🏙️Public Economics Unit 9 – Urban and Regional Economics

Key Concepts and Definitions

• Urban economics studies the spatial structure of cities and the economic forces that shape them
• Regional economics examines the economic relationships and interactions between different regions within a country or across countries
• Agglomeration economies are the benefits that firms and individuals derive from being located near each other (knowledge spillovers, labor market pooling, input sharing)
• Central place theory explains the size, number, and location of human settlements in a residential system based on the idea that settlements serve as centers providing services to surrounding areas
• Bid-rent theory suggests that different land users will compete for land at different distances from the city center, with the highest bidder winning each location
• Monocentric city model assumes that all employment is concentrated in the central business district (CBD) and that households choose their location based on a trade-off between commuting costs and housing prices
• Polycentric city model recognizes the existence of multiple employment centers within a city, each with its own bid-rent gradient

Urban Economic Theory

• Urban economic theory seeks to understand the spatial structure of cities and the economic forces that shape them
• The monocentric city model is a simplified representation of a city with a single central business district (CBD) surrounded by residential areas
  • Assumes that all jobs are located in the CBD and that households choose their location based on a trade-off between commuting costs and housing prices
  • Predicts that housing prices and population density decrease with distance from the CBD
• The polycentric city model extends the monocentric model by recognizing the existence of multiple employment centers within a city
  • Each employment center has its own bid-rent gradient, reflecting the trade-off between commuting costs and housing prices
  • The overall spatial structure of the city is determined by the interaction of these multiple bid-rent gradients
• Agglomeration economies are the benefits that firms and individuals derive from being located near each other
  • Knowledge spillovers occur when firms learn from each other through informal interactions and the movement of workers between firms
  • Labor market pooling allows firms to access a larger and more diverse pool of workers, reducing search costs and improving match quality
  • Input sharing enables firms to share specialized inputs and infrastructure, reducing costs and increasing productivity
• Congestion costs, such as traffic and pollution, can offset the benefits of agglomeration and lead to the dispersion of economic activity

Regional Development Models

• Regional development models aim to explain the economic growth and development of regions within a country or across countries
• The neoclassical growth model emphasizes the role of capital accumulation and technological progress in driving regional growth
  • Assumes that regions with higher levels of capital per worker will experience faster growth, but that growth will eventually slow down as diminishing returns set in
  • Suggests that regional convergence will occur over time as poorer regions catch up to richer ones
• The endogenous growth model highlights the importance of human capital, innovation, and knowledge spillovers in sustaining long-run growth
  • Argues that investments in education, research and development, and infrastructure can generate increasing returns and positive externalities that fuel ongoing growth
  • Implies that regions with a strong knowledge base and innovative capacity will experience faster and more sustained growth
• The new economic geography model emphasizes the role of agglomeration economies and transport costs in shaping the spatial distribution of economic activity
  • Suggests that firms will tend to locate in regions with large markets and good access to suppliers and customers, leading to the emergence of industrial clusters
  • Highlights the importance of transport infrastructure in facilitating trade and promoting regional integration
• Cumulative causation theory argues that initial advantages or disadvantages can be self-reinforcing, leading to the divergence of regional economic performance over time

Land Use and Property Markets

• Land use refers to the way in which land is utilized for different purposes, such as residential, commercial, industrial, or agricultural uses
• Property markets involve the buying, selling, and renting of land and buildings
• The bid-rent theory suggests that different land users will compete for land at different distances from the city center, with the highest bidder winning each location
  • Retailers and office-based firms are willing to pay high rents for central locations with good accessibility and high foot traffic
  • Manufacturers prefer more peripheral locations with lower land costs and good access to transport networks
  • Households trade off accessibility to employment and amenities against housing costs and space
• Zoning regulations are used by local governments to control land use and development patterns
  • Zoning can be used to separate incompatible land uses, preserve open space and environmental resources, and shape the character of neighborhoods
  • However, restrictive zoning can also limit housing supply and drive up prices, exacerbating affordability problems
• Land use planning plays a crucial role in shaping the long-term development of cities and regions
  • Strategic spatial plans set out a vision for the future growth and development of an area, identifying key growth areas, infrastructure priorities, and environmental constraints
  • Effective planning requires coordination across different levels of government and stakeholder groups
• Property rights and tenure security are important determinants of investment and development in land and property markets
  • Clear and enforceable property rights provide incentives for landowners to invest in and maintain their properties
  • Insecure tenure can discourage investment and hinder the functioning of land and property markets

Transportation and Urban Spatial Structure

• Transportation plays a crucial role in shaping the spatial structure of cities and regions
• The monocentric city model assumes that all employment is concentrated in the central business district (CBD) and that households choose their location based on a trade-off between commuting costs and housing prices
  • Improvements in transportation technology, such as the development of mass transit systems, can reduce commuting costs and allow cities to expand outwards
  • However, traffic congestion can act as a constraint on urban growth and lead to the decentralization of employment
• The polycentric city model recognizes the existence of multiple employment centers within a city, each with its own bid-rent gradient
  • The development of suburban employment centers can be driven by factors such as land availability, access to transport networks, and agglomeration economies
  • Polycentric cities tend to have more complex commuting patterns, with workers traveling between different employment centers
• Transit-oriented development (TOD) seeks to concentrate housing, jobs, and amenities around public transport nodes
  • TOD can reduce car dependence, increase public transport ridership, and create more livable and sustainable urban environments
  • However, TOD can also lead to gentrification and displacement if not accompanied by affordable housing policies
• Transport infrastructure investments, such as highways and airports, can have significant impacts on regional development patterns
  • Improved accessibility can stimulate economic growth and attract new investment to a region
  • However, infrastructure investments can also have uneven spatial impacts, benefiting some areas while bypassing others
• Sustainable urban mobility requires a shift towards more efficient and environmentally friendly modes of transport, such as public transport, cycling, and walking

