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History versus Expectations: an Empirical Investigation

  • Timothy F. Harris
  • Yannis M. Ioannides

    ()

This 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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File URL: http://ase.tufts.edu/econ/papers/200014.pdf
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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0014.

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Date of creation: 2000
Date of revision:
Handle: RePEc:tuf:tuftec:0014
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  1. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
  2. Timothy F. Harris & Yannnis M. Ioannides, 2000. "Productivity and Metropolitan Density," Discussion Papers Series, Department of Economics, Tufts University 0016, Department of Economics, Tufts University.
  3. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  4. Baldwin, Richard & Forslid, Rikard, 1997. "The Core-Periphery Model and Endogenous Growth," CEPR Discussion Papers 1749, C.E.P.R. Discussion Papers.
  5. Gali, Jordi, 1995. "Expectations-driven spatial fluctuations," Regional Science and Urban Economics, Elsevier, vol. 25(1), pages 1-19, February.
  6. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
  8. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  9. Fukao, Kyoji & Benabou, Roland, 1993. "History versus Expectations: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 535-42, May.
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