Why some places are left behind: urban adjustment to trade and policy shocks

Abstract

Economic adjustment to trade and policy shocks is hampered by the fact that some sectors tend to cluster, so are hard to initiate in new places. This can give rise to persistent spatial disparities between cities within a country. The paper sets out a two-sector model in which cities divide into those producing tradable goods or services subject to agglomeration economies, and those only producing non-tradables for the national market. If import competition destroys some established tradable sectors, then affected cities fail to attract new tradable activities and switch to just produce non-tradables. Full employment is maintained (we assume perfect markets and price flexibility) but disparities between the two types of cities are increased. All non-tradable cities experience real income loss, while remaining tradable cities boom. The main beneficiaries are land-owners in remaining tradable cities, but there may be aggregate loss as the country ends up with too many cities producing non-tradables, and too few with internationally competitive activities. Fiscal policy has opposite effects in the two types of cities, with fiscal contraction causing decline in cities producing non-tradables, increasing activity in cities producing tradable goods, widening spatial disparities, and in the process increasing the share of rent in the economy.

An economic and financial geography of the Australian superannuation industry

“…Redressing poverty among the elderly was also a long-standing ambition of the Labor Party. 6 Martin (2018) and Venables (2020) examine the consequences for regional growth when specialisation in certain types of economic activity limit their capacity to adapt quickly to "trade and policy shocks." 7 The Australian economy is sensitive to population growth and housing market speculation in the capital cities of eastern Australia and adjacent provincial cities.…”

“…6 6 Martin (2018) and Venables (2020) examine the consequences for regional growth when specialisation in certain types of economic activity limit their capacity to adapt quickly to “trade and policy shocks.”…”

The Productivity Performance of Different Types of Uk Regions and the Challenges of Levelling Up

“…However, enormous programmes of detailed data construction by the OECD and Eurostat (Carrascal-Incera et al, 2020) have recently allowed for a much deeper reconsideration of these issues, and it is now widely accepted empirically (Davenport and Zarenko, 2020;McCann, 2016McCann, , 2020aRaikes et al, 2019) that the UK exhibits amongst the highest interregional productivity inequalities in the industrialised world. Moreover, these high inequalities are evident over very short distances, such that it has been argued that the country appears to have been decoupling (McCann, 2016) and partitioning (Venables, 2021) internally on many levels over the last four decades (Rice and Venables, 2021). Furthermore, there are now powerful arguments and evidence which suggest that alongside the UK's specific geographical features and the asymmetric impacts of modern globalisation, the ultra-centralised and top-down nature of the UK governance system has itself also been a major contributor to these inequalities (Carrascal-Incera et al, 2020), in that nationwide policy-design and decision-making has been especially indifferent and insensitive to these interregional differences (McCann, 2016).…”

North and South: A Regional Model of the UK

“…In this paper we set out a model of the regional economy and apply it to UK data. Theories of regional behaviour, and in particular of relative income levels and growth are wide and diverse -for example, Borts and Stein (1964), Coyle and Sensier (2019), Krugman and Venables (1995), Henley (2005), Menon (2012), Venables (2020). These studies and numerous others pursue a variety of methods in confronting theories and facts.…”