The Spatial Spillover Effects of Urbanization on the Convergence of Iranian Provinces (Beta Spatial Convergence)

اقتصاد و توسعه منطقه ای

Article 5, Volume 29, Issue 23, June 2022, Pages 116-147   

Document Type: Original Article

DOI: 10.22067/erd.2021.68839.1012

Authors

mohamad ali shabani¹; Ali Akbar Naji Meidani^{* 2}; mahmood Hooshmand³; Mohammad Ghorbani⁴

¹PhD Student in Economics, International Campus, Ferdowsi University of Mashhad, Iran

²Associate Professor, Department of Economics, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Iran

³Professor, Department of Economics, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Iran

⁴Professor, Department of Agricultural Economics, Faculty of Agriculture, Ferdowsi University of Mashhad, Iran

Abstract

 
1- INTRODUCTION
Economic growth in a country is always one of the important goals and achieving this goal requires growth in all areas related to that economy. Achieving this goal is possible when the competitiveness of the regions increases and its economic performance improves and economic growth in all economic regions tends to a steady trend and becomes so-called convergent. One of the factors that have been considered in recent years as a factor explaining economic growth is the proximity and spatial position of regions. Therefore, the purpose of this article is to investigate the effects of spatial urban spillover on economic growth of the provinces and also the role of urbanization on the rate of convergence of provinces.
2-THEORETICAL FRAMEWORK
One of the important issues in urban economics is how the relationship between urban population growth and economic growth. In this regard, Lefebvre (2009) considered the economic structure and economic growth. According to Bertinley and Black (2004), the channels through which urbanization affects economic growth: First, cities play an important role in the economies and societies of developed and developing countries by providing opportunities for people to benefit from educational, employment and health services in the economic structure of the city.
Second, urbanization allows businesses to take advantage of economies of scale due to externalities, and this makes it possible for companies to specialize and reduce transaction costs. Third, urbanization is a major factor in entrepreneurship. The concentration of population and businesses in cities makes the urban population easily finance their idea and provide the conditions for promoting business ideas and access to local markets with higher consumer density, and ultimately there are spillover effects, these positive external effects of development. Cities in neighboring areas are identified through migration and active interaction. Therefore, according to these theories, there is no separate region and the growth of each region is affected by the growth of the surrounding regions. Thus, despite the effects of urban spillovers, the economic growth of the provinces is converging. In the economic literature, the main idea of ​​convergence is that the lower per capita economy experiences a higher growth rate than the higher per capita economy.
3-METHODOLOGY
Econometric researchers believe that due to the impact of economic performance of an area on neighboring areas, if the spatial dependence between observations and these effects are not taken into account, the conventional estimation method will be biased and the effect of factors trying to study them will be erroneous. Since the variables used in this study have a spatial aspect and are affected by spatial correlation, and considering that the main purpose of this study is to analyze the role of urbanization in the spatial convergence rate of the provinces, the spatial econometric model is used. Consider each other's observations and the effect of changes in dependent and explanatory variables on neighboring observations. Spatial growth models explicitly include spatial factors in growth models. These models pay more attention to spillovers and seek to find the main drivers of long-term growth in space.
4-DISCUSSION
Before estimation of spatial models, to emphasize the need to use spatial patterns in this study, diagnostic tests were performed to estimate the pattern as panel data. As stated in the methodology section, the research model is estimated in three stages. In the first stage, the absolute convergence model is estimated in which there is no urbanization variable. In the second stage, to evaluate the effect of urbanization on convergence and its speed, conditional beta convergence is estimated in terms of urbanization effects, and in the third stage, the space camera model is estimated in terms of urban spatial effects. In absolute beta convergence, it is assumed that the model parameters are the same and the only cause of changes in the economic growth of the provinces are their initial values. Another important point that should be considered before estimation is the spatial effects test that was analyzed in the above sections and therefore the estimation patterns should be estimated in terms of these spatial effects. The results of the first stage estimate show that the sign of convergence coefficient is negative and significant and indicates the existence of absolute beta convergence, i.e., provinces with lower per capita production have faster economic growth than provinces with higher per capita production. Convergence rate is estimated to be 0.0563, This coefficient indicates that about 5.63% of the gap between the initial state of per capita production and the state of equilibrium with its stability is eliminated annually. With the introduction of the urbanization variable into the model, the use of absolute beta convergence is no longer correct because economic growth is also affected by other factors such as urbanization, so in this case conditional beta convergence is raised. In the second stage, the results show that the inclusion of the urbanization variable in the convergence equation leads to a decrease in the estimated coefficient for the initial per capita production variable. In other words, the convergence rate has increased by 1.45% compared to the previous case. The positive effect of urbanization on the convergence of provinces.
Finally, the general convergence hypothesis that other parameters are not constant is investigated and the conditional beta convergence is estimated using the space camera model in terms of other effective variables. The results indicate that in this case, each province has an average rate of 14.29% are moving towards sustainable growth. Therefore, it can be claimed that in terms of direct effects and spatial effects (spillover) of urbanization, the rate of convergence increases.
5- CONCLUSIONS & SUGGESTIONS
The purpose of this study is to investigate the economic convergence among the provinces of Iran during the years 2005 to 2017. For this purpose, two types of convergence, absolute beta and conditional beta, were investigated by using spatial growth models. Therefore, first, by performing Moran I test and LM test, the necessity of using spatial models was confirmed. In the present study, in order to better explain the role of urbanization in the rate of convergence of the provinces, the research model was examined in three stages. The results of all models show that the provinces of the country are economically convergent and the existence of absolute and conditional beta convergence between the provinces is confirmed, i.e., less developed provinces have a higher economic growth rate and provinces that are stable from equilibrium. They are more distant; they have a higher economic growth rate. Considering the significance and positive effects of urban spatial spillover, it can be concluded that increasing the interaction and return of citizens to neighboring areas in the provinces due to the effects of the spillover will cause economic growth in neighboring provinces and this will increase the speed of economic convergence.

