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The new economic geography versus urban economics: an evaluation using local wage rates in Great Britain

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Bernard Fingleton

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Abstract

This paper tests two major competing theories explaining the spatial concentration of economic activity, namely new economic geography theory (NEG) which emphasizes varying market potential, and urban economics theory (UE) in which the main emphasis is on producer service linkages. Using wage rate variations across small regions of Great Britain, the paper finds that it is UE theory rather than NEG theory that has most explanatory power. Evidence for this comes from encompassing both models within an artificial nesting model. Despite the popularity of NEG theory, this paper shows that although NEG works well using regional data, there is evidence that it does not necessarily provide the best explanation of local wage variations, since producer services inputs associated with UE theory and labour efficiency variations are important effects at a local level, and these are excluded from the formal NEG model. Copyright 2006, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpl006
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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 58 (2006)
Issue (Month): 3 (July)
Pages: 501-530
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Handle: RePEc:oup:oxecpp:v:58:y:2006:i:3:p:501-530

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  1. Michael Pfaffermayr, 2007. "Conditional Beta- and Sigma-Convergence in Space: A Maximum Likelihood Approach," Working Papers 2007-17, Faculty of Economics and Statistics, University of Innsbruck. [Downloadable!]
    Other versions:
  2. Bernard Fingleton, 2005. "Towards applied geographical economics: modelling relative wage rates, incomes and prices for the regions of Great Britain," Applied Economics, Taylor and Francis Journals, vol. 37(21), pages 2417-2428, December. [Downloadable!] (restricted)
  3. Reinhold Kosfeld & Hans-Friedrich Eckey & Matthias Türck, 2005. "New Economic Geography and Regional Price Level," Discussion Papers in Economics 78/05, University of Kassel, Institute of Economics. [Downloadable!]
  4. Steven Brakman & Harry Garretsen, 2009. "Trade and Geography: Paul Krugman and the 2008 Nobel Prize in Economics," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  5. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2009. "Economic Geography within and between European Nations: The Role of Market Potential and Density across Space and Time," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Leonardo Monasterio & Mauro Salvo, 2006. "Wages and Industrial Clusters in Rio Grande Do Sul (Brazil)," ERSA conference papers ersa06p930, European Regional Science Association. [Downloadable!]
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