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The Annals of Regional Science

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01.03.2015 | Original Paper

Spatial distribution of skills and regional trade integration

verfasst von: Fabien Candau, Elisa Dienesch

Erschienen in: The Annals of Regional Science | Ausgabe 2/2015

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Abstract

This study is a theoretical and empirical analysis of the effects of regional trade integration on the spatial distribution of skills. We first develop a theoretical model in the economic geography field to integrate heterogeneous workers, housing, local entrepreneurs and skill upgrading by unskilled workers. We then analyse how the domestic integration of each state in the USA, approximated by truck registrations, influenced the location choice of skilled and unskilled workers in 1940–1960. By using inter- and intrastate trade flow from the US Commodity Flow Survey, we also analyse the impact of regional trade costs for the contemporary period (1997, 2002, 2007). The theoretical model shows that the bell-shaped curve of spatial development displays a sorting of individuals and firms. Only high-skilled workers increasingly choose the core region during the process of regional integration, while intermediate-skilled workers move to the periphery due to the increase in the price of housing. By impacting differently on the opportunity cost to invest in skill acquisition in the core and the periphery, this sorting influences the regional creation of human capital. First a regional divergence in education investment occurs and then a convergence, but only for high-level regional integration. The empirical analysis confirms that regional trade integration has been a determinant of the spatial distribution of skills in the USA.

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Glaeser (2005a, b) provides vivid pictures of the role of natural advantages in the economic history of New York and Boston. See also Glaeser and Kohlhase (2004) who analyse how the trade costs have decreased over the twentieth century (by over 90 % in real terms) making geographical advantage in production increasingly irrelevant to explain the spatial economy.

See Helsley and Strange (1990), Venables (2011).

Port facilities are obviously the first large indivisibilities that fostered agglomeration economies explaining the density of populations but many other facilities mattered such as those presented by Burchfield et al. (2006) who find that residences are closer to each other in cities where the water supply relies on shared public facilities.

See Combes and Gobillon (2015) for the empirics of these agglomeration economies.

See Fujita et al. (1999) for the general presentation and Mori and Turrini (2005) and Ottaviano (2012) for models in this field with heterogeneous individuals.

Wrede (2013) also proposes a model with housing and skills heterogeneity but in a model with monopolistic competition for intermediate goods. He finds that the core will be larger than the periphery in terms of aggregate skills, population and production.

Redding and Schott (2003) show that by hindering market access, distance reduces job opportunities for skilled workers and funds invested in education.

We survey this literature in the first part of this article.

To explain this, one can evoke what Head and Mayer (2013) called the “dark matter” of the trade gravity which are familiarity (information decaying with distance), localized tastes and distribution networks. It is indeed costly to learn about market conditions elsewhere (Allen 2014), which gives the regional market size a crucial role reducing information frictions. As shown by Chaney (2014), the fact that firms use their existing network of contacts to search remotely for new partners can explain why trade decreases so strongly with distance.

We are especially concerned by the role of regional trade costs, consequently we work on a complete database of trade, including regional, interregional and international flows, which allow us to build a multidimensional trade costs indicator, including an internal border component.

See also Behrens and Robert-Nicoud (2014) who propose an elegant model with natural advantage, agglomeration economies and selection explaining why large cities are both more productive and more unequal than small towns.

See Baum-Snown and Feirrera (2015) for an extensive discussion on empirical methods to capture spatial sorting and other effects.

Glaeser et al. (2014) do not study regional trade costs. However, as in the current model, they consider that education increases the level of entrepreneurship.

We introduce a standard restriction with quasi-linear utility regarding income that must be high enough to ensure consumption of all goods: \(\gamma +\mu <Y\) (see Bardes and Peirson 2010; Dixit 1990).

The two terms are equivalently used in prior literature. Krugman (1991) and Robert-Nicoud (2005) speak of regional migration of workers. Instead Baldwin et al. (2003) present mobile individuals as footloose entrepreneurs, whereas Forslid and Ottaviano (2003) speak about skilled workers. However, when turning towards the empirical analysis, the model is more often used to analyse migration of workers than relocation of entrepreneurs (Glaeser et al. 2010). See for instance Bosker et al. (2012) who analyse regional migration in China.

See also Forslid and Ottaviano (2003).

This perfect matching between skilled workers and productive firms may be related to Mion and Naticchioni’s (2009) finding on the Italian market: “good” workers match up with “good” firms. Irarrazabal et al. (2013) also find that part of the difference between high and low productive firms comes from assortive matching. A critical point of this assumption is, however, that it is more likely that firms hiring high-skilled workers will exhibit more economies of scale than firms with low-skilled workers. However, because wages are the residual claimant of profit, this is unsuitable with our objective to consider high-skilled workers who earn more than low-skilled, i.e. \(w_{rh}^{S}<w_{rl}^{S}\). In short, the assumption of \(f_{h}>f_{l}\) is done to ensure that \(w_{rh}^{S}<w_{rl}^{S}\).

