect and include the presence of spatial heterogeneity in our sample. The conclusions give new insights for policy-makers interested in convergence and regional policies developed to promote it.
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REAL 06-T-12
The Diffusion of New Technology: Adoption Subsidies, Spillovers, and Transaction Costs
Chokri Dridi and Naceur Khraief

Abstract: We establish the relation between optimal subsidy rates and spillovers from the sequential adoption of a new technology, we find that they evolve in the same direction over time. We show that spillovers, hence the subsidy rates, need not be monotonic. We show that when subsidy rates are increasing, their growth rate has to be paced by the growth rate of the present cost of the adoption of the new technology. We also show that increasing subsidies rates cannot produce the desired effect of accelerating adoption if the social cost of public funds is relatively high; hence first-best subsidy adoptions are not always viable.

Published as: Chokri Dridi and Naceur Khraief (2011) ''The Diffusion of New technology: Adoption subsidies, Spillovers, and Transaction Costs.'', Economics Bulletin, 31, 1: 771-781 

 

REAL 06-T-11
Spatial Hierarchical Analysis of Italian Regions
Paolo Postiglione and Geoffrey J. D. Hewings

Abstract: Regional interactions and spillover effects should be considered as important factors in growth analyses of regional economies.  In this paper, using a modified version of the Dendrinos-Sonis model (1990), we analyze the spatial hierarchical system of Italy.  The interaction among Italian regions is considered at three different levels of spatial aggregation based on the NUTS classifications.  The results from the model strongly depend on the choice of the region considered as the numeraire.  In this paper, we define some general rules to help economic researchers in the choice of the reference region.
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REAL 06-T-10
Measuring agglomeration: an exploratory spatial analysis approach applied to the case of Paris and its surroundings 
Rachel Guillain and Julie Le Gallo

Abstract: This paper suggests a methodology allowing the measurement of the degree of spatial agglomeration and the identification of location patterns of economic sectors. We develop an approach combining the locational Gini index with the tools of Exploratory Spatial Data Analysis. Applying this methodology on Paris and its surroundings for 26 manufacturing and services sectors in 1999, we find that the Gini coefficient and the global Moran’s I provide different but complementary information about the spatial agglomeration of the sectors considered. Moran scatterplots and LISA statistics reveal a high level of diversity in location patterns across sectors.
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REAL 06-T-9
Political Economy and Irrigation Technology Adoption Implications of Water Pricing under Asymmetric Information
Chokri Dridi and Madhu Khanna

Abstract: We analyze the design of two water pricing rules emerging from two alternative farmer lobby groups, formed by the adopters and the non-adopters of modern irrigation technology. We examine the implications of these rules for the endogenously determined lobby size, for irrigation technology adoption, water use and social welfare. Two pricing rules are considered here: (i) two-part tariff, with a volumetric part and a fixed part and (ii) nonlinear pricing, with the price of water varying with volume, each designed to meet the budgetary costs of water provision. Under each of these rules, we find that the group in majority prefers a fee designed to shift the burden of the cost of water provision on the other group. The characteristics of the resulting fee structure and its welfare implications are further explored through a numerical illustration.
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REAL 06-T-8
Determinants of Interregional Migration in Italy: 1991-2000
Roberto Basile and Marco Causi

Abstract: After the reduction of public transfers to the South of Italy that occurred during the early 1990s, Southern residents experienced a decrease in their permanent income. During the same period, the devaluation of the lira in 1992 allowed the highly specialized industrial areas in the North-East-Centre to dominate the expansion of economic activity that culminated in 2000.  These two events contributed to determine a rise in interregional migration flows in the second half of the 1990s, especially from the South to the North.  In light of this evidence, this study examines the effect of traditional determinants of net migration rates in Italian provinces during the period 1991-1995 (when the migration flows still followed a slowing path) and the period 1996-2000 (characterized by an increase in interregional migration flows).  The estimation results of a SUR model suggest that during the first period the net migration rates were weakly or not significantly affected by traditional economic variables such as the unemployment rate, level of disposable income and a province’s industrial base.  In the period 1996-2000, the migration behavior seems to have responded more faithfully to the traditional signals, as shown by higher and statistically significant coefficients of economic variables in the equation for the second period.  For both periods a significant role of the age structure of the population was found.
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REAL 06-T-7
Impacts of Demographic Changes in the Chicago Region
Sang Gyoo Yoon and Geoffrey J.D. Hewings

Abstract: Most CGE models and many econometric models pay little attention to the demographic-economic interactions in the economy, with the notable exception, of course, of labor market behavior.  However, with many national and regional economies experiencing significant demographic changes – ageing of the population, differential (in terms of income and occupational characteristics) out- and in-migration and deepened income disparities, there is a need to consider ways in which some of these demographically-induced changes can be handled.  Using Chicago data, this paper explores some implications of demographic changes – especially ageing of population and income distribution - on consumption behavior in the Chicago region using an extended Chicago Region Econometric Input-Output Model (CREIM), where a modified Almost Ideal Demand System (AIDS) is integrated.
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REAL 06-T-6
Modelling Production Externalities in the Maquila Industry
Becky Zerlentes, Geoffrey J.D. Hewings, and Stephan Weiler

Abstract: In the past decade, the maquiladora export industry surpassed both tourism and petroleum products to become the number one source of earned foreign exchange for Mexico .  The continued growth and spatial concentration of the maquila industry suggest that there may be significant production spillovers into the local environments.  Dynamic modeling, using STELLA, provides a framework for considering the maquila industry from a joint economic and environmental perspective, underscoring the importance of understanding linkages between economic growth and environmental impacts when considering infrastructural planning, linkages that have not been featured in research on this region.  An economic-ecologic model is developed for two urban communities, Nogales and Mexicali .  In the former case, the analysis revealed the inadequacy of the capacity planning for the treatment of effluent; in the latter case, conservative projections reveal that the system upgrades should be able to handle demands through 2020.
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REAL 06-T-5
Retirement Exodus and Its Impacts on Regional Economies: Simulation Results from the Chicago CGE Model
Seryoung Park

Abstract: This paper analyzes the impact of large retirement out-migration (a so called retirement exodus), which is expected to accelerate with the rapid transition to an ageing population over the next two decades.  Specifically, this study quantifies the effect of retirement migration and ageing population on both a regional and the national economy in terms of its impact on consumption patterns by age cohort, labor market, and industry structure.  For this purpose, this paper uses a two-region Computable General Equilibrium (CGE) model, combined with an Overlapping Generation (OLG) framework, where all the economic interactions arising from demographic changes can be captured.  In addition to the macroeconomic consequences of demographic changes, this study will also assess the likely impacts of changes in policy, such as the pension fund liabilities, and favorable foreign immigration policy.  
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REAL 06-T-4
Wages Differentials and Interregional Migration in the U.S. : an Empirical Test of the “Option Value of Waiting” Theory
Roberto Basile and Jaewon Lim

Abstract: The ‘option value of waiting’ theory applied to interregional migration predicts that a potential migrant actually moves only when the wage differential between origin and destination places exceeds a certain threshold, which might be much higher than the Marshallian trigger.  In this paper we exploit the panel structure of a dataset on interregional migration among nineteen MSAs in the US from 1993 to 2001 to estimate a modified dynamic gravity model of migration.  In particular, using both semi-parametric and GMM estimators (taking into account possible endogeneity of the explanatory variables), we find robust evidence of a non-linear relation between migration and wage differentials.  With a wage differential smaller than a certain threshold, people rarely move controlling for the other socioeconomic variables.  Only beyond the threshold, the interregional migration grows rapidly proving an important role of the option value of waiting in migration decision process. 
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REAL 06-T-3
Spatial Interdependence in a Metropolitan Setting
Geoffrey J.D. Hewings and John B. Parr

Abstract: Consideration is given to the spatial structure of the metropolitan area, and to the tendency for this to be generalized in terms of the stark dichotomy of city and suburbs.  Focusing on a four-zone metropolitan area, a model of spatial interaction is outlined, the components of which are based on intersectoral trade, labor mobility, and consumption-expenditure patterns.  These components are drawn together as layers in an organized sequence of processes.  The linked components are shown to give rise to intricate patterns of spatial interdependence.  These have the effect of blurring the city-suburbs distinction, and are fundamentally different from comparable patterns at other spatial scales.
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REAL 06-T-2
Comparing Matrix Adjustment Methods: A Formal Approach

Louis de Mesnard

Abstract: Matrix adjustment methods are very useful in regional economics to project or update matrices.  The principle consists of finding the matrix that is the closest to an initial matrix subject to column and row sum totals of a target matrix.  Many authors have tried to determine which matrix-adjustment method is the best from an empirical point-of-view using real data.  In order to address the question from a theoretical point-of-view, the article examines the simpler problem of vector adjustment and then returns consideration of matrices.  The information-lost minimization (biproportional methods and RAS) leads to a multiplicative form and generalizes the linear model.  On the other hand, the distance minimization that leads to an additive form tends to distort the data by giving a result asymptotically independent of the initial matrix.  As a result, it is possible to conclude unambiguously that biproportional methods and RAS are the best for matrix adjustment because they generalize the linear model and are asymptotically the most respectful of the initial matrix while they do not generate surprising negative terms.  Moreover, measuring the gap between the projection and the target to determine which method is the best is not a good idea because the gap depends on the data; on the contrary, the gap can be interpreted in terms of a structural effect that is a general form of the shift-share method.
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REAL 06-T-1
Impact of Reallocation of Resource Constraints on the Northeast Economy of Brazil 
Geoffrey J.D. Hewings, Chokri Dridi, and Joaquim Guilhoto 

Abstract: The present paper explores the role of water and energy resource constraints and allocation on the Northeast Brazil economy.  The analysis centered on the creation of an intergrated model in which an econometric-input-output model was linked with a linear programming optimization model for resource allocation.  Over the period 1999-2012, the impact on the six agricultural sectors was to reduce their output and employment by 15% annually.  The reduction in employment in the rest of the economy was a little over 1% annually.  However, since the agricultural sectors continue to employ a significant percentage of the labor force, the aggregate loss of employment amounted to 6% of the total regional employment on average, translating into 1 million jobs annually.  When water allocation and energy resource allocations are considered simultaneously, the re-allocations are more limited, resulting in a loss of 0.78 million jobs annually.  These results suggest the need for an active link between policy making and economic development when resource constraints are present.  Some balance has to be provided between allocation and reallocation on the one hand perhaps driven by concerns with economic efficiency against anticipated losses of employment for part of the labor force with few other alternatives.
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REAL 05-T-11
Analyzing Intra-Distribution Dynamics: A Reappriasal
Giuseppe Arbia,  Roberto Basile and Gianfranco Piras

Abstract: In this paper we suggest an alternative estimator and an alternative graphical analysis, both developed by Hyndman et al. (1996), to describe the law of motion of cross-sectional distributions of per-capita income and its components in Europe. This estimator has better properties than the kernel density estimator generally used in the literature on intra-distribution dynamics (cf. Quah, 1997). By using the new estimator, we obtain evidence of a very strong persistent behavior of the regions considered in the study, that is poor regions tend to remain poorer and rich regions tend to remain richer. These results are also in line with the most recent literature available on the distribution dynamic approach to regional convergence (Pittau and Zelli, 2006).
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REAL 05-T-10
Growth, Technological Interdependence and Externalities: Theory and Evidence
Cem Ertur and Wilfried Koch

Abstract: This paper presents a theoretical model, based on the neoclassical growth literature, which explicitly takes into account technological interdependence among economies and examines the impact of location and neighborhood effects in explaining growth. Technological interdependence is supposed working through spatial externalities. The magnitude of the physical capital externalities at steady state, which is usually not identified in the literature, is estimated using a spatial econometric specification explaining the steady state income level. This spatially augmented Solow model yields a conditional convergence equation which is characterized by parameter heterogeneity. A locally linear spatial autoregressive specification is then estimated.
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REAL 05-T-9
Regional Input-Output with Endogenous Internal and External Network Flows
John R. Roy and Geoffrey J.D. Hewings

Abstract: A major characteristic of dynamic regions or sets of dynamic regions is that external exports and imports are very significant in comparison with internally generated flows. Yet, it is precisely these flows of external exports and imports that are not evaluated in conventional regional input-output (I-O) analysis. The conventional approach merely determines internal flows of intermediate inputs. However, the total observable flows also contain internally generated flows to final demand, as well as external export flows, and external import flows to supply both intermediate inputs and final demand, implying five component flows. In most past models, the latter sets of flows have not been identified, with merely their totals at each region being assumed known. Although in recent work by the first author, internally generated regional flows to final demand were determined, certain of the regional external import and export flows were assumed to be available exogenously. This is quite an unrealistic expectation. In the following, all five sets of component flows are jointly determined, including transhipments of external exports and imports. In addition, rather than assuming just a single path between each set of regions, feasible multiple paths are assumed. A link/path transformation can then be made to obtain total link flows for each category, allowing a future consideration of congestion.
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REAL 05-T-8
The Sensitivity of Multiregional Economic Structure to Improved Interregional Accessibility
Norihiko Yamano and Kazumi Hitomi

