c CONTENTS List of Contributors v Chapter 1 The Theoretical and - - PDF document

URBAN DYNAMICS AND GROWTH Advances in Urban Economics

Edited by Roberta Capello

• Dept. of Management, Economics & Industrial Engineering

Politecnico di Milano Milano, Italy and Peter Nijkamp

• Dept. of Spatial Economics

Free University Amsterdam, The Netherlands

2004

ELSEVIER

Amsterdam - Boston - Heidelberg - London - New York - Oxford Paris - San Diego - San Francisco - Singapore - Sydney - Tokyo

c

CONTENTS List of Contributors v Chapter 1 The Theoretical and Methodological Toolbox

• f Urban Economics: From and Towards Where?

1 Roberta Capello and Peter Nijkamp 1.1. Pathways in regional science and urban economics 2 1.2. The role of urban economics in regional science 4 1.3. Advances in urban economics: recent theoretical and methodological directions 6 1.3.1. Prefatory remarks 6 1.3.2. Tendencies in theory 6 1.3.3. Tendencies in models and methods 13 1.4. Urban economics and regional science transition 16 1.5. Hurdles to be crossed 19 1.6. Reasons and structure of the volume 20 References 24 PART 1 AGGLOMERATION Chapter 2 Urban Scale Economies: Statics and Dynamics 31 Philip McCann 2.1. Introduction 31 2.2. Cities, returns to scale and agglomeration 33 2.3. Cities, innovation and firm creation 37 2.4. Clusters, firm types and the nature of transactions 40 2.5. The empirics of cities 45 2.6. Conclusions 52 References 53 Chapter 3 Beyond Optimal City Size: Theory and Evidence Reconsidered 57 Roberta Capello 3.1. Introduction 57 3.2. Optimal city size: an old and still unsolved issue 59

3.3. New paradigms for an old problem 62 3.3.1. The neoclassical and Christailerian city 62 3.3.2. The network city 66 3.4. Traditional empirical analyses: the aspatial city 70 3.5. Recent empirical analyses: city size and environmental aspects 74 3.6. Recent empirical analyses: the specialised city in an urban system 77 3.7. Concluding remarks 81 References 82 Chapter 4 Spatial Externalities and the Urban Economy 87 Erik T. Verhoef and Peter Nijkamp 4.1. Cities in perspective 88 4.2. Urban externalities 91 4.3. An overview of urban externalities studies 95 4.3.1. Theoretical studies 96 4.3.2. Towards empirical studies 98 4.4. A modelling framework for urban externalities: analysing first-best and second-best policies for multiple externalities 100 4.4.1. The analytical model 102 4.4.2. A numerical example: base-case equilibrium 109 4.4.3. First-best regulation 112 4.4.4. Second-best regulation 114 4.5. Conclusion 117 References 118 Chapter 5 Uncertainty, Social Capital and Community Governance: The City as a Milieu 121 Roberto Camagni 5.1. Introduction: complexity and uncertainty 122 5.2. Uncertainty and the concept of local milieu 124 5.3. Relational capital as a crucial constituent of the local milieu 129 5.4. The city as a milieu 134 5.4.1. The conditions for a comparison 134 5.4.2. The economic role of the city and a taxonomy

• f urban agglomeration advantages

137 5.4.3. The theoretical relationships between the Milieu and the City 140 5.5. Towards a new urban governance: the tool

