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We provide empirical evidence on the network structure of trade flows between European regions and discuss the theoretical underpinning of such a structure. First, we analyze EU regional trade data using Social Network Analysis. We describe the topology of this network and compute local and global centrality measures. Finally, we consider the distribution of higher order statistics, through the analysis of local clustering and main triadic structures in the triad census of interregional trade flows. In the theoretical part, we explore the relationship between trade costs and trade links. As shown by Behrens (J Urban Econ 55(1):68–92, 2004), Behrens (Reg Sci Urban Econ 35(5):471–492, 2005a) and Behrens (J Urban Econ 58(1):24–44, 2005b) in a two-region linear new economic geography (NEG) model, trade costs and the local market size determine, even with finite trade costs, unconditional autarky and unilateral trade, that is, a one-directional flow from one region to the other. Following these contributions and guided by the empirical evidence, we clarify the relationship between market competition, trade costs and the patterns of trade in a three-region NEG model. We identify a larger set of trade network configurations other the three elementary ones that occur at the dyadic level between two regions (no trade, one-way trade, reciprocated two-way trade), and relate the model with the triad census.

Recently, issues of international taxation have also been analysed from a New Economic Geography perspective. These discussions show that adding agglomerative forces can change the results considerably. In our paper, we introduce a public sector into a Footloose Capital model: Capital income is taxed according to the residence principle and any tax revenue is spent for providing a public commodity. Thus, public policy changes the sectoral split of total expenditures, which is central for determining international factor rewards and thus for factor mobility. We modeled this factor mobility process - along the lines of a replicator dynamics - in discrete time and studied its local and global properties. We showed that multiple equilibria are possible, involving cyclical and chaotic attractors; and that the basins of attraction may exhibit a highly complex structure. In that environment, the long run outcome of the dynamics process may depended highly sensitive to initial conditions and/or parameters. Public policy trying to attract industrial capital to one country may trigger a dynamic process actually leading to agglomeration in the other country.

We disentangle the demand and productivity effects of public policy on industrial location (Commendatore, Kubin and Petraglia 2008, 2009) in a Footloose Capital model (Martin and Rogers 1995) with publicly financed R&D activities. Results are obtained under alternative assumptions on the intensity of knowledge spillovers (KS). New ideas generated in the R&D sector are alternatively assumed to be beneficial to all firms regardless of their location (per-fectly global KS), to local firms only (perfectly local KS) or to local firms to a higher extent than to foreign ones (partially local KS). Re-sults on both local dynamics around the interior and boundary fixed points and their global stability properties are obtained.

We pursue the question of whether and how differences in productive public expenditure impacts on industrial location. The public sector, which operates with a balanced budget constraint, finances its expenditures taxing residents’ income. Since the introduction of productive public expenditure and taxation affects in opposite direction the industrial location, results are very sensitive to the specific parameter constellation assumed. That is, it is not straightforward that following an increase in productive public expenditure in a region, that region will necessarily enjoy stronger agglomeration. As a major contribution to the literature, our approach considers jointly two effects arising from public policy decisions on expenditure: the demand effect and the productivity effect. The interplay of these two effects determines the final impact of an increase in productive public spending in one region on the spatial distribution of firms. Furthermore, the latter result is influenced by the way in which tax payers of the two regions contribute to the financing of productive public expenditure. Finally, in the case of symmetric regions, the impact on welfare of an increase in productive public services is found to be positive under certain conditions.

We study global dynamics of the New Economic Geography model which describes spatial distribution of industrial activity in the long run across three identical regions depending on the balancing of agglomeration and dispersion forces. It is defined by a two-dimensional piecewise smooth map depending on four parameters. Based on the numerical evidence we discuss typical bifurcation scenarios observed in the model: starting from the symmetric fixed point (related to equal distribution of the industrial activity in all the three regions) two different scenarios are realized depending on whether the transportation cost parameter is increased or decreased. Emergence of the Wada basins of coexisting attractors leading to the so-called final state sensitivity is discussed, as well as final bifurcation of the chaotic attractor.

This paper presents a 3-region footloose-entrepreneur new economic geography model. Two symmetric regions are part of an economically integrated area(the Union),while the third region represents an outside trade partner. We explore how the spatial allocation of industrial production and employment within the Union is affected by changes in two aspects of trade liberalisation, regional Integration and globalisation, conditional to the skill endowment and the market size of the outside region. Our main contribution pertains to the analysis of the local and global dynamics of the specified factor mobility process. We show that significant parameter ranges exist for which an asymmetric distribution of economic activities is one of the possible long-run outcomes which may allow a smooth transition to Agglomeration (in contrast to the NEG typical catastrophic scenario .In addition, we show that multistability is pervasive and that some attractors are Milnor attractors. Both results reinforce the NEG narrative on the importance of initial conditions for the long-run Location of industrial activity.

