Economic Geography

Staff involved: Neil Lee, Simona Iammarino, Michael Storper and Andrés Rodríguez-Pose 

Neil Lee is running the ‘Cities’ theme in LSE’s International Inequalities Institute. This inter-disciplinary research group is working on policy focused research which considers spatial inequality in both the developed and developing world. 

Staff involved: Kerstin J. Schaefer (Marie Skłodowska-Curie Fellow), Riccardo Crescenzi (Supervisor)

There is a spatial split between research and product development. Global firms off-shore their research activities to centres of knowledge but product development may be kept closer to their original locations. There’s a growing concern that such practice channels global knowledge flows and affects the ability of regions to produce innovative output such as climate-friendly engines or vaccines against new viruses, and it has further implications for the economic and social welfare of regions. In this context, the EU-funded DISCO project will explore the situation. Specifically, it will draw on information from patents to build an indicator and a firm typology revealing the global patterns of which type of R&D activity is performed at which locations

The project is funded by the European Union under the EXCELLENT SCIENCE - Marie Skłodowska-Curie Actions

Dr. Kerstin J. Schaefer (Marie Skłodowska-Curie Fellow) will carry out the project addressing the spatial organization of research and development (R&D) activities within global firms under the supervision of Prof. Riccardo Crescenzi (Supervisor).

Staff involved: Riccardo Crescenzi (PI), Simona Iammarino (co-I)

Understanding inequalities and designing public policies to address them.

The ESSPIN Project explores the nexus between social, economic and spatial inequalities in Europe. The project examines the typology, nature and evolution of socio-economic inequalities and aims to assess the mix of public policies designed to address them, in light of emerging mega-trends and global challenges.

The project is funded under the Horizon Europe Research Programme and involves a multi- and inter-disciplinary consortium of 13 European Universities from 10 different EU countries and the UK with an overall budget of 3 million euros.

Old and new drivers of change might run against balanced growth and socio-spatial resilience. The ESSPIN project explores policy responses, offering new evidence able to make them more inclusive and effective. The project takes a holistic and integrated approach to detect, model and map the interdependences among various drivers of inequality, opportunities and outcomes, delivering well-tailored policy recommendations.

The LSE Unit – led by Prof Riccardo Crescenzi and Prof Simona Iammarino – will coordinate the activities of Work Package 3 (WP3) focusing on the “The interconnections of in-market drivers of inequality with other processes and their impact across social groups and spatial scales.” WP3 looks at the effects of major shifts in institutions, market structures, technologies and globalization (with special reference to trade and FDI) on inequalities over different social and spatial scales. WP3 will examine their independent, but also combined effects on economic, social and spatial inequalities. The analysis will relate drivers to outcomes, but also different types of inequalities with each other. Inequalities in income levels, living conditions, or poverty, will be related to inequalities in perceptions, gender, race, or ethnic background over different social and spatial contexts.

The LSE Unit will do new research – in collaboration with other partners – in a number of key area. First, technological transformations and their effects on regional disparities, the urban-rural divide and local labour markets will be explored. Second, the LSE – with other partners – will also look at the effects of globalization on social and spatial inequalities under different regimes with respect to technology creation, innovation and institutions. Third, the effects of GVCs and FDI on firms, workers and places will be explored with special reference to the role of local agglomeration, digital and green transitions, public policies and institutions. In addition, special attention will be devoted to the impact of superstar firms on economic, social and spatial inequalities. Finally, the LSE will evaluate the effectiveness of public policies for recovery and resilience in the era of pandemic and digital and green transitions.

The Research Project if supported by a grant from UKRI (UK Research & Innovation) - Horizon Europe Guarantee and is a part of the Horizon Europe ESSPIN Project funded by the European Commission.

Staff involved: Henry Overman

The Economy 2030 Inquiry explores the economic changes that the UK is facing and will set out a plan to navigate the decade ahead. The project is being run in collaboration with the Resolution Foundation and funded by the Nuffield Foundation.

