Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,
Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest
Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest
Gábor Békés, Sarolta Rózsás
June 2011
2
Syllabus
Expected knowledge
• Key concepts in international trade o Heckscher – Ohlin model o Ricardo model
o trade costs, Samuelson iceberg model o comparative advantage
• Key methods
o OLS regression (concept, interpretation, dummy variables) o panel data – basic concept
o discrete choice, probit models
• Key concepts from microeconomics
o profit maximisation (how to do), market equilibrium o perfect competition, monopoly, duopoly
o price taking behaviour o production function
o consumer's budget constraint o consumer preferences
o perfectly competitive equilibrium o return to scale
o Marshallian externality
• Key concepts from macro-economics
o Rational expectations (basic concept) o Solow growth model
o Endogenous growth model (basic concept)
Week 1
Outline
• Discussion of agglomeration
• Discussion of spatial inequality
• Role for policy
3 References
• BGM: Brakman, W., H. Garretsen and Ch. van Marrewijk, 2009, The new introduction to geographical economics CUP 2009
• Lucas, Robert (1990). "Why Doesn't Capital Flow from Rich to Poor Countries". American Economic Review 80: 92–96.
Week 2
Outline
• Geography and transport costs – old and new economic geography
• 9 remarks on economic geography
• Von Thünen (1826) model
References
• Gianmarco I P Ottaviano & Jacques–Francois Thisse, 2005. "New economic geography: what about the N?," Environment and Planning A, Pion Ltd, London, vol. 37(10), pages 1707–1725, October.
• Thünen, von J.H. (1826), Der Isolierte Staat in Beziehung auf Landschaft und Nationalökonomie.
Trans. By C.M.
• Anthony J. Venables (2005): New Economic Geography, Palgrave Dictionary of Economics
Week 3
Outline
• Von Thünen (1826), Lösch (1954)
• The basic Von Thünen model
• Formal exposition
• Extensions
• CBD models References
• Fujita Thisse 3.2.–3.3
Week 4
Outline
• Economic Growth and International Convergence o The neoclassical model
o The Mankiw–Romer–Weil analysis
4 o Interpretation of convergence – The Beta and Sigma approach
o Convergence clubs
References
• Barro and Sala-i-Martin (1995): Economic Growth, Chapter 11
• Mankiw, G., Romer, D. and Weil, D. (1992), A contribution to the empirics of economic growth, QJE
Week 5
Outline
• Economic Geography and Trade o Neoclassical Trade Theory o New Trade Theory
o Applications and examples
• Geography and transportation costs o Iceberg
References
• BGM Chapter 3.6
• James E. Anderson – Eric van Wincoop (2004), TRADE COSTS, http://www.nber.org/papers/w10480
• Hummels, David (2001), "Toward a Geography of Trade Costs", working paper, Purdue University
• Krugman (1979), "Increasing Returns, Monopolistic Competition and International Trade", JIE
• Krugman (1980), "Scale Economies, Product Differentiation, and the Pattern of Trade", AER
• Paul Krugman and Elhanan Helpman: Market Structure and Foreign Trade, Cambridge, MA: MIT Press, 1985.
• Melitz, M. (2003) "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity", Econometrica
• Limao, Nuno and Anthony J. Venables (2001), "Infrastructure, Geographical Disadvantage, Transport Costs and Trade," World Bank Economic Review, 15, 451–79.
Links
• http://web.mit.edu/krugman/www/dixit.html
• http://nobelprize.org/nobel_prizes/economics/laureates/2008/ecoadv08.pdf
• http://web.mit.edu/krugman/www/mushy.html
5
Week 6
Outline
• Monopolistic competition: Introduction
• Dixit–Stiglitz model: demand side
• Monopolistic competition II – Supply o Production structure
o Price setting and profit
References
• BGM Chapter 3.4, 3.5
• Dixit, A – J. Stiglitz (1977), "Monopolistic competition, and the optimum product diversity", AER
Week 7
Outline
• Krugman model
o Production structure
o Geography steps in: two regions o Short-run equilibrium
o Long-run equilibrium
References
• BGM Chapter 3.3,3.7–3.9
Week 8
Outline
• Krugman model – Dynamics o Simulations
o The role of relative real wage o Stability of equilibria
o The effect of transportation costs o History dependence
References
• BGM Chapter 4.2–4.4, 4.5 in part
6
Week 9
Outline
• Krugman model – Extensions o Intermediate inputs o Labor market o More regions o Results, hypotheses
References
• BGM Chapter 4.6 (in detail), 4.7, 4.9
• Fujita–Krugman–Venables (1999), Chapter 14
Week 10
Outline
• Krugman-style models and some empirical results o Results and hypotheses
o The Krugman model and reality o Shock sensitivity
References
• BGM Chapter 5.4, 5.5, 6.2.1, Box 6.5
• Baldwin, R. E., and P. R. Krugman (2004), Agglomeration, integration and tax harmonization, Eur Econ Rev 48:1–23.
• Davis D.R. – D.E Weinstein (1999), Economic geography and regional production structure: an empirical investigation, European Economic Review, 43: 379–407
• Davis–Weinstein (2002), Bones, bombs and breakpoints: the geography of economic activity, American Economic Review, 92: 1269–89.
• Hanson, G.H (2005), Market potential, increasing returns, and geographic concentration, J. of International Economics, 67: 1–24.
• Head, K., and T. Mayer (2004), The empirics of agglomeration and trade, in J. V. Henderson and J.–F. Thisse (eds.), The Handbook of Regional and Urban Economics, vol. IV, Cities and
Geography, Amsterdam: North Holland, 2609–65.
• Krugman, P– A.Venables (1995) Globalization and the inequality of nations, Quarterly Journal of Economics, 110:857–80.
Week 11
7 Outline
• Geographical Economics and Policy
o The potential of policy instruments o Policy implications
o Taxation and agglomeration o Transportation and traffic
References
• BGM Chapter 11 (beginning)
• Brulhart, Jametti and Schmidheiny (2009), "Do Agglomeration Economies Reduce the Sensitivity of Firm Location to Tax Differentials?"
• Luthi – Schmidheiny (2011), "The Effect of Agglomeration Size on Local Taxes"
• Neary, J. P. (2001), Of hype and hyperbolas: introducing the new economic geography, Journal of Economic Literature, 39: 536–61.
• Ottaviano, G. I. P. (2003), Regional policy in the global economy: insights from the New Economic Geography, Regional Studies, 37: 665–73.
Week 12
Outline
• Agglomeration and the productivity of firms
o US – Ciccone–Hall (1996) model, theory and empirical results o EU – Ciccone (2002) model, theory and empirical results
References
• Ciccone, A., and R. E. Hall (1996), "Productivity and the density of economic activity", American Economic Review, 86: 54–70.
• Ciccone, A. (2002), "Agglomeration effects in Europe", European Economic Review, 46: 213–37.
Week 13 Outline
• Agglomeration and cities – Basis and key terms o Agglomeration externalities
o Stylized facts
o The mechanism of agglomeration References
• BGM Ch 7
8
• Duranton, G., and D. Puga (2004), "Micro-foundations of urban agglomeration economies", in J.
V. Henderson and J.–F. Thisse (eds.), The Handbook of Regional and Urban Economics vol. IV Cities and Geography, Amsterdam: North-Holland, 2063–2118.
• Mortensen, Dale T. and Christopher A. Pissarides. 1999. New developments in models of search in the labor market. In Orley Ashenfelter and David Card (eds.) Handbook of Labor Economics, volume 3. Amsterdam: Elsevier, 2567–2627.