Labor Markets and Migration

• Labor markets involve the supply and demand for labor within a particular geographic area
• Migration plays a key role in shaping regional labor markets, as workers move in response to economic opportunities and quality of life factors
  • Regions with strong economic growth and high wages tend to attract migrants from other areas
  • However, migration can also put pressure on housing markets and public services in destination regions
• Agglomeration economies can create thick labor markets, where workers can find a wide range of job opportunities and firms can access a large pool of skilled labor
  • Thick labor markets can facilitate better matching between workers and firms, leading to higher productivity and wages
  • However, agglomeration can also lead to increased competition for jobs and housing, putting downward pressure on wages and living standards
• Regional unemployment disparities can persist due to differences in economic structure, skills mismatches, and barriers to labor mobility
  • Regions with a high dependence on declining industries may experience higher levels of structural unemployment
  • Policies such as retraining programs and job search assistance can help workers adapt to changing labor market conditions
• Commuting patterns are influenced by the spatial distribution of jobs and housing within a region
  • Long commuting times can have negative impacts on worker well-being and productivity
  • Policies that promote job-housing balance and accessible public transport can help reduce commuting times and costs
• Informal employment is a significant feature of many urban labor markets, particularly in developing countries
  • Informal workers often lack access to social protection and legal rights, making them vulnerable to exploitation and income insecurity
  • Policies that support the formalization of informal enterprises and extend social protection to informal workers can help improve their livelihoods and working conditions

Urban and Regional Policy Challenges

• Urban and regional policies aim to promote sustainable and inclusive development, address spatial inequalities, and improve quality of life
• Housing affordability is a major challenge in many cities, particularly for low- and middle-income households
  • Policies such as inclusionary zoning, rent control, and social housing can help increase the supply of affordable housing
  • However, these policies can also have unintended consequences, such as discouraging new housing construction or reducing housing quality
• Spatial inequality refers to the uneven distribution of economic opportunities and social outcomes across different neighborhoods and regions
  • Place-based policies, such as enterprise zones and community development initiatives, aim to target investment and resources to disadvantaged areas
  • However, critics argue that place-based policies can be ineffective and may divert resources away from people-based policies that directly support individuals and households
• Environmental sustainability is an increasingly important concern for cities and regions, particularly in the face of climate change
  • Policies that promote compact urban development, green infrastructure, and renewable energy can help reduce the environmental footprint of cities
  • However, implementing these policies can be challenging, particularly in the face of political opposition and financial constraints
• Governance and institutional capacity are critical factors in the success of urban and regional policies
  • Effective governance requires coordination across different levels of government, as well as engagement with civil society and the private sector
  • Institutional capacity building, such as training programs for local officials and support for data collection and analysis, can help improve the design and implementation of policies
• Financing urban and regional development is a major challenge, particularly in the context of fiscal constraints and competing priorities
  • Innovative financing mechanisms, such as land value capture and public-private partnerships, can help mobilize resources for infrastructure and service delivery
  • However, these mechanisms can also raise concerns about transparency, accountability, and the distribution of costs and benefits

Real-World Applications and Case Studies

• The Guangzhou-Shenzhen-Hong Kong Express Rail Link is an example of how transportation infrastructure can facilitate regional economic integration and development
  • The high-speed rail link connects the major cities of the Pearl River Delta region in southern China, reducing travel times and improving connectivity
  • The project has stimulated economic growth and urban development along the rail corridor, particularly in the areas surrounding the stations
• The Randstad region in the Netherlands is an example of a polycentric urban system, with multiple cities and towns connected by a dense network of transport infrastructure
  • The region has a highly integrated labor market, with workers commuting between different cities and towns for work
  • The Dutch government has implemented policies to promote balanced growth and reduce spatial inequalities within the region, such as investing in affordable housing and public transport in disadvantaged areas
• The Medellín Metrocable system in Colombia is an example of how innovative transportation solutions can improve accessibility and quality of life in low-income urban areas
  • The cable car system connects hillside neighborhoods to the city center, reducing travel times and costs for residents
  • The project has also stimulated local economic development and social inclusion, by improving access to jobs, education, and healthcare services
• The East London Tech City initiative in the United Kingdom is an example of how place-based policies can support the development of innovation clusters
  • The initiative provides support for tech startups and entrepreneurs in the East London area, through a combination of workspace provision, business support services, and networking events
  • The cluster has attracted significant investment and created thousands of jobs, contributing to the regeneration of a formerly disadvantaged area
• The Cheonggyecheon Stream Restoration Project in Seoul, South Korea is an example of how urban regeneration can improve environmental sustainability and quality of life
  • The project involved removing an elevated highway and restoring a natural stream in the heart of the city, creating a new public space and green corridor
  • The project has reduced urban heat island effects, improved air and water quality, and provided recreational and cultural amenities for residents and visitors
• The Community Land Trust (CLT) model is an example of how alternative land tenure and housing provision models can promote affordable housing and community control
  • CLTs are nonprofit organizations that acquire and manage land for the benefit of the community, providing affordable housing and other community amenities
  • The model has been applied in various contexts, from rural areas to inner-city neighborhoods, and has shown promise in preserving affordable housing and preventing displacement