The UK is facing unprecedented economic change - driven by the triple shocks of the COVID-19 pandemic, Brexit and the transition to net zero. The Economy 2030 Inquiry explores the nature of these economic changes and will start a national conversation about what this means for people, places and firms.

It will set out a framework for successfully navigating the challenges and opportunities these changes will bring, with proposals for economic reform to drive strong, sustainable growth, and significant improvements to people's living standards and well-being. A final report will be delivered in Summer 2023.

Staff involved: Christian Hilber and Tracy Turner (Indiana State)

This project explores the impact of housing decisions on future household wealth accumulation and wealth inequality (some 20 years after the initial decisions). For most homeowners in the US, the share of net worth invested in housing exceeds the share invested in financial equities by a large margin. In contrast, renters typically have no exposure to housing assets. While the returns on a diversified stock or bond portfolio would be independent of household location, the investment return on owner-occupied housing can be expected to vary dramatically by location.

The project employs the confidential version of the Panel Study of Income Dynamics, augmented by market-level data, and a fixed effects and instrumental variable strategy to explore whether and to what extent housing decisions of U.S. households in 1999 affected wealth outcomes in 2019. 

We find that the impacts of homeownership on long-run household wealth are strongly location dependent. Households who owned in locations with the greatest twenty-year price growth, experienced sizable long-run increases in wealth. At the upper tails of the price growth distribution, we find an average marginal effect on future wealth of moving from renting to owning of 250 to 300 thousand, a magnitude similar to the average marginal impact of stock market participation on future wealth. In contrast, the average, median or lower percentiles of the price growth distribution, we find no evidence of an impact of homeownership on the long-run growth in total net.

We also explore whether it matters when during the real estate cycle households invest in owner-occupied housing. Finally, we examine the implications of our results for rising wealth inequality across and within US cities.

Staff involved: Paul Cheshire, Christian Hilber, Piero Montebruno, Rosa Sanchis-Guarner. 

This project explores the impact of a city-planning policy, England´s Town Centre First Policy (TCFP), introduced in 1996, on the supply and location of shops and patterns of shopping, focusing on the grocery sector.

The aim of TCFP was to restrict the opening of new retail units outside of fuzzily defined “Town Centres” (TCs). We use Census data and novel data from National Survey of Local Shopping Patterns to study the policy’s effects comparing English with Scottish TCs before and after the policy implementation in England.

The project aims to answer the following questions: Did (i) the number of grocery stores, (ii) grocery employment and (iii) the number of shoppers increase relatively more strongly in England post implementation of the TCFP? Did the policy differentially affect the “big four” grocery chains?

Preliminary findings suggest that even though policy was successful in pushing more physical grocery stores to TCs, this did not attract more shoppers, nor did it have any effect on local employment in the grocery-sector. This suggests that, even by concentrating and changing the location and composition of TC grocery stores, the policy did seem to succeed in halting the decay or high streets.

Staff involved: Olmo Silva

We investigate the links between legal frameworks that characterise repossession cases and the functioning of the credit and housing markets. More specifically, we study the impact of geographical differences in the likelihood that a house is repossessed (conditional on the mortgage being in arrears) on demand in mortgage and housing markets. In order to do so, we develop a novel theoretical framework and show that the effect of increasing repossession risk on house prices and mortgage sizes can be positive if courts are too lenient to begin with – but negative if courts are too strict.

In order to test the predictions of our model, we use boundaries of catchment areas of courts that adjudicate on repossession cases in England and Wales as a source of an exogenous spatial variation in repossession risk. We find that house prices are higher and mortgages larger in locations with ‘borrower friendly’ courts as judges in our sample are too strict. Moreover, for every one standard deviation change in the index of court severity (becoming more “lender friendly”), housing demand decreases by 4.6%. This difference remains stable in booms and recessions. 

