Sunday, August 26, 2012

Silicon Valley in Zsámbék(?)

There's a next Silicon Valley being built right in our backyard. According to the numerous promises soon there will be one of the biggest technology (and a whole lot more) cluster in the world and Bill Gates drinking a Hungarian wine in one of the cellars in Etyek will be a regular sight.

Zsámbék - which was mostly famous for it's historical church - now will be the heart of innovation. So how can this nearly miraculous thing can happen? Well, all started off when Sándor Kenyeres started the Talentis Program in 2003 to enhance the exploitation of human capital in the region and to make the talented young people stay and flourish in Hungary. Of course the socialist-liberal government fully supported the idea and it's one of the few issues that is supported across governments - I guess everyone loves to hear that Hungary will be the leader in a certain field. What happened since then? Not much. But there's one question that's bothering me: why this project needs the financial support of the government? If the cluster is really a good investment, why won't the consumers privately invest to it...?

Let's take a look what does economic geography tells us about making such a cluster. To be successful we'll
need the following ingredients: Venture capital, Critical mass, Anchor firm(s), Social capital, Diversity, Appropriate Demand conditions. So what can a government do? It can't be a venture capitalist, since it's risk-averse and does a bad job. It can't be anchor firm either. And it can't influence the other points directly.

What it can do is to make indirect interventions or little nudges: enhance R&D, make the firms negotiate with each other, support universities and so on. An article made up a witty analogy: the government is the owner of a shell-farm and she wants to produces pearls. Now to make a pearls she needs just a small dirt to get into a shell, so the shell can begin to create beautiful pearls. Since we're talking about business, the bulk of the process is made by firms whom - just like a shell - can create value outside the clusters too. But if we run a mussel feeding company - under the title of a shell farm - we won't have pearls.

"Okay-okay, I get it" you might say "But most of the time theory tells us a lot of contradicting implications. What can we say about reality?" First, let's take a closer look at Silicon Valley in California. The major force behind it's development was Stanford University. Stanford University started out as an engineer school and dean of the engineering in the 1940's and 1950's encouraged the graduate students to start their own companies. This encouragement lead to companies today known as Hewlett-Packard, Varian Associates among other high-tech firms (note: they didn't get any state-subsidized loan for the start-up). And then slowly but steadily the whole region grew into the world's most innovative areas, which gave us the Internet, Google, the semiconductor chip, and the microprocessor. Today one-third of all the venture capital investments in the US happens in this small region. As you can see this cluster was entirely privately funded.

But we don't have to go that far to examine successful science parks. Cambridge Science Park is located in the UK near to University of Cambridge. It was a rural area until in the October of 1971 Laser-Scan, the first company moved into the region. Then the area started develop slowly as more companies joined the park. Notice that there were no direct state interventions, just the University of Cambridge promoted the park in the late '80's and the beginning of the '90's. All of the companies came here just to do business and not because the government gave away subsidies or such.

So the bottom-line of my whole argument is that we should be at least skeptical about this 'Hungarian Silicon Valley'. As you can see both of these examples had famous, research-intensive universities from the start. How many famous, research intensive universities we have in Zsámbék? None. How many research institutions we have in Zsámbék? Zero. Also, the development of both of these clusters were very slow, we can't just hurry the whole thing. And if one needs the direct intervention of the state (and not just small nudges), then something isn't right. Government has it's comparative advantages, but none in business.

That's the job of the private sector.

Balázs Stadler

Why Siemens decided to boild its new logistic center in Vienna?

Siemens plans to establish its new logistic center in Vienna this summer – instead of Budapest. Electronic products made by Siemens in Far East will be allocated to Central European markets through port of Rotterdam from Vienna.
Nevertheless, considering only the geographical distance[1], through Adriatic Sea Budapest seems to be a better solution to access the Central European region at first sight. However, the result of Budapest’s and Vienna’s competition for the new logistic center is ended with the triumph of capital city of Austria. That is an obvious evidence of the importance of infrastructure (”one and a half geography”) and the nature of trade interactions (”second geography”).
The location choice of a firm depends on many components of transaction costs including for example taxation, transporting infrastructure, openness or even trust as well. Thus, to influence the location choice of firms in order to affect the spatial distribution of economic activity it is not enough to enhance one factor of several and to only attempt to attract firms lower tax rates. The lower tax rate without excellent infrastructure and business friendly environment is absolutely worthless and it simply cannot compete the agglomeration forces of those places where these factors have been already there.