In this paper, we put forward a four-region new economic geography footloose entrepreneur model in which regions are differentiated by their size and their geographical position along a line. There are two distinct trade blocs, each of them consisting of a pair of regions. Direct and indirect trade between all regions is allowed, whereas factor mobility can occur only between regions of the same bloc. Given this more general geographical structure, as compared to previous studies, we are able to disentangle two manifestations of the market access effect: firms can take advantage of locating both in a more central region (centrality effect) and/or in a bigger region (local market size effect). The model is able to generate a plethora of long-term outcomes, including four equilibria with full agglomeration in each trade bloc that can be ranked by factor owners. Equilibria where industry is dispersed or agglomerated in a bloc and dispersed in the other one, are also possible as well as more complex attractors. Finally, by allowing direct and indirect trade between regions, we are able to look at the effect of trade integration on transit traffic by evaluating in a preliminary analysis the consequences of policies aiming at limiting transport volumes in a model with shifting industry.

The new economic geography (NEG) aims to explain long-term patterns in the spatial allocation of industrial activities. It stresses that endogenous economic processes may enlarge small historic differences leading to quite different regional patterns—history matters for the long-term geographical distribution of economic activities. A pivotal element is that productive factors move to another region whenever the anticipated remuneration is higher in that region. Given the long-term nature of NEG analyses and the crucial role of expectations, it is astonishing that most of the existing models assume only naive or myopic expectations. However, a recent stream of the literature in behavioral and experimental economics shows that agents often use expectational heuristics, such as trend extrapolating and trend reverting rules. We introduce such expectations formation hypotheses into a NEG model formulated in discrete time. This modification leads to a system of two nonlinear difference equations (corresponding, in the language of dynamical systems theory, to a 2-dimensional piecewise smooth map) and thus enriches the possible dynamic patterns: with trend extrapolating (reverting) the symmetric equilibrium is less (more) stable; and it may lose stability only via a flip bifurcation (or also via a Neimark–Sacker bifurcation) giving rise to a period-doubling cascade (or also to quasi-periodic orbits). In both cases, complex behavior is possible; multistability, that is, the coexistence of locally stable equilibria, is pervasive; and border-collision bifurcations are also allowed. In this sense, our analysis corroborates some of the basic insights of the NEG.

In this paper we extend the discrete time Footloose Capital model analyzed in Commendatore et al. (Nonlinear Dyn Psychol Life Sci 11(2):267-289, 2007) by introducing "first nature firms", i.e., firms that use locally specific blueprints and, therefore, are immobile. Due to the presence of first nature firms (symmetrically distributed across the regions), the central dynamic map becomes a piecewise differentiable function: in addition to "standard" flip and pitchfork bifurcations also border collision bifurcations are possible and instances of multistability may emerge. Our analysis confirms and extends the results of Commendatore et al. (2007): (1) continuous time formulation hides complex dynamics patterns; (2) asymmetric distributions of industrial activity can be endogenously generated and are path dependent. © 2011 Springer Science+Business Media, LLC.

Recently, issues of international taxation have also been analysed from a New Economic Geography perspective. These discussions show that agglomerative forces play a non negligible role. In the paper, we introduce explicitly taxation into a Footloose Capital Model and compare implications of taxation according to the residence principle and the source principle from a New Economic Geography perspective. We confirm that agglomerative effects change the results substantially compared to the standard analysis and that the two taxation principles have different implications for industry agglomeration. (author's abstract), Series: Discussion Papers SFB International Tax Coordination

This paper examines the long-term behavior of a discrete-time Footloose Capital model, where capitalists, who are themselves immobile between regions, move their physical capital between regions in response to economic incentives. The spatial location of industry can exhibit cycles of any periodicity or behave chaotically. Long-term behavior is highly sensitive to transport costs and to the responsiveness of capitalists to profit differentials. The concentration of industry in one region can result from high transport costs or from rapid responses by capitalists. In terms of possible dynamical behaviors, the discrete-time model is much richer than the standard continuous-time Footloose Capital model.

We analyse in a Footloose Capital productive public services provided by a central government aiming at reducing regional disparities. Two countervailing effects occur - one upon productivity and another upon local demand - the relative strength of which depends upon the financing scheme. Only if the "rich" region contributes sufficiently to the financing of the public services in the "poor" region, the poor region will actually gain. In studying these questions we pay particular attention to the dynamic adjustment processes and to the role of trade freeness., Series: Department of Economics Working Paper Series

We pursue the question of whether and how differences in productive public expenditure impacts on industrial location. The public sector, which operates with a balanced budget constraint, finances its expenditures taxing residents’ income. Since the introduction of productive public expenditure and taxation affects in opposite direction the industrial location, results are very sensitive to the specific parameter constellation assumed. That is, it is not straightforward that following an increase in productive public expenditure in a region, that region will necessarily enjoy stronger agglomeration. As a major contribution to the literature, our approach considers jointly two effects arising from public policy decisions on expenditure: the demand effect and the productivity effect. The interplay of these two effects determines the final impact of an increase in productive public spending in one region on the spatial distribution of firms. Furthermore, the latter result is influenced by the way in which tax payers of the two regions contribute to the financing of productive public expenditure. Finally, in the case of symmetric regions, the impact on welfare of an increase in productive public services is found to be positive under certain conditions.