The Grand Paris Express project: theoretical and practical issues - PowerPoint PPT Presentation

The Grand Paris Express project: theoretical and practical issues André de Palma, ENS-Cachan, University Paris-Saclay “Logistics and Maritime Studies on One Belt One Road” Conference - The Hong Kong Polytechnic University Hong Kong, May 10-11, 2016

OUTLINE  Introduction, and setting  End of space?  What are agglomeration benefits? Findings  General equilibrium approach  Grand Paris Express  UrbanSim / Metropolis tools  Limitations  References Paris Sacalay OBOR Conference Hong Kong 2 05/11-12/2016

Issues (extended list)  What is Grand Paris Express?  Which costs are involved; how are they covered?  What are the benefits, and how could they be measured?  What are the equity issues: within Paris/France  What are the implementation phrases?  What are the local/(inter)national dimension?  UrbanSim : Partial equilibrium model  Metropolis : Dynamic model Paris Sacalay OBOR Conference Hong Kong 3 05/11-12/2016

INTRODUCTION AND SETTING Paris Sacalay OBOR Conference Hong Kong 4 05/11-12/2016

Modelling  Spontaneous/induced spatial organization  Modelling approaches so far in… ◦ Physics ◦ Geography ◦ Regional science ◦ Transportation ◦ New Economic Geography.  Here: Combination of economic, OR, econometric, planning tools, political economy Paris Sacalay OBOR Conference Hong Kong 5 05/11-12/2016

Academic objectives Explain how the evolution of a city (Here Paris area, 11 million inhabitants) can be modelled? Special focus on agglomeration benefits . Paris Sacalay OBOR Conference Hong Kong 6 05/11-12/2016

Background about 3 major cities Paris London New York GNP 588 505 960 GNP (per head) 49 800 38 200 43 600 Population 11.8 13.2 22 Gini 0.35 0.45 0.50 Employment 6.0 6.2 8.7 Research 146 000 50 000 130 000 2010 Data from AT Kearney Global Cities Index, 2014 in Le grand Paris Express: Investissement pour le XXI sciècle, SGP Can we make predictions and evaluate costs and benefits over the life span of a large scale project ? Paris Sacalay OBOR Conference Hong Kong 7 05/11-12/2016

Role of large Metropolitan area  Paris area (10 millions) produces 30 % of French GNP, but get 22% of disposable income  Great London (9 millions) produces 23% of UK GNP, but get 17% of disposable income.  Brussels Region produces 21% of Belgian GNP, but get 10% of Belgian disposable income. Resources generated by large cities are redistributed Difficulty to define boundary: the legal boundary of IDF (8 millions inhabitants), the geographical frontier (at least 1/3 commuters): > 14 millions! Paris Sacalay OBOR Conference Hong Kong 8 05/11-12/2016

END OF SPACE? Paris Sacalay OBOR Conference Hong Kong 9 05/11-12/2016

Technology suggests Transport costs have decreased historically: Some authors argue that space does not matter, and so just local amenities play a role in structuring the space. Is that true? Paris Sacalay OBOR Conference Hong Kong 10 05/11-12/2016

Distribution of Facebook contacts with distance Goldenberg J. and M Levy (2009) Distance is not dead: Social interaction and geographical distance in the internet era. Paris Sacalay OBOR Conference Hong Kong 11 05/11-12/2016

Distribution of Email with distances Goldenberg & Levy (2009) Paris Sacalay OBOR Conference Hong Kong 12 05/11-12/2016

Impact of space on trade: CEPII, 2009 Paris Sacalay OBOR Conference Hong Kong 13 05/11-12/2016

Trade : Space has not disappeared  French trade has increased with China, but even more with Germany!  Accessibility matters and space still matters   Y Y  r s X G  RS d  about (slighty higher than) 1 Paris Sacalay OBOR Conference Hong Kong 14 05/11-12/2016

WHAT ARE AGGLOMERATION BENEFITS? THEIR MEASURE Paris Sacalay OBOR Conference Hong Kong 15 05/11-12/2016

Definition of Agglomeration economies A. Smith & A. Marshall: firms and workers are, on average, more productive in larger cities Graham approach in the UK E. Glaeser: “Agglomeration economies are the benefits that come when firms and people locate near one another together in cities and industrial clusters.” Paris Sacalay OBOR Conference Hong Kong 16 05/11-12/2016

Typology of agglomeration benefits  Reduced transportation costs ◦ inputs: raw material / suppliers / subcontractors ◦ outputs: other companies, consumers  Sharing infrastructure, amenities local public goods  Sharing experience, learning  Better matching on the job market; division of labor, specialization, reduced friction, face-to-face  Dissemination of knowledge and innovations; radical innovations: new technologies  Headquarter near government, lobbies Paris Sacalay OBOR Conference Hong Kong 17 05/11-12/2016

