The Comparative Political Economy of Economic Geography
AbstractThis paper examines how different electoral rules affect the location decisions of firms through the effect on regional policy. The equilibrium location of industry in the economically smaller (larger) region is higher under majoritarian (proportional) elections. The standard prediction in the economic geography literature, that the larger region becomes the core when trade barriers are reduced, no longer holds. The establishment of manufacturing production in the smaller region is increasing in the level of regional integration. As trade is in- creasingly liberalized, the economy features a reversed core-periphery equilibrium. This result holds under both electoral rules. However, firms locate to the smaller region at a relatively higher rate in the case of majoritarian voting, hence, the reversed equilibrium occurs for a relatively lower level of regional integration with majoritarian elections. Empirical evidence shows that the model is consistent with qualitative features of the data, and the results are robust to an instrumental variable strategy that accounts for the potential endogeneity of the electoral rule.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2011:21.
Length: 36 pages
Date of creation: 02 Sep 2011
Date of revision:
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Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
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Economic Geography; Regional Policy; Electoral Rules;
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
- NEP-GEO-2011-09-16 (Economic Geography)
- NEP-POL-2011-09-16 (Positive Political Economics)
- NEP-URE-2011-09-16 (Urban & Real Estate Economics)
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