Regional dimensions of economic development in Iran: A new economic geography approach

Farmanesh, Amir (2009): Regional dimensions of economic development in Iran: A new economic geography approach.

Abstract

This paper presents a spatial analysis on regional dimensions of poverty and economic development across provinces of Iran. It offers the first ever estimation made in developing countries using this strand of "New Economic Geography" (NEG) models and provides a comparison of the results between previously studied developed countries and Iran as a developing country.

The goal of this study is to offer an analysis of the effects of agglomeration and dispersion economies on the patterns of regional economic development in Iran. It analyzes the linkages among adjacent provinces as well as effects of agglomeration and dispersion economies on the patterns of Iran's regional economic development through empirical estimation of two of the NEG models.

First, it presents an estimation of a "Market Potential Function" (MPF), in which wages are associated with proximity to consumer markets. Second, the paper estimates an augmented MPF derived from the Krugman model of economic geography. The parameters in this model estimate the importance of transportation cost and economies of scale.

The estimation results suggest that Iran showed generally good fit to both models and satisfied both MPF and Krugman model specifications. Compared to other similar studies in developed countries, Iran shows smaller returns to scale and consistently higher size of the effect of market potential on wages.

• Item Type: MPRA Paper
• Language: English
• Keywords: New Economic Geography; Spatial agglomeration; Market potential; Market structure; Increasing returns to scale; Transport costs; Iranian economy; Economic development in Iran; Income distribution in the provinces of Iran; Empirical evaluation
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity

References

Axtell, R. L. (2001). Zipf Distribution of U.S. Firm Sizes. Science, 293(5536), 1818-1820.

Brakman, S., Garretsen, H., & Schramm, M. (2004). The spatial distribution of wages: estimating the Helpman-Hanson model for Germany. Journal of Regional Science, 44(3), 437-466.

De Bruyne, K. (2002). The Location of Economic Activity. Is There a Spatial Employment Structure in Belgium? Katholiek University of Leuven.

Eaton, J., & Kortum, S. (1999). International technology diffusion: theory and measurement. International Economic Review, 40, 537-570.

Eaton, J., & Kortum, S. (2002). Technology, geography, and trade. Econometrica, 70, 1741- 1779.

Fujita, M., Krugman, P., & Venables, A. J. (1999). The Spatial Economy. Cambridge MA: MIT Press.

Garcia Pires, A. J. (2006). Estimating Krugman’s economic geography model for the Spanish regions. Spanish Economic Review, 2006(8), 83-112.

Greene, W. (2003). Econometric Analysis. Upper Saddle River: Pearson Education Inc.

Hanson, G. H. (1998). Market potential, increasing returns, and geographic concentration. National Bureau of Economic Research.

Hanson, G. H. (2005). Market potential, increasing returns, and geographic concentration. Journal of International Economics, 67, 1-24.

Harris, C. (1954). The Market as a factor in the localization of production. Annals of the Association of American Geographers, 44, 315-348.

Head, K., & Mayer, T. (2004). The Empirics of Agglomeration and Trade. In J. Henderson & J. F. Thisse (Eds.), Handbook of Regional and Urban Economics (Vol. 4). New York: North Holland.

Helpman, E. (1998). The size of regions. In D. Pines, E. Sadka & J. Zilcha (Eds.), Topics in public economics: theoretical and applied analysis. Cambridge: Cambridge University Press.

Hummels, D. (1999). Towards a geography of trade costs. University of Chicago.

Krugman, P. (1980). Scale economies, product differentiation, and the pattern of trade. American Economic Review, 70, 950- 959.

Krugman, P. (1991). Increasing returns and economic geography. Journal of Political Economy, 99, 483-499.

Krugman, P. (1993). On the number and location of cities. European Economic Review, 37, 293-298.

Limao, N., & Venables, A. J. (2001). Infrastructure, geographical disadvantage, transport costs, and trade. World Bank Economic Review, 15, 451- 479.

Mion, G. (2004). Spatial externalities and empirical analysis: the case of Italy. Journal of Urban Economics, 56, 97-118.

Neary, J. P. (2001). Of Hype and Hyperbolas: Introducing the New Economic Geography. Journal of Economic Literature, 34, 536-561.

Overman, H. G., Redding, S., & Venables, A. J. (2003). The Economic Geography of Trade, Production, and Income: A Survey of Empirics. In E. K. Choi & J. Harrigan (Eds.), Handbook of International Trade (pp. 353-387). Malden: Blackwell.

Paluzie Hernandez, E., Pons Novell, J., & Tirado Fabregat, D. A. (2005). Potencial de Mercado y Estructura Espacial de los Salarios en las Regiones Espaolas, 1955-1995. Cuadernos Aragoneses de Economía, 15(1), 17-37.

Puga, D. (1999). The rise and fall of regional inequalities. European Economic Review, 43, 303-334.

Redding, S., & Venables, A. J. (2004). Economic geography and international inequality. Journal of International Economics, 62, 53-82.

Roback, J. (1982). Wages, rents, and the quality of life. Journal of Political Economy, 90, 1257-1278.

Roos, M. (2001). Wages and market potential in Germany. Jahrb Regional wissensch, 21, 171-195.

Wooldridge, J. M. (2003). Introductory econometrics: A modern approach (2nd ed.). Mason, OH: South-Western Publishing.