Urban, Rural, and Regional Economics

The study of the Holy Roman Empire, a medieval state on the territory of modern-day Germany and Central Europe, has attracted generations of qualitative economic historians and quantitative scholars from various fields. Its bordering position between Roman and Germanic legacies, its Carolingian inheritance, and the numerous small states emerging from 1150 onward, on the one hand, are suspected to have hindered market integration, and on the other, allowed states to compete. This has inspired many research questions around differences and communalities in culture, the origin of the state, the integration of good and financial markets, and technology inventions, such the printing press. While little is still known about the economy of the rural population, cities and their economic conditions have been extensively studied from the angles of economic geography, institutionalism, and for their influence on early human capital accumulation. The literature has stressed that Germany at this time cannot be seen as a closed economy, but only in the context of Europe and the wider world. Global events, such as the Black Death, and European particularities, such as the Catholic Church, never stopped at countries’ borders. As such, the literature provides an understanding for the prelude to radical changes, such as the Lutheran Reformation, religious wars, and the coming of the modern age with its economic innovations.

For research attempting to investigate why economic activities are distributed unevenly across geographic space, new economic geography (NEG) provides a general equilibrium-based and microfounded approach to modeling a spatial economy characterized by a large variety of economic agglomerations. NEG emphasizes how agglomeration (centripetal) and dispersion (centrifugal) forces interact to generate observed spatial configurations and uneven distributions of economic activity. However, numerous economic geographers prefer to refer to the term new economic geographies as vigorous and diversified academic outputs that are inspired by the institutional-cultural turn of economic geography. Accordingly, the term geographical economics has been suggested as an alternative to NEG. Approaches for modeling a spatial economy through the use of a general equilibrium framework have not only rendered existing concepts amenable to empirical scrutiny and policy analysis but also drawn economic geography and location theories from the periphery to the center of mainstream economic theory. Reduced-form empirical studies have attempted to test certain implications of NEG. However, due to NEG’s simplified geographic settings, the developed NEG models cannot be easily applied to observed data. The recent development of quantitative spatial models based on the mechanisms formalized by previous NEG theories has been a breakthrough in building an empirically relevant framework for implementing counterfactual policy exercises. If quantitative spatial models can connect with observed data in an empirically meaningful manner, they can enable the decomposition of key theoretical mechanisms and afford specificity in the evaluation of the general equilibrium effects of policy interventions in particular settings. Several decades since its proposal, NEG has been criticized for its parsimonious assumptions about the economy across space and time. Therefore, existing challenges still require theoretical and quantitative models on new microfoundations pertaining to the interactions between economic agents across geographical space and the relationship between geography and economic development.

Urbanization is a central challenge of our times. At its core, it is an urban development challenge that requires addressing transportation and housing in cities. Transport improvements can reduce travel times and improve the spatial reach of urban dwellers. But these improvements may be crowded out by latent demand for travel and may lead to worse congestion, pollution, and other negative externalities associated with urban traffic. To evaluate the effects of transport improvements, direct travel effects must be measured. Then, an improvement in traffic conditions somewhere may spill over to other areas. Firms and residents may also relocate, so economic growth close to a transport improvement may just result from a displacement of economic activity from other areas. Conversely, better accessibility is expected to foster agglomeration effects and increase productivity. Valuing these changes is difficult, as it requires being able to quantify many externalities such as congestion delays, scheduling gains, and greater job accessibility. Housing policies present different challenges. More fundamental policies seek to enable housing construction by offering more secure property rights, up-to-date land registries, and competent land-use planning—all complex endeavors and all necessary. Other housing policies rely on heavy government interventions to provide housing directly to large segments of the urban population. These policies often flop because governments fail to link housing provision with job accessibility and appropriate land-use planning. Housing is also an expensive asset that requires significant initial funding, while credit constraints abound in the urbanizing world. Policymakers also need to choose between small improvements to extremely low-quality informal housing, retrofitting modern housing in already-built urban areas, or urban expansion. All these options involve sharp trade-offs, subtle induced effects, and complex interactions with transport. All these effects are difficult to measure and challenging to value.