• f strategic planning

143 5.6. Conclusions 147 References 147

XI

PART 2 ACCESSIBILITY Chapter 6 Land-use, Transportation and Urban Development 153 Ken J. Button, Peter Nijkamp and Piet Rietveld 6.1. Introduction 154 6.2. Linking land-use and transport 155 6.3. The distant past - up to the mid-1980s 158 6.4. Congestion and pricing of transportation infrastructure 162 6.5. Investment in transportation infrastructure 166 6.6. Transportation, information and land-use 169 6.7. Transportation demand modeling 172 6.8. Conclusions 174 References 174 Chapter 7 Transport Systems and Urban Equilibrium 181 Ears Eundqvist 7.1. Introduction 182 7.2. Equilibrium and optimum in urban systems analysis 183 7.3. Transport systems and urban land use in simplified urban geographies 185 7.3.1. Symmetric continuous space: optimum and equilibrium 185 7.3.2. Symmetric discrete space: optimum and equilibrium 190 7.4. Transport systems and urban land use in realistic urban geographies 197 7.4.1. Modular/iterative approaches: optimum and equilibrium 197 7.4.2. Simultaneous/integrated approaches: optimum and equilibrium 202 7.5. Lessons 206 7.6. Research directions 208 References 209 Chapter 8 Intra-metropolitan Agglomeration, Information Technology and Polycentric Urban Development 213 Jungyul Sohn, Geoffrey J.D. Hewings and Tschangho John Kim 8.1. Introduction 213 8.2. Spatial clustering of economic activities 216 8.3. Information technology and urban spatial structure 220 8.4. Spatial simultaneous equation systems 223 8.5. Regressions for attraction and spillover effects 226 8.6. Study area: Seoul metropolitan region 231

XII

8.7. Intra-metropolitan agglomeration in Seoul 233 8.8. IT impact and polycentric urban development in Seoul 237 8.9. Conclusions 243 References 244 Chapter 9 Dual Earners, Urban Labour Markets and Housing Demand 249 Jan Rouwendal and J. Willemijn Van Der Straaten 9.1. Introduction 250 9.2. Locational choices of couples in the US 251 9.2.1. Summary Costa and Kahn 251 9.2.2. Methodological issues 254 9.2.3. Urban labour market 255 9.3. Location choices of couples in the Netherlands 260 9.3.1. The data 260 9.3.2. Regional division 261 9.3.3. Results 262 9.3.4. Conclusions and comparison 265 9.4. Further empirical analysis 265 9.4.1. Urban wage premium 265 9.4.2. Dual earners and urban wage premium 268 9.4.3. Conclusions so far 269 9.4.4. Dual earners and the housing market 270 9.5. Conclusions 280 References 282 Chapter 10 Land Use Regulation and Its Impact on Welfare 285 Stephen Sheppard 10.1. Introduction 285 10.2. Evolution of the literature 288 10.2.1. Theoretical analysis of the efficiency of land use regulation 289 10.2.2. Other possible effects 293 10.3. A 'canonical' model of land use control 294 10.4. Extending the model: potentially beneficial land use regulation 302 10.5. Empirical studies of land use regulation 307 10.5.1. Data and empirical evidence 308 10.5.2. Assessing the impact of land use regulation 311 10.5.3. Distributional impacts 312 10.6. Conclusion 314 References 315

Xlll

PART 3 SPATIAL INTERACTION, MIGRATION AND COMMUTING Chapter 11 Spatial Interaction Models: From the Gravity to the Neural Network Approach 319 Manfred M. Fischer and Aura Reggiani 11.1. Introduction 319 11.2. Context and analytical framework 320 11.2.1. The generic spatial interaction model of the gravity type 322 11.2.2. Specification of the deterrence function 324 11.2.3. Four different cases 324 11.3. The statistical equilibrium 327 11.4. The choice-theoretic approach 330 11.5. The neural network approach 334 11.5.1. The unconstrained case of neural spatial interaction modelling 335 11.5.2. The class of singly constrained neural spatial interaction models 336 11.5.3. The modelling process 337 11.5.4. The network learning problem and parameter estimation procedures 338 11.6. Concluding remarks 342 References 343 Chapter 12 Commuting: The Contribution of Search Theory 347 Jos van Ommeren 12.1. Introduction 347 12.2. Search theory 350 12.2.1. The basic assumption 350 12.2.2. The optimal strategy 352 12.2.3. Moving behaviour 355 12.2.4. The optimal reservation wage strategy 355 12.2.5. Adaptions and extensions 360 12.2.6. Marginal willingness to pay 368 12.2.7. Geographical structure 370 12.3. The observed commuting costs distribution 372 12.4. Conclusion 375 References 375 Chapter 13 Ethnic Concentration and Human Capital Formation 381 Thomas de Graaff and Henri L.F. de Groot 13.1. Introduction 382 13.2. A model of migration and human capital accumulation 385

