Equilibrium Locations of Vertically Linked Industries

Abstract

Mortgage credit expansion policies-such as UK's Help to Buy (HtB)-aim to increase access to and affordability of owner-occupied housing and are widespread around the world. We take advantage of spatial discontinuities in the HtB equity loan scheme, introduced in 2013, to explore the causal economic impacts and the effectiveness of this type of policies. Employing a Difference-in-Discontinuities design, we find that HtB increased house prices by more than the expected present value of the implied interest rate subsidy and had no discernible effect on construction volumes in the Greater London Authority (GLA), where housing supply is subject to severe long-run constraints and housing is already extremely unaffordable. HtB did increase construction numbers without affecting prices near the English/Welsh border, an area with less binding supply constraints and comparably affordable housing. HtB also led to bunching of newly built units below the price threshold, building of smaller new units and an improvement in the financial performance of developers. We conclude that credit expansion policies such as HtB may be ineffective in tightly supply constrained and already unaffordable areas.

The Rise and Fall of Regional Inequalities

“…This combined with symmetry and increasing returns ensures that at equilibrium no variety is produced by more than one firm or in more than one country. As in Venables (1996), the production input in manufacturing is a Cobb-Douglas composite of labour and an aggregate of intermediates. [8] Following Ethier (1982), all industrial goods enter symmetrically into the intermediate aggregate with a constant elasticity of substitution across varieties σ (> 1).…”

“…Rather than focusing on interregional migration à la Krugman (1991b) alone, it combines for the first time interregional migration with input/output linkages à la Venables (1996) and Krugman and Venables (1995). It also endogenises the distribution of workers across sectors.…”

“…While in this case it does not seem possible to derive an explicit expression for the range of trade costs for which full agglomeration is sustainable, one thing is clear: for trade costs sufficiently close to free trade, all firms will not be in a single region. The argument is made succinctly by Venables (1996): with no trade costs industry would locate in the region with lower wages; therefore, if wages are increasing in industrial employment, for τ sufficiently close to unity agglomeration in one region cannot be an equilibrium.…”

“…While relevant for studying agglomeration within national boundaries, in an international context high barriers to migration may limit the role of labour mobility as a force driving agglomeration. Venables (1996) addresses this issue by showing that vertical linkages between upstream and downstream industries, when both of them are imperfectly competitive, can play a role equivalent to that of labour migration in endogenously determining the size of the market at different regions. And Krugman and Venables (1995) use similar tools to study the relationship between globalisation and international inequalities.…”

How Does the Domiciliation Decision Affect Mutual Fund Fees?

“…In high-income countries, openness to trade and a higher share of high-tech exports is conducive, while in middle-income countries per capita income and strong banking systems contribute to market growth. Furthermore, the legal origin is important (equity funds are more advanced in common law that funds domiciled in Luxembourg are significantly more expensive than funds domiciled in other countries despite the benefits often attributed to financial clusters: agglomeration effects, backward and forward linkages in the value-added chain, and increasing economies of scale (Krugman, 1991 andVenables, 1996). In the fund industry, for example, having many fund administration specialists may lead to lower costs for all firms in the cluster, since they can share common services and knowledge or hire specialists without having to pay relocation costs.…”