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2015 | Book

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Complexity and Geographical Economics

Topics and Tools

Editors: Pasquale Commendatore, Saime Kayam, Ingrid Kubin

Publisher: Springer International Publishing

Book Series : Dynamic Modeling and Econometrics in Economics and Finance

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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About this book

The uneven geographical distribution of economic activities is a huge challenge worldwide and also for the European Union. In Krugman’s New Economic Geography economic systems have a simple spatial structure. This book shows that more sophisticated models should visualise the EU as an evolving trade network with a specific topology and different aggregation levels. At the highest level, economic geography models give a bird eye’s view of spatial dynamics. At a medium level, institutions shape the economy and the structure of (financial and labour) markets. At the lowest level, individual decisions interact with the economic, social and institutional environment; the focus is on firms’ decision on location and innovation. Such multilevel models exhibit complex dynamic patterns – path dependence, cumulative causation, hysteresis – on a network structure; and specific analytic tools are necessary for studying strategic interaction, heterogeneity and nonlinearities.

Table of Contents

Frontmatter
Introduction
Abstract
The uneven geographical distribution of economic activities is a huge worldwide challenge. Spatial inequalities are evolving through time following complex patterns determined by economic, geographical, institutional and social factors. The New Economic Geography approach, which was initiated by P. Krugman in the early 1990s, describes economic systems as very simplified spatial structures. This book aims at providing an overview of the existing state of knowledge and new perspectives of research to set the basis for developing a more sophisticated modelling of the economic activities visualised as being influenced by evolving trade networks with a specific topology that is determined by the number and strength of national, regional and local links. To achieve this objective the chapters combine recent approaches in economics with the most advanced mathematical and computational methods for analysing complex and non-linear systems to build an interdisciplinary understanding of the issue.
Pasquale Commendatore, Saime Kayam, Ingrid Kubin

Economic Geography Modelling

Frontmatter
Towards a Multiregional NEG Framework: Comparing Alternative Modelling Strategies
Abstract
This chapter reviews the New Economic Geography (NEG) models that explain the uneven distribution of economic activity across space employing endogenous agglomeration processes, and the interplay of agglomeration and dispersion forces. Unlike the two-region models that have a restricted applicability, this chapter focuses on the multiregional NEG models recently developed in the literature, reviews their contributions systematically and compares different modelling strategies. As unifying framework, we use the footloose entrepreneur model considering the role and nature of transport costs, and the welfare properties of the spatial equilibria and the design of optimal economic policies.
Pasquale Commendatore, Valerio Filoso, Theresa Grafeneder-Weissteiner, Ingrid Kubin
Parametric Models in Spatial Econometrics: A Survey
Abstract
The main purpose of this chapter is to review the parametric spatial econometric models that can be applied to regional economics. Spatial econometric methods are based on regression analysis applied to cases where spatial interactions and spatial structures are fundamental characteristics of the process under discussion. The review presented here outlines the basic terminology, the spatial data dependence, the specification of spatial effects, and some basic spatial regression models, i.e., the spatial autoregressive (SAR) model (or spatial lag model), the spatial error model (SEM), the spatial Durbin model (SDM) and the general spatial models—SAC and SARMA. The maximum likelihood estimation for SAR and SEM models it is also presented with some detail.In the context of the European Union, we should emphasize several empirical works in the particular areas of urban economics, economic growth and productivity, and studies dealing with agglomeration and externalities (spillovers). We provide a brief survey of some of the results obtained in these particular areas.
Diana A. Mendes, Vivaldo M. Mendes
Semiparametric Spatial Autoregressive Geoadditive Models
Abstract
Modeling regional economic dynamics requires the adoption of complex econometric tools, which allow us to deal with some important methodological issues, such as spatial dependence, spatial heterogeneity and nonlinearities. Recent developments in the spatial econometrics literature have provided some instruments (such as Spatial Autoregressive Semiparametric Geoadditive Models), which address these issues simultaneously and, therefore, are of great use for practitioners. In this paper we describe these methodological contributions and present some applications of these methodologies in the fields of regional science and economic geography.
Roberto Basile, Saime Kayam, Román Mínguez, Jose María Montero, Jesús Mur
Diffusion of Growth and Cycles in Continuous Time and Space
Abstract
Spatial economics can be formatted in two different ways. One can see geographical space as a set of locations connected by arcs. Or one can see it as a continuous plane in two dimensions. Activities, such as production and consumption can be represented in both, and so can flows, of trade or migrants. When space is the continuous plane such flows are represented by continuous fields as in physics. The continuous outlook was the traditional both in economics and geography. However, it does not so easily lend itself to computations and fitting to actual data as in the discrete representation. The disadvantage of seeing space as a matrix of locations and connecting arcs is that space, in the sense of geometric shape and size slips out. In the twentieth century there were presented two ingenious economic models using continuous space, Hotelling (A mathematical theory of migration, MA Thesis, University of Washington, reprinted in Environment and Planning A, 10, 1223–1239) who dealt with migration, and Beckmann (1952) who dealt with trade and pricing in a spatially dispersed market. Here we take a simpler case dealing with the diffusion of growth and business cycles in continuous geographical space.
Tönu Puu