Staff involved: Christian Hilber (LSE) and Andreas Mense (FAU Erlangen-Nuremberg)

Over the past two decades, the house price-to-rent ratio has risen dramatically in many parts of the world, particularly in supply constrained superstar cities. We provide a theoretical explanation for this phenomenon that does not rely on falling real interest rates, changing credit conditions, unrealistic expectations, rising inequality or global investor demand for superstar cities.

A simple model that distinguishes between short- and long-run supply constraints and assumes that housing demand shocks exhibit serial correlation predicts that (i) the price-to-rent ratio increases in response to a positive initial demand shock if supply is sufficiently constrained, (ii) this effect is more pronounced when local supply is more constrained, (iii) the price-to-rent ratio always decreases in response to a negative demand shock, and (iv) the latter effect is independent of supply constraints.

Employing panel data for 353 Local Planning Authorities in England from 1997 to 2018, we provide evidence in support of all four predictions. Our estimates suggest that in Greater London, where supply is seriously constrained, local labor demand shocks in conjunction with supply constraints explain 63% of the increase in the price-to-rent ratio since 1997. Macroeconomic factors explain 37%. The picture is reversed outside of Greater London, where macroeconomic factors explain the bulk (84%) of an albeit much smaller increase.

Staff involved: Neil Lee

This project, an ESRC funded collaboration between researchers at LSE, Oxford, McGill, Paris-Evry, and Bonn, aims to measure and analyze the evolution of regional and national income inequality from a consistent cross-country perspective. We are producing new data on regional inequality across five large advanced economies - the United States, Germany, France, Canada, and the United Kingdom. Our work will inform policy agendas such as Levelling Up. 

Staff involved: Felipe Carozzi, Christian Hilber, Xiaolun Yu

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 these 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.

Relevant links: winner of Nick Tyrrell Research Prize.

Available as CEP Discussion Paper No. 1681 and as CEPR Discussion Paper No. 14620.

Staff involved: Gabriel Ahlfeldt

One of the arguably most striking features of the contemporary economic geography of the world is the uneven distribution of economic activity. Across the globe, economic wealth is evidently concentrated in relatively few countries. Within countries, there are typically cities and regions that thrive at the expense of others. The largest spatial differentials, however, can be found within cities. As an example, the City of London attracts more than 300 thousand commuters per day and hosts more than 500 bank offices and several global headquarters on just about one square mile. The City produces 2.4% of UK GDP and about 25% of Greater London GDP, a dense urban area of about 1500 times the size of the City. The strength of such ultra-dense clusters of economic activity, which we refer to as prime locations, illustrates that despite decreasing transport and communication costs the economic benefits of spatial density are hardly substitutable.

In this project we analyse the internal structure of a large sample of cites around the world. We identify the contemporary prime locations within these cities and investigate how the spatial structure of cities is organized around these focal points of economic activity. We analyse the locational characteristics of prime locations and compare them to historic city centres, which we trace back to the first settlements, often several thousands of years ago. At the heart of our analysis, we analyse factors, which determine the degree of persistency in internal city structure to rationalize the variety of observed spatial outcomes. Concretely, we analyse the extent to which major shocks shift the internal structure between multiple equilibria and how the mutually reinforcing effects of productivity and density lead to path-dependency in the internal structure of cities. 

Read the discussion paper and see the Gobal Cities Data Appendix.

Staff involved: Simona Iammarino

The Department has been awarded €606,345 funding from the Horizon 2020 Marie Skłodowska-Curie Innovative Training Networks Scheme for POLISS (“Policies for Smart Specialisation”). Led for LSE by Prof Simona Iammarino, this is a collaborative project (overall 3.7 million euros) coordinated by Dr Andrea Morrison at Utrecht University, involving teams from 8 European countries. The project funds 2 PhD students for 3 years for each partner, academic secondments for other PhDs from the network, and various knowledge sharing activities including summer schools.

