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Why some places are left-behind: urban adjustment to trade and policy shocks

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  • Venables, Anthony

Abstract

Economic adjustment to trade and policy shocks is hampered by the fact that some sectors tend to cluster, so are hard to initiate in new places. This can give rise to persistent spatial disparities between cities within a country. The paper sets out a two-sector model in which cities divide into those producing tradable goods or services subject to agglomeration economies, and those only producing non-tradables for the national market. If import competition destroys some established tradable sectors, then affected cities fail to attract new tradable activities and switch to just produce non-tradables. Full employment is maintained (we assume perfect markets and price flexibility) but disparities between the two types of cities are increased. All non-tradable cities experience real income loss, while remaining tradable cities boom. The main beneficiaries are land-owners in remaining tradable cities, but there may be aggregate loss as the country ends up with too many cities producing non-tradables, and too few with internationally competitive activities. Fiscal policy has opposite effects in the two types of cities, with fiscal contraction causing decline in cities producing non-tradables, increasing activity in cities producing tradable goods, widening spatial disparities, and in the process increasing the share of rent in the economy

Suggested Citation

  • Venables, Anthony, 2020. "Why some places are left-behind: urban adjustment to trade and policy shocks," CEPR Discussion Papers 14474, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14474
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    References listed on IDEAS

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    1. Patrick Kline & Enrico Moretti, 2014. "People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 629-662, August.
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    3. Neumark, David & Simpson, Helen, 2015. "Place-Based Policies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1197-1287, Elsevier.
    4. Glaeser, Edward, 2012. "Viewpoint: Triumph of the City," The Journal of Transport and Land Use, Center for Transportation Studies, University of Minnesota, vol. 5(2), pages 1-4.
    5. Michael Storper, 2018. "Separate Worlds? Explaining the current wave of regional economic polarization," Journal of Economic Geography, Oxford University Press, vol. 18(2), pages 247-270.
    6. Vernon Henderson & Anthony Venables, 2009. "Dynamics of city formation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 233-254, April.
    7. Gilles Duranton & J. V. Henderson & William C. Strange (ed.), 2015. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, edition 1, volume 5, number 5.
    8. David Neumark & Helen Simpson, 2015. "Do place-based policies matter?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
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    Cited by:

    1. Buchholz Maximilian & Bathelt Harald, 2021. "Models of Regional Economic Development: Illustrations Using U.S. Data," Zeitschrift für Wirtschaftsgeographie, De Gruyter, vol. 65(1), pages 28-42, March.

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    More about this item

    Keywords

    deindustrialisation; Divergence; Fiscal policy; lagging regions; Urban Economics;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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