XIV

13.2.1. The economy 387 13.2.2. Endogenous migration 391 13.3. Within-country homogeneous human capital 393 13.4. Heterogeneous human capital and migration 396 13.4.1. Negative impact of the neighborhood 399 13.4.2. Positive impact of the neighborhood 400 13.5. Conclusion 402 Appendix A13. Comparative statics 403 Appendix B13. Human capital accumulation when migration costs do not depend on human capital 405 References 407 PART 4 URBAN HIERARCHY Chapter 14 Advanced Insights in Central Place Theory 413 Shin-Kun Peng 14.1. Introduction 414 14.2. Central place theory 416 14.3. The existence of a monocentric configuration 420 14.4. The emergence of urban system 427 14.5. The rank-size distribution in an urban hierarchy 432 14.6. Conclusions 438 References 438 Chapter 15 The City System Paradigm: New Frontiers 443 Hesham M. Abdel-Rahman 15.1. Introduction 444 15.2. The internal structure of the city 448 15.3. Agglomeration economies and city systems 452 15.3.1. Equilibrium system of cities 453 15.3.2. Institutional city formation mechanisms 454 15.4. Identical cities without trade 456 15.4.1. Public good 457 15.4.2. Marshallian externality 459 15.4.3. Differentiated intermediate input 461 15.4.4. Differentiated consumption good 465 15.5. Specialization and trade 468 15.6. Specialization vs. diversification 471 15.6.1. Cross-product externality 471 15.6.2. Transportation costs 472 15.6.3. Economy of scope 474 15.6.4. Product cycle 478

XV

15.7. Heterogeneous household and income disparities 479 15.8. Efficient system of cities 483 15.9. Conclusion 490 References 491 Chapter 16 The City Network Paradigm: Theory and Empirical Evidence 495 Roberto Camagni and Roberta Capello 16.1. Introduction 496 16.2. Cooperation networks among firms: the emerging economic paradigm 499 16.3. Cities as collective actors 502 16.4. The structure of the urban system: from city hierarchy to city networks 504 16.4.1. The need for a new paradigm 504 16.4.2. The three logics of spatial behaviour of the firm 506 16.4.3. The structure of the urban system 508 16.4.4. The city network paradigm 510 16.5. Do city networks really exist? An econometric experiment 513 16.6. Do city networks really generate advantages for city partners? Some empirical evidence 517 16.6.1. A measurement of'network surplus' 517 16.6.2. Preconditions for the exploitation of network surplus 521 16.7. Conclusions 525 References 527 PART 5 URBAN COMPETITIVENESS Chapter 17 Dynamic Urban Models: Agglomeration and Growth 533 Marcus Berliant and Ping Wang 17.1. Introduction 534 17.2. From Solow-Swan to Ramsey urban growth models 539 17.2.1. The aggregate production approach to urban growth 540 17.2.2. The golden rule solution 544 17.2.3. The optimal exogenous growth framework 545 17.3. From exogenous to endogenous urban growth models 548 17.3.1. A basic one-sector endogenous urban growth model 549 17.3.2. A modified one-sector model of endogenous urban growth 552 17.3.3. Housing dynamics and zoning 557 17.3.4. Two-sector endogenous urban growth and stability 562 17.3.5. Endogenous growth in a perfectly competitive economy with a system of cities 568

XVI

17.4. Urban growth models with an imperfectly competitive market 569 17.4.1. The role of Marshallian externalities and imperfect competition 569 17.4.2. The non-Walrasian approach to agglomeration and growth 572 17.5. Avenues for future research 575 References 577 Chapter 18 New Economic Geography Explanations of Urban and Regional Agglomeration 583 Kieran P. Donaghy 18.1. Introduction 583 18.2. Krugman's core-periphery model 586 18.2.1. Consumer behavior 587 18.2.2. Producer behavior 589 18.2.3. Transportation costs 592 18.2.4. Normalizations and short-run equilibrium 593 18.3. Developments in the new economic geography 595 18.4. Accomplishments and challenges 600 References 605 Chapter 19 Agglomeration and Knowledge Diffusion 609 Johannes Brocker 19.1. Introduction 610 19.2. A growth model with two regions 611 19.2.1. Firms 611 19.2.2. Households 613 19.2.3. Dynamic equilibrium 614 19.3. Dynamics: convergence and divergence 618 19.3.1. Divergence 619 19.3.2. Agglomeration 622 19.3.3. Convergence 626 19.4. Efficiency 627 19.5. Conclusion 631 References 632 Chapter 20 Innovation and the Growth of Cities 635 Zoltan J. Acs 20.1. Introduction 635 20.2. Heterogeneity vs. specialization 636 20.3. Endogenous technical change 639