However, even if the development of all determinants take place in parallel with collaborating of public and private sector it could easily happen that after investing a huge amount of money nothing happens by a certain point because of the non-linear nature of the cost of changing the spatial distribution of economic activity. So assume that the government charge low taxes on firms and ensure doing business via increasing trust among investors and showing secure picture of future (instead of charging retroactive taxes and introducing new budget plans almost on a weekly basis), moreover develop (or rather stimulate the business sector to invest in) transporting infrastructure both in railway and in road transport, it is possible that despite the effort of changing the economic distribution the development policy seems to fail. Considering the non-linearity and put differently the former thread, it could be also possible that even a little developing expenditure can cause a huge effect after reaching a certain point in decreasing of transaction costs.
Going back to the case of Budapest, it is obvious, considering the former line of thinking, that it does not matter the first geography in itself for Siemens to find the optimal locational solution to build the new hub between the input from Far East and the Central European consumers. And even the lower corporate tax (19% versus 25%) is not enough to attract a firm. Comparing the infrastructure between Rijeka and Budapest to Rotterdam and Vienna, moreover the openness and business environment, it becomes immediately obvious the decision of Siemens. To transport the electronic products from Rotterdam to Vienna compered from Rijeka to Budapest is much faster because of firstly the more developed transport infrastructure and secondly giving the fact that Croatia has not been the member of EU yet which means that Siemens should have take into account the time delays caused by customs. Finally, thinking of openness, trust and secure future Hungary and Austria is almost incomparable. Who wants to invest in a country where the government one day to the next charges brand new taxes and introduce contradicting development plans and announces economic independent war towards the ”extortionate foreign investors”? I think the answer is obvious.
            The lack of trust is especially hard to measure although it definitely can cause huge losses to the trade of a whole country and reduce the effect of developments of transporting costs and attractive taxation system. All in all we should bear in mind that decreasing transaction cost does not only mean reducing transportation cost and charge lower taxes. Without predictable and secure future picture and business friendly business environment the attempts to attractive firm location is just wasted money.
Norbert Czinkán

[1] The distance between Rotterdam and Vienna is 1161 km whereas between Rijeka and Budapest is 506 km according to Google Maps data.

„We Built It, They Didn’t Come” The Tale of Great Expectations

Empty airport of Cork in 2011

There is this old wisdom that compared to low transport costs the lower transportation cost is even better. This was a rationale for many transport projects in the past and a good slogan however it is not quite clear whether that is a sound argument to build railways, motorways and airports upon. Here is the brief case of Ireland: they have made it all. What they did not know at the time what they had coming: a big recession due to the turmoil it the USA and also a bursting bubble at home. The question arises: did they fail because they have made oversized projects and have invested huge amounts in vain or due to the economic slump of 2008. Could they have planned more carefully? Was this particular project bad by design? Answering all these will be a long shot but let’s give it a try and go in detail about Ireland’s latest transport project.
Ireland has come a long way from being one of the poorest countries in Europe to a fast growing one which earned him the nickname Celtic Tiger. From 1995 until 2002 they experienced substantially rapid growth. By 2004 they slowed down to an average growth rate 4,4-5% and that was the time when they began to implement the projects in question.
They designed a Spatial Policy with the announced objective to attract new and innovative industries in the country. This would have been a paradigm change for Ireland considering the fact that the majority of Irish industry was -and is still in the present - conventional mass production, employing low skilled workers. They reopened and connected railways, built motorways and introduced internal air services and the idea behind it was that Ireland could re-earn its “Celtic Tiger competitiveness” by transport improvements.
Based on the economic theory we expect from transportation improvements to have impact on the productive sector through product and labor market effect as well. The product market effect origins from the fact that by reduced transport costs firms source materials and deliver their product more efficient. Furthermore the labor market effect means that it is also cheaper to access labor supply.  So there is hypothetical potential to yield economic benefits by improving transport opportunities although we did not see it in this example. The new capacities like the airports and new railway lines run at loss. The expected new industries did not arrived so there are massive inefficiencies, the transportation network is oversized and the employment has shrunk. According to the transport minister Leo Varadkar the lesson they learnt is – not surprisingly, very core of economic theory – to optimize the size of investments, cut back spending and stop subsidizing inefficient transportation forms. They already introduced market forces by opening up railways to competition and they are also planning to franchise out local bus companies.
            What about the new firms? Why didn’t they come? The usual suspect is the global turmoil which is also the explanation suggested by the Irish government. As we know it began in the US by the shock which was due to a bubble in the housing market. This initial shock spilled over to the financial system which later on infected the real economy.  It makes sense that the firms did not come because they faced too high a risk to invest under such circumstances and they rather postponed new project because it would have been too costly to finance.
However I would make a case for not to overestimate the effect of the depression. The problem of the Irish transport project is rather that they misestimated the potential benefits and did not include incentives that also count for a firm when it choose its location like availability of skilled labor, special needs of the particular industry, local demand and taxes and subsidies. In the case of Ireland there were these foreseeable factors they left out and to make the consequences of this miscalculation even more serious the worst case scenario happened.
The truth is that we still do not know for sure whether transport improvement is only a catchy phrase or a sound policy instrument to expand output and employment. We have our pro cons mostly in the form of different cases, so there is no obvious choice of transport cost to set. Speaking of catchy phrases the most popular ones are nowadays clusters. In order to attract such high tech industries there are some basic conditions. There must be at very least a university and a research program which can be served as a core of concentration. What’s more the economic theory also implicates that there are demand conditions also needed. In this view what in Ireland was lacking is the policy’s objective to make room for innovation and actively support the existing clusters to attract there new companies.

