Spatial Economics Research Centre Proposal

Lead Research Organisation: London School of Economics & Pol Sci
Department Name: Spatial Economics Research Centre

Abstract

Economic prosperity in the UK is very unevenly distributed across space. Tackling these persistent disparities is a key policy objective. Providing a rigorous understanding of the nature, extent, causes and consequences of these disparities, and identifying appropriate policy responses, is the primary objective of the Spatial Economics Research Centre (SERC). The impact of the recession and the government's fiscal position increase the importance of developing this rigorous understanding if we are to identify appropriate policy responses.

The Centre structures its research around five inter-linked programmes focused on the following central questions:
- What matters more - 'who' you are or 'where' you are? For example, do low skilled workers do badly wherever they locate? If so, is the spatial concentration of low skilled workers in particular places enough to understand the differences between places? Or is it that where someone lives or works has an additional effect on outcomes? In other words, to what extent are spatial disparities the result of the sorting of more productive sectors, firms or workers versus causal place-based effects on outcomes? Are these differences offset by the costs of living and producing (e.g. higher house prices and rents)? What other factors matter for the value of places and for wellbeing? Are the answers changing over time as a result of the recession? Programme 1 on the scale and nature of UK spatial disparities focuses on these issues.
- Even if place does not matter, what drives the spatial concentration of particular types of workers and firms in particular places? If place does matter over and above individual characteristics, then what causes these effects? In other words, through what channels do place-based effects arise, does sorting play a role, and are there feedbacks between the two? How do land and real estate markets function to determine the offsetting costs? What role do market failures and policy play? Individuals and the interaction between migration, labour and housing markets will be one focus of our research. Another will be firm innovation and enterprise and the commercial land market. These projects are necessarily overlapping, but we structure our research by analysing the causes of place-based effects and of sorting in Programme 2, while Programme 3 considers housing and land markets.
- What are the implications for the spatial structure and evolution of the economy and for the linkages between places? Why are the resulting spatial disparities important? How are the answers to these questions changing in response to globalisation, technological change and other factors? These questions are covered in Programme 4 on the structure and evolution of the spatial economy. Increasingly, our research in this area focus on the impact of specific policy interventions to both understand the impact of the policy itself and to use the intervention to better understand the workings of the spatial economy.
- What role does government play in shaping these inequalities? What policies and governance arrangements are most appropriate to tackle them? Will decentralisation ameliorate or accentuate disparities? Programme 5 on spatial economic policy and governance focuses on these issues.

Planned Impact

Who will benefit

Since inception, SERC has inhabited a richly populated institutional landscape. This landscape is changing, with some organisations disappearing (e.g. Regional Development Agencies), others emerging (e.g. Local Enterprise Partnerships) and most operating with constrained resources.

SERC staff have extensive experience of engaging with many of these beneficiaries and users. In addition to the funders, SERC research benefits government, business associations, trades unions, and the voluntary and community sectors. We cannot directly engage with such a diverse group. Instead, we focus on intermediary groups to identify individuals and organisations who may be interested in engaging more directly.

Several types of organisations should benefit from our research:
- Organisation: e.g. government; the Core Cities Group; LEP network; the CBI and BCC; the TUC; think tanks such as Policy Exchange and the Centre for Cities.
- Temporary task-oriented groups: e.g., the Portas Review of the High Street
- Informal networks: e.g. the new, 'virtual' BURA network
- International organisations: e.g., European Union Directorates, OECD

We already have access to many of these organisation. LSE has close relationships with BIS, DCLG, DfT, HMT as well as local government in London and Manchester. CURDS has long-standing relationships with the Core Cities Group, and LAs across the North East, while Swansea has close links with WAG. We also have close links with key think tanks, e.g. SERC Affiliates have worked or are working in Centre for Cities and Centre Forum.

How they will benefit from our research

The relevance of SERC's research is stronger than ever. First, the UK's long term spatial disparities remain persistent. Second, in the short term, these gaps look likely to widen, as both the financial crisis and deficit reduction have had spatially uneven effects. Third, government is making substantive policy changes through its 'localism' agenda - these may profoundly change centre-local relationships, the planning system and framework for housing supply.