Staff involved: Steve Gibbons, Christian Hilber

The proposition that public expenditure ‘crowds out’ (i.e. reduces) the private provision of public services – such as aid to the poor – lies at the heart of the ‘Big Society’ agenda, promoted by the Coalition government. In this project we empirically test this proposition by answering the following research questions:

• Do cuts to the state provision of public services increase or reduce (and by how much?) the giving of private donors?
• Do cuts to the state provision of public services increase or reduce the private provision of public services by the voluntary sector?
• What are the spatial patterns in voluntary activity, charitable giving and the provision of public services through charities and Local Authorities in the post-Coalition years and how has the response to budget cuts differed across different types of area?

Staff involved: Christian Hilber and Andreas Mense

In this project we employ a new instrumental variable strategy to identify the causal effect of the accommodation type on the housing tenure choice. According to our estimates, a ten percentage points increase in the share of multifamily housing causes the homeownership rate to decrease by eight percentage points. This very tight relationship has important consequences for the location choices of households willing to become homeowners, and hence for local inequality within and between cities. Two complementary theoretical mechanisms likely explain this result: A landlord production efficiency advantage, and a coordination failure for owner-occupiers in multi-family housing. We aim to assess the relative importance of the two mechanisms.

Staff involved: Gabriel Ahlfeldt

Land markets have been subject to economics research since the birth of economics as a modern discipline. Since von Thuenen, the study of the horizontal structure of urban space has been one of the main research areas in urban economics. While iconic skylines have long become distinctive features of cities over the course of the 20th century, it is not until recently that urban economics research into the vertical structure of cities has gained momentum.

This research project aims at documenting the vertical growth of cities and advance the theoretical and empirical understanding of the urban height profile. With new microgeographic data on building heights becoming available, understanding of the causes and effects of building heights will likely remain a priority research area in urban economics for the years to come.

Links:

Tall buildings and land values: height and construction cost elasticities in Chicago, 1870 – 2010. Read article.  

The economics of skyscrapers: a synthesis. Read paper. 

Do skyscrapers make economic sense? Read blog. 

Staff involved: Neil Lee, Andrés Rodríguez-Pose

Populism is on the rise, especially in the developed world. It has gone from being a force to be reckoned with to becoming one of the main challenges for society today. But the causes behind its rise remain hotly debated. Many of the economic analyses of the ascent of populism have focused on growing inequalities - both from an interpersonal and territorial dimension.

In this project, the aim is to assess the extent to which the rise of the vote for anti-system parties is related to the long-term economic decline of places that have seen far better times and have been disadvantaged by processes that have rendered them exposed and somewhat ‘expendable’ than to increases inequality. Fixing this type of ‘places that don’t matter’ is possibly one of the best ways to tackle anti-system voting. This may require the implementation of well-targeted place-sensitive polices, going beyond the traditional wealthy and less developed places that have attracted the bulk of investment and considering long-term economic trajectories.

Staff involved: Simona Iammarino, Andrés Rodríguez-Pose, Michael Storper

The concept of regional development trap refers to regions that face significant structural challenges in retrieving past dynamism or improving prosperity for their residents.

This projects aims to introduce and measure the concept of the regional development trap for regions across the world. The concept draws inspiration from the middle-income trap in international development theory but widens it to shed light on traps in higher-income countries and at the regional scale.

We propose indicators - involving the economic, productivity, and employment performance of regions relative to themselves in the immediate past, and to other regions in their respective countries and elsewhere in comparable countries - to identify regions either in a development trap or at significant near-term risk of falling into it. Regions facing development traps generate economic, social, and political risks.