Abstract: Our recently developed Japanese Multi-Regional Econometric Input-output Model is an extended interregional econometric IO model. The interregional economic transactions by sectors are endogenously determined from the conditions of economic situation and trade barriers.  In Japan, a society with a decreasing population, further investment in the transportation infrastructure has become a pressing issue.  Employing the trade endogenized framework, the exogenous changes in the transportation network can be taken into account in our model. The numerical analysis of improved accessibility provides the economic impacts on regional economies as well as disparities. The result of sensitivity analysis shows that the improved accessibility induces the convergence of per capita labor productivity. The expansion of infrastructure has tremendous effects in the periphery regions at the initial stage, but the positive effects fade with time, and the geographical advantage of the regions located in the central part of Japan become even stronger than the base case at the later phase of the simulation.
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REAL 05-T-7
Does the Trade Balance Really Matters for Regions?
Pedro Nogueira Ramos

Abstract: This paper explores the reasons why regional economics does not focus on the regional balance of payments. The main focus will be to gauge the importance of external imbalances in regional economies, with that concept being confined to the trade (goods and services) account. Discussion centers on why regions can run wider trade deficits than nations and it is argued that they may even benefit regional economies.  Notwithstanding the limited data available, empirical evidence for EU regions is put forward to supporting the idea that regions meet more frequently trade imbalances of relevant size than those faced by countries.
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REAL 05-T-6
Using Average Propagation Lengths to Identify Production Chains in the Andalusian Economy
Erik Dietzenbacher, Isidoro Romero and Niels S. Bosma

Abstract: In this paper, we adopt the viewpoint that not only the size of sectoral linkages is relevant but also the economic distance between sectors. To measure distance, we define the average propagation length as the average number of steps it takes an exogenous change in one sector to affect the value of production in another sector. This distance does not depend on whether the linkages are forward or backward in nature. Combining the size of the linkages and the distance between sectors, allows us to visualize the production structure in terms of production chains. The empirical application studies the Andalusian economy.
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REAL 05-T-5
Identifying the Structural Changes of China’s Spatial Production Linkages Using a Qualitative Input-Output Analysis
Shiro Hioki,G.J.D.Hewings and Nobuhiro Okamoto

Abstract: In this paper, we try to identify the structural changes in China’s interregional input-output linkages over the period 1987-1997 using the Minimum Flow Analysis introduced by Schnabl (1994, 2001). The MFA clearly reveals that some major changes in the structure of China’s interregional linkages took place along with increasing self-sufficiency of many regions. Although many interregional linkages between manufacturing industries within coastal areas have decreased their relative importance, some new linkages with other industries and with other regions have gradually become more important over the same time period, leading us to conclude that China is now reorganizing the structure of economic interdependencies between its spatial units.
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REAL 05-T-4
Social Capital in a Social Network Framework: An Analysis of Social Spaces in Region of Tarapaca ( Chile )
Marcelo L. Lufin

Abstract: This paper uses Social Capital analysis, including Social Networks tools, to evaluate the participation levels in social organization as a context for social interactions.  The social area under study includes 10 municipalities located in Region of Tarapaca in Chile , a region that presents some interesting cultural features that are expected to affect the levels of participation and the way in which the social connections are structured.  A social capital framework including a network dimension was adopted, following a Position Generator spirit.  The analytical network tool was used to describe the patterns of social interaction and to identify descriptive associated factors.  The results revealed important differences between communities and some influence of potentially contact resources on the interactions patterns exhibited in each location.                In terms of Social Organizations the evidence suggests that the structures of linkage between different organizations are similar in terms of density in any community, emerging a Core composed by 4 types of organizations. The patterns of participation are presenting some particularities in terms of people characteristics by ethnicity, gender and class. In the case of household by household matrix analysis, the correlational evidence is suggesting that the variable Sex is presenting a strong connection with the participation in social organization, similar results is found to some factors of social capital defined as “Household Assimilation” and “Labor Participation”. Finally A second result suggests some differentiate effect between urban and rural communities, especially in terms of the Social Capital factors related with “Return of Human Capital” and “Household Assimilation”.
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REAL 05-T-3
Convergence in per-capita GDP across EU-NUTS2 regions using panel data models extended to spatial autocorrelation effects
Giuseppe Arbia and Gianfranco Piras

Abstract: This paper studies the long-run convergence of per-capita GDP across European regions. Most of the empirical works in this area are based on either cross-sectional or a-spatial panel data fixed-effects estimates. Here, we propose the use of panel data econometrics models that incorporate an explicit consideration of spatial dependence effects (Anselin, 1988; Elhorst, 2001; 2003). This allows us to extend the traditional convergence models to include a rigorous treatment of the regional spillovers and to obtain more reliable estimates of the parameters. Two models are considered in particular based on the introduction of a spatial lag among the esplicatives ("spatial lag model") and imposing a spatial autoregressive structure to the stochastic component ("spatial error model"). We apply such a modelling framework to the long-run convergence of per-capita GDP of 125 EU-NUTS2 regions observed yearly in the period 1977-2002. The paper also provides a comparative study between the results obtained with the two proposed models and those obtained on the same set of data with the standard b-regression, with the standard b-regression augmented with a spatial component, and with the standard fixed-effect panel data model. 
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REAL 05-T-2
Spatial Heterogeneity and Interregional Spillovers in EU: Some Evidence about the Effects of Cohesion Policies on Convergence
Julián Ramaj, Miguel A. Márquez, Geoffrey J.D. Hewings and Maria M. Salinas

Abstract: In this work, using a spatial econometric perspective, the speed of convergence for a sample of 163 regions of the European Union over the period 1981-1996 is estimated. For this purpose, we use a specification strategy which allows an explicit modeling of both spatial heterogeneity and spatial autocorrelation found in the analyzed sample. The estimated final model combines groupwise-heterocedasticity, the identification of two regimes (Cohesion and non-Cohesion countries) and spatial dependence. Our results show how an appropriate treatment, simultaneously, of the problems derived from spatial structural instability and substantive spatial dependence can shed new insights into the European convergence process. One of the main findings of the paper is that the analysis opens a path to discern the ex-post general effects of European Union regional policies as a whole on the regional convergence process in terms of the Cohesion/Non Cohesion country dichotomy. Our estimations indicate that over the analyzed period there was a faster convergence in relative income levels of the regions belonging to Cohesion countries (5.3 per cent) than in the rest of the regions of the European Union (3.3 per cent). Therefore, our results contrast with other evidence that points to the fact that the convergence process in Europe stopped at the beginning of the 1980s.
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REAL 05-T-1
Dynamics Effects within a Regional System: An Empirical Approach
Miguel A. Márquez, Julián Ramaj and Geoffrey J.D. Hewings

Abstract: This paper focuses on the dynamic effects under which the regional economic growth processes are accomplished, breaking them down into two broad types: neighborhood and economy-wide effects. By means of a proposed dynamic space-time empirical model, the competition structure within a multi-regional economic system is developed.  Co-integration/error correction modeling techniques are used to support the existence of this competition structure over both the short- and long-term.  As an application, we show the dynamic effects on the evolution of the regional performance of Spanish regions over the period 1972-2000.  Our results indicate that some macroeconomic forces are operating through time into this Spanish system since positive and negative effects are detected at both economy-wide and neighborhood levels.  Further, the findings show that a new taxonomy of the Spanish regions could provide some guidance for the development of appropriate measures for regional economic policy.
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REAL 04-T-20
Spatial and Sectoral Productivity Convergence between European Regions, 1975-2000
Julie Le Gallo and Sandy Dall'erba

Abstract: This paper analyzes the evolution of labor productivity disparities among 145 European regions over 1975-2000 according to the concepts of s- and b-convergence and emphasizes the importance of including both spatial effects and a disaggregated analysis at a sectoral level.  We detect s-convergence in aggregate labor productivity and in the service sectors but not in the other sectors.  This result can be explained by a transfer of resources from the agricultural sector to the more productive sectors that has been more marked in the poor regions.  Empirical results also indicate that the common indicator of s-convergence lead to a bias when spatial effects are not included in the analysis.  We then estimate b-convergence models including the relevant spatial effects for each sector.  The results show that inequality in productivity levels between core and peripheral regions persist and highlight how convergence speeds and the nature of spatial effects vary from one sector to another.
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REAL 04-T-19
Structure of Interregional Trade and Migration Flows in Spain: Analogy or Disparity?
Sandy Dall'erba and Dong Guo          

Abstract: The purpose of this paper is to perform an exploratory investigation of the similarity between the economic structure of interregional trade and migration flows within Spain for the years 1998 and 1999. Both variables act upon regional economic growth, but their flows rely on different driving forces. We apply SONIS’ ,1980, extreme tendency decomposition to the flow matrices. The results reveal that half of the most important trade and migration flows have the same origin and destination regions and take place mostly between neighbors. This may be due to increasing transportation and non-pecuniary costs with distance. The same conclusions hold for flow growth.
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REAL 04-T-18
The Impact of E.U. Regional Support on Growth and Employment
Sandy Dall'erba and Julie Le Gallo

Abstract: In this paper we assess the impact of structural funds on the per capita GDP and employment convergence process of 145 European regions over 1989-1999.  This paper goes beyond the recent contributions on European regional policies and convergence since each of the five objectives of regional support is studied and spatial effects are included in the analysis.  For this purpose we use spatial econometrics to include the relevant spatial effects in the estimation of the appropriate conditional b-convergence model.  The impact of the funds and their spatial lags indicate few significant results, and when they are, their extent is very small or even negative.  This raises some doubts on the efficiency of regional support and call for a deep reform for the next programming period.
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REAL 04-T-17
Space-Time Lags: Specification Strategy in Spatial Regression Models
F.A. López and C. Chasco

Abstract: The purpose of this article is to analyze the dynamic trend of spatial dependence, which is not only contemporary but time-lagged in many socio-economic phenomena. Firstly, we show some of the commonly used exploratory spatial data analysis (ESDA) techniques and we propose other new ones, the exploratory space-time data analysis (ESTDA) that evaluates the instantaneity of spatial dependence. We also propose the space-time correlogram as an instrument for a better specification of spatial lag models, which should include both kind of spatial dependence. Some applications with economic data for Spanish provinces shed some light upon these issues.
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REAL 04-T-16
The Effects of the Brewery Industry on the Evolution of the Metal Can Industry
Moshe Yanai

Abstract: Positive interactions in business have received little attention in recent years. I propose a set of definitions and research tools for analyzing these types of interactions among organizations. These proposed tools are applied in a study of the interaction between the metal can and large breweries industries. Although the proposed set of propositions was not supported by the data, there is some evidence that positive interactions do play a role in determining the fate of organizations. Future research is needed for better understanding and generalization of the conditions in which positive interactions are more likely to occur, and the consequences of positive interactions for organizations.
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REAL 04-T-15
DISCOSEM: An Integrated Epidemiological-Economic Analysis of Foot and Mouth Disease in the Southern Cone
Karl M. Rich

Abstract: Animal disease outbreaks present significant costs to affected countries, particularly those that are export-oriented, which have impacts over time and space. However, there has been little work to combine realistic epidemiological models with sophisticated economic analysis that incorporates dynamic and spatial aspects. This paper develops an integrated dynamic and spatial epidemiological-economic model of animal disease control (DISease COntrol Spatial Epidemiological-economic Model, DISCOSEM). The model is applied to analyze twelve alternative foot and mouth disease control strategies in the Southern Cone, based on an initial outbreak in Paraguay. Model results indicate that policies that combine vaccination in Paraguay and stamping out elsewhere have the highest benefits, given that such a combined policy leads to slightly shorter outbreaks and was less costly than pure stamping out. Prophylactic, preventative vaccination by nearby regions (i.e., vaccinating upon discovery of the disease in Paraguay) is the most effective strategy from an epidemiological standpoint and the best short-term policy, but resulted in reduced benefits over time, given the disruption vaccination policies have on accessing export markets.
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REAL 04-T-14
A COMPUTABLE GENERAL EQUILIBRIUM MODEL TO ANALYZE DISTRIBUTIVE ASPECTS IN BRAZIL WITH A TRADE POLICY ILLUSTRATION
Samir Cury, Allexandro Mori Coelho and Carlos Henrique Corseuil

Abstract: This paper has been developed using a CGE modeling strategy for simulations of Brazilian trade policies that allows the analysis of income distribution impacts of macro shocks with complex and systemic propagation methods. In order to capture the distributive impacts, the model adopts a specific design focused on the separation of production and institutional factors, such as labor and households. The model is divided into three blocks: product market, factor market (essentially labor), and one block that handles income transfers among institutions. The labor market block incorporates a recent theoretical advance that allows the determination of involuntary unemployment in the equilibrium. The third block includes information on the distribution of the value added in the productive process among production factors, as well as its redistribution among agents/institutions considered in the model. The simulations of a partial “closure” of the economy show a modest welfare reduction for most workers and their families. Also in this paper, we checked the homogeneity property of CGE Models and concluded that it can hold only with full indexation of all income transfers, which has important implications for the income distribution process.
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REAL 04-T-13
STRUCTURAL CHANGE DECOMPOSITION THROUGH GLOBAL SENSITIVITY ANALYSIS OF INPUT-OUTPUT MODELS
Marco Percoco, Geoffrey J. D. Hewings and Lanfranco Senn

