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Looking for multiple equilibria when geography matters: German city growth and the WWII shock

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  • Bosker, Maarten
  • Brakman, Steven
  • Garretsen, Harry
  • Schramm, Marc

Abstract

Many modern trade and growth models are characterized by multiple equilibria. In theory the analysis of multiple equilibria is possible, but in practice it is difficult to test for the presence of multiple equilibria. Based on the methodology developed by Davis and Weinstein (2004) for the case of Japanese cities and WWII, we look for multiple equilibria in a model of German city growth. The strategic bombing of Germany during WWII enables us to assess the empirical relevance of multiple equilibria in a model of city-growth. In doing so, and in addition to the Davis and Weinstein framework, we look at the spatial inter-dependencies between cities. The main findings are twofold. First, multiple equilibria seem to be present in German city growth. Our evidence supports a model with 2 stable equilibria. Second, the explicit inclusion of geography matters. Evidence for multiple equilibria is weaker when spatial interdependencies are not taken into account.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 61 (2007)
Issue (Month): 1 (January)
Pages: 152-169

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Handle: RePEc:eee:juecon:v:61:y:2007:i:1:p:152-169

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Stephen Redding & Daniel Sturm, 2006. "The Costs of Remoteness: Evidence from German Division and Reunification," 2006 Meeting Papers, Society for Economic Dynamics 283, Society for Economic Dynamics.
  2. Diego Puga, 1996. "The Rise and Fall of Regional Inequalities," CEP Discussion Papers, Centre for Economic Performance, LSE dp0314, Centre for Economic Performance, LSE.
  3. Donald R. Davis & David E. Weinstein, 2008. "A Search For Multiple Equilibria In Urban Industrial Structure," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 29-65.
  4. Keith Head & Thierry Mayer, 2004. "The Empirics of Agglomeration and Trade," Sciences Po publications, Sciences Po info:hdl:2441/10191, Sciences Po.
  5. Steven Brakman & Harry Garretsen & Marc Schramm, 2004. "The strategic bombing of German cities during World War II and its impact on city growth," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 4(2), pages 201-218, April.
  6. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
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