Keywords

Beta Convergence; Spatial Dynamic Panel; Urbanization; Spillover Effects

References

References

Aghion, P., & Howitt, P. (2009). The economics of growth. MIT Press.

Akbari, N. (2005). The concept of space and how to measure it in regional studies. Iranian Economic Research Quarterly, 23, 68-39. (in Persian)

Akbari, N., & Farahmand, S. (2005). Economic convergence of Islamic countries and the study of regional spillovers with emphasis on the selected role of the Persian Gulf countries (a study based on econometrics). Quarterly Journal of Business Research, 34, 1-32.  (in Persian)

Barro, R., & X. Salai Martin, (1991), Convergence across states and regions; brookings papers on economic activity, Economic Studies Program. The Brookongs Institiution, 22(1). 107-182.

Bertinelli, L., & Black, D. (2004). Urbanization and growth. Journal of Urban Economics, 56, 80-96.

Blad, N., & Lannergren, S. (2010). Spillovers within export processing zones: A field study on domestic export companies in Kenya; Bachelor thesis NEKK01, LUND University, School of Economics and Management: Sweden.

Brata, A. G. (2009). Do geographic factors determine local economic development? MPRA Paper No. 15817.

Brulhart, M., & Sbergami, F. (2009). Agglomeration and growth: cross-country evidence. Journal of Urban Economics, 65, 48-63.

Cali, M., & Menon, C. (2009). Does urbanisation affect rural poverty? Evidence from Indian Districts, Spatial Economics Research Centre, 23, 87-105.

Conley, T., & Ligon, E. (2002). Economic distance and cross-country spillover. Journal of Economic Growth, 7(2), 157-187.

Corrado, L., & Fingleton, B. (2012). Where is the economics in spatial econometrics?  Journal of Regional Science, 52, 210–239.

Daliri, H., & Renani, M. (2010). The Effect of social capital on economic growth: explaining the theoretical framework, Journal of Economic Policy Research, 2, 25-56. (in Persian)

Dehghan Shabani, Z., & Shahnazi, R. (2017). Analysis of the effect of inter-provincial spillovers of human capital on economic growth in Iran. Economic Research, 52, 89-115. (in Persian)

Elhorst, J. P. (2014). Spatial econometrics, from cross-sectional data to spatial panels. Springer briefs in Regional Science, Springer.

Enflo, K.; Missiaia, A., & Rosés, J. (2019). The more, the merrier? Urbanization and regional GDP growth in Europe over the 20th century. University of Southern Denmark, Odense 25-26, Preliminary draft. Do not cite without permission.

Fallahi, F., & Rodriguez, G. (2007). Convergence in the canadian provinces; evidence using unemployment rates; 54th annual north american. meetings of the regional science association international, savannah, USA.

Fattahi, S., & Attar, K (2015). Investigating the income convergence of Iranian provinces panel data approach, Journal of Regional Economics and Development, 22, 189-210. (in Persian)

Foroughipour, E. (2006). Investigating the convergence of sigma and beta (absolute) between OPEC member countries (Solo and Swan Hypothesis Test 1970 to 2004), Business Research Journal, 39, 135 – 156. (in Persian)

Fingleton, B. (2008). A Generalized method of moment's estimator for a spatial model with moving average errors with application to real sstate prices. Empirical Economics, 34, 35-57.