Abstract: Sensitivity analysis has become an important tool to test the robustness of estimated economic models. In this paper we propose the use of simulation-based sensitivity analysis to identify the fundamental structure of the economy. To show the possibilities of this technique, we provide empirical evidence on the path of structural change occurring in the Chicago economy by running simulation in projected input-output tables over the period 1975-2010.
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REAL 04-T-12
TYPOLOGY OF STRUCTURAL CHANGE IN A REGIONAL ECONOMY: A TEMPORAL INVERSE ANALYSIS
Yasuhide Okuyama, Michael Sonis And Geoffrey J. D. Hewings

Abstract: Earlier studies (Hewings et al., 1998, Okuyama et al., 2002a, and Okuyama et al. 2002b) investigated the hollowing-out phenomenon of the Chicago economy, in which the manufacturing sectors in Chicago have decreased their intermediate dependency within the region while the service sectors have increased their dependency. In this paper, a set of annual input-output tables for the Chicago metropolitan economy during the period of 1980-97 was again employed for a further investigation of the structural change, using an alternative tool, the Temporal Leontief Inverse Analysis (Sonis and Hewings, 1998), which can assist in exploring trends and uncovering tendencies in individual sectors or groups of sectors within the context of an economy-wide system of accounts. The results are compared with the earlier studies for examining the nature and details of the hollowing-out phenomenon.
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REAL 04-T-11
STRUCTURAL CHANGES IN THE INDONESIAN ECONOMY: A NETWORK COMPLICATION APPROACH
Nuzul Achjar, Michael Sonis and Geoffrey J.D. Hewings

Abstract: Using a time series of social accounting matrices (SAMs) for Indonesia, an exploratory analysis is conducted to explore some of the more important structural changes in that nation’s economy. By adopting a block structural path analysis, attention was directed to the network complication engendered by gradually exploring links between one subsystem in the SAMs and the remaining systems. Important changes in the structure of production were revealed but the dominant changes appeared to lie in the distribution of income between factors, especially the growing importance of labor income and the concomitant change in consumption as incomes have risen. The effects of the 1997 financial crisis was discernible but the long-term implications remain to be explored.
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REAL 04-T-10
VERTICAL CONNECTIONS IN THE MIDWEST ECONOMIES: THE ROLE OF INTERNAL AND EXTERNAL TRADE
John J.Y. Seo, Geoffrey J. D. Hewings and Michael Sonis

Abstract: An earlier paper (Hewings et al., 1998), evidence suggested that the Chicago metropolitan region was hollowing out, namely becoming less dependent on internal-to-the-region sources of inputs and sales of products and services. The findings raised the question about where this spatial dependence had relocated and the current paper explores the process of structural interdependence for the Midwest economy using a REIM (Regional Econometric Input/Output Model). The model examines the Midwest, the constituent states of Wisconsin, Illinois, Indiana, Ohio and Michigan, and the Rest of the US in a six-region formulation. Based on the flow matrix from the model, a feedback loop analysis is first conducted to identify the spatial geographic structure of trade flows. This study further examines industrial interdependencies in a sequential production process, by applying Maddigan’s vertical connection index to the multi-region framework with a particular focus on the role of interregional and inter-activity trades.
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REAL 04-T-9
THE INTERREGIONAL IMPACT OF INTERNATIONAL EXPORTS ON THE MIDWEST ECONOMIES
John J.Y. Seo and Geoffrey J. D. Hewings

Abstract: While US export shares of total production remain small, little is known about the potential differential effect that international exports have on regional (state) economies. This paper presents the percentage of each state's output that is dependent both directly and indirectly on international commodity exports from the Midwest. Based on a Midwest Regional Input/Output Econometric Model, it explores the intra- and inter-regional economic linkage among six regions of five Midwest states and the rest of US region. The linkage is analyzed for 13 sectors but focuses exclusively on the impacts generated by exports from the merchandise sectors. The indirect export share is further decomposed into three sources: self-reinforcing, Midwest regional spillover, and non-Midwest spillover.
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REAL 04-T-8
A MODEL OF HOUSING PRIVATIZATION DECISION: THE CASE OF RUSSIA
Maria Plotnikova

Abstract: This study addresses the issue of housing privatization in Russia in the course of the1990s. Privatization was started as a first step for creation of housing market in order to efficiently allocate resources in the use and production of housing, as well as to phase out the state budget financing of housing. Unlike the other post-socialist countries where housing was sold to the residents at discount prices, in Russia dwellings were offered to their residents free of payment. The objective of this study is to offer a better understanding of the structural components of privatization by formally modeling housing privatization decision from the household point of view. The model is based on a trade-off between certain value of renting and uncertain value of owning. Using the results of the theoretical model, an empirical model of the privatization decision from the point of view of the household is formulated. The findings of the empirical model are that household characteristics such as education and age affect privatization decision but income does not. Higher quality dwellings are more likely to be privatized. There are also locational effects indicating that place-specific factors such as amenities, municipal policies affect privatization decision. This research has important policy implications with respect to housing policies in Russia, and future housing privatization efforts in other countries.
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REAL 04-T-7
REGIONAL DISPARITIES IN THE EUROPEAN UNION AND THE ENLARGEMENT PROCESS: AN EXPLORATORY SPATIAL DATA ANALYSIS, 1995-2000
Cem Ertur and Wilfried Koch

Abstract: The aim of this paper is to study the space-time dynamics of European regional per capita GDP in the perspective of the enlargement of the European Union. We find strong evidence of global and local spatial autocorrelation as well as spatial heterogeneity in the distribution of regional per capita GDP in a sample of 258 European regions including regions from acceding and candidate European countries over the period 1995-2000. However, contrary to previous results obtained in the literature highlighting a North-South polarization scheme, the enlargement process leads to a new North-West – East polarization scheme. The economic dynamism of EU15 regions and acceding or candidate regions is also investigated by exploring the spatial pattern of regional growth. Implications for regional development and cohesion policies are finally explored.
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REAL 04-T-6
THE TRANSPORT-REGIONAL EQUITY ISSUE REVISITED
Eduardo Simões de Almeida, Eduardo Amaral Haddad and Geoffrey J.D. Hewings

Abstract: The objective of this paper is to analyze the relationship between transport and regional equity in Minas Gerais (Brazil). Furthermore, the existence of a trade-off between economic performance and regional equity is investigated as well. To do so, we develop a spatial computable general equilibrium model based on Bröcker’s approach to implement comparative static analysis, explicitly incorporating iceberg transportation costs. Four activities are modeled, namely, production, final demand, transportation and exports. Two production factors are assumed: labor and other factors. In the model, there are twelve domestic regions and three external regions. We develop four counterfactual experiments based on decreases in transportation costs due to a “distance shortening.” The main findings indicate that if the transport infrastructure improvement is focused only among poor regions, the promotion of the regional equity is insignificant. If the transport infrastructure improvement links are concentrated among rich regions, there is an increase in regional income inequalities. However, if the improvements are targeted to the roads linking poor regions and rich ones, there is promotion of regional equity. The same result will occur when improvements are made to all road links of the state.
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REAL 04-T-5
THE COST OF A STRUCTURAL CHANGE: A LARGE AUTOMOBILE PLANT IN A BRAZILIAN LESS DEVELOPED REGION
Luiz Ricardo Cavalcante and Simone Uderman

Abstract: The aim of this paper is to evaluate the costs and benefits associated with the establishment of a large automobile plant in the Brazilian state of Bahia, located in one of the poorest macro-regions of the country. It is argued that behind Ford’s decision to establish a plant far from the economic center of the country are not only the large incentives package offered at the Federal and State levels, but also the 1999 Southern Common Market (Mercosur) crisis, and the global strategies of the company. The incentive package given to Ford at the state level is estimated in about R$ 2.642 billion, or 75% of the total investment. Although high in absolute terms, when the total incentives are divided by the investment, they seem to be similar to the incentives given by other Brazilian states to automobile assemblers in the 1990s. It is shown that the largest part of the incentives is due to tax breaks, which represent more than three quarters of their total value. Despite the large absolute number of jobs created by the assembler and first tier suppliers, it is argued that the main benefit associated with the project is a likely (but uncertain) structural change in the state economy, as a result of the backward and forward linkages to be created. The strength of these linkages, however, depend upon the success of the project itself, and the state government, actually, has little control over this issue.
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REAL 04-T-4
SENSITIVITY ANALYSIS IN APPLIED GENERAL EQUILIBRIUM MODELS: AN EMPIRICAL ASSESSMENT FOR MERCOSUR FREE TRADE AREAS AGREEMENTS
Edson P. Domingues, Eduardo A. Haddad and Geoffrey J.D. Hewings

Abstract: In this paper, an applied general equilibrium (AGE) model is used to assess the welfare results of alternative free trade areas (FTA) for three MERCOSUR countries, Brazil, Argentina and Uruguay. The results of the sensitivity to shocks and parameters are evaluated. In such a way, the robustness of the results to different degrees of intra-blocs trade liberalization and trade elasticities will be assessed. It is shown that welfare gains for Brazil are very robust to different degrees of trade liberalization, and allocation effects drive these gains. For Argentina and Uruguay, welfare gains depend heavily on a higher degree of liberalization, as they are connected to terms of trade effects. This paper shows that trade elasticities are important parameters driving the model’s results, as welfare gains for Argentina and Uruguay in both scenarios are very sensitive to these parameters. Therefore, AGE models results of alternative FTA for Mercosur countries need to consider the uncertainty about parameters and shocks.
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REAL 04-T-3
PRODUCTIVITY CONVERGENCE AND SPATIAL DEPENDENCE AMONG SPANISH REGIONS
Sandy Dall’erba

Abstract: This paper estimates the evolution of labor productivity disparities among 48 Spanish regions over 1980-1996 according to the concepts of Beta- and Sigma-convergence and emphasizes the importance of including both spatial effects and a disaggregate analysis at a sectoral level. Various recent contributions have tested the origin of productivity differentials among regions in Europe (Esteban, 2000; Maudos et al., 2000; Cuadrado-Roura et al., 1999, among others). However, despite the literature focusing on the essential role of spatial dependence, the impact of neighboring locations' productivity has not been widely investigated. The results display that spatial effects vary from one sector to another and Beta- convergence in labor productivity is greater at the aggregate level than at the level of agriculture and industry, but not of services. When Sigma-convergence is examined in order to measure the narrowing of inequalities, it reveals that convergence occurs in aggregate labor productivity but not in productivities by sector. The reason comes from a transfer of resources from agriculture towards more productive sectors that has been more pronounced in the poor regions than in the rich ones.
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REAL 04-T-2
THE DETERMINANTS OF THE REGIONAL FOREIGN DIRECT INVESTMENT IN CHILE
Johanna D. Robles and Geoffrey J.D. Hewings

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REAL 04-T-1
STRUCTURAL CONVERGENCE OF THE NATIONAL ECONOMIES OF EUROPE
Marco Percoco, Sandy Dall’erba and Geoffrey J.D. Hewings

[Published in Van Geenhuizen M., Reggiani A. et Rietveld P. (Eds.), Policy Analysis of Networks and Regions, Ashgate, Aldershot , UK , forthcoming]

Abstract: Analysis of convergence has centered on movement of indices such as per capita incomes or welfare for countries or regions within countries. In this paper, the analysis focuses on the structure of economies in terms of the distribution of production across sectors and explores the implications of convergence of structure for a subset of EU countries. To assist in the exploration, some new methodology is introduced, based on the notion of a field of influence of change. A set of sensitivity indices and an associated importance matrix are constructed for a set of intercountry input-output tables. The results find that sectors at the European level are become more similar than the national economies as a whole.

REAL 03-T-32
TEMPORAL CHANGES IN THE STRUCTURE OF CHICAGO'S ECONOMY: 1980 - 2000
Dong Guo, Geoffrey J.D. Hewings and Michael Sonis

Abstract: In an attempt to further explore the impact of structural changes in the Chicago economy, two methods will be employed to attempt to reveal the nature of any fragmentation/hollowing out process operating in the Chicago economy, namely the superposition decomposition method and Q-analysis. Superposition decomposition can decompose a flow into the sum of a set of weighted extreme tendencies acting according to each extreme tendency's importance in the total intermediate flows. Q-analysis provides an alternative "slicing" procedure to uncover a hierarchy in the structure of relationships. Using a set of annual input-output tables, the applications to Chicago's economic structure analysis in the period of 1980 to 2000 revealed the development of a simpler production structure inside the region, the declining interactions of manufacturing with other sectors in the region while there was increasing interactions of service with other sectors. While the total output of manufacturing did not decrease, all these features provide another evidence of hollowing-out effect in Chicago's economy found by others (Hewings et al., 1998). Also, it reveals production fragmentation patterns at the regional level, paralleling findings of similar processes at the international level.
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REAL 03-T-31
A Multi-layered Approach to the Measurement of Intra-Regional Interdependence within a Metropolitan Region
Geoffrey J.D. Hewings, Michael Sonis and Chokri Dridi

[Coming soon]

REAL 03-T-30
MIYAZAWA MEET CHRISTALLER: SPATIAL MULTIPLIERS WITHIN A TRIPLE DECOMPOSITION OF INPUT-OUTPUT CENTRAL PLACE SYSTEM
Michael Sonis and Geoffrey J.D. Hewings

