Beyond neoclassical orthodoxy: a view based on the new economic geography and UK regional wage data

B. Fingleton

Research output: Contribution to journalArticle

20 Citations (Scopus)

Abstract

The article examines the performance of two competing non-nested models of regional wage variations in Great Britain, one motivated by the Solow-Swann neoclassical growth model which assumes constant returns to scale, the other by new economic geography theory, which assumes internal and external increasing returns. Both models also include controls for labour efficiency variations across regions. The empirical analysis, which is based on the bootstrap J test, shows that the neoclassical model does not reject the new economic geography specification, but the converse is not true and the model with a basis in new economic geography has significantly superior explanatory power. This adds support to the notion that in order to correctly understand differential regional economic development, we should move beyond neoclassical orthodoxy and that an increasing returns stance is more appropriate. However, the article also highlights some limitations of new economic geography theory.
Original languageEnglish
Pages (from-to)351-375
Number of pages24
JournalPapers in Regional Science
Volume84
Issue number3
DOIs
Publication statusPublished - 2005

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Keywords

  • new economic geography
  • J test
  • bootstrap
  • spatial econometrics
  • UK regional wage rates

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