Research Papers in Economics, Department of Economics, Stockholm University
The Comparative Political Economy of Economic Geography
Abstract: This paper examines how different electoral rules affect
the location decisions of firms through the effect on regional policy. The
equilibrium location of industry in the economically smaller (larger)
region is higher under majoritarian (proportional) elections. The standard
prediction in the economic geography literature, that the larger region
becomes the core when trade barriers are reduced, no longer holds. The
establishment of manufacturing production in the smaller region is
increasing in the level of regional integration. As trade is in- creasingly
liberalized, the economy features a reversed core-periphery equilibrium.
This result holds under both electoral rules. However, firms locate to the
smaller region at a relatively higher rate in the case of majoritarian
voting, hence, the reversed equilibrium occurs for a relatively lower level
of regional integration with majoritarian elections. Empirical evidence
shows that the model is consistent with qualitative features of the data,
and the results are robust to an instrumental variable strategy that
accounts for the potential endogeneity of the electoral rule.
Keywords: Economic Geography; Regional Policy; Electoral Rules; (follow links to similar papers)
JEL-Codes: D72; F12; R12; (follow links to similar papers)
36 pages, September 2, 2011
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