Abstract: A new triple UDL-factorization (U represents an upper-triangular block matrix, L represents a lower-triangular block matrix, and D represents the diagonal block matrix) of the Leontief inverse is based on the Schur block-inversion of matrices. This factorization is applied to the decomposition of the Leontief inverse for input-output systems within a central place hierarchy of the Christaller-Lösch, Beckmann-McPherson type. Such a factorization reflects the process of gradual complication of the central place hierarchy and the parallel augmentation of backward and forward linkages within it. In this scheme the classical Miyazawa interrelation income multipliers play the role of spatial backward and forward linkages multipliers within developing hierarchical central place systems of towns, cities and central capital.
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REAL 03-T-29
DOES INDUSTRY MIX MATTER IN REGIONAL BUSINESS CYCLES?
Yangsu Park and Geoffrey J.D. Hewings

Abstract: This paper tackles two issues: (1) lead and lag relationship among regions and the role of the industry mix effect to this phenomenon are explored; (2) concurrent and lagged effects of the industry mix on the regional economic fluctuations are measured explicitly with the national shock identified from the principal components method. The empirical analysis focuses on five Midwest states. The findings reveal that, the business cycles of Michigan, Ohio, Indiana and Wisconsin coincide with the national cycle while the cycle of Illinois lags the national cycle by 3 to 4 months. This phenomenon turns out to be generated from the differences in industry structure since the manufacturing sector reacts promptly to the national shock while the services sector respond in a few months. As a result, relatively service-oriented Illinois lags other neighboring states. Regression analysis reveals that the industry mix effects explain more than 60 percent of the variance of the state coincident index and around 40 percent of the variation of state total non-farm employment. In addition, the simulation of VAR model demonstrates that the transmission mechanism and autoregressive property of economic activity expand the time differences in the business cycles among regions caused by the industry mix effects.
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REAL 03-T-28
LOCAL VERSUS GLOBAL CONVERGENCE IN EUROPE: A BAYESIAN SPATIAL ECONOMETRIC APPROACH
Cem Ertur, Julie Le Gallo and James P. LeSage

Abstract: Numerous studies have pointed to the econometric problems introduced by heterogeneity in cross-sectional data samples used to explore convergence suggested by neo-classical growth models. We introduce a local concept of convergence along with a Bayesian locally linear spatial estimation method to address these problems. The method allows global and local ß-convergence to be viewed in a continuous fashion. Inference regarding global convergence can be treated as a mixture distribution arising from local ß-convergence estimates from each region in the sample. Taking this approach eliminates the need to specify sub-samples and regimes as well as parameter variation schemes that have been used to model heterogeneity. We illustrate the method using a sample of 138 European regions.
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REAL 03-T-27
CHANNELS OF SYNTHESIS FORTY YEARS ON: INTEGRATED ANALYSIS OF SPATIAL ECONOMIC SYSTEMS
Geoffrey J.D. Hewings, Suahasil Nazara and Chokri Dridi

[Published in: Journal of Geographical Systems 2004, 6, 1: 7-25]

Abstract: Isard's vision of integrated modeling that was laid out in the 1960s book Methods of Regional Science provided a road map for the development of more sophisticated analysis of spatial economic systems. Some forty years later, we look back at this vision and trace developments in a sample of three areas - demographic-econometric integrated modeling, spatial interaction modeling, and environmental-economic modeling. Attention will be focused on methodological advances and their motivation by new developments in theory as well as innovations in the applications of these models to address new policy challenges. Underlying the discussion will be an evaluation of the way in which spatial issues have been addressed, ranging from concerns with regionalization to issues of spillovers and spatial correlation.

REAL 03-T-26
REGIONAL PRODUCTIVITY DIFFERENTIALS IN POLAND, HUNGARY AND THE CZECH REPUBLIC
Sandy Dall'erba, Yiannis Kamarianakis, Julie Le Gallo, and Maria Plotnikova

Abstract: This paper starts by describing the distribution of GVA, employment and productivity growth across the regions of Poland, Hungary and the Czech Republic. Next, we investigate in what extent regional per capita income gaps to the European average can be attributed to differences in productivity per worker. Finally, we extend Esteban's (2000) shift-share analysis to measure how regional productivity gaps are due to differences in industrial mix as opposed to region-specific factors. The results point out the greater influence of the second element and therefore support policies benefiting homogenously all the sectors in the least developed regions.
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REAL 03-T-25
COLOMBIAN REGIONS: COMPETITIVES OR COMPLEMENTARIES?
Jaime Bonet

Abstract: This paper analyses the characteristics of interregional competition and complementarity in Colombia during the period 1960 - 1996. The analysis is based on an application of the Dendrinos-Sonis model that is estimated using the Seemingly Unrelated Regression (SUR) estimator. The evidence shows a country with a low level of integration among the different regions and a high level of competition. The regions that have the major proportion of national GDP - Bogotá, West-Central and Pacific - exhibit a competitive relationship, and the New Departments which is the region with the larger GDP growth rate in the last decades shows only a significant relationship with itself. These findings are consistent with the observe income polarization process. Policy makers must take into account the competitive regional relationships to propose adequate policies such as the adoption of regional redistribution strategies, or other interventions (i.e. construction of infrastructure) that might enhance regional interaction and integration.
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REAL 03-T-24
AN APPLICATION OF INTEGRATED TRANSPORT NETWORK-MULTIREGIONAL CGE MODEL II: CALIBRATION OF NETWORK EFFECTS OF HIGHWAY
Euijune Kim and Geoffrey J.D. Hewings

Abstract: A transportation network-multiregional CGE model is applied to estimate the network effects of a set of highway projects on the value-added by region and industrial sector for the construction and operation periods. Among nine highways in an east-west direction in Korea, the East-West 9 highway increases the GDP by 0.300% over the 30-period time horizon with 0.016% of the GDP as the network effect. This network effect is defined as a difference between summation of the net increase in the GDP from the development of each sub-link of the highway without the spatial linkage and the change in the GDP resulting from the concurrent development of the whole links with spatial linkages. Also, the highway has the largest network effect on the manufacturing sector of Kwangju Metropolitan Area by 0.164 billion US$ per year, resulting in a gain in the regional GRP per capita by 15.88 US$ per year. Since more network effects are generated in the less-development regions such as Kwangju rather than the developed regions, highway development can contribute to the reduction in regional disparities.
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REAL 03-T-23
PyIO: A PYTHON MODULE FOR INPUT-OUTPUT ANALYSIS

Suahasil Nazara, Dong Guo, Geoffrey J.D. Hewings and Chokri Dridi

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REAL 03-T-22
AN EXPLORATORY SPATIAL DATA ANALYSIS OF BRAZILIAN INTERREGIONAL TRADE (1985-1996)
Fernando Salgueiro Perobelli and Eduardo Amaral Haddad

Abstract: The aim of this paper is to explore the spatial distribution of the interregional trade among the 27 Brazilian states for the years 1985-1996. To implement this methodology we use, as a dataset, the exports and imports flows of the Brazilian interregional input-output matrix. Based on a set of tools of spatial analysis its possible to detect the presence of global and local spatial autocorrelation in the distribution of trade and its components. The results of LISA statistics enable us to observe the presence of spatial heterogeneity in the interregional trade during the period of analysis. This paper concludes that, the detection of spatial clusters of high and low interregional trade throughout the period is an indication of the persistence of spatial disparities among the Brazilian states.
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REAL 03-T-21
TOWARDS REGIONAL GROWTH DECOMPOSITION WITH NEIGHBOR’S EFFECT: A NEW PERSPECTIVE ON SHIFT-SHARE ANALYSIS
Suahasil Nazara and Geoffrey J.D. Hewings

Abstract: The goal of this paper is twofold. The first goal is to incorporate spatial structure within shift-share analysis, to take into account interregional interaction in the decomposition analysis. Secondly, this paper develops a taxonomy of regional growth rate decompositions. A taxonomy of the spatial structure is presented; it comprises twenty alternative decomposition structures, including the original standard shift-share analysis as well as six alternative structures outlined in the taxonomy for non-spatial structures.
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REAL 03-T-20
MOVEMENT OF EQUILIBRIUM OF COURNOT DUOPOLY AND THE VISUALIZATION OF BIFURCATIONS OF ITS ADJUSTMENT DYNAMICS
Michael Sonis and Chokri Dridi

Abstract: This paper deals with the analytical and graphical representation of the bifurcations appearing from the adjustment dynamics of a 2-player Cournot duopoly, proposed by Puu (1997).  We establish admissibility conditions on the initial state of the adjustment dynamics and visualize the dynamics in the space of orbits.
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REAL 03-T-19
SPATIAL-TIME SERIES MODELING: A REVIEW OF THE PROPOSED METHODOLOGIES
Yiannis Kamarianakis

Abstract: This paper discusses three modeling techniques, which apply to multiple time series data that correspond to different spatial locations (spatial time series). The first two methods, namely the Space-Time ARIMA (STARIMA) and the Bayesian Vector Autoregressive (BVAR) model with spatial priors apply when interest lies on the spatio-temporal evolution of a single variable. The former is better suited for applications of large spatial and temporal dimension whereas the latter can be realistically performed when the number of locations of the study is rather small. Next, we consider models that aim to describe relationships between variables with a spatio-temporal reference and discuss the general class of dynamic space-time models in the framework presented by Elhorst (2001). Each model class is introduced through a motivating application.
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REAL 03-T-18
INTERDEPENDENCE AMONG THE BRAZILIAN STATES: AN INPUT-OUTPUT APPROACH
Fernando Salgueiro Perobelli and Eduardo Amaral Haddad

Abstract: The principal aim of this paper is to evaluate the inter-regional linkages based on the many-region input-output table for Brazilian regions, for the year 1996, elaborated by FIPE. This work utilizes the extraction method by Strassert, 1968 and Schultz, 1977 and modified by Dietzenbacher et al (1993). Instead of extracting one sector from a sector-based model, we will examine the effects of hypothetically extract a region from a many-region model. The method calculates the "backward linkages"; the "forward linkages" are obtained analogously from the matrix of allocation coefficients.
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REAL 03-T-17
TWO-LAYER FEEDBACK LOOP STRUCTURE OF THE REGIONAL ECONOMIES OF INDONESIA: AN INTERREGIONAL BLOCK STRUCTURAL PATH ANALYSIS
Nuzul Achjar, Geoffrey J.D. Hewings, and Michael Sonis

Abstract: This paper examines the structure of interregional dependency in a five-region division of the Indonesian economy for 1995. An interregional social accounting matrix was constructed with direct interregional flows limited to those of the production accounts. An interregional version of Block Structural Path Analysis was applied to construct the chains of dependency resulting from injections in selected accounts in each region in turn. The results revealed once again the continuation of the asymmetry between the dependencies between Jawa and Sumatera on the one hand and these two regions and the remaining three regions in the country. While significant interregional leakages existed from changes in levels of activity in the eastern part of the country, the reverse was not the case when change was initiated in Jawa or Sumatera.
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REAL 03-T-16
THE INTERDEPENDENCE OF GOODS AND SERVICES IN A BLOCK STRUCTURAL PATH ANALYSIS IN THE INDONESIAN ECONOMY
Nuzul Achjar, Geoffrey J.D. Hewings, and Michael Sonis

Abstract: The purpose of this paper is to reveal the magnitude of the relationship between goods and service sector that is originally grouped into production activities in an Indonesian social accounting matrix (SAM) framework in 1995 and 1998. Prior to the decomposition of goods and services, general pattern of the structural change in the Indonesian economy using 1975-1999 aggregated SAM will be presented. Using block structural path analysis (BSPA) that traces feedback loop effects, there is continued evidence of the dominant role of the goods sector in generating factorial and institutional incomes in the Indonesian economy. The changes in structure generated by the 1997 fiscal crisis are clearly evident
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REAL 03-T-15
A HIERARCHICAL BAYESIAN APPROACH FOR SPATIAL TIME SERIES MODELING
Yiannis Kamarianakis

Abstract: Despite the fact that the amount of datasets containing long economic time series with a spatial reference has significantly increased during the years, the presence of integrated techniques that aim to describe the temporal evolution of the series while accounting for the location of the measurements and their neighboring relations is very sparse in the econometric literature. This paper shows how the Hierarchical Bayesian Space Time model presented by Wikle, Berliner and Cressie (Environmental and Ecological Statistics, l998) for temperature modeling, can be tailored to model relationships between variables that have both a spatial and a temporal reference. The first stage of the hierarchical model includes a set of regression equations (each one corresponding to a different location) coupled with a dynamic space-time process that accounts for the unexplained variation. At the second stage, the regression parameters are endowed with priors that reflect the neighboring relations of the locations under study; moreover, the spatio-temporal dependencies in the dynamic process for the unexplained variation are being established. Putting hyperpriors on previous stages' parameters completes the Bayesian formulation, which can be implemented in a Markov Chain Monte Carlo framework. The proposed modeling strategy is useful in quantifying the temporal evolution in relations between economic variables and this quantification may serve for excess forecasting accuracy.
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REAL 03-T-14
REGIONAL CONVERGENCE AND THE IMPACT OF EUROPEAN STRUCTURAL FUNDS OVER 1989-1999: A SPATIAL ECONOMETRIC ANALYSIS
Sandy Dall'erba and Julie Le Gallo

Abstract: The aim of this paper is to assess the impact of structural funds on the convergence process of 145 European regions over 1989-1999. With the aim of enhancing cohesion, these funds are primarily allocated to the least developed regions. The most important part of these funds is devoted to transportation infrastructures, which affect the process of industry location and induce strong spillover effects. As a result, they do not necessarily contribute to a more even regional development. Their impact has therefore to be seen in the light of growth rate variations of the targeted region and of the whole sample. Using the formal tools of spatial econometrics, we first detect strong evidence of spatial autocorrelation in the distribution of per capita GDP. Moreover, two clusters, representative of the core-periphery pattern, are persistent over the period and highlight spatial heterogeneity. Structural funds and spatial effects are then included in the estimation of the appropriate conditional -convergence model. Estimation results display significant convergence in the peripheral regime only and a non-significant impact of the funds. We therefore assess their impact using another approach based on the spatial diffusion property due to correlation in the residuals. It allows us to control for spatial spillover effects among regions and to estimate, via simulation experiments, the impact of shocks, proportional to structural funds, first on the growth rate of the targeted region and second on the growth rate of all the regions of our sample. The results show that structural funds have positively benefited to the growth of the targeted regions, but that spillover effects are very small in peripheral regions.
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REAL 03-T-13
NORTH-SOUTH DISPARITIES, COMPLEMENTARITY AND COMPETITION WITHIN ITALY
Sandy Dall'erba and Marco Percoco

[Published in Scienze Regionali- Italian Journal of Regional Science, 2, 29-49
Web site: http://www.francoangeli.it/Riviste/scre.asp]

Abstract: The aim of this paper is to uncover how the patterns of competition and complementarity in the regional system of Italy can explain its persistent internal disparities in spite of cohesion efforts by the European Commission. Our analysis is based on the application of the Dendrinos-Sonis model (1988, 1990) to the Gross Regional Product of the NUTS I regions of Italy over 1951-1993. Essentially, the analysis implies that growth in regional income is similar to a zero-sum game in which the growth in one region takes place at the expense of a least one another. The results show the strong influence of Lombardia on all the regions, and the dominance of complementary relationships over competitive relationships. When the application is extended to industry, non-market services and market services, the nature of the relationships that are revealed raises interesting issues for policies supporting these sectors.

