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Beyond neoclassical orthodoxy: A view based on the new economic geography and UK regional wage data

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  • Bernard Fingleton

Abstract

The article examines the performance of two competing non-nested models of regional wage variations in Great Britain, one motivated by the Solow-Swann neoclassical growth model which assumes constant returns to scale, the other by new economic geography theory, which assumes internal and external increasing returns. Both models also include controls for labour efficiency variations across regions. The empirical analysis, which is based on the bootstrap J test, shows that the neoclassical model does not reject the new economic geography specification, but the converse is not true and the model with a basis in new economic geography has significantly superior explanatory power. This adds support to the notion that in order to correctly understand differential regional economic development, we should move beyond neoclassical orthodoxy and that an increasing returns stance is more appropriate. However, the article also highlights some limitations of new economic geography theory. Copyright RSAI 2005.

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  • Bernard Fingleton, 2005. "Beyond neoclassical orthodoxy: A view based on the new economic geography and UK regional wage data," Papers in Regional Science, Wiley Blackwell, vol. 84(3), pages 351-375, August.
  • Handle: RePEc:bla:presci:v:84:y:2005:i:3:p:351-375
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    Cited by:

    1. Maarten Bosker & Harry Garretsen, 2010. "Trade costs in empirical New Economic Geography," Papers in Regional Science, Wiley Blackwell, vol. 89(3), pages 485-511, August.
    2. Dusan Paredes, 2010. "The Role of Regional Price Index in New Economic Geography Models," Documentos de Trabajo en Economia y Ciencia Regional 07, Universidad Catolica del Norte, Chile, Department of Economics, revised Dec 2010.
    3. Ben Hammouda, Hakim & Karingi, Stephen & Njuguna, Angelica & Sadni Jallab, Mustapha, 2006. "Diversification: towards a new paradigm for Africa’s development," MPRA Paper 13359, University Library of Munich, Germany.
    4. Kristian Behrens & Frédéric Robert-Nicoud, 2009. "Krugman's "Papers in Regional Science": The 100 dollar bill on the sidewalk is gone and the 2008 Nobel Prize well-deserved," Papers in Regional Science, Wiley Blackwell, vol. 88(2), pages 467-489, June.
    5. Mark V. JANIKAS & Sergio J. REY, 2008. "On The Relationships Between Spatial Clustering, Inequality, And Economic Growth In The United States : 1969-2000," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 27, pages 13-34.
    6. Roberts, Mark & Deichmann, Uwe & Fingleton, Bernard & Shi, Tuo, 2010. "On the road to prosperity ? The economic geography of China's national expressway network," Policy Research Working Paper Series 5479, The World Bank.
    7. Dusan Paredes, 2012. "Alternative theories for explaining the spatial wage inequality: a multilevel competition among human capital, NEG and amenities," Documentos de Trabajo en Economia y Ciencia Regional 20, Universidad Catolica del Norte, Chile, Department of Economics, revised Apr 2012.

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