Homework #2 Eco333

Homework #2
Eco333
Answers Due Nov 27th 3:15 pm (submit through Blackboard).
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1 Homework Questions
Question 1
Serena is the urban economic developer of a Canadian city.
She is considering
whether or not to make a proposal to develop a diverse
economy with
a large number of industries. Her assistant (who took ECO
333) just sent
her a report on the empirical evidence concerning the
magnitudes of localization
and urbanization economies. The report focuses on the
productivity
advantages from agglomeration. Based on the report only,
what should she
do?
Question 2
2Consider an empire divided in 2 regions, Etruria (E) and
Gallia (G). The
emperor does not allow any worker mobility between region E
and region
G. Region E has a Öxed population of 13 million. The urban
utility curve
reaches the maximum utility with 6.5 million people, and
initially there are
two cities, Faesulae (F) and Volsinii (V), each with 6.5
million people. At
time t, City F and city V are identical in every respect.
a. Focus on Region E. Suppose that at t+1 the emperor names
city
F the capital of the empire and starts to provide free music
concerts in F,
Önanced by coersive transfer payments from people in region
G. Using the
graph of the urban utility curve, show the e§ect of the free
concerts on the
urban utility curve in city F. When drawing the graph,
assume that the positively
sloped portion of the urban utility curve is steeper than
the negatively
sloped portion (this is the standard case we have
extensively discussed in
class). Also assume the utility-maximing population does not
change from
time t to time t+1.
b. People will migrate from city _______ to city _______
because.
. . . . . . . .
c. As a consequence of these migration áows utility in city
F [increases/decreases],
and utility in city V [increases/decreases]
d. How does the new equilibrium in region E look like? In
particular,
what is the level of population in city F?
Question 3
A developing nationís workforce of 30 million is divided
equally between
a city and a rural area. The initial common utility level is
$50, see below:
3City
Rural
10 15 (population)
U
The slope of the urban utility curve, between 10 to 15
million is -$2, while
for the rural curve between 15 and 20 million is -$1.
Suppose a populist
government increases rural expenditure (invests in
agriculture) which has a
positive e§ect on utility in rural areas for the same
population. Short term
utility in rural areas at the equilibrium population rises
to $56.
i) What is the impact of this policy on the distribution of
rural and
urban population? What is itís impact on the utility of
rural and urban
living?
ii) If the government instead did the opposite; invested in
infrastructure
in urban areas rather than the rural area raising itís
utility at the equilibrium
size to $56, what is the impact now on the distribution of
rural/urban
population and utilities?
Question 4
Consider a region with 2 export products (saxophones and
soccer balls)
and 2 local goods (haircuts and music concerts). The production
of each
export good is subject to localization economies, so each
city specializes in
one export good. According to the urban economist Grace
Slick ìIf my two
assumptions (one for export products and one for local
goods) are correct,
4all the cities in the regions will be the same sizeî.
Assume that Slickís logic
is correct. List her assumptions and explain why together
they imply the
regionís cities will have the same size.
Question 5
Complete the statement: Vancouver provides specialized
cultural, legal,
medical, Önancial, and other services that are not available
in small urban
areas in the rest of British Columbia because these
specialized service are
characterized by. . . .
Question 6
Density of economic activity and local productivity: Local
Spillovers
from Foreign Direct Investment in Ethiopia
Recall the discussion in class on the relation between the
density of economic
activity and local productivity. In this question you are
asked to
think of this relation in a developing country context. The
background for
this question draws heavily on research on foreign direct
investment (FDI) in
Ethiopia by the following team of researchers: Margaret
McMillan (Tufts),
Justin Lin (CCER), Deborah Brautigam (John Hopkins
University), Xiaobo
Zheng (IFPRI) Bart Minten (IFPRI), Alemayehu Seyoum Ta§esse
(IFPRI),
and Girum Abebe (EDRI). Below you Önd some suggestions for
background
readings.
In the past few years, a major destination for Asian and
European Örms
has been sub-Saharan Africa. More speciÖcally, the Ethiopian
leather shoe
manufacturing industry has seen dramatically greater foreign
investment
since 2004 (in particular from Chinese and Indian Örms).
However, relatively
little is known about whether these Örms are operating in
isolation or
integrating their operations, technology, and skills with
Ethiopian Örms and
people.
From a policy perspective, it is important to collect
information on the
interactions between foreign investors and Ethiopian
entrepreneurs to assess
5ways in which cooperation can be facilitated. This type of
information could
be used to target the most desirable partnerships. If this
is not done, the
risk is that Ethiopians become discouraged and outright
hostile to foreign
investors. Ultimately this could reduce the attractiveness
of Ethiopia as a
destination for foreign investment.
Suppose you just joined a research team whose goal is to
conduct an
original survey of Örms in the Ethiopian leather shoe
manufacturing industry
in order to shed light on the interaction between Ethiopian
and foreignowned
Örms, and on the micro-mechanisms behind potential
productivity
advantages of domestic Örms from being located close to
large greenÖeld
investments by foreign companies.
YOUR TASKS in this question are:
list the questions
you would ask to shed light on the main dimensions
of interest listed below
explain brieáy why
you think the questions you chose are relevant. The
readings by Javorcik on foreign direct investment in Czech
Republic and
Latvia, by Charlot and Duranton on French cities, and
Kadokawa on
Japan, and my study on the Veneto region of Italy suggested
below
would be helpful for your task (though they are not
necessary).
The main dimensions
of interest are:
1. Spillovers to Upstream Sectors, for instance: (a) types
of changes required
by foreign-owned Örms from local suppliers (which enhance
the
productivity of local Örms), (b) Improvements actually
undertaken by
local Firms in Order to Supply a foreign-owned Örm.
2. Types of Assistance Received by Ethiopian Suppliers from
foreign Customers
3. Knowledge Spillovers/Communication externalities
64. Knowledge transfer through labor mobility from
foreign-onwed Örms to
Ethiopian Örms
5. Location choice by recently established Ethiopian Örms
and in particular
whether and how the choice is a§ected by the presence of
large
foreign greenÖeld projects
Main References (and some more backround readings if you are
curious)
Charlot, Sylvie, and
Gilles Duranton. 2004. ìCommunication externalities
in cities.îJournal of Urban Economics, 56(3): 581ñ613.
Javorcik, Beata S.
2008. ìCan survey evidence shed light on spillovers
from foreign direct investment?îThe World Bank Research
Observer,
23(2): 139ñ159.
Kadokawa, Kazuo.
2011. ìApplicability of Marshallís Agglomeration
Theory to Industrial Clustering in the Japanese
Manufacturing Sector:
An Exploratory Factor Analysis Approach.îJournal of Regional
Analysis and Policy, 41(2): 83ñ100.
SeraÖnelli, Michel “Good
Firms, Worker Flows and Local Productivity”
Mimeo, University of California, Berkeley
you can download it from my website
https://sites.google.com/site/michelseraÖnelli/
Blog China in Africa:
The Real Story
http://www.chinaafricarealstory.com/
Article in Financial
Times ëThis is Africaí: Africaís quiet agricultural
revolution
http://www.thisisafricaonline.com/Development2/Africa-s-quiet-agriculturalrevolution
7 Chinese FDI in Ethiopia: a World Bank survey
http://documents.worldbank.org/curated/en/2012/11/17073974/chinese-fdi-ethiopiaworld-bank-survey
Presentation by
McMillan on Ethiopiaís Leather Industry, Preliminary
Findings
http://goo.gl/0jh3lU
8