Harry Garretsen

An introduction to Geographical Economics: Trade location and growth

The need for a better understanding of the role location plays in economic life was made explicit by Bertil Ohlin in 1933. However, it is only recently, with the development of computer packages able to handle complex systems, as well as advances in economic theory (in particular, an increased understanding of returns to scale and imperfect competition), that Ohlin’s vision has been met and a framework developed which explains the distribution of economic activity across space. This book is an integrated, first-principles textbook presenting geographical economics to advanced students. Although not avoiding advanced concepts, its emphasis is on examples, diagrams, and empirical evidence.

Recessionary Shocks and Regional Employment: Evidence on the Resilience of U.K. Regions

We analyze the resilience of U.K. regions to employment shocks. Two basic notions of resilience are distinguished. With engineering resilience, there is an underlying stable growth path to which a regional economy rebounds following a shock. With ecological resilience, shocks can permanently affect the growth path of the regional economy. Our data set consists of quarterly employment series for 12 U.K. regions (NUTS I) for the period 1971–2010. Using a seemingly unrelated regression (SUR) model specification, we test for the relevance of (engineering) resilience of U.K. regional employment to the four recessionary shocks in our sample. It turns out that U.K. regions do indeed differ in their resilience, but that these differences mainly concern the initial resistance to these shocks and not so much the recovery stage. The SUR model does not allow shocks to have permanent effects and it also does not take the possibility of time differentiated shock spillovers between the 12 regions into account. To this end, we also estimate a vector error‐correction model (VECM) specification where employment shocks can have permanent effects and where also interregional employment linkages are included. We find that employment shocks typically have permanent effects when it concerns the own‐region effects. Permanent effects can also be found for the impact on other regions but the interregional effects are typically only significant for nearby regions.

The Return of Zipf: Towards a Further Understanding of the Rank‐Size Distribution

We offer a general-equilibrium economic approach to Zipfs Law or, more generally, the rank-size distribution—the striking empirical regularity concerning the size distribution of cities. We provide some further understanding of Zipfs Law by incorporating negative feedbacks (congestion) in a popular model of economic geography and international trade. This model allows the powers of agglomeration and spreading to be in long-run equilibrium, which enhances our understanding of the existence of a rank-size distribution of cities.

Liquidity Constraints and Investment in Transition Economies: The Case of Bulgaria

We use Bulgarian firm level data to investigate the impact of liquidity constraints on investment performance. Internal funds are an important determinant of investment in most industrialized countries. We test whether internal funds are important for firm investment during the current transition process in Bulgaria. We use a simple accelerator model of investment to test whether liquidity constraints are relevant in the case of Bulgaria. Our estimations are based on data for the period 1993-1995, prior to the Bulgarian financial crisis in 1996-97. It turns out that Bulgarian firms are liquidity constrained, and that firms’ size and financial structure help to distinguish between firms that are more and less liquidity constrained. In our view liquidity constraints can be given a different interpretation in the case of transition economies as compared to Western economies. A more in depth analysis of the data reveals that liquidity constraints and consequently the access to external funds for Bulgarian firm investment are to be seen against the background of soft-budget constraints and the failure of the financial system to enforce an efficient allocation of funds. In our view the lack of liquidity constraints may actually been seen as a sign of financial weakness in the case of Bulgaria.

The New Introduction to Geographical Economics: List of symbols and parameters

Geographical economics starts from the observation that economic activity is clearly not randomly distributed across space. This revised and updated introduction to geographical economics uses the modern tools of economic theory to explain the who, why and where of the location of economic activity. The text provides an integrated, first-principles introduction to geographical economics for advanced undergraduate students and first-year graduate students, and has been thoroughly revised and updated to reflect important developments in the field, including new chapters on alternative core models and policy implications. It presents a truly global analysis of issues in geographical economics using case studies from all over the world, including North America, Europe, Africa and Australasia, and contains many computer simulations and end-of chapter exercises to encourage learning and understanding through application.

The New Introduction to Geographical Economics by Steven Brakman

Geographical economics starts from the observation that economic activity is clearly not randomly distributed across space. This revised and updated introduction to geographical economics uses the modern tools of economic theory to explain the who, why and where of the location of economic activity. The text provides an integrated, first-principles introduction to geographical economics for advanced undergraduate students and first-year graduate students, and has been thoroughly revised and updated to reflect important developments in the field, including new chapters on alternative core models and policy implications. It presents a truly global analysis of issues in geographical economics using case studies from all over the world, including North America, Europe, Africa and Australasia, and contains many computer simulations and end-of chapter exercises to encourage learning and understanding through application.

Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis

This paper studies the transmission of monetary and fiscal policy in the Euro-area. To do so, structural VAR models are estimated. First, the EMU countries are considered as an aggregate entity and the estimation results are compared with those for the US and Japan. Attention is also paid to interaction of macroeconomic policies and the effects of shocks in financial markets. As a next step, SVARs are estimated for the individual EMU countries to analyze cross-country differences. It turns out that, compared to the EMU aggregate, individual EU countries react rather differently to monetary and fiscal policy shocks.

Economic Geography within and between European Nations: The Role of Market Potential and Density across Space and Time

In explaining the uneven spatial distribution of economic activity, urban economics and new economic geography (NEG) dominate recent research in economics. A main difference between these two approaches is that NEG stresses the role of spatial linkages whereas urban economics does not do so. We estimate simple versions of these two views on economic geography and also establish if the relevance of spatial linkages varies across aggregation levels or time. For our sample of 14 European countries and 213 corresponding regions, we find that spatial linkages are more important at the country level and that its relevance varies across time.

Keynesian, Non-Keynesian or no effects of fiscal policy changes? The EMU Case

This paper studies the experiences with fiscal adjustments in the European Union (EU) countries during the transition period to the Economic and Monetary Union (EMU). Using several approaches suggested in the literature on fiscal adjustments and their macroeconomic effects and in the literature on EMU, we analyze the effects of the fiscal adjustments during this period on private consumption. Thereby, we also take the specific context of the transition towards EMU explicitly into consideration. At best mixed evidence for the presence of non-linearities in the relation between fiscal adjustments and private spending is obtained. There is no clear-cut evidence for the hypothesis of “expansionary fiscal contractions” which may have alleviated the burden from fiscal consolidation in the EMU case. The sensitivity of the results for a number of factors is also checked.

The transmission of interest rate changes and the role of bank balance sheets: A VAR-analysis for the Netherlands*

We present evidence of monetary transmission in the Netherlands from a VAR-model estimated with monthly data covering the period 1979–1993. It is found that M2 and, to a lesser extent, bond holdings of banks outperform bank credit as leading indicators for monetary policy. Bond holdings are adjusted almost immediately in response to an interest rate shock. This, combined with the sluggish reaction of intermediated loans, may suggest that banks display buffer-stock behavior. The results for the real economy point to a fairly flat aggregate supply curve, implying that nominal price rigidities are important in the Dutch economy.