Typology of agglomeration diseconomies  Exacerbated competition in the markets for goods, labor, customers ◦ Rising production costs, wages, land rent  Systemic risk in sectoral group (diversification) ◦ E.g. Textile and steel industry in the North of France  Congestion in transport, ubiquitous queues  Rental or purchase prices of offices and housing units raises with demand  Pollution, degradation of the living environment  Diseconomies of scale: Bell function with agglom. Size:  Optimal city size Paris Sacalay OBOR Conference Hong Kong 18 05/11-12/2016

2 difficulties when measuring agglomeration benefits: Correcting for selection biases  1 Disentangling different sources of agglomeration benefit  2 Paris Sacalay OBOR Conference Hong Kong 19 05/11-12/2016

1. Correction of selection biases  Most productive workers choose to work in most dense areas  [Onl y the most productive firms survive in dense areas]  Productivity gains due to agglomeration effects :… ◦ Is not the difference of productivity between 2 workers who decided to work in different places, ◦ but it is measured by the difference of productivity of the same worker who change work location  Panel data are needed to correct the permanent effect of the workers Paris Sacalay OBOR Conference Hong Kong 20 05/11-12/2016

Correction of selection bias using individual data (panel) Selection bias generally lead to over- estimate the agglomeration benefits: ◦ typically 20% of over-estimation ◦ more than 50% with better econometric techniques Paris Sacalay OBOR Conference Hong Kong 21 05/11-12/2016

2. Difficulty to empirically disentangle different sources of agglomeration Difficulty to separately quantify the impacts of different sources such as: ◦ Wages ◦ Local growth ◦ Local employment and unemployment ◦ Random event, chances, black swans.  Need to do a structural model Paris Sacalay OBOR Conference Hong Kong 22 05/11-12/2016

Some orders of magnitude (literature)  Doubling density increases productivity and wages by 1.4% to 2.5%  Composition of the local workforce explains 50 % of agglomeration benefits ! Should subtract > 20% for endogeneity Paris Sacalay OBOR Conference Hong Kong 23 05/11-12/2016

5 FINDINGS ( AGGLO- MERATION BENEFITS) Paris Sacalay OBOR Conference Hong Kong 24 05/11-12/2016

Finding 1 : Business & workers are on average more productive in large cities "Universal" phenomenon?  "Qualitatively: yes! This relationship is observed in many countries at different periods  “Quantitatively”: no! Paris Sacalay OBOR Conference Hong Kong 25 05/11-12/2016

Finding 2 : Who benefits from agglomeration economies?  The most innovative sectors  The most productive firms  The largest firms (>100 workers)  The most educated workers  The top managers [Inequality issues] Paris Sacalay OBOR Conference Hong Kong 26 05/11-12/2016

Finding 2’: Sectorial differences  Combes et al (2011) for period 1860-2000 compute the elasticity of productivity to population density ◦ - 11% for the agricultural sector ◦ +13% for industry ◦ +7% for services Paris Sacalay OBOR Conference Hong Kong 27 05/11-12/2016

Finding 3: By how much ?  Elasticity of productivity to density is between 2% and 8% . Depends on: ◦ location ◦ sectors ◦ qualification ◦ + methodology used!  Combes, Gobillon (2014) : 3% to 7% Paris Sacalay OBOR Conference Hong Kong 28 05/11-12/2016

Finding 3’: French empirical results  Relation between density and productivity Relation between log-productivity and log-density in the French Regions: Combes et al. 2012. Paris Sacalay OBOR Conference Hong Kong 29 05/11-12/2016

Finding 4: Why ? (summary) C oncentration of firms and population in cities : ◦ … decreases transport costs (inputs et outputs) ◦ … favours interactions, which increase productivity ◦ … favours sharing the experiences, the innovations ◦ … improves matching between firms and workers ◦ … triggers competition between firms,…but Selection bias Paris Sacalay OBOR Conference Hong Kong 30 05/11-12/2016

Finding 5: How does one measure productivity ?  Accounting of the firms (?),  Production functions (?),…  Better measure: Wages:  Wage = marginal productivity (theory), but…  Rigidity of wages, minimum wage Paris Sacalay OBOR Conference Hong Kong 31 05/11-12/2016

A. de Palma and Jean Mercenier GENERAL EQUILIBRIUM ANALYSIS Paris Sacalay OBOR Conference Hong Kong 32 05/11-12/2016