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Abstract
The new economic geography (NEG) aims to explain longterm patterns
in the spatial allocation of industrial activities. It stresses that endogenous economic processes may enlarge small historic differences leading to quite different regional
patterns  history matters for the longterm geographical distribution of economic
activities. A pivotal element is that productive factors move to another region whenever the anticipated remuneration is higher in that region. Given the longterm nature of
NEG analyses and the crucial role of expectations, it is astonishing that most of the existing models assume only naïve or myopic expectations. However, a recent stream of the literature in behavioral and experimental economics shows that agents often use expectational heuristics, such as trend extrapolating and trend reverting rules. We introduce such expectations formation hypotheses into a NEG model formulated in discrete time. This modification leads to a system of two nonlinear difference equations
(corresponding, in the language of dynamical systems theory, to a 2dimensional piecewise smooth map) and thus enriches the possible dynamic patterns: with trend extrapolating (reverting) the symmetric equilibrium is less (more) stable; and it may lose stability only via a flip bifurcation (or also via a NeimarkSacker bifurcation) giving rise to a perioddoubling cascade (or also to quasiperiodic orbits). In both
cases, complex behavior is possible; multistability, that is, the coexistence of locally stable equilibria, is pervasive; and bordercollision bifurcations are also allowed. In this sense, our analysis corroborates some of the basic insights of the NEG.
in the spatial allocation of industrial activities. It stresses that endogenous economic processes may enlarge small historic differences leading to quite different regional
patterns  history matters for the longterm geographical distribution of economic
activities. A pivotal element is that productive factors move to another region whenever the anticipated remuneration is higher in that region. Given the longterm nature of
NEG analyses and the crucial role of expectations, it is astonishing that most of the existing models assume only naïve or myopic expectations. However, a recent stream of the literature in behavioral and experimental economics shows that agents often use expectational heuristics, such as trend extrapolating and trend reverting rules. We introduce such expectations formation hypotheses into a NEG model formulated in discrete time. This modification leads to a system of two nonlinear difference equations
(corresponding, in the language of dynamical systems theory, to a 2dimensional piecewise smooth map) and thus enriches the possible dynamic patterns: with trend extrapolating (reverting) the symmetric equilibrium is less (more) stable; and it may lose stability only via a flip bifurcation (or also via a NeimarkSacker bifurcation) giving rise to a perioddoubling cascade (or also to quasiperiodic orbits). In both
cases, complex behavior is possible; multistability, that is, the coexistence of locally stable equilibria, is pervasive; and bordercollision bifurcations are also allowed. In this sense, our analysis corroborates some of the basic insights of the NEG.
Originalsprache  Englisch 

Seiten (von  bis)  3  26 
Fachzeitschrift  Decisions in Economics and Finance 
Jahrgang  37 
Publikationsstatus  Veröffentlicht  1 Juli 2014 
Projekte
 1 Abgeschlossen

COST Action IS1104: The EU in the new economic complex geography
22/03/12 → 21/09/16
Projekt: Forschungsförderung