Réka Sulyok

The advantages of a high-speed rail – an example between Madrid and Barcelona

In 2008 a high-speed rail connection has been opened between Madrid and Barcelona shortening the time getting from one city to the other to 2 hours and 38 minutes. The main goals of the construction were the reduction in travel time on the corridor and the increase of capacity and safety conditions on the rail line (Frontier, 2011).
There are numerous changes that followed the launch of the HSR between Madrid and Barcelona. It shifts passengers from other transport modes, for example car, traditional rail and air (Dyjak et al., 2011). Constructing a new line between the two cities that are 600 km far from each other has a significant effect on air transport too (Rus, 2008). Previous to 2008 nearly 90 percent of the people travelling between Madrid and Barcelona went by air, but since the HSR has been built the number of passengers that go with train are increasing and even surpassing passengers going with planes. This trend is pointing towards a more environmentally friendly future as emissions per passenger on a high-speed train are approximately one-fourth of the emissions generated by flying by plane or driving a car. This is a great advantage as there is a growing public concern about environmental issues in Europe (Bachtler & Wren, 2005).
Lowering the emission of carbon dioxide is however not the main goal of most of the passengers who choose HSR to other means of transport. It is also more comfortable and convenient to travel with HSR. The train offers assigned reclining seats, computer outlets, movies, headsets, good food and gloved attendants to make people satisfied while travelling in these trains. Also, people can get to the station just 10 minutes before the departure unlike at airports, thus lowering the time spent on travelling. These are the main reasons why though it is not cheaper to travel by HSR than by plane between Madrid and Barcelona many choose this form of travelling (Rosenthal, 2010).
Also, polycentricism is a goal in Spain. As there is a low location index in Spain, with expanding the high-speed railway network the country tries to avoid concentration and centralization of the economic activity (Dyjak et al., 2011). The HSR line between Madrid and Barcelona has an impact on mobility, accessibility, socio-economic structure, urban image and spatial effects. These factors are considered to be significant but it is hard to quantify them in monetary terms (Frontier, 2011).
One of the most striking examples for the growing economic activity caused by HSR is the town of Ciudad Real located 120 miles from Madrid which has completely vanished because of the railway and the highway that bypassed the town. Now that an HSR station is located near the town and makes travel a lot less time-consuming, Ciudad Real has come alive as the HSR attracted a host of industries. Also, the University of Castilla-Lamancha has grown in size and importance too just because it is linked by the HSR (Catan, 2009).
Spain was always a top destination of tourists from all around the world. Now that more and more HSR lines are being built connecting cities all over the country it is easier not just for the workforce to be more flexible but also for the tourists to discover the cultural diversity of different Spanish regions (Raileurope, 2011). First, mostly business travelers were expected on the line between Barcelona and Madrid, but it is busy on the weekends too which means that Spanish people and tourists also use it to discover the cities. The government says that high-speed trains boost tourism which is the nation’s biggest industry and business travel. Also, constructing and maintaining a line make jobs for thousands of people. In the cities near the lines many companies that are involved in the different sectors of high-speed rail are investing in offices, plants and yards near the stations (Sheehan & Bee, 2012).
However, there are downsides too of the HSR line between Madrid and Barcelona. One of the problems is the corridor effect that shows the problem of the development of regions located between junctions of HSR lines. In these cases the infrastructure passes through the regions in between the stops without having much impact (Dyjak et al., 2011).
Moreover, the Spanish government wants to spend up to 77 billion dollars to expand and improve the lines while there is still an economic crisis.  When they built the Madrid-Barcelona line Spain it the economy was rising, but maybe now it would be wiser to cut the spending. Even if the number of passengers that choose HSR rises, the railroad system cannot cover its costs yet even between Madrid and Barcelona (Sheenan, 2012).
There are protests against the HSR too. A violent separatist group in the Basque country called Eta has launched an environmental campaign against the train. They even shot a local contractor in 2008 because he worked on the line (Tremlett, 2009). This shows that some people don’t want the country that is separated out somewhat to be intertwined (Catan, 2009), because they fear their independency and that they would assimilate to the rest of the country.

