1. A review of new Economic Geography models: policies, multiregionality and EU themes Pasquale Commendatore Theresa Grafeneder-Weissteiner Ingrid Kubin 1COST IS1104 Lisbon WG1 Meeting

2. Structure of the review Introduction Basic NEG framework Multiregional models Economic policy Other EU themes Conclusions 2COST IS1104 Lisbon WG1 Meeting

3. Objectives of the review  The review should focus on NEG models which are relevant for the topics and aims of the Action:  multiregional models; in order to study the EU, it is necessary to develop a multi-country; multiregional framework  What are the effects of specific regional policies,  other themes that are crucial to explain EU specific problems and that can be dealt / or have been dealt within the NEG analytical structure. 3COST IS1104 Lisbon WG1 Meeting

4. Basic NEG framework 2 (regions / countries) x 2 (sectors) x 2 (factors of production) Exogenous trade costs determine agglomeration and dispersion patters (via the interplay of centripetal and centrifugal forces) Central role of factor migration (workers, capital, entrepreneurs) Core-Periphery and interior equilibrium (symmetric and asymmetric models) 4COST IS1104 Lisbon WG1 Meeting

5. Multi-regional models Pure 3-region 2-country 3-region 2-country 4-region Exogenous or endogenous trade costs Symmetric / Asymmetric 5COST IS1104 Lisbon WG1 Meeting

6. 3-Region symmetric models  Castro, S. B. S. D., Correia-da-Silva, J., & Mossay, P. (2012); Lopes (2012)  Commendatore & Kubin (2013)  Commendatore, Kubin & Sushko (2013):  More complicated structure  3 C-P equilibria, 1 interior symmetric  Unstable asymmetric 3-region equilibria  Stable asymmetric 2-region equilibria  Very ‘sensitive’ to initial conditions 6COST IS1104 Lisbon WG1 Meeting

7. 3-region asymmetric equilibria Krugman (1993): the hub effect Baldwin et al. (2003); Forslid (2004), Brϋlhart et al. (2004), Crozet and Koenig-Soubeyran (2004), Ago et al. (2006) Asymmetric trade costs can give an advantage to the more connected region 7COST IS1104 Lisbon WG1 Meeting

8. 2-country 3-region (symmetric) Home (H) country (2 symmetric regions, h1 and h2); Foreign (F) country (rest of the world) Krugman and Elizondo (1996): reducing trade costs favours dispersion between the two regions in H [the dispersion force does not depend on trade costs] Paluzie (2001): reducing trade costs favours agglomeration [the dispersion force depends on trade costs] Beherens (2011): following integration poor (better) domestic infrastructure determines regional divergence (convergence). 8COST IS1104 Lisbon WG1 Meeting

9. 2-country 4-region Behrens et al. (2007a) Symmetric 2 Countries (H, F), 4 regions (h1, h2, f1, f2) 2 Sectors 2 production factors (mobile between regions skilled workers, L, fully immobile unskilled workers, A) Exogenous transport costs Behrens et al. (2006): partly endogenous trasport costs Zeng and Zhao (2011) : asymmetric regions 9COST IS1104 Lisbon WG1 Meeting

10. Towards a spatial network Behrens et al. (2005) – Multi-regional CP framework Behrens et al. (2007b) «the transportation infrastructure between countries is represented by a network along which shipping must occur». “graph representation of the space economy” 10COST IS1104 Lisbon WG1 Meeting

11. Economic policy Basic compendium Baldwin et al. (2003) “Economic geography and public policy”; Several further contributions  Some of the main topics:  Strategic behaviour of local governments  Role of a central government  Policy tools (taxation, subsidies, public consumption, infrastructures, public goods 11COST IS1104 Lisbon WG1 Meeting

12. Other EU themes  Demographic change  economic growth  Institutions:  labour markets  legislative system  electoral system 12COST IS1104 Lisbon WG1 Meeting

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