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Oxford Economic Papers Advance Access published online on April 3, 2006
Oxford Economic Papers, doi:10.1093/oep/gpl006
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© Oxford University Press 2005; All rights reserved

Original Papers

The new economic geography versus urban economics: an evaluation using local wage rates in Great Britain

Bernard Fingleton 1 *

1 Department of Land Economy, University of Cambridge, Cambridge, CB3 9EP

* To whom correspondence should be addressed.
Bernard Fingleton, E-mail: bf100{at}cam.ac.uk


  Abstract

This paper tests two major competing theories explaining the spatial concentration of economic activity, namely new economic geography theory (NEG) which emphasizes varying market potential, and urban economics theory (UE) in which the main emphasis is on producer service linkages. Using wage rate variations across small regions of Great Britain, the paper finds that it is UE theory rather than NEG theory that has most explanatory power. Evidence for this comes from encompassing both models within an artificial nesting model. Despite the popularity of NEG theory, this paper shows that although NEG works well using regional data, there is evidence that it does not necessarily provide the best explanation of local wage variations, since producer services inputs associated with UE theory and labour efficiency variations are important effects at a local level, and these are excluded from the formal NEG model.

Keywords: C21; C52; J30; O18; R11; R12..
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[Abstract] [PDF]


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