Specifically, SERC's research has potential for beneficial impact across:

- Central government - Will benefit from research on spatial disparities, and from the Centre's rigorous evaluation of policies designed to promote growth. For example, SERC work on RSA and LEGI has direct relevance for the Regional Growth Fund; SERC is also exploring the effect of relocating public sector jobs on local economies as well as undertaking research on spatial disparities in skills and innovation. SERC is also delivering a major programme of work on land development and planning informing efforts to reform the planning system. SERC's research on the effects of decentralisation are directly relevant to current debates and proposals for directly elected mayors.

- Local government - Will benefit from SERC's analysis of spatial economies and their dynamics, and on local policies to promote growth. SERC is already working directly with one of the Core Cities, Manchester. SERC staff have also conducted work on London's economy in the recession. SERC will seek similar collaborations with other cities. We will also work with the Core Cities Group and LSE London to host policy-focused conferences and seminars.

- Industry bodies, think tanks and international organisations - As 'policy intermediaries', industry bodies and think tanks have a clear benefit from access to high-quality, independent research that they can use to develop robust policy messages. In its first three years, SERC has developed close links with key industry bodies and think tanks across the political spectrum.

- Informal networks - Many of the UK's current spatial policy networks, such as BURA, are virtual and resource-constrained. They will benefit from open access to SERC's research findings, through the DP and PP imprints, free events and the widely-read SERC blog.

Publications

10 25 50
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Ahfeldt, G. Maennig, W., Richater, F. (2013) Urban renewal after the Berlin Wall

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Ahlfeldt G (2015) Chicken or egg? The PVAR econometrics of transportation in Journal of Economic Geography

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Ahlfeldt G (2013) If We Build it, Will They Pay? Predicting Property Price Effects of Transport Innovations in Environment and Planning A: Economy and Space

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Ahlfeldt G (2014) Speed 2.0: Evaluating Access to Universal Digital Highways in SSRN Electronic Journal

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Ahlfeldt G (2015) Homevoters vs. leasevoters: A spatial analysis of airport effects in Journal of Urban Economics

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Ahlfeldt G (2011) Voting on a NIMBY Facility Proximity Cost of an "Iconic" Stadium in Urban Affairs Review

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Ahlfeldt G (2013) External Productivity and Utility Effects of City Airports in Regional Studies

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Ahlfeldt G (2014) Form or function?: the effect of new sports stadia on property prices in London in Journal of the Royal Statistical Society: Series A (Statistics in Society)

 
Description Overall, the activities of SERC have helped strengthen the fields of urban and spatial economics, particularly in the UK and the EU. They have also helped generate a body of high quality scientific outputs that can be more directly tied to SERCs activities over the past year. We have published over 150 discussion papers and a dozen policy papers describing the research that we have undertaken. It is always hard to identify specific examples from such a diverse body of work, but we would highlight the following examples:

The primary channel through which SERC aims to achieve scientific impact is through publication in top ranked, peer-reviewed international journals. We have published in a range of fields spanning economics, economic and human geography as outlined in Part 3.

Methodology was not an explicitly defined SERC objective. However, advancing methods for understanding causal mechanisms in spatial research has always implicitly been a goal, because of its importance in informing policy decisions. SERC has led the way in spatial research in developing and applying such methods to the analysis of spatial problems and has become a focal point for quantitative research of this type. Many of our discussion papers, exemplify best practice in identification of causal mechanisms from observational data. SERC researchers through their close involvement with PhD students in the department of Geography and Environment at LSE, and through our annual conference, have sought to transfer expertise in this area to new generation of researchers and build scientific capacity in empirical spatial economic research. Gibbons and Overman outlined some aspects of the general scientific position that has underscored the SERC style of research in relation to previous spatial econometric methods in DP0061, which was published in the Journal of Regional Science in 2012. The argument in this paper was that traditional 'spatial econometrics' do not pay close enough attention to issues of causality, and questioned the approach of the burgeoning body of applied economic research that proceeds with mechanical application of spatial econometric techniques. Instead we argues the case for greater adoption of the 'experimentalist' methods adopted in other fields such as labour economics, which puts issues of identification and causality at centre stage. This article has had a big impact on the spatial research community (as the editor remarked in personal communication, 'your paper has created quite a stir') and has received 66 google scholar citations in the two years since publication. This paper has led to Gibbons and Overman writing (with Eleonora Patacchini) the chapter on 'Spatial Methods' for the forthcoming Handbook of Regional and Urban Economics Vol 5 (Elsevier) in which we expand on the issues discussed in Gibbons and Overman 2012, link into the literature on identification of peer and neighbourhood effects from network data, and discuss the crucial role played by spatial weights matrices in identification of causal parameters in spatial models.

