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In this paper, we develop a network perspective on the welfare gains from trade in today’s internationally fragmented supply chains. Towards this end, we study a Ricardian trade model featuring trade in final and intermediate products, and introduce a novel comparative statics approach to decompose the total welfare effects of an arbitrary trade cost shock into several meaningful, easily quantifiable, components. This approach uncovers a unique feature of supply chain trade: the gains from trade are not so much determined by a country's own access to the technologies and markets of its direct trading partners, but rather by its supply chain exposure to countries further up- and downstream in the global supply chain. We develop a set of simple statistics to measure each country’s supply chain exposure, show how it predicts the gains from trade, and identify each country's key trade intermediaries, i.e., other nations that primarily leverage its supply chain exposure.

A variety of approaches to delineate metropolitan areas have been developed. Systematic comparisons of these approaches in terms of the urban landscape that they generate are however few. This paper aims to fill this gap. The paper focuses on Indonesia and makes use of the availability of data on commuting flows, remotely-sensed nighttime lights, and spatially fine-grained population, to construct metropolitan areas using the different approaches that have been developed in the literature. The analysis finds that the maps and characteristics of Indonesia’s urban landscape vary substantially, depending on the approach used. Moreover, combining information on the metro areas generated by the different approaches with detailed micro-data from Indonesia's national labor force survey, the paper shows that the estimated size of the agglomeration wage premium depends nontrivially on the approach used to define metropolitan areas.

Iceberg transport costs are one of the main ingredients of modern trade and economic geography models: transport costs are modelled by assuming that a fraction of the goods shipped “melts in transit”. In this paper, we investigate whether the iceberg assumption applies to the costs of transporting the only good that literally melts in transit: ice. Using detailed information on Boston’s nineteenth-century global ice trade, we show that ice(berg) transport costs in practice were a combination of a true ad-valorem iceberg cost: melt in transit, and freight, (off)loading and insurance costs. The physics of the melt process and the practice of insulating the ice in transit imply an immediate violation of the iceberg assumption: shipping ice is subject to economies scale.

China has used two main spatial policies to shape its geographic patterns of development: restricted labor mobility through the Hukou residential registration system and massive infrastructure investment, notably a 96,000 kilometer national expressway network. This paper develops a structural new economic geography model to examine the impacts of these policies. Fitting the model to available data allows simulating counterfactual scenarios comparing each policy’s respective impact on regional economic development and urbanization patterns across China. The results suggest large overall economic benefits from constructing the national expressway network and abolishing the Hukou system. Yet, the spatial impacts of the two policies are very different. The construction of the national expressway network reinforced existing urbanization patterns. The initially lagging regions not connected to the network have not benefitted much from its construction. By contrast, removal of the Hukou restrictions, which Chinese policy makers are considering, would result in much more widespread welfare gains, allowing everyone to gain by moving to where he or she is most productive. Removal of the Hukou restrictions would also promote urbanization in currently lagging (inland) regions, mostly by stimulating rural to urban migration.

The Netherlands is one of the most flood prone countries in the world. It also has the best flood defenses in the world that are built to make floods an extremely rare event. This paper uses the unique Dutch setting to provide evidence on the price and perception of rare environmental disasters. In particular, it allows us to precisely identify whether houses in areas that would flood, in case the Dutch flood defenses fail, cost less than otherwise equal homes that do not run any risk. We do this using a border-discontinuity design that heavily relies on the (spatial) detail of our unique dataset covering every housing transaction over the period 1999-2011. Despite €1.1 billion publicly spent on flood protection each year, we find a 1% flood risk price discount on houses in flood prone areas. The median household living in a flood prone area would be willing to pay an additional €69 per year to be fully insured against flood risk. Our estimate implies that people’s perceived flood risk is substantially higher than the official protection levels at which the government claims to uphold the country’s flood defenses.

This paper develops a novel theory of trade in a global supply chain. We expand on a monopolistic competition trade model. Countries produce both intermediate and final goods that are sold domestically or, incurring country-pair specific trade costs, internationally. This links countries in a multi-stage production network. In the unique general equilibrium of the model, goods prices and wages in each country depend on the entire structure of trade connections. Drawing on methods from the social network literature, we then determine each country's importance in the global production network and analyse the welfare consequences of a further integration of the network. Our findings highlight the role of a few key countries that bring other nations closer together by intermediating their value added. Proximity to these key countries is crucial for other nations' income growth. An accompanying empirical analysis shows strong support in favor of the predicted network effects.