XV11

20.4. Entrepreneurship and innovation 645 20.5. Towards a "new model of regional economic development?" 652 References 655 Chapter 21 Cities and Business 659 Roger R. Stough and Rajendra Kulkarni 21.1. Introduction 660 21.2. The location of technology intensive business 661 21.3. Changes in business context and operations 666 21.4. Land use and business location patterns 670 21.4.1. Urban land use theory and use patterns 670 21.4.2. Urban decentralization and business activity 671 21.4.3. Edge cities and the structure of business activity 673 21.5. Entrepreneurship and enterprise development in cities 675 21.5.1. Interest in enterprise development has been increasing 675 21.5.2. Reasons for growth in enterprise development 676 21.5.3. Enterprise development: approaches in cities 679 21.5.4. General observations and conclusions: enterprise development and cities 682 21.6. Discussion, conclusions and policy implications 683 References 685 PART 6 URBAN POLICY Chapter 22 Strengthening Municipal Fiscal Autonomy Through Intergovernmental Transfers 691 Peter Friedrich, Joanna Gwiazda and Chang Woon Nam 22.1. Introduction 691 22.2. Fiscal equalisation to protect municipalities by conditional grants 696 22.2.1. Some fiscal issues surrounding the principle of connection 696 22.2.2. Conditional grants 700 22.3. Principle of parallelism to prevent fiscal autonomy through unconditional grants 707 22.3.1. Definition of the principle of parallelism 707 22.3.2. Analysis of the principle of parallelism 711 22.4. Conclusions 723 References 724 Chapter 23 Urban Quality of Life and Public Policy: A Survey 729 Gordon Mulligan, John Carruthers and Meagan Cahill 23.1. Introduction 729 23.2. Interurban scale 731

XVH1

23.2.1. City rankings 731 23.2.2. Other hedonic issues 740 23.2.3. Population and employment relocation 750 23.2.4. Industrial and business location 757 23.2.5. Local economic development and planning 762 23.3. Intraurban scale 765 23.3.1. Deprivation 765 23.3.2. Growth and planning 772 23.4. Concluding remarks 786 References 787 Chapter 24 Policy Issues in the Urban South 803 Manie Geyer

• 24A. Introduction

804 24.2. The South in global terms 804 24.2.1. Changing global divisions of labour 804 24.2.2. Policies that caused economic change 807 24.2.3. The impact of foreign direct investment 808 24.2.4. Mega cities of the South 810 24.3. Development frameworks of the past 816 24.3.1. Neo-liberalism 816 24.3.2. Criticism of the lagging South 818 24.4. Making markets work in the South 820 24.4.1. Pillars in the Southern economic markets 820 24.4.2. Building new market structures in the urban South 821 24.5. New markets and urban sustainability 825 24.6. Conclusion 830 References 831 Chapter 25 Urban Policy in a Global Economy 837 Ake E. Andersson, Lata Chatterjee and T.R. Lakshmanan 25.1. Globalization: underlying processes, urban consequences, and policy implications 837 25.1.1. Evolution of globalization processes, urban patterns and policy domains 838 25.1.2. Contemporary global network corporations, demand for variety and urban consequences 843 25.1.3. Demand for variety 847 25.1.4. Urban consequences 849 25.2. Emerging urban policy domains and strategies 851 25.2.1. Increasing role for urban economic policy 851 25.2.2. Emerging institutions and policy strategies 853

XIX

25.2.3. Changing urban policy orientation and innovations 854 25.3. The American entrepreneurial city: policies, institutions, and new spatial order 855 25.3.1. Phase 1: policies and strategies to attract mobile capital: supply side 856 25.3.2. Phase 2: a transitional phase towards entrepreneurial strategies 857 25.3.3. Phase 3: entrepreneurial policies to promote endogenous growth in the urban area 858 25.3.4. A new spatial order in the entrepreneurial city 860 References 862 Index 865