Questions around the magnitude and nature of agglomeration economies have played a central role in SERC's research from the outset, because of the tension between the evident benefits of spatial concentration for economic performance, and the disparities that spatial concentration can create. Evidence on the magnitude of the impacts of agglomeration on outcomes such wages and productivity was already fairly well established at the beginning of SERC funding, and our research has focussed on more nuanced questions. SERC has made a number of important contributions in this area, including the impact of agglomeration on wage dynamics (DP0135), residual productivity differences between cities (Gibbons, Overman and Tucci 2009 for MIER), the potential role of improved transport (Overman et al 2009 for the Northern Way), the importance of agglomeration for FDI location (DP0089), agglomeration in peripheral rural areas (DP0080) and micro scale agglomeration effects in university departments (DP0133). Our most recent and exciting work on agglomeration (Faggio, Silva and Strange, DP0152) leads the field in terms of empirical analysis of the micro foundations of agglomeration economies and promises to make an outstanding contribution in its field. The paper builds on Ellison, Glaeser and Kerr in the AER in 2010. However, our work recognises that not all firms agglomerate for the same reasons and considers the interplay of classical agglomerative forces (proposed by Marshall) with alternative theories that emphasise the adaptation, accidental and organizational aspects of agglomeration. We use patterns of heterogeneity in the importance of knowledge spillovers, labour-pooling and input-output sharing across industries to shed light on the interplay of these different theories, revealing that different industries agglomerate for different reasons. These findings have not previously documented in the literature despite their obvious relevance for policy making and for our understanding of industry co-location. The analysis also exemplifies SERC's approach to data analysis, creating an incredibly rich dataset from multiple datasets: administrative micro data on firms, wages from the Labour Force Survey, input-output tables, European Patent Office data.

SERC is not only interested in spatial interactions between firms, but between individuals in communities, schools and other institutions. An important output in this respect is our recent Economic Journal publication, Gibbons, Silva and Weinhardt (2013) - previously SERCDP0063 - on the influence of 'neighbourhood effects' i.e. the influence of neighbours on children's educational achievements (the second of our nominated outputs). A long line of international research has investigated this question, but the field has struggled to distinguish between the causal influence of neighbours from the sorting of different types of people into different neighbourhoods. In the absence of any randomised experiment in the UK (like the Moving to Opportunity in the US), our study approaches the problem by using highly detailed data on the 4 cohorts of the population of state school children in England (from the National Pupil Database), and tracks what happens to the test scores of students who stay in a neighbourhood as the composition of their neighbours changes, due to in migration and out migration of their peers. Using these data we are able to successfully control for unobserved pupil and fixed neighbourhood factors and trends to show that changes in neighbour composition have no effect on a child's test scores (although some effect on attitudes and behaviour at school). These findings suggest that previous claims that neighbourhood plays an important role in child outcomes, and policy that attempts to engineer neighbourhood composition to address individual disparities (e.g. 'mixed communities' policy) are misguided.

We also have outstanding science from our programme on housing and planning, best exemplified by Hilber and Vermeulen, DP0119 which is currently in the final stages of review for the Economic Journal (the third of our nominated outputs). This paper tackles deep questions about the role of housing supply in determining differentials between areas in terms of house prices. In many basic theoretical spatial models of housing prices, housing supply has only limited role to play in determining area house price differentials, because free movement of people between areas tends to equalise price differentials in the long run. This paper demonstrates empirically that this perception of the role of housing supply in determining local house prices can be misleading. Assembling and analysing 35 years of data on Local Planning Authority prices and characteristics, the authors show that prices respond more to labour demand shocks in areas where there are constraints on housing supply, either through planning restrictions, the amount of developable land or due to area topography. The effects of supply constraints are greater during boom than bust periods. This research makes a valuable contribution to our understanding of the way in which spatial housing markets function.