Fay, M., & Opal, C. (2000). Urbanization without A not-so-uncommon Phenomenon. Charlotte Opal was a summer intern at The World Bank.

Glaeser, E. L.; Rosenthal, S. S., & Strange, W.C. (2010). Urban economics and entrepreneurship. Journal of Urban Economics, 67, 1-14.

Henderson, J. V. (2002). The urbanization process and economic growth: the so-what question. Journal of Economic Growth, 7, 47-71.

Henderson, J. V. (2003). Evidence on the political economy of the urbanization process. Brown University Mimeo.

Henderson, J. V. (2004). Urbanization and growth. Hand Book, Brown University.

Kazeruni, A.; Alilo, k., & Muzaffari, Zana. (2018). Investigating the simultaneous impact of foreign direct investment and urbanization rate on Iran's economic growth, Quarterly Journal of Economic Research., 71, 260-225. (in Persian)

Kasraei, I. (2007). Theory of convergence, spatial Dependence and regional growth (Evidence from the member states of the organization of the Islamic conference for application), Journal of Economic Research, 77, 27-64. (in Persian)

Keung, C. a. (2010). New evidence about regional income divergence in China. China Economic Review, 16, 293-309.

Kohansal, M., & Hamidehpour H. (2019). Spatial analysis of factors affecting economic growth with emphasis on trade in OECD countries. Economic Growth and Development Research, 34, 130-115. (in Persian)

Kumar, A., & Kober, B. (2012). Urbanization, human capital, and cross-country productivity differences. Economics Letters, 117(1), 14–17.

LeSage, J., & Pace, K.R. (2009). Introduction to spatial econometrics. Chapman and Hall/CRC, London.

Levy, M. J. (1985). Urban and metropolitan economics. New York: McGraw Hill Pubilishing Co, 9.

Lefebvre, H. (2009b). State, Space, World selected essays. Edited by Neil Brenner and Stuart Elden. University of Minnesota Press.

Li, G., & Fang, C. (2016). Spatial econometric analysis of urban and county level economic growth convergence in China. International Regional Science Review. 37, 1-38.

Mameipour, S., & Abdi, F. (2017). Investigating the effects of tourism spatial Spillover on economic growth of Iranian provinces in the framework of beta spatial convergence analysis, Journal of Tourism Planning and Development, 22, 54-76. (in Persian)

Mankiw, N, G.; Romer, D., & Weil, D, N. (1992). A contribution to the empirics of economic growth. The Quarterly Journal of Economics, 107(2). 407-437.

Masoomzadeh, S., & Shirafkan, M. (2019). Investigating the convergence of urban household costs in Iranian provinces: a spatial econometric approach. Urban Economics, 4, 23-36. (in Persian)

McKenzie, D., & Sasin, M. (2007). Migration, remittances, poverty, and human capital: conceptual and empirical challenges. Policy Research Working Paper, 4272, The World Bank.

Montmartin, M., & Herrera, M. (2014). Internal and external effects of R&D subsidies and fiscal incentives: empirical evidence using spatial dynamic panel models. Research Policy, 44, 1065-1079.

Motafaker Azad, M.; Ranjpour, R.; Karimi Takanloo, Z., & Gholami Heydariani, L. (2012). Study of economic convergence of Iranian provinces during the years 1379 to 1387, Journal of Macroeconomics, 10, 141-168. (in Persian)

Nguyen, H., & Nguyen, L. (2018). The relationship between urbanization and economic growth: an empirical study on ASEAN countries. International Journal of Social Economics. 45, 316-339.

Pfaffermayr, M. (2009). Conditional β and σ-Convergence in Space: A maximum likelihood approach, Regional Science and Urban Economics, 39, 63–78.

Shabu, T. (2010). The relationship between urbanization and economic development in developing countries. The Journal of Asian Finance, 8, 561-572.

Shahbazi, K.; Rezaei, I., & Hamidi, D. (2015). Investigating the economic convergence of the member states of the economic cooperation organization (ECO): a panel on spatial econometrics. Quarterly Journal of Business Research, 74, 155-196. (in Persian)

Roemer, D. (2010). Advanced Macroeconomics. translated by Mehdi Taghavi, Islamic Azad University, Science and Research Branch Publications, 2010. (in Persian)

Tobler, W. (1970). A computer movie simulating urban growth in the Detroit region. Economic Geography, 46, 234-240.

Williamson, J. (1965). Regional inequality and the process of national development, Economic Development and Cultural Change, 13, 1295-1336.