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The Comparative Political Economy of Economic Geography

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  • Wiberg, Magnus

    ()
    (Ministry of finance)

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    Abstract

    This 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 Info

    Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2011:21.

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    Length: 36 pages
    Date of creation: 02 Sep 2011
    Date of revision:
    Handle: RePEc:hhs:sunrpe:2011_0021

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    Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
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    Keywords: Economic Geography; Regional Policy; Electoral Rules;

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    1. Torsten Persson & Gerard Roland & Guido Tabellini, 2006. "Electoral Rules and Government Spending in Parliamentary Democracies," Levine's Working Paper Archive 321307000000000249, David K. Levine.
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    3. Ticchi, Davide & Vindigni, Andrea, 2003. "Endogenous Constitutions," Seminar Papers 726, Stockholm University, Institute for International Economic Studies.
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    7. Weingast, Barry R. & Wittman, Donald, 2008. "The Oxford Handbook of Political Economy," OUP Catalogue, Oxford University Press, number 9780199548477, October.
    8. Dupont, Vincent & Martin, Philippe, 2003. "Subsidies to Poor Regions and Inequalities: Some Unpleasant Arithmetic," CEPR Discussion Papers 4107, C.E.P.R. Discussion Papers.
    9. Per Pettersson-Lidbom, 2008. "Do Parties Matter for Economic Outcomes? A Regression-Discontinuity Approach," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1037-1056, 09.
    10. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
    11. Robert-Nicoud, Frederic & Sbergami, Federica, 2004. "Home-market vs. vote-market effect: Location equilibrium in a probabilistic voting model," European Economic Review, Elsevier, vol. 48(1), pages 155-179, February.
    12. Homburg, Stefan, 1997. "Ursachen und Wirkungen eines zwischenstaatlichen Finanzausgleichs," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 61-95.
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