Our work on the impacts of public sector relocation discussed in Part 3 (DP0111, published in Journal of Urban Economics and our fourth nominated output, and DP0155) also makes an important scientific contribution to our understanding of the multiplier effects of local employment (linking into the wider scientific literature on this question e.g. Moretti 2010).
Exploitation Route High quality scientific output and capacity building in relevant research fields has helped underpin another key SERC objective - informing general debates and policy making. As an ESRC venture part funded by government, SERC has always placed a very strong emphasis on the practical application of its research. We have put in place a number of initiatives to ensure that our work (and research in the broad field of spatial economics, more generally) influences policy locally, nationally and internationally. Substantially the largest group of users are practitioners and policy makers working at different levels of UK government. Users also include community and non-governmental organisations and development partnerships, think tanks and business and the wider policy community internationally. . SERC has always undertaken a mix of proactive outreach activities and more responsive engagement mechanisms, tailored to these different audiences. The Centre has benefited from the fact that many of its staff has have extensive experience of engaging with many of these non-academic beneficiaries and users. Users and beneficiaries of SERC outputs have included: Central government (BIS,DCLG, Cabinet Office, DfE, DfT, WAG, DWP, Treasury); Local Government (LEPS, the forme RDAs Manchester City Council, GLA, other LAs; think tanks (Policy Exchange, Centre Forum, Demos, IPPR and the Centre for Cities).
Sectors Communities and Social Services/Policy,Creative Economy,Education,Energy,Environment,Financial Services, and Management Consultancy,Healthcare,Leisure Activities, including Sports, Recreation and Tourism,Government, Democracy and Justice,Manufacturing, including Industrial Biotechology,Culture, Heritage, Museums and Collections,Retail,Transport

URL http://www.spatialeconomics.ac.uk
 
Description The diverse range of outputs from SERC continues to have an impact on numerous aspects of policy. Examples of policy-relevant outputs in the 2016 period include influential work on the role of housing supply contraints on housing prices and the costs implied by the visual impacts of windfarms.
 
Description Department of Transport Workshop on "Transport and the Economy" (March - 2013)
Impact This event will bring together accademics and policy makers working on the impact of transport in the economy. I will presented sults from the SERC transport project and I expect to have the opportunity to discuss with people from different organisations during the day.
 
Description How can the UK focus on steps in the value chain that really add value
Policy Influence Type Participation in a national consultation
Impact Consultancy for Department of Business, Innovation and Skills. An empirical assessment of UK competitiveness in trade in services under a BIS project
 
Description Intellectual property, overseas sales and the impact of UKTI assistance in entering new overseas markets
Policy Influence Type Participation in a national consultation
Impact Consultancy for UK trade and investment
 
Description Outer London
Impact Inputs from spatial economic, labour market and demographic research into Mayor of London's Outer London Commission , as sole academic alongside one planning consultant as independent members, during year in which the Commission addressed implementation issues from the Replacement LOndon Plan, in relation to town centre economies, housing densities and parking provision, in context of local claims to bend strategic policies in context of depressed economy.
 
Description Planning Sounding Board
Policy Influence Type Participation in advisory committee
Impact DCLG Committee consulting with planning professionals: sole academic member
 
Description Policy Making after Disasters. Helping regions become resilient. The Case of Post-Earthquake Abruzzo
Policy Influence Type Membership of a guidance committee
Impact OECD (2013) benchmarking report on Policy Making after Disasters. Helping regjions become resilient
 
Description Secure Data Service 1st Anniversary Conference (BIS - June 2012)
Impact This event brought together accademics which work with SDS micro-data, data providers and policy makers. I presented results from the SERC transport project and I had the opportunity to discuss with people from different organisations during the day.
 
Description The mortgage interest deduction and its impact on homeownership decision
Impact The paper was used as evidence in hearings before the U.S. Senate Committee on Finance and the U.S. Senat Budget Committee. The United States federal government and both chambers of parliament are currently debating about cost savings and the future of the mortgage interest deduction (MID) is a hot topic in this context. The annual cost of the MID is roughly 100 billion dollar in foregone tax revenue.
 
Description The mortgage interest deduction and its impact on homeownership decision
Impact This is the first paper to demonstrate using microdata that the MID in the US has no discernible impact, overall, on homeownership attainment and in fact decreases homeownership attainment in areas with tight supply constraints because the subsidy is capitalized into higher house prices, making access to homeownership more difficult for downpayment-constrained first-time buyers.
 
Description Urban economics and urban policy
Impact HEIF5-funded knowledge exchange programme, 2012-2014.
 