Institutions and Markets

Frontmatter
Complex Financial Networks and Systemic Risk: A Review
Abstract
In this paper we review recent advances in financial economics in relation to the measurement of systemic risk. We start by reviewing studies that apply traditional measures of risk to financial institutions. However, the main focus of the review is on studies that use network analysis paying special attention to those that apply complex analysis techniques. Applications of these techniques for the analysis and pricing of systemic risk has already provided significant benefits at least at the conceptual level but it also looks very promising from a practical point of view.
Spiros Bougheas, Alan Kirman
Migration and Networks
Abstract
This paper provides a brief overview of current research on networks in international migration. The paper begins with a short discussion of the relationship between networks and social capital. While controversial, this concept potentially provides a unifying thread linking both various aspects of economic research and, potentially more importantly, providing a bridge linking economic research to parallel research in demography and sociology. The core of the paper is a discussion of the role of networks in the decision to migrate, the role of networks in assimilation, and the effect of global migrant networks on the pattern of international trade. In all three of these areas, recent years have seen substantial new research, both theoretical and empirical, on the ways networks interact with more standard economic variables. In each of these cases, networks are seen to play an essential role in the migration experience.
Douglas R. Nelson
The Response of German Establishments to the 2008–2009 Economic Crisis
Abstract
The global economic and financial crisis which began in 2008 had very different effects on the labour markets of EU economies. In particular, unemployment rose far more in some countries than in others, even after conditioning on the fall in GDP. Thus, in the words of the OECD Employment Outlook (2012), some labour markets might be described as more “resilient” than others in the face of shocks. In this chapter we propose a simple descriptive methodology which relates output shocks and job flows to hires and separations. This methodology sheds light on many of the proposed explanations for the resilience of German establishments to the crisis, in particular the role of various institutional arrangements intended to promote workplace flexibility, such as short-time-work and working time accounts. The increasing availability of detailed linked employer-employee data will enable this methodology to be applied consistently across countries. The chapter therefore serves to open up a research agenda which compares the behaviour of firms’ hiring and firing policies across countries.
Lutz Bellmann, Hans-Dieter Gerner, Richard Upward
Complex Network Analysis in Socioeconomic Models
Abstract
This chapter aims at reviewing complex network models and methods that were either developed for or applied to socioeconomic issues, and pertinent to the theme of New Economic Geography. After an introduction to the foundations of the field of complex networks, the present summary adds insights on the statistical mechanical approach, and on the most relevant computational aspects for the treatment of these systems. As the most frequently used model for interacting agent-based systems, a brief description of the statistical mechanics of the classical Ising model on regular lattices, together with recent extensions of the same model on small-world Watts–Strogatz and scale-free Albert-Barabási complex networks is included. Other sections of the chapter are devoted to applications of complex networks to economics, finance, spreading of innovations, and regional trade and developments. The chapter also reviews results involving applications of complex networks to other relevant socioeconomic issues, including results for opinion and citation networks. Finally, some avenues for future research are introduced before summarizing the main conclusions of the chapter.
Luis M. Varela, Giulia Rotundo, Marcel Ausloos, Jesús Carrete