REAL 03-T-12
DETERMINANTS OF LAY-OFFS DURING INDONESIAN ECONOMIC CRISIS WITH SPECIAL ATTENTION TO SPATIAL EFFECTS
Suahasil Nazara

Abstract: Seeking the determinants of the lay-off process that takes place at the onset of Indonesian economic crisis in Java island, this study robustly shows that the lay-off rate, i.e., the ratio of number of lay-offs to the size of the labor force, is negatively related to the economic growth rate and share of labor in informal sector; and is positively related to the unemployment rate at the district and municipality level. Further, this study also confirms the empirical significance of spatial effects. Suggesting the existence of interregional spillover effect, the latter implies some degree of integration in the districtlevel lay-off process as well as, most likely, labor market.
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REAL 03-T-11
SPATIAL INEQUALITY ANALYSIS WITHIN A REGIONAL GROWTH DECOMPOSITION TECHNIQUE: INDONESIAN CASE 1976-1998
Suahasil Nazara

Abstract: This paper introduces another perspective to analyze spatial inequality, in particular within the regional growth decomposition framework. The employed method brings about the spatial growth differencing as a measure of spatial inequality, an alternative to the regional conditioning principle (Quah, 1996). Results for the 1976-1998 case suggests that there is a tendency toward more spatial equality within Indonesian five super regions since the end of the 1980s. Thereafter, a Markov probability matrix is estimated, based on the regional differencing data. An interesting result here is that the current situation is not too far apart from the theoretical ergodic distribution. Although there is a relatively great degree of mobility, both in achieving equilibrium as well as at the steady state condition, only about half of the provinces will end up at within + 3% difference with their neighbors’ economic growth rate.
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REAL 03-T-10
DETERMINANTS OF CAPITAL STRUCTURE: WHAT LEADS LATIN-AMERICAN COMPANIES TO CHOOSE DEBT OR EQUITY
Fernanda F. C. Perobelli

Abstract: What is the profile of companies willing to issue stocks? What leads some companies to prefer a high level of debt instead of shareholders capital in order to finance new projects? Theories suggest that a firm capital structure depends upon certain theoretical attributes such as volatility of earnings, profitability, and size, which influence the various costs and benefits associated with the financing decision. With the object of proving this statement, this article applies a similar method as adopted in Titman and Wessels (1988). Factor Analysis is used to test proxies to the theoretical attributes and, afterward, regressions are implemented with the objective of identifying relationships between the level of debt chosen by the firms and their attributes. This study covers all the public companies listed on Mexico, Argentina and Chile Stock Exchanges whose data were available in the Economática database. Later, these results are compared to previous findings from a work about Brazilian companies, that used the same methodology presented here and was developed by the Perobelli and Famá (2002).
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REAL 03-T-9
MEASURING EXTERNALITIES IN REGIONAL GROWTH: AN EMPIRICAL APPROACH
Miguel A. Márquez, Julián Ramajo and Geoffrey J.D. Hewings

Abstract: This paper focuses on the dynamic effects under which the regional economic processes are accomplished, breaking them down into two broad types: neighborhood (horizontal) and economy-wide (vertical) externalities. So, by means of a proposed dynamic space-time empirical model, it is allowed to obtain the vertical and horizontal competition structure within a regional economic system. Co-integration/error correction modeling techniques are used to support the existence of the competition structure over both the short- and long-term. As an application, we show the dynamic effects on the evolution of the regional performance of Spanish regions over the period 1972-2000. Our results indicate that some macroeconomic forces are operating into this Spanish system: positive and negative externalities at both economy-wide and neighborhood levels. Findings show that a new taxonomy of the Spanish regions could provide some guidance as to the measures regional economic policy.
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REAL 03-T-8
IRRIGATION TECHNOLOGY ADOPTION AND GAINS FROM WATER TRADING UNDER ASYMMETRIC INFORMATION
Chokri Dridi and Madhu Khanna

[Published in American Journal of Agricultural Economics, 87(2), (May 2005): 289-301]

Abstract: We develop a water allocation and irrigation technology adoption model under the prior appropriation doctrine with asymmetric information among heterogeneous farmers and between farmers and water authorities; farmers’ heterogeneity is defined by a mix of land quality and knowledge. We find that adverse selection reduces the adoption of modern irrigation technology. We also show that even with asymmetric information, incentives for water trade exist and lead to additional technology adoption with gains to all parties. This suggests that under asymmetric information, a thin secondary market improves the allocation of water resources and induces additional adoption of modern irrigation technologies.

REAL 03-T-7
A SHORT NOTE ON THE NUMERICAL APPROXIMATION OF THE STANDARD NORMAL CUMULATIVE DISTRIBUTION AND ITS INVERSE
Chokri Dridi

Abstract: We provide computer codes in ANSI-C and Python for a fast and accurate computation of the cumulative distribution function (cdf) of the standard normal distribution and the inverse cdf of the same function. For the cdf we use the 5th order Gauss-Legendre quadrature which gives more accurate results compared to Excel and Matlab. The Inverse cdf computed using rational fraction approximations gives a result that is seven-decimal place accurate.
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REAL 03-T-6
SPATIAL ANALYSIS OF EMPLOYMENT AND POPULATION DENSITY: THE CASE OF THE AGGLOMERATION OF DIJON, 1999
Catherine Baumont, Cem Ertur, and Julie Le Gallo

[Published in Geographical Analysis, 36, (2004) 146-176]

Abstract: The aim of this paper is to analyze the intra-urban spatial distributions of population and employment in the agglomeration of Dijon (regional capital of Burgundy, France). We study whether this agglomeration has followed the general tendency of job decentralization observed in most urban areas or whether it is still characterized by a monocentric pattern. In that purpose, we use a sample of 136 observations at the communal and at the IRIS (infra-urban statistical area) levels with 1999 census data and the employment database SIRENE (INSEE). First, we study the spatial pattern of total employment and employment density using exploratory spatial data analysis. Apart from the CBD, few IRIS are found to be statistically significant, a result contrasting with those found using standard methods of subcenter identification with employment cut-offs. Next, in order to examine the spatial distribution of residential population density, we estimate and compare different specifications: exponential negative, spline-exponential and multicentric density functions. Moreover, spatial autocorrelation, spatial heterogeneity and outliers are controlled for by using the appropriate maximum likelihood, generalized method of moments and Bayesian spatial econometric techniques. Our results highlight again the monocentric character of the agglomeration of Dijon.

REAL 03-T-5
ECONOMIC DETERMINANTS OF OUTPUT MULTIPLIER: INTERREGIONAL INPUT-OUTPUT FRAMEWORK
Suahasil Nazara

Abstract: This study aims at identifying the economic determinants of output multiplier obtained from 1995 Indonesian interregional input-output table. In the identification, this study takes the spatial effects seriously. Spatial heterogeneity and spatial dependence model are fitted to accommodate these effects, whose existence is a direct consequence of using regional data that can be mapped. Two important findings stand out of this study. First is the importance of taking into account spatial effects in the identification of output multipliers. Second, as a direct consequence of the first, is the importance of primary input structure in determining the magnitude of output multiplier. This study also confirms that the propensity to spend locally is a significant variable that may affect the output multiplier.
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REAL 03-T-4
COMPETITION, COMPLEMENTARITY AND INCREASING DISPARITIES AMONG THE REGIONS OF SPAIN AND PORTUGAL
Sandy Dall'erba

[Published in Revue d.Economie Régionale et Urbaine, 2, 311-330                                                          Web site: http://reru.u-bordeaux4.fr/]

Abstract: The aim of this paper is to investigate the role of regional competition and complementarity on increasing internal disparities within the Iberian peninsula over the last two decades. Competitive and complementary dynamics among the regions of Spain and Portugal rely on their intense trade, which is based on a combination of their comparative advantages, increasing returns and lowered transportation costs. In that purpose, we apply first the Dendrinos-Sonis model (1988) to the Gross Domestic Product of the regions of Spain and Portugal. Essentially, the model implies that growth in one region takes place at the expense of a least one other. The results show significant complementary relationships between Este, Centro and Sur; and highlight the strong influence of Este and Madrid on all the regions. Since both countries are major beneficiaries of European cohesion efforts, we extend the application to the key sectors of regional development policies: agriculture, energy, non-market services, transportation and telecommunications. For equity issues, the nature of the relationships that are revealed encourages policies supporting the three first sectors but not the transportation and telecommunication sector.

REAL 03-T-3
R&D IN CLEANER TECHNOLOGY AND INTERNATIONAL TRADE
Slim Ben Youssef

Abstract: We consider a symmetric three-stage game played by two regulator-firm hierarchies to capture the scale and technology effects. Each firm produces one good sold on the market. Firms can invest in R&D in order to lower their fixed emission/output ratio and are regulated with costly public funds. Opening markets to international trade leads to both more investment in R&D and production. When the sensitivity of consumers to the environment and the investment cost parameter are sufficiently high, pollution under common market is higher than under autarky. The social welfare when markets are separated is higher than when there is international trade.
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REAL 03-T-2
EUROPEAN REGIONAL DEVELOPMENT POLICIES: THE TRADE-OFF BETWEEN EFFICIENCY-EQUITY REVISITED
Sandy Dall'erba and Geoffrey J.D. Hewings

Abstract: Testing the convergence pattern of the poorest European Union members (Ireland, Spain, Portugal and Greece) reveals that it is characterized by a catching-up of their income on the European average, but also increasing regional disparities within each country. Since they are the major beneficiaries of European regional development funds, a reconsideration of the impact of these funds on regional development is necessary. Theoretical analysis shows when such investments come to financing intra-regional transport infrastructures in the poorest regions they favor convergence but reduces the country's aggregate growth rate, whereas interregional transport infrastructures foster the aggregate growth, but lead to greater concentration in the core. Recent estimations show that their impact on regional development depends on the change in the region's accessibility. Therefore, transportation infrastructures cannot always be seen as an efficient instrument to reduce interregional disparities in Europe.
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REAL 03-T-1
DISTRIBUTION OF REGIONAL INCOME AND REGIONAL FUNDS IN EUROPE 1989-1999: AN EXPLORATORY SPATIAL DATA ANALYSIS
Sandy Dall'erba

Abstract: The purpose of this paper is to explore the spatial distribution of regional income and regional development funds (Community structural funds and region's own additional funds) among 145 European regions over 1989-1999. Using a set of tools of spatial statistics, we first detect the presence of global and local spatial autocorrelation in the distribution of regional per capita incomes. In other words rich (poor) regions tend to be clustered close to other rich (poor) regions. Global and local spatial autocorrelations also characterize the regional growth rate and regional funds. Second, the results of LISA statistics reveal the presence of spatial heterogeneity in the form of two spatial clusters of rich and poor regions over the decade as well, highlighting the persistence of a significant core-periphery pattern among European regions. However, the negative correlation between growth and initial income tends to confirm the hypothesis of ß-convergence. In its efforts to favor cohesion, the European Commission allocates the majority of structural funds to peripheral regions where per capita GDP levels are low. A positive relationship between regional growth and structural funds is also identified among the significant results. Only Andalucia, Galicia and Sterea Ellada show atypical linkages. These results suggest further research including spatial effects, regional initial conditions and the spatial distribution of regional funds in the spatial econometric estimation of regional convergence in Europe.
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REAL 02-T-16
IMMIGRANTS AND DISCRIMINATION IN THE CITIES
Marco Percoco