Description Adaptive Capacity and Local and Regional Development, UK-Japan ESRC Seminar, Birmingham 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other academic audiences (collaborators, peers etc.)
Results and Impact Presentation followed by questions and discussions with peers.

Contribution to international debate on the role of redundancy on regional resilience and opportunity to build relationships in this area of work.
Year(s) Of Engagement Activity 2013
URL http://www.birmingham.ac.uk/schools/gees/research/projects/regional-resilience/birmingham-workshop.a...
 
Description Campaigners call on Welsh government to freeze rail fare increases 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact Hard-pressed Welsh commuters are likely to face another 4.1% increase in January after already suffering a 4% rise at the start of this year.

Western Mail
Year(s) Of Engagement Activity 2014
URL http://www.walesonline.co.uk/news/wales-news/campaigners-call-welsh-government-freeze-5716158
 
Description Cost of living still rising as inflation beats wages 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact Despite a fall in inflation, wage constraint is still putting pressure on household expenditure.

Western mail
Year(s) Of Engagement Activity 2014
 
Description Dissenting voice and plans for launch of Bay City region 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact AN economics expert in Swansea has said he is not convinced of the need for city regions in Wales on the day politicians and business leaders came together to launch the Swansea Bay City Region.

Western Mail
Year(s) Of Engagement Activity 2014
 
Description Rebalancing the Economy? European Spatial Planning Programme Guest Lecture, University of Leuven 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Postgraduate students
Results and Impact Contribution to an intensive teaching and research training programme for post-graduate students and researchers in urban studies and planning.

Contribution to the learning of high quality post-graduate students and researchers and maintaining CURDS as a partner institution in the programme.
Year(s) Of Engagement Activity 2012
URL http://www.kuleuven.be/onderwijs/levenslangleren/PermanenteVorming/Docs/PGO_EMSDP_2014_Handbook
 
Description The Politics of Local and Regional Development, European Spatial Planning Programme Guest Lecture, University of Leuven 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Postgraduate students
Results and Impact Contribution to an intensive teaching and research training programme for post-graduate students and researchers in urban studies and planning.

Contribution to the learning of high quality post-graduate students and researchers and maintaining CURDS as a partner institution in the programme.
Year(s) Of Engagement Activity 2013
URL http://www.kuleuven.be/onderwijs/levenslangleren/PermanenteVorming/Docs/PGO_EMSDP_2014_Handbook
 
Description The State of the LEPS, John Smith Institute LEPs Report Launch,House of Commons 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Contribution to the report launch.

High profile dissemination of research report.
Year(s) Of Engagement Activity 2013
URL http://www.ncl.ac.uk/curds/news/item/curds-national-leps-survey-at-the-house-of-commons
 
Description The labour market implications of changes in the public sector: Inequality and work quality 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Primary Audience
Results and Impact The paper examines the consequences of the UK deficit reduction programme, and in particular the implications this programme has on public sector pay and employment.
Year(s) Of Engagement Activity
 
Description The regional economy and public sector pay 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Primary Audience
Results and Impact What constitutes a regional economy
Year(s) Of Engagement Activity 2014
 
Description Treasury goes into reverse over silk road toll 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact A ROW has erupted over funding for an PS830m relief road amidst claims Wales is being treated like a "second class Scotland" by UK Treasury officials keen to see drivers pay a toll on the road.

Western Mail
Year(s) Of Engagement Activity 2014
 
Description Wales gloomy outlook on UK economic revival 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact Householders in Wales are pessimistic about the economic recovery and are nervous about spending their cash, according to a YouGov survey for the Western Mail.

Western Mail
Year(s) Of Engagement Activity 2014
URL http://www.thefreelibrary.com/Wales'+gloomy+outlook+on+UK+economic+revival.-a0352996221
 
Description Welsh retailers see real-term drop in Christmas spending 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact Retailers' hopes of a Christmas spending bonanza failed to materialise in December as they saw the lowest growth of 2013 with a 1.8% increase in sales.

Western Mail
Year(s) Of Engagement Activity 2014
URL http://www.walesonline.co.uk/news/wales-news/welsh-retailers-see-real-terms-6489737
 
Description Women still hit hardest by job losses with 4,000 more unemployed 
Form Of Engagement Activity A magazine, newsletter or online publication
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Media (as a channel to the public)
Results and Impact Article written by journalist Claire Miller in Western Mail who quoted David Blackaby's research.
Year(s) Of Engagement Activity 2013