We relegate the expression of these break points and proof to Appendix 1 (Eqs. 18 and 19).

Parameters: \(\sigma =4,\) \(\beta =1,\) \(L_\mathrm{im}=2,\) \(\mu =0.2,\) \(f_{l}=1.5,\) \(f_{h}=2\).

This number (\(L_{l}^{S}=0.2\)) is chosen simply to obtain a nice graphic.

The reader can thus draw other bifurcation diagrams by setting another value of \(\gamma \).

Parameters: \(\gamma =0.04\), \(\sigma =4,\) \(\beta =1,\) \(L_\mathrm{im}=2,\) \(\mu =0.2,\) \(f_{l}=1.5,\) \(f_{h}=2\).

By showing that this period was characterized by a relatively elastic supply of inventions, Sokoloff and Khan (1989) conclude that the expansion of markets had allowed a spread of inventive activity. They also document major shifts in the occupational and geographic distributions of patents.

See also Glaeser et al. (2014) who propose a model in which education increases the level of entrepreneurship.

For now, we do not impose restrictions regarding their skills, i.e. they are high skilled if the fixed costs of the production of firms managed by these entrepreneurs is equal or smaller than that of firms launched by high-skilled entrepreneurs \(f{}_\mathrm{im}<f_{l}\), they are low skilled in the reverse case, i.e. \(f{}_\mathrm{im}>f_{h}\). In the numerical simulation, we have considered that they are better skilled than the low skilled but less skilled than the high skilled, \(f_{h}>f_\mathrm{im}>f_{l}\).

Thus, the systematic assumption in prior literature that ”all entrepreneurs are mobile” is relaxed because it is not observed even in the USA where regional mobility is perhaps the highest among developed countries.

The fact that education cost is proportional to wage is not neutral for the relationship between education effort and location equilibrium, but we leave a more complex modelling for future research.

See Falvey et al. (2010) for such a model.

We do not analyse the effect of different regional education costs. In what follows, education costs are assumed to be spatially identical.

Parameters: \(\sigma =3\), \(\beta =1\), \(L_\mathrm{im}=4\), \(\mu =0.9\), \(f_\mathrm{im}=1.5\), \(f_{l}=1\), \(f_{h}=2\), \(\gamma =0.1\).

We offer a result instead of a proposition because part of the proof is based on simulations. We have conducted various robustness checks to ensure that similar examples exist with different parameters.

Congress allocated 20 million a year to improve road infrastructure, with the Federal Aid Road Act of 1916.

Data on educational attainment by state and year come from the US Census Bureau. Two kinds of skills are distinguished: low- and high-skilled workers, according to educational attainment in secondary (high school degree) and tertiary education (bachelor degree or more).

The internal distance is obtained with the following expression \(d_{i}=(2/3)\sqrt{A_{i}/\pi }\) with \(A_{i}\) the state area.

An exception is the study of Coughlin and Novy (2013) in which authors build an indirect measure of domestic trade barriers of the USA based on interstate trade flows.

http://www.bts.gov/publications/commodity_flow_survey/.

See Cassey (2009) who provides an in-depth discussion of this database.

http://www.wisertrade.org/home.

http://world-gazetteer.com/.

Cities with more than 100,000 people are taken into account in each state and country.

http://mathworld.wolfram.com/GreatCircle.html.

http://www.bea.gov/regional/index.htm.

http://www.census.gov/hhes/socdemo/education./.

Baum-Snow (2007), Michaels et al. (2012) use the 1947 plan of the interstate highway system.

Duranton and Turner (2011, 2012)

A third approach is described by authors, the inconsequential place approach, which consists in analysing networks, which have accidentally benefited from infrastructure investments, as in Chandra and Thompson (2000).

The need for introducing technological change is summarized by Glaeser et al. (2014):

“Regional and urban change is best understood not as the application of time-invariant growth processes, but rather as a reflection of large-scale technological change. These processes are quite amenable to formal modelling, but only to formal models that respect the changing nature of transportation and other technologies”.

Following the work of Silva and Tenreyro (2006), the use of pseudo-maximum likelihood estimators (Poisson and derived econometric models) is justified for treating heteroskedasticity and dealing with the presence of zero trade values.

From Broda et al. (2006) and completed when data are not available.

We are grateful to James E. Anderson for providing MATLAB codes for computing the multilateral resistances terms.

While the inward one reflects the buyer incidence of trade costs.

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Titel: Spatial distribution of skills and regional trade integration
verfasst von: Fabien Candau
Elisa Dienesch
Publikationsdatum: 01.03.2015
Verlag: Springer Berlin Heidelberg
Erschienen in: The Annals of Regional Science / Ausgabe 2/2015
Print ISSN: 0570-1864
Elektronische ISSN: 1432-0592
DOI: https://doi.org/10.1007/s00168-015-0662-4

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