History versus Expectations: an Empirical Investigation
AbstractThis paper provides the first empirical test of the role of history versus expectations in U.S. urban development. Starting from Paul Krugman's theoretical work in new economic geography, we test whether or not a modern city develops because of either advantageous initial conditions or by way of a self-fulfilling prophecy based on expectations of development. Using the methology developed by Granger to establish causality between two variables, but adapted to a cross-section with four time lags, we test whether asset values, that is, farmland values and housing values, anticipate urban development or vice versa. In the case of the former, we would conclude that expectations drive urban development in the U.S., and in the case of the latter we would conclude that history does. The results indicate very strongly that initial conditions, that is history, dominate the process by which one city becomes a metropolis and another languishes in the periphery.
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Bibliographic InfoPaper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0014.
Date of creation: 2000
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History vs. expectations; urban growth; Granger causality; economics geography;
Find related papers by JEL classification:
- R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
- F00 - International Economics - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-06-12 (All new papers)
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