Abstract: The aim of this paper is to investigate the relationship between the spatial mismatch hypothesis and the migration decision. Under the assumption that immigrants are discriminated in both the housing and labor markets It is shown that the presence of segregation can lower the profitability of migration. Some preliminary empirical evidence corroborating the basic assumptions and results of the model is also presented. Finally this paper explains the positive relation between the segregation and the number of immigrants during the Great Black Migration by proving that the function of migration profitability is not globally monotonic and that it can be, under some restrictive conditions, an increasing function of the level of discrimination.
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REAL 02-T-15
TRANSBOUNDARY POLLUTION, R&D SPILLOVERS AND INTERNATIONAL TRADE
Slim Ben Youssef

Abstract: We consider a symmetric three-stage game played by a pair of regulator-firm hierarchies to capture the scale and technology effects. Each firm produces one good sold on the market. The production process generates pollution characterized by a fixed emission/output ratio, and cross-borders. Firms can invest in R&D in order to lower their emission/output ratio, and this activity is characterized by positive R&D spillovers. We show that R&D spillovers and the competition of firms on the common market help non-cooperating countries to internalize transboundary pollution more efficiently. Opening markets to the international trade leads to more investment in R&D and more production. In most cases, pollution under common market is lower than under autarky, implying a greater social welfare. Nevertheless, in some other cases, pollution under common market is higher than under autarky implying that opening markets deteriorates social welfare.
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REAL 02-T-14
SPACE-TIME ANALYSIS OF GDP DISPARITIES AMONG EUROPEAN REGIONS: A MARKOV CHAINS APPROACH
Julie Le Gallo

[Forthcoming in: International Regional Science Review]

Abstract: The purpose of this paper is to study the evolution of GDP disparities between 138 European regions over the period 1980-1995. Regional per capita GDP cross-sectional distribution is characterized by means of nonparametric estimations of density functions and the growth process is modeled as a first-order stationary Markov chain. Spatial effects are then introduced within the Markov chain framework using regional conditioning (Quah, 1996) and spatial Markov chains (Rey, 2001). The results of the analysis indicate the persistence of regional disparities, a progressive bias toward a poverty trap and the importance of geography in the convergence process.
[Download Data Appendix] [Earlier version available under LATEC #2001-06]

REAL 02-T-13
LIFE CYCLE CHANGES IN CONSUMPTION BEHAVIOR: AGE-SPECIFIC AND REGIONAL VARIATIONS
Masayo Wakabayashi and Geoffrey J.D. Hewings

Abstract:  While research conducted over the last two decades has pointed to the important role played by household consumption in regional economic models, little attention has been directed to the consumption impacts associated not only with income changes but also life-cycle changes.  Using Japanese data, this paper explores some of the implications of life cycle changes on consumption behavior using a modified AIDS estimation system.  Testing is directed to differences in age-specific consumption behavior and the potential differences in consumption by age and province.
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REAL 02-T-12
AN APPLICATION OF INTEGRATED TRANSPORT NETWORK – MULTIREGIONAL CGE MODEL I: A FRAMEWORK FOR ECONOMIC ANALYSIS OF HIGHWAY PROJECT
Euijune Kim, Geoffrey J.D. Hewings and Chowoon Hong

[Published in Economic Systems Research 16, (2004) 235-258]

Abstract: This paper develops a framework for economic analysis of highway projects that is then used to estimate the dynamic economic effects of a highway project on the economic growth and the regional disparity in Korea. The framework is composed of a transport model and a multiregional Computable General Equilibrium (CGE) model. The transport model measures a change in interregional shortest distances and the accessibility by highway project, while the CGE model estimates the spatial economic effects of the projects on the GDP, the price, and exports, and the regional distribution of wages and population. The simulation allows policy makers to determine which highway development deserves the priority for investment based on consideration of economic growth and regional economic equity in the long run. The simulation found that all the highway projects have positive effects on GDP and export growth as well as regional equity in terms of wage and population.

REAL 02-T-11
SPATIAL ANALYSIS OF REGIONAL INEQUALITIES IN TURKEY
Ferhan Gezici and Geoffrey J.D. Hewings

Abstract: In this paper, we examine regional inequalities in Turkey not only at the inter-provincial level but for three different regional definitions as well. The motivation draws on the findings of Gezici and Hewings (2001) that raised questions about inequalities not only between regions (inter-regional) but inequalities within each region. Hence, one contribution of this paper is to test the effects of aggregation and scale on the identification of regional inequalities using currently accepted spatial analytic methods. The results indicate that overall inequalities are decreasing, however spatial dependence is becoming more dominant. The Theil index indicates that interregional inequalities are increasing while intra-regional inequalities are declining for all spatial partitions from 1980 to 1997. Most developed provinces are enhancing overall inequalities, although there is some evidence of a spread effect on their neighbors.
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REAL 02-T-10
THE EUROPEAN REGIONAL CONVERGENCE PROCESS, 1980-1995: DO SPATIAL REGIMES AND SPATIAL DEPENDENCE MATTER?
Catherine Baumont, Cem Ertur and Julie Le Gallo

[Forthcoming in International Regional Science Review, 2005]

Abstract: We show in this paper that spatial dependence and spatial heterogeneity matter in the estimation of the β-convergence process among 138 European regions over the 1980-1995 period. Using spatial econometrics tools, we detect both spatial dependence and spatial heterogeneity in the form of structural instability across spatial convergence clubs. The estimation of the appropriate spatial regimes spatial error model shows that the convergence process is different across regimes. We also estimate a strongly significant spatial spillover effect: the average growth rate of per capita GDP of a given region is positively affected by the average growth rate of neighboring regions.

REAL 02-T-9
UNDER THE HOOD. ISSUES IN THE SPECIFICATION AND INTERPRETATION OF SPATIAL REGRESSION MODELS
Luc Anselin

[Published in Agricultural Economics, 17 (2002) 247-267]

Abstract: This paper reviews a number of conceptual issues pertaining to the implementation of an explicit “spatial” perspective in applied econometrics. It provides an overview of the motivation for including spatial effects in regression models, both from a theory-driven as well as from a data-driven perspective. Considerable attention is paid to the inferential framework necessary to carry out estimation and testing and the different assumptions, constraints and implications embedded in the various specifications available in the literature. The review combines insights from the traditional spatial econometrics literature as well as from geostatistics, biostatistics and medical image analysis.

REAL 02-T-8
VISUALIZING MULTIVARIATE SPATIAL CORRELATION WITH DYNAMICALLY LINKED WINDOWS
Luc Anselin, Ibnu Syabri and Oleg Smirnov

Abstract: Several recent efforts have focused on adding exploratory data analysis functionality to geographic information systems (GIS) by integrating established statistical software with a GIS. In this paper, we outline an alternative approach, where the functionality is built from scratch, using a combination of small libraries of dedicated functions, rather than relying on the full scope of existing software suites. The suggested approach is modular and freestanding. Within an overall framework of dynamically linked windows, it combines a cartographic representation of data on a map with traditional statistical graphics, such as histograms, box plots, and scatterplots. It extends earlier work on the visualization of spatial autocorrelation to a multivariate setting, introducing a Moran Scatterplot Matrix and Multivariate LISA Maps. The new program (DynESDA2) works on both point and polygon coverages, implements true brushing of maps, as well as the usual linking and brushing between maps and statistical graphs.
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REAL 02-T-7
THE PRICE EFFECTS OF INDIRECT TAXATION IN THE REGIONAL ECONOMY OF ANDALUSIA
M. Alejandro Cardenete and Ferran Sancho

[Published in: Journal of Applied Input-Output Analysis 8, 2002]

Abstract: The goal of this paper is to use a regional social accounting matrix (SAM) to empirically study the price burden of indirect taxes in the regional economy of Andalusia, Spain, a developing region located in the south of the Iberian peninsula. The analysis uses the input-output subset of a SAM model. Adopting this approach, it is possible to capture the existing structural interdependence among productive sectors facilitating the evaluation of the implicit weights and price elasticities of the different indirect taxes, as well as indicators of consumer's welfare variations. The database used in the analysis is the SAMAND95 (Social Accounting Matrix of Andalusia, Spain, for 1995) developed by the authors. The main result of the paper is that taxes on labor use by firms carry the largest price burden of all indirect taxes, hence exerting a constraining role on the region's competitiveness.

REAL 02-T-6
TOWARD A QUANTITATIVE ANALYSIS OF INDUSTRIAL CLUSTERS II: FUZZY SHAPLEY VALUE, ENTROPY, AND OTHER FUZZY MEASURES
Chokri Dridi and Geoffrey, J.D. Hewings

Abstract: This paper is a continuation of research in Dridi and Hewings (2002b) that explored the application of fuzzy cluster analysis. In this paper, we introduce a set of tools based on fuzzy set theory to quantitatively examine the structure of input-output based industrial clusters and relations between clusters, and to identify important sectors using a modified Shapley value and entropy measures. The methodology is illustrated with an application using 1990 US input-output data.
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REAL 02-T-5
DEVELOPMENT OF A REGIONAL ECONOMIC ACTIVITY INDEX FOR THE CHICAGO METROPOLITAN AREA
Yangsu Park, John Seo and Geoffrey J.D. Hewings

Abstract: Even with strong demands for local economic activity indices, there have been relatively few attempts to develop comprehensive indices that are compatible with the national business coincident index developed by NBER and Department of Commerce. In this paper, some experimental methods are explored for generating local economic activity index. Using the Chicago Federal Reserve Bank National Activity Index (CFNAI) and local economic indicators, local and national dynamic factors are extracted by applying partitioned regression and principal components methods. From these results, local economic activity index is generated through combining national components with local dynamic factors. Three local indices for the Chicago Metropolitan area are produced and compared to national indices.
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REAL 02-T-4
DO BIRDS OF A FEATHER FLOCK TOGETHER?: ECONOMIC LINKAGE AND GEOGRAPHIC PROXIMITY
Jungyul Sohn

[Published in Annals of Regional Science 38 (2004) 47-73]

Abstract: Spatial association patterns of manufacturing activities are examined in this paper with the corresponding economic linkage patterns. Four specifications are used to measure the spatial association pattern: intraindustry/intracounty (locational Gini), intraindustry/intercounty (Moran's I), interindustry/ intracounty (correlation coefficient) and interindustry/intercounty ("spatial" correlation coefficient). Two sets of spatial specification were used for the different locational context: unconstrained (full dataset) and constrained (dataset without zeros). Those concentration indices were compared with i-o coefficients for each sector to check whether the economic linkage is somehow reflected in spatial proximity patterns. The result on the 3,110 US counties for 361 manufacturing sectors revealed that, in the intraindustry context, there is little proof that stronger economic linkage results in and/or from a more concentrated pattern of the industry in both intracounty and intercounty cases. However, interindustry economic linkage reflected and/or was reflected from the spatial distribution pattern in a significantly positive way. While there has not been a significant difference between the results of intracounty (correlation) and intercounty analysis ("spatial" correlation) for the interindustry model, there was a pattern in the intraindustry model that the industry that showed clustering at a county scale had relatively weaker spatial concentration at a multi-county scale and vice versa. Results of the unconstrained and constrained specification of the data revealed important differences, implying that special care should be taken in the spatial specification to be used and how the results are to be interpreted. However, the relationship between economic linkage and spatial proximity did not substantially change between two cases except Moran's I that had conflicting signs.

REAL 02-T-3
THE EFFECT OF ASSET AND CREDIT CONSTRAINT ON THE LABOR MIGRATION EFFICIENCY IN LESS DEVELOPED COUNTRIES
Patricio Aroca, Geoffrey J.D. Hewings and Michael Sonis

Abstract: Migration decision-making in developing economies is addressed from the perspective of status in the labor force (unemployed or unemployed) and traditional concerns with utility maximization are expanded to include the role of assets and access to capital markets.  A dynamic model is formulated and the results reveal that the migration mechanism is efficient when workers have access to borrowing from financial institutions; without this access, migration is shown to be inefficient, a fact exacerbated when consideration is directed to unemployed/poor workers in less prosperous regions.
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REAL 02-T-2
A SPATIAL ECONOMETRIC APPROACH TO THE ECONOMICS OF SITE-SPECIFIC NITROGEN MANAGEMENT IN CORN PRODUCTION
Luc Anselin, Rodolfo Bongiovanni and Jess Lowenberg-DeBoer

[Published in American Journal of Agricultural Economics 86, (2004) 675-687]

Abstract: Spatial technologies such as GPS and GIS increasingly form the basis for site-specific management in crop production. This paper assesses the contribution of an explicit spatial econometric methodology in the estimation of crop yield functions that are used to optimize fertilizer application. The specific case study is for Nitrogen (N) application to corn production in Argentina, where the implementation of variable rate technology (VRT) requires methods that use inexpensive information and that focus on the inputs and variability common to Argentine growing areas. The objective of the paper is to assess the economic value of the application of spatial regression analysis to yield monitor data as a means to optimize variable rate fertilizer strategies. The data in the case study are from onfarm trials with a uniform N rate along strips and a randomized complete block design to estimate site-specific crop response functions. Spatial autocorrelation and spatial heterogeneity are taken into account in regression estimation of N response functions by landscape position, in the form of both a spatial autoregressive error structure and groupwise heteroskedasticity. Both uniform rate and VRT returns are computed from a partial budget model. The results suggest that N response differs significantly by landscape position, and that VRA for N may be modestly profitable depending on the VRT fee level Profitability depends crucially on the model specification used, with all spatial models consistently suggesting profitability, whereas the non-spatial models do not.