Staff involved: Riccardo Crescenzi (PI), Gabriele Piazza

Policy-makers have been attracted by the concept of innovation clusters and their potential to boost overall regional innovation, development and employment. But the evidence suggests that innovation is increasingly becoming a collaborative effort and that geographic proximity is only one of the factors, alongside social networks and cognitive proximities, behind these successful collaborations. In this context, public research centres and large research infrastructures (RIs) have become an important element of local innovation strategies. This is because RIs are often seen as platforms hosting researchers and working with firms from across the world and, consequently expanding existing networks and creating new ones. This process can result in complex geographies of innovation spanning multiple regions and involving a variety of local transmission mechanisms from individuals, institutions and firms directly participating into RIs activities and the local economies and localised networks in which they are embedded.

Against this background, this Research Project will develop a new conceptual framework on these transmission mechanisms and the channels through which RIs activities can affect local economies. The project will also produce counterfactual analyses estimating the local socio-economic impact of RIs.

The project is supported by a grant from CERN, The European Organization for Nuclear Research (“CERN”), an Intergovernmental Organization having its seat at Geneva, Switzerland.

Staff involved: Davide Rigo

The COVID-19 crisis has dramatically accelerated the uptake of work-from-home (WFH) practices worldwide. Since teleworking has massively altered workers’ and firms’ behaviours, it is crucial to update our scholarly understanding.

This research project will develop a novel conceptual framework and offer new empirical evidence on the impact of WFH in reshaping the geography of labour pooling, in pushing firms to adopt organisational changes and on firms’ productivity and innovation. The collection of unique and complementary empirical evidence for France, Italy and the UK will challenge traditional theories on agglomeration economies and the forces driving the colocation of workers and firms.

Staff involved: Vernon Henderson

This multi-year project examines urbanization across Sub-Saharan Africa and the role of land markets in urban development.

The project currently has two major components:

1- Growth in the urban system across sub-Saharan Africa, under a hierarchy of cities. This project uses satellite data on the built environment to measure size and growth. The project investigates which types of cities have complementary versus competitive relationships, and examines how the system has evolved since 1975.

2- The role of land market institutions and planning in providing housing and how the formal and informal sectors interact. A major part of the project is focused on Tanzania, although there is a variety of on-going work and related work in other countries.

Staff involved: Vernon Henderson

This multi-year project examines land quality and geographic and economic development across the world. The current focus is on how land quality has affected development of countries since 1820. A second strand looks to the future to 2100 to evaluate the role of climate change (altering land quality) versus population growth in generating resource congestion and income growth. 

Staff involved: Christian Hilber, Olivier Schöni and Max von Ehrlich. 

During the last 40 years the phenomenon of urban sprawl has progressively become widespread in most developed countries. Its surge has typically been associated to rising incomes coupled with the large-scale distribution of the car which, by reducing transportation costs, allowed individuals to move from compact urban centres to less densely populated areas.

In this project we focus on Switzerland to explore the determinants of urban sprawl over a the period of a century. We consider the persistent impact of geography, transport infrastructure, and institutional settings (local tax policies and regulatory policies) on urban sprawl. We also aim to investigate the complementarity of the two policies (local tax and regulatory policies) in a setting in which local jurisdictions compete against each other to attract residents.

Staff involved: Michael Ball (Reading), Paul Cheshire, Christian Hilber, and Xiaolun Yu (Reading). 

In this project we exploit a unique dataset from the National House Building Council that contains detailed information on about 80 percent of all residential development projects in Great Britain since the 1990s. We augment this data with various other sources including the Ordnance Survey, Land Registry and Energy Performance Certificate Register using geographical matching. We use the resulting panel dataset to identify the determinants of the build-out-rate of development sites.

Employing an instrumental variable- and fixed effects-strategy, preliminary findings indicate that a positive local demand shocks reduces the construction duration in a location with average supply constraints and market power. However, this reduction is less pronounced in areas (i) where local planning is more restrictive, (ii) that are more built-up, and (iii) where competition in the local development sector is lower. We provide a model that rationalises these results. Our preliminary findings imply that the slow build out rate in England is the result of both market and policy failure.