Regional impacts of regional
integration.
Tony Venables, DFID & Oxford
• Integration between similar economies
• Integration and economic differences
– Underlying comparative advantage
• Comparative advantage and trade diversion
• Regional vs international trade
– Acquired comparative advantage
• Wage gradients and market access
• European urban structures
Comparative advantage and trade diversion
Capital
abundance
Trade diversion a problem for the
‘extreme’ country: imports from
partner are in line with regional but
not global comparative advantage
Germany
Portugal
Regional integration brings
convergence
World ave
Kenya
Uganda
Regional integration brings
divergence
Regional vs international trade
Country 2
Maize
Copper
Copper
Equipment
R of W
Country 1
Regional vs international trade
What is effect of integrating economies 1 and 2?
Symmetric equilibrium with free international trade in both
maize and copper, real income both countries = 1.
Only regional trade in maize
Capital stocks fixed:
Country 1
Initial
0.89
Regional integr.
0.92
Capital stocks endog:
Country 1
Initial
0.59
Regional integr.
0.71
Country 2
1.08
1.09
Country 2
1.04
0.95
Increasing returns and acquired comparative
advantage
Regional integration and regional inequalities
• Regions with good market access, good access to suppliers, and
the other advantages of being in a cluster pay relatively high wages.
•
Centre – periphery wage gradient in the EU.
•
Effects of economic integration: Ambiguous:
• improves the market access of remote regions
• facilitates the development of clusters/ economic centres.
• Brief look at the data and speculation about future
possibilities
The time path of spatial income inequality (Theil index EU NUTS2)
Total
Between country
Within country
Geography and per capita income, NUTS2.
• Regression of per capita income on population
density and distance from centre: (1980- 83 and 199700)
– Centre-periphery income gradient: present with
and w/o country fixed effects.
– Regions with high population density growing
faster (w and w/o country fixed effects)
– With country fixed effects, regions with high
population density have higher income, and effect
increasing
THE EUROPEAN CITY SYSTEM.
High density regions (cities) are doing well:
• In line with economic geography theories of the gains from
agglomeration.
• In line with econometric studies of productivity in cities.
What might be the implications of further integration –
particularly increased labour mobility -- for the relative
performance of EU cities?
•Zipf’s law (the rank size rule) : Rank cities by size from the
largest to the smallest, then the nth city has population 1/n that
of the largest.
• New York,highest ranked city, population of 19,876,488.
Santa Barbara, 100th ranked city, population of 198,760.
• Empirics:
Zipf’s law holds for US, not for the EU.
US
EU25
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
0
1
2
3
4
ln city rank
5
0
1
2
3
4
ln city rank
5
Smallest cities
Largest cities
Name
Rank
Population
(thousand)
Name
Rank
Population
(thousand)
Paris
1
11330.7
Grenoble
87
521.7
Rhein-Ruhr
2
11285.9
Szczecin
88
505.0
London
3
11219.0
Murcia
89
486.0
Ranstad (Neths)
4
6534.0
Belfast
90
484.8
Madrid
5
5130.0
Bari
91
480.7
Milano
6
4046.7
Montpellie
r
92
466.3
Berlin
7
3933.3
Bratislava
93
428.8
Barcelona
8
3899.2
Dublin
94
418.8
Napoli
9
3612.3
Messina
95
415.3
Manchester-L’pool
10
3612.2
Coventry
96
409.1
What if…..? Change city size distribution
holding constant the total population in the top
96 EU cities
Zipf’s law:
1st city nearly triples to
32.4m.
2nd city increases to 16.2 m
3rd city shrinks to 10.8 mill
4th – 8th ranked cities
increase.
All remaining cities shrink
US city size distribution.
1st city nearly increases to
18.4 m.
2nd city increases to 14.4 m
3rd city shrinks to 8 m
4th – 10th ranked cities
increase
All remaining cities shrink
Concluding comments
• Analysis of regional integration remains
fascinating because:
• Varying degree of mobility of knowledge/
services/ tasks/ goods/ factors
• Some sources of increasing returns, some
of decreasing
• Need to understand effects on particular
countries/ regions/ cities, as well as on
aggregate.
• Needs both innovative theory and good applied
work.