REAL 02-T-1
TOWARD A QUANTITATIVE ANALYSIS OF INDUSTRIAL CLUSTERS I: FUZZY CLUSTER VS. CRISP CLUSTERS
Chokri Dridi and Geoffrey J.D. Hewings

Abstract: This paper constitutes the first part of a two-paper series that makes use of fuzzy logic in an attempt to quantify input-output based cluster analysis. The objective of this paper is to examine the cluster structure of the sales and purchases profiles in input-output systems when the principle of 'excluded middle' is violated by the use of fuzzy set theory. The approach relies on results from the data analysis technique known as dual scaling (Dridi and Hewings, 2002a and 2002b). A crisp clustering algorithm known as Ward's algorithm (Ward, 1963) is used for comparison in an application with US input-output table.
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REAL 01-T-16
ECONOMIC ASSESSMENT OF EARTHQUAKE IMPACTS ON TRANSPORTATION NETWORKS: A SCENARIO ANALYSIS
Jungyul Sohn, Geoffrey J.D. Hewings, Tschangho John Kim, Jong Sung Lee and Sung-gheel Jang

[Published in In Y. Okuyama and S. Chang (Eds.), Modeling Spatial and Economic Impacts of Disasters (Springer, 2004)]

Abstract: This paper establishes and examines the framework to calibrate the cost differentials on transportation networks disrupted by earthquakes, compared to normal conditions. For the analysis, a 25-year span of the final demands for 36 earthquake analysis zones (EQAZs) and for 13 economic sectors are estimated using the Dendrinos-Sonis model starting from the base year, 1993. The cost approach incorporates several sub-modules. In the event of the earthquake, transportation network loss functions by network (TNLFN) and by zone (TNLFZ) are run to obtain the network disruption ratio. The estimated results of the TNLF are entered into the final demand loss function (FDLF) to obtain reduced final demand as well as into the integrated commodity flow model (ICFM) to obtain increased transportation cost. The 1812 New Madrid earthquake is used as the basic scenario in the analysis. Stochastic models are combined and GIS integration is also discussed along with the analysis.

REAL 01-T-15
SECTORS ASSOCIATIONS AND SIMILARITIES IN INPUT-OUTPUT SYSTEMS: AN APPLICATION OF DUAL SCALING AND FUZZY LOGIC TO CANADA AND THE UNITED STATES
Chokri Dridi and Geoffrey J.D. Hewings

[Published in Annals of Regional Science 37, (2003) 629-656]

Abstract: Understanding the linkages in an input-output system has been addressed by various methods, but many focused on the identification of key sectors in the economy. Sonis et al. (1996) offered as a field of influence theory an alternative approach focusing on analytical importance of elements and combinations of elements. The first objective of this paper is to offer a complementary approach to the field of influence and the so-called 'Matrioshka principal' (Sonis and Hewings, 1990); the adopted approach seeks hierarchical associations (i.e. statistical dependence) between supply and demand in input-output system. The second objective of this paper is to examine the cluster structure sales and purchases profiles when the principle of 'excluded middle' is violated by the use of fuzzy sets. Both approaches are based on the data analysis technique known as dual scaling (Nishisato, 1980, 1994). Results of this approach will be applied to input-output tables of the US and Canada.

REAL 01-T-14
AN INVESTIGATION OF INDUSTRY ASSOCIATIONS, ASSOCIATION LOOPS, AND ECONOMIC COMPLEXITY: APPLICATION TO CANADA AND THE UNITED STATES
Chokri Dridi and Geoffrey J.D. Hewings

[Published in Economic Systems Research 14, (2002) 275-296]

Abstract: Various methods were proposed to understand the linkages in an input-output system; however many focused only on the identification of key sectors in the economy. An alternative approach, identifying analytically importance of elements and combinations of elements was proposed as a field of influence theory (Sonis et al., 1996). The purpose of this paper is to offer a complementary approach to the field of influence and the so-called 'Matrioshka principal' (Sonis and Hewings, 1990); the objectives are to identify simple row-column associations (i.e. statistical dependence), seek hierarchical associations between supply and demand in input-output systems and the decomposition of economic complexity into finite stages. For the identification of simple dependencies between rows and columns, we use a log-linear regression and for hierarchical associations and the identification of complexity stages, we use the data analysis technique known as dual scaling. Results of both approaches will be applied to input-output tables of the US and Canada.

REAL 01-T-13
REGIONAL CONVERGENCE AND THE ECONOMIC PERFORMANCE OF  PERIPHERAL AREAS IN TURKEY
Ferhan Gezici and Geoffrey J.D. Hewings

[Published in Review of Urban & Regional Development Studies (2004)]

Abstract: The objective of this paper is to examine regional convergence and core-periphery relations in Turkey. The main question is if there is a transformation of interregional disparities in terms of "convergence" and performance of peripheral regions in Turkey by considering GDP per capita and covering the 1980-97 period. During the planning period in Turkey, it was suggested that "Priority Provinces in Development"(PPD) as peripheral areas should have precedence and promoted as a policy for achieving more balanced development. We examined the differentiations in the core and peripheral regions/provinces and furthermore, the "typology" of PPDs by using indicators such as population growth, migration, GDP growth, GDP per capita, industrial composition, public investments and private investments incentives. As a result of s and b convergence analyses, following Barro and Sala-i Martin (1995), there is no evidence for convergence across both provinces and the functional regions in Turkey from 1980 to 1997. Moreover, a high level of the spatial dependence and concentration of GDP per capita has been obtained. Therefore traditional core-periphery relations continue and disparities are still obvious between the east and west of Turkey. Most of the new dynamic areas are also located in the west. The PPDs share similar features and they are not differentiated except for a few examples in South Eastern Anatolia.

REAL 01-T-12
HIERARCHICAL SPATIAL INTERACTION: AN EXPLORATORY ANALYSIS
Suahasil Nazara, Geoffrey J.D. Hewings, and Michael Sonis

Abstract: Regional interaction is generally understood as implying movement between regions at the same level of an hierarchy.  This paper extends the notion to include an hierarchical system, thus facilitating the consideration of vertical interaction in the analysis of regional interaction.  Obviously vertical interaction is not altogether a new concept.  One could find this concept in many analyses related to national-local or federal-state relationships.  This paper is different, however, in the sense that the lower level units are parts of a more aggregated unit that, in turn, is part of a set of units that combine to form a national economy.    A particular example drawn in this paper is the province-region relationships for the case of Indonesia.  In this framework, provinces form a region, and regions form the nation.  The Dendrinos-Sonis model is then used as the basis of measuring the hierarchical spatial interaction in Indonesia.  The analysis will explore the degree to which complementarity and competitive interaction revealed at one level in the hierarchy persist at lower or higher levels.
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REAL 01-T-11
SPATIAL EXTERNALITIES, SPATIAL MULTIPLIERS AND SPATIAL ECONOMETRICS
Luc Anselin

[Published in International Regional Science Review, 26 (2003) 153-166]

Abstract: This paper outlines a taxonomy of spatial econometric model specifications that incorporate spatial externalities in various ways. The point of departure is a reduced form in which local or global spillovers are expressed as spatial multipliers. From this, a range of familiar and less familiar specifications is derived for the structural form of a spatial regression.

REAL 01-T-10
VISUALIZING SPATIAL AUTOCORRELATION WITH DYNAMICALLY LINKED WINDOWS
Luc Anselin, Ibnu Syabri, Oleg Smirnov and Yanqui Ren

Abstract: Several recent efforts have focused on adding exploratory data analysis functionality to geographic information systems (GIS) by integrating established statistical software with a GIS. In this paper, we outline an alternative approach, where the functionality is built from scratch, using a combination of small libraries of dedicated functions, rather than relying on the full scope of existing software suites. The suggested approach is modular and freestanding. Within an overall framework of dynamically linked windows, it combines a cartographic representation of data on a map with traditional statistical graphics, such as histograms, box plots, and scatterplots. In addition, it includes several devices to visualize spatial autocorrelation in lattice (or regional) data, such as the Moran Scatterplot and LISA maps. This new program (DynESDA2) also implements the capability to brush polygon coverages, simultaneous linking of multiple maps with multiple statistical graphics, and interactive LISA maps.
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REAL 01-T-9
SPATIAL ANALYSIS OF REGIONAL INCOME INEQUALITY
Sergio J. Rey

[Published in M.F. Goodchild and D.G. Jannelle (eds.) Best Practices in Spatially Integrated Social Science. Oxford University Press (2003)]

Abstract: Questions surrounding regional economic convergence have commanded a great deal of recent attention in economics literature. As in other recent cases in the social sciences, the application of spatially explicit methods of data analysis to the convergence question has yielded important insights on regional economic growth. By contrast, the literature on regional income inequality, although somewhat older than the convergence literature, has been slower to adopt new spatially explicit methods of data analysis. This chapter helps to speed that adoption by investigating the role of spatial dependence and spatial scale in the analysis of regional income inequality in the US over the 1929-2000 period. The findings reveal a strong positive relationship between measures of inequality in state incomes and the degree of spatial autocorrelation. Additionally, a geographically based decomposition of inequality highlights a strong positive relationship between the interregional inequality share (as opposed to intraregional inequality) and spatial clustering. Finally, a new approach to inference in regional inequality analysis is suggested and demonstrated as providing a formal explanatory framework to complement the broad, but descriptive approaches in the existing literature.

REAL 01-T-8
COORDINATION OF TAXATION AND INNOVATION FOR THE PROTECTION OF THE INTERNATIONAL ENVIRONMENT
Slim Ben Youssef

Abstract: Two regulators face an international environmental problem because of the transfrontier polluting activity of their domestic firm. These firms can adopt a new and less polluting production technology by incurring an actualized investment cost. When the cost of immediate adoption of the cleaner technology is relatively high and the environmental taxation is well chosen, firms will adopt it at finite but different dates even though the model is symmetric and there is no informational asymmetry. The optimal emission tax parameter is greater under cooperation which induce firms to adopt the friendly technology earlier than in the non-cooperative regime. Consequently, residual emissions are lower under cooperation and intertemporal individual social welfare is greater. However, the private diffusion is the same in the two regimes.
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REAL 01-T-7
STRUCTURAL CHANGES IN THE BRAZILIAN INTERREGIONAL ECONOMIC SYSTEM, 1985-1997: HOLISTIC MATRIX INTERPRETATION
Edson P. Domingues, Eduardo A. Haddad, Geoffrey J.D. Hewings and Fernando Perobelli

[Published in Australian Journal of Regional Studies 8, (2002) 21-44]

Abstract: In this paper, we focus on the changes in the interregional trade flows in the Brazilian economy.  Interregional trade matrices are constructed for two years, 1985 and 1997, and a Machlup-Goodwin-type model is applied following Haddad, et al., (1999).  The model is used to explore changes in the trade structure among the 27 Brazilian states. Holistic matrix methods such as cluster and structural analyses are applied to the interregional system to explore the nature of the trade structure and the changes evident over the period 1985-1997.

REAL 01-T-6
SHORT-RUN REGIONAL EFFECTS OF ALTERNATIVE STRATEGIES FOR ECONOMIC INTEGRATION: THE CASE OF BRAZIL
Eduardo A. Haddad, Edson P. Domingues, and Fernando Perobelli

Abstract: Motivated by both economic and political objectives, Brazil has been pursuing, in recent years, different trade arrangements in an attempt to reinforce strategic impulses for economic development. In this paper, alternative strategies of economic integration are evaluated from the Brazilian perspective. Traditional trade gains and losses are considered in a cost-competitiveness approach, based on relative changes in the industrial cost and demand structures. In the first part of the analysis, a national computable general equilibrium model is used in order to assess the first-round impacts of three alternative trade liberalization scenarios. The main findings indicate that general trade agreements under WTO negotiations are preferable to either the implementation of a free trade area in the Americas or regional agreements involving Mercosur and the European Union. However, each trade arrangement would entail differential structural impacts that serve to different development purposes. In the second part, a Machlup-Goodwin-type interregional model is integrated to the CGE model in order to generate a top-down disaggregation of the national results. Spatial implications of the trade policies are assessed, showing that the trade strategies examined are likely to increase regional inequality in the country.
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REAL 01-T-5
ECONOMIES OF SCOPE AND ECONOMIES OF AGGLOMERATION: AN EARLIER CONTRIBUTION REVISITED
John B. Parr

[Published in Annals of Regional Science 38, (2004) 1-11]

Abstract: Following on from the work of Goldstein and Gronberg, it is argued that under certain conditions, internal economies of scope form the bases for two types of agglomeration economy. These differ from two more familiar types, which are based on internal and external economies of scale. A further two types of agglomeration economy are shown to derive from different forms of external economy. The conditions under which agglomeration economies based on internal economies may co-exist with those based on external economies are then examined. This leads to a discussion of a scheme by which the various types of agglomeration economy may be drawn together within a common framework.