Industrial Interactions

Frontmatter
Dynamics of Industrial Oligopoly Market Involving Capacity Limits and Recurrent Investment
Abstract
In the current chapter we investigate an industrial oligopoly market, modelled by using CES production functions in combination with the isoelastic demand function. It is supposed that the competitors act not under constant, but eventually decaying returns, and thus, from time to time they need to renew their capital equipment, choosing its optimal amount according to the current market situation. Meanwhile, in the intervening periods the firms are subjected to capacity limits due to fixed capital stocks. As a result, the evolution of the system derived depends essentially on the number of competitors and the capital lifetime, and is also sensitive to the initial choice of individual inactivity times. In particular, the firms may merge into different groups renewing their capitals simultaneously, which leads to distinct dynamical patterns.
Anastasiia Panchuk
R&D Networks
Abstract
The aim of this chapter is two-fold. It first provides a (non exhaustive) overview of the literature concerning oligopoly models where firms produce homogeneous goods and share R&D cost-reducing results through bilateral agreements and/or involuntary spillovers of knowledge. These models are expressed by the formalism of networks (i.e. theory of graphs) where firms represent nodes and agreements for R&D share represent arcs (or links). We describe several models and corresponding theoretical results, as well as some of their practical implications in industrial organization. The second part of the chapter describes a recent dynamic two-stage model of oligopolies with both R&D collaboration ties and spillover effects, where firms adaptively decide their R&D efforts myopically, through a boundedly rational process based on a local estimate of marginal profits. Moreover, a possible dynamic representation of knowledge accumulation with obsolescence is given.
Gian Italo Bischi, Fabio Lamantia
Strategic Location Choice, R&D, and Sourcing Strategies
Abstract
In the following chapter we figure out theoretical approaches in industrial organization to analyze firm’s strategic location choice decision in an oligopolistic environment. Our research interest is twofold. First, we consider firm’s investments and activities regarding R&D. Second, we focus on a firm’s sourcing channel choice. In both streams of literature our main interest is put on firms’ strategic interaction by means of the analysis of a firm decision’s influence on its competitors’ strategies. Due to the fact that this chapter does not solely display a review of the existing literature, we additionally highlight research questions and possible extensions for further research. In summary, we show the significance of firm’s strategic motives within their decision-making process for both itself and its rivals. Additionally, the influence of strategic effects plays an important role for policy makers.
Michael Kopel, Mario Pezzino, Björn Brand
Empirical Literature on Location Choice of Multinationals
Abstract
The location choices of multinational enterprises have been the center of attention both empirically and theoretically in international and regional economics during the last 20 years. Different approaches and methods have been employed to examine foreign firms’ location decisions. We make a critical assessment of these approaches and their contributions to our understanding of dispersion of multinational activities across space. We start from the most influential theoretical contributions which have addressed the motivation of MNEs to be engaged in a horizontal or a vertical FDI and provide a list of the large number of foreign firms’ location determinants considered in the literature. Then, we discuss the various econometric specifications used in the empirical literature to test the hypotheses on these determinants. Finally, we discuss issues for further development specifically for modeling multinationals’ economic activity in space.
Roberto Basile, Saime Kayam
Spatial Interactions in Agent-Based Modeling
Abstract
Agent Based Modeling (ABM) has become a widespread approach to model complex interactions. In this chapter after briefly summarizing some features of ABM the different approaches in modeling spatial interactions are discussed.It is stressed that agents can interact either indirectly through a shared environment and/or directly with each other. In such an approach, higher-order variables such as commodity prices, population dynamics or even institutions, are not exogenously specified but instead are seen as the results of interactions. It is highlighted in the chapter that the understanding of patterns emerging from such spatial interaction between agents is a key problem as much as their description through analytical or simulation means.The chapter reviews different approaches for modeling agents’ behavior, taking into account either explicit spatial (lattice based) structures or networks. Some emphasis is placed on recent ABM as applied to the description of the dynamics of the geographical distribution of economic activities—out of equilibrium. The Eurace@Unibi Model, an agent-based macroeconomic model with spatial structure, is used to illustrate the potential of such an approach for spatial policy analysis.
Marcel Ausloos, Herbert Dawid, Ugo Merlone
Metadata
Title
Complexity and Geographical Economics
Editors
Pasquale Commendatore
Saime Kayam
Ingrid Kubin
Copyright Year
2015
Electronic ISBN
978-3-319-12805-4
Print ISBN
978-3-319-12804-7
DOI
https://doi.org/10.1007/978-3-319-12805-4