Three Essays in Spatial Economics

This work contributes to the field of spatial economics by embracing three distinct modelling approaches, belonging to different strands of the theoretical literature. In the first chapter I present a theoretical model in which the changes in urban system’s degree of functional specialisation are linked to (i) firms’ organisational choices and firms’ location decisions. The interplay between firms’ internal communication/managing costs (between headquarters and production plants) and the cost of communicating with distant business services providers leads the transition process from an “integrated” urban system where each city hosts every different functions to a “functionally specialised” urban system where each city is either a primary business center (hosting advanced business services providers, a secondary business center or a pure manufacturing city and all this city-types coexist in equilibrium.The second chapter investigates the impact of free trade on welfare in a two-country world modelled as an international Hotelling duopoly with quadratic transport costs and asymmetric countries, where a negative environmental externality is associated with the consumption of the good produced in the smaller country. Countries’ relative sizes as well as the intensity of negative environmental externality affect potential welfare gains of trade liberalisation. The third chapter focuses on the paradox, by which, contrary to theoretical predictions, empirical evidence shows that a decrease in international transport costs causes an increase in foreign direct investments (FDIs). Here we propose an explanation to this apparent puzzle by exploiting an approach which delivers a continuum of Bertrand- Nash equilibria ranging above marginal cost pricing. In our setting, two Bertrand firms, supplying a homogeneous good with a convex cost function, enter the market of a foreign country. We show that allowing for a softer price competition may indeed more than offset the standard effect generated by a decrease in trade costs, thereby restoring FDI incentives.

Essays in Long-run Development and Spatial Economics

This thesis tries to further our understanding for why some countries today are more prosperous than others. It establishes that part of today's observed variation in several proxies such as income or gender inequality have been determined in the distant past. Chapter one shows that 450 years of (Catholic) Portuguese colonisation had a long-lasting impact in India when it comes to education and female emancipation. Furthermore I use a historical quasi-experiment that happened 250 years ago in order to show that different outcomes have different degrees of persitence over time. Educational gaps between males and females seemingly wash out a few decades after the public provision of schools. The male biased sex-ratios on the other hand stay virtually unchanged despite governmental efforts. This provides evidence that deep rooted son preferences are much harder to overcome, suggesting that a differential approach is needed to tackle sex-selective abortion and female neglect. The second chapter proposes improvements for the execution of Spatial Regression Discontinuity Designs. These suggestions are accompanied by a full-fledged spatial statistical package written in R. Chapter three introduces a quantitative economic geography model in order to study the peculiar evolution of the European urban system on its way to the Industrial Revolution. It can explain the shift of economic gravity from the Mediterranean towards the North-Sea ("little divergence"). The framework provides novel insights on the importance of agricultural trade costs and the peculiar geography of Europe with its extended coastline and dense network of navigable rivers.