REAL 01-T-4
COMPARATIVE ANALYSIS OF CHINA’S ECONOMIC STRUCTURES BETWEEN 1987 AND 1997: AN INPUT-OUTPUT PROSPECTIVE
Dong Guo and Geoffrey J.D. Hewings

Abstract:  China experienced a rapid economic growth since 1979 when it opened up. The fast transformation affected the country in many ways including economic structure. This paper tries to identify the changes of economic structure influenced by economic growth from input-output prospective. The methodology is rooted in key sector analysis and complemented by presentation of the multiplier product matrix (MPM), which presents an interpretation of structure based on the products of the row and column of Leontief inverse, and provides a macro-economic visualization (economic landscape) of economic structure to make a better understanding of economic structure change of one economy in different times. The analyses results show that heavy industries sectors maintain dominant roles in the Chinese economy from 1987 to 1997, but with different emphases. Labor-intensive industries like textiles are giving way to high technology industry due to an active policy that intends to develop high-technology. Some non-manufacturing sectors changed their roles in the national economy and started to influence the economy in a positive way, but the services sector has not been a key sector in national economy. Therefore China's developing character as a developing country has not changed.
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REAL 01-T-3
SPATIAL DEPENDENCE IN THE EVOLUTION OF REGIONAL INCOME DISTRIBUTIONS
Sergio J. Rey

[A. Getis, J. Múr and H. Zoeller (eds.) Spatial Econometrics and Spatial Statistics. Palgrave, Hampshire (2002)]

Abstract: This paper introduces three measures of spatial dependence for use in the analysis of regional income distributions and their evolution. The first builds upon the notion of regional conditioning (Quah, 1996a), and is derived as a trace statistic from a modified Markov transition matrix. The remaining two statistics are intended for use in a dynamic context and measure the degree of spatial clustering and regional cohesion in income rank mobility. All three measures are applied in an empirical analysis of per capita income patterns in the lower 48 United States over the 1929-99 period.

REAL 01-T-2
INTERREGIONAL COMPETITION AND COMPLEMENTARITY IN INDONESIA
Suahasil Nazara, Michael Sonis, and Geoffrey J.D. Hewings

Abstract: This paper examines the nature of interregional competition and complementarity in Indonesia. The analysis is important for the island country given the heterogeneity of the regional economies and will provide insights into the structure of economic interactions that should prove useful for policy-makers considering alternative decentralization schemes. Covering the 1975-1999 period, the analysis provides a picture of the interregional interactions by focusing on derived linkages between the regional economies. The analysis is based on the application of the Dendrinos-Sonis model to six major regions in Indonesia. Characterized by a discrete socio-spatial dynamics, the model is empirically applied by making use of the log linear interaction function. The system of interregional interactions is modeled using the Seemingly Unrelated Regression (SUR) estimator. The quantitative analysis confirms the prevailing belief that regions within the western part of Indonesia complement each other, i.e., their relative share of income increasing simultaneously. In addition, there is also evidence that the western part is in competition with the eastern part Indonesia, i.e., the relative share of the former increases on the expense of the latter. The nature of the competition and complementarity that is revealed raises important issues for the development of appropriate policy initiatives designed to address problems of efficiency and equity in the distribution of national expenditures in the decades ahead.
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REAL 01-T-1
TAXATION AND THE DIFFUSION OF A CLEANER TECHNOLOGY
Slim Ben Youssef

Abstract: A regulator faces an environmental problem because of the polluting activity of firms. The latter can adopt a new and less polluting production technology by spending an actualized investment cost decreasing exponentially with the adoption date. When firms adopt the cleaner technology, they produce more, pollute less, pay fewer emission taxes and as consequences have greater profit and the social welfare is higher. If the cost of the immediate adoption of the cleaner technology is relatively high and the environmental taxation scheme is well designed, firms will adopt it at finite but different dates even though the model is symmetric and there is no informational asymmetry. Moreover, we show that technological diffusion is socially optimal. The social adoption date of the first innovator is earlier than the private one whereas, the contrary occurs with the second innovator. Subsidies may be used to induce the socially-optimal-adoption dates.
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REAL 00-T-14
EXPANDED MIYAZAWA FRAMEWORK: LABOR AND CAPITAL INCOME, SAVINGS, CONSUMPTION, AND INVESTMENT LINKS
Michael Sonis and Geoffrey J.D. Hewings
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REAL 00-T-13
QUALITY COMPETITION IN NETWORK INDUSTRIES
Chéma Abderrazak and Faysal Mansouri

Abstract: Access to monopoly segments and interconnection requirements has been analyzed extensively in term of prices, quantities, sunk costs and productivity. This paper considers quality competition in network industries. The aim of this research is to determine the relationship between access to bottleneck network facilities and quality of goods provided by a monopoly and one or several potential competitors when industry network is either regulated or not. Specifically, we determine the relationship between product quality and access charges. We analyze quality competition in a regulated industry under complete and incomplete information regimes.
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REAL 00-T-12
PROPERTIES OF TESTS FOR SPATIAL ERROR COMPONENTS
Luc Anselin and Rosina Moreno

[Published in Regional Science and Urban Economics, 33 (2003) 596-618]

Abstract: In spatial econometrics, the typical alternative of spatial autocorrelation is ex-pressed in the form of a spatial autoregressive process. While the bulk of the literature is devoted to specification tests and estimation methods for this model, alternatives have been suggested as well. In this paper, we consider an alternative that takes the form of the spatial error components formulation proposed by Kelejian and Robinson (1995). We consider a number of specification tests against this alternative, based on both a maximum likelihood framework as well as on a general method of moments estimation approach. We compare the performance of these tests in a series of Monte Carlo simulation experiments for a range of different spatial layouts and under a number of different error distributions.

REAL 00-T-11
SPATIAL DEPENDENCE AND REGIONAL CONVERGENCE IN BRAZIL
André Magalhães, Geoffrey J.D. Hewings, and Carlos R. Azzoni

Abstract: The majority of the studies on regional convergence ignore the spatial characteristics of the problem. In a recent paper Rey and Montouri (1999) considered the issue of income regional convergence on US under the spatial econometric perspective. The present paper follows the Rey and Montouri’s (1999) approach and introduces some spatial econometric techniques for convergence among Brazilian states. State data over the 1970-95 period is considered. As in the US case, strong patters of spatial correlation are found during the period. The spatial econometric analysis reveals that spatial error dependence seems to be present, and by ignoring it one would cause a model misspecification.
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REAL 00-T-10
REGIONAL SCIENCE PUBLICATION PATTERNS IN THE 1990s
Luc Anselin and Serge Rey

[Published in International Regional Science Review, 23 (2000) 323-344]

Abstract: This paper examines the publication patterns in five core regional science journals during the 1990s. Attention is paid to the thematic distribution of articles for each journal and across journals. The journals are also compared with respect to citation counts, areas of concentration and authorship patterns. The impact of each article is examined through an analysis of citations over the decade. Productivity of individual scholars is measured using article counts, page counts and citation indices.

REAL 00-T-9
SPATIAL EFFECTS AND ECOLOGICAL INFERENCE
Luc Anselin and Wendy K. Tam Cho

[Published in Political Analysis 10 (2002) 276-297]

Abstract: This paper examines the role of spatial effects, both spatial autocorrelation and spatial heterogeneity, in ecological inference. Both formally and through simulation experiments, we consider the problems associated with ecological inference and cross-level inference methods in the presence of various forms of spatial effects. Past assessments of spatial autocorrelation in aggregate data analysis were too simplistic because they focused on one-dimensional processes that are not representative of real-world data. Thus, they do not accurately portray how realistic spatial dependence affects cross-level inference. We focus on how realistic forms of spatial autocorrelation and spatial heterogeneity affect the ability to make cross-level inferences.

REAL 00-T-8
COMPUTING ENVIRONMENTS FOR SPATIAL DATA ANALYSIS
Luc Anselin

Abstract: This paper describes the functionality and architecture of SpaceStat, the SpaceStat Extension for ArcView and the DynESDA Extension for ArcView. It compares the features of these packages to five other software implementations for spatial data analysis. Some ideas are formulated on generic requirements and future directions pertaining to computing environments for spatial data analysis.
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REAL 00-T-7
GEOGRAPHIC AND SECTORAL CHARACTERISTICS OF ACADEMIC KNOWLEDGE EXTERNALITIES
Luc Anselin, Attila Varga and Zoltan J. Acs

Abstract: This paper implements a novel approach to formalizing spatial externalities by employing spatial econometric methods that combine spatial dependence and spatial heterogeneity in the form of spatial regimes. The results confirm earlier findings that academic externalities are not uniform across sectors but also indicate important differences across sectors in terms of agglomeration effects.
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REAL 00-T-6
TESTING FOR THE IMPACT OF EXTREME WEATHER AND CLIMATE EVENTS ON STATE ECONOMIES
Geoffrey J.D. Hewings, Stanley Changnon and Chokri Dridi

Abstract: The impacts of extreme weather and climate events capture significant media attention since they often inflict considerable physical damage and loss of personal property. The expectation might be reasonably drawn that these impacts would have significant, negative effects on the economies in which the events occur. Using intervention analysis, an attempt is made to explore the economic impact of selected, major extreme weather and climate events of the last decade on the gross state products of the states in which the event was observed. In only one case was the impact statistically significant; in large part, the initial negative impacts of an event are more than offset (economically) but an in-pouring of disaster relief payments from the federal government as well as pay-outs by private insurance companies. Hence, the analysis concludes that a true assessment of the negative impacts may require a focus on smaller geographic scales and a further focus on time intervals shorter than one year.
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REAL 00-T-5
SEQUENTIAL INTERINDUSTRY MODEL (SIM) AND IMPACT ANALYSIS: APPLICATION FOR MEASURING ECONOMIC IMPACT OF UNSCHEDULED EVENTS
Yasuhide Okuyama, Geoffrey J.D. Hewings and Michael Sonis

[Published in In Y. Okuyama and S. Chang (Eds.), Modeling Spatial and Economic Impacts of Disasters (Springer, 2004)]

REAL 00-T-4
SPATIAL EVIDENCE OF AGGLOMERATION ECONOMIES IN CHICAGO
Jungyul Sohn and Geoffrey J.D. Hewings

Abstract: Agglomeration economies feature prominently in the analysis of differences in urban economic structure across many urban areas. While agglomeration economies between cities focus at the macro-scale of analysis, such economies within any given city focus more on the micro geographical scale. This paper explores agglomeration at the micro scale and tries to reveal the spatial realization of agglomeration economies within and between sectors. The study area is the Chicago CMSA; 306 zip code zones and three sectors are considered; manufacturing, retail and service. The model is based on simultaneous equation systems and 2SLS and KRP estimators. The result shows that there are positive simultaneous relationships between manufacturing and retail and also between retail and service while service is a negative endogenous factor to manufacturing. The growth of retail and service attracts more of the same kind of activities. Related to the previous economic environment, manufacturing dominant area is not a preferable place for retail firms to locate and vice versa. But such an area is an attractive one for service firms.  Manufacturing and retail firms prefer to choose to locate area with higher level of manufacturing and retail activities respectively while service firms do the opposite. The traditional "job follows people" hypothesis is not observed to be significant in this analysis.
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REAL 00-T-3
PRODUCTIVE RELATIONS IN THE NORTHEAST AND THE REST OF BRAZIL REGIONS IN 1995: DECOMPOSITION & SYNERGY IN INPUT-OUTPUT SYSTEMS
Joaquim J.M. Guilhoto, Michael Sonis and Geoffrey J.D. Hewings

[Published in Geographical Analysis 34, (2002) 62-75]

Abstract: Using a set of interregional input-output tables built by Guilhoto (1998) for 1995 for two Brazilian regions (Northeast and rest of the economy), the methodology developed by Sonis et al. (1997) is applied in the construction of a series of linkages such that it is possible to examine, through the nature of the internal and external interdependencies, the structure of trading relationships between the two regions. The methodology uses a partitioned input-output system and exploits techniques that produce left and right matrix multipliers of the Leontief Inverse. This procedure facilitates the classification of the types of synergetic interactions within a preset pair-wise hierarchy of economic linkages sub-systems. In general, the results show that the Northeast region has a greater dependence on the rest of the economy region than the rest of the economy has on the Northeast region, and at the same time the rest of the economy region seems to be more developed as it presents a more complex productive structure than the Northeast region.

REAL 00-T-2
ON THE SRAFFA-LEONTIEF MODEL
Michael Sonis and Geoffrey J.D. Hewings

Abstract: This paper considers the matrix forms of the well-known Sraffa-Leontief income distribution model . The equivalence between these matrix forms and the set of simpler models, including the Sraffian condition of linear relations between the rate of profits r and wage rate w* will be explored. Further, the condition that the prices vector p and the commodities vector x are the left hand and the right hand eigenvectors of the matrix A of direct inputs and that these vectors are the fixed points of the Sraffian standard commodities-standard prices matrix will be evaluated. The paper will then explore links between the Sraffa-Leontief system and the multiplier product matrix (MPM) for the matrix A to consider new insights generated through visualization with the help of the artificial economic landscape. Furthermore, the connections between MPM and the Sraffian standard commodities-standard prices matrix and their minimal information properties are proven.
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REAL 00-T-1
INTRODUCTION TO INPUT-OUTPUT STRUCTURAL Q-ANALYSIS
Michael Sonis and Geoffrey J.D. Hewings

Abstract: The topological principles of the well-known Atkin Q-analysis are applied to the analysis of interconnectedness of sectors in input-output systems. The operational methodology is presented in detail and supported by empirical application to the Israeli input-output system for the period 1967-1988. The rank-size ordering of the elements of the Leontief inverse, the slicing procedure and a new graphical tools - the accumulation diagram and the complication curve - are introduced, providing a new explanation of economic complexity through the process of structural economic complication.
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