This article quantifies the activities of medieval and early modern parliaments. It traces the long-term evolution of this European institution, and offers a first pass at analysing its impact on long-term economic development. Starting in Spain in the twelfth century, parliaments gradually spread over the Latin west between 1200 and 1500. In the early modern period, parliaments declined in influence in southern and central Europe and further gained in importance in the Netherlands and Britain, resulting in an institutional ‘Little Divergence’ between 1500 and 1800. We discuss the background of this phenomenon in detail. Moreover, by analysing the effects of parliamentary activity on city growth we find that these differences in institutional development help to explain the economic divergence between north-western and southern and central Europe.

China’s Hukou system poses severe restrictions on labor mobility. This paper assesses the consequences of relaxing these restrictions for China’s internal economic geography. We base our analysis on a new economic geography model. First, we obtain estimates of the important model parameters on the basis of information on 264 of China’s prefecture cities over the period 1999-2005. Second, and by using our estimation results as input, we simulate various long-run scenarios of China’s internal economic geography that differ in their degree of interregional labor mobility. We find that increased labor mobility will lead to more pronounced core-periphery outcomes. Interestingly, these agglomerations are not necessarily along the coastal regions. Given the increased importance of China’s internal market, firms agglomerate in the populous heartland of China. China’s internal demand will be the most important determinant of its future economic geography.

Starting in Spain in the twelfth century, parliaments gradually spread over the Latin West. The paper quantifies the activity of medieval and early-modern parliaments, which also makes it possible to analyse the influence of this institutional innovation. In the early-modern period parliaments declined in influence in southern and central Europe and gained in importance in the Netherlands and Britain. From the sixteenth century onwards active parliaments, which function as constraints on the executive, had a positive effect on city growth and appear to have been instrumental in stabilizing the currency. Active pre-1800 parliaments also enhanced the quality of democratic institutions in the nineteenth and early twentieth century.

On the basis of a large (new) dataset of cities in Europe, North Africa and the Middle East in the millennium between 800 and 1800, we try to provide an answer to the question why, during this millennium, the urban center of gravity moved from Iraq (or more generally the Arab world) to Western Europe and to the shores of the Atlantic (during the 17th and 18th century) in particular. We study the characteristics of the European and Arab urban systems involved, amongst others focusing on the interaction between cities, and explain why one system was much more dynamic in the long run than the other. Also we assess the importance of various geographical, religious and institutional factors as the driving forces of urban expansion. Overall, we provide a better understanding of the dynamics of urban growth in the centuries leading up to the Industrial Revolution and an answer to the question why London, an economic backwater in 800, was able to overtake Baghdad, in 800 the thriving capital of the Abbasid caliphate, as the largest city in this part of the world.

Human capital has been shown to be important for economic growth (e.g. Hanushek and Woessman, 2008). Countries would not flourish and people would be less happy if individuals did not have at least some. Human capital is not fixed, however, as one can increase her human capital by investing in it. One way to do so is through education. People go to school in order to learn skills that are necessary to produce goods with economic value. Moreover, they learn skills that are relevant for later success in life. This might not only be important for their own success, but also for that of others. Persons may benefit from someone else’s education: people can learn from each other, and may be less likely to become a victim of crime if others are higher educated. This is often referred to as positive spillovers or ‘external’ effects. However, people may underinvest in human capital. They may not have the financial resources for education, they may be shortsighted, or simply do not see the value of education. This may not only harm them in terms of a lower probability to be employed or lower wages, it may also harm the society as a whole. External effects, as discussed above, might not be internalized if people do not invest enough in their human capital. Moreover, it might lead to higher educational inequality if some underinvest while others would not. For these reasons, the government interferes with people’s decisions with respect to schooling. That is, governments intervene in the market for education. They do so by jurisdiction, i.e. setting rules and regulations, and by subsidizing education. But how does a government intervene in an effective way? That is one of the main questions that economists of education are studying.