Nóra Szabó

Catan, T. (2009). Spain’s Bullet Train Changes Nation. The Wall Street Journal
Dyjak, R., Magda, I., Rosik, P., Zawistowski, J., Gapski, T., & Bienias, S. (2011). Evidence based Cohesion Policy and its role in achieving Europe 2020 objectives. In T. Gapski, S. Bienias, & E. Opalka (Eds.), . National Cohesion Strategy.
Raileurope. (2011). High Speed Rail News: Travel by High-Speed Train inSpain. High Speed Rail News.
Rosenthal, E. (2010). High-Speed Rail Gains Traction in Spain. The New York Times. Retrieved from 
Rus, G. D. (2008). The economic effects of High Speed Rail investment. OECD/ITF Joint Transport Research Centre Discussion.
Sheehan, T., & Bee, F. (2012). Economic impact of high-speed railvaries in Spain. San Francisco Chronicle.
Sheenan, T. (2012). Spain’s high-speed rail system offers lessons forCalifornia. The Orange County Register.

It there a life after Malév? A challenge for transport economists

Let’s imagine the following picture. Near our beautiful, charming city a well organized, well staffed, well equipped high quality airport is working. Citizens like it as well as trading companies. People can reach the airport easily and quickly with low cost, airport crew is always smiling so people like to travel. That means active airport activity through high demand. Because of these tendencies the environment for airlines is favourable, airport attracts them. The result will be more airlines who compete which drives the prices down and led to better services or simply larger airport capacity. The process makes the airways even more attractive to businessmen, companies and turists. The whole thing ends up like a city with more exporting and importing companies more employees who can share their ideas and get ideas from abroad so economic prosperity begins.
That story about circular causation tells us spillover effects are in the table not appear directly in the profit of the airport since the process has advantages to the broader economy. As we see the airport doesn’t have the right amount of incentives to stimute airtraffic, state should play a role. The main question is simple: HOW? Some possible answers follow.

State owned airline

A case strongly related to Malév. Maintaining a state owned airline for create those spillover effects has advantages. Focus on the disadvantages! This is prohibited by the EU law because of this action’s countercompetitive impacts. In the past that plan is worked, see figure, which shows how decrease airport traffic in short run after Malév went bankrupt. In the short run Budapest Airport (BA) has difficulties to fill the gap that Malév made but in the long run the absence of Malév may push down traffic intensity. In reality set up a sate owned airline is not a possibility.

Ruin down alternatives

With the MÁV’s recently launched new train line Schwechat, the largest airport of the region, can be reached in four hours. No question this causes pain to BA, so to stimulate it’s airtraffic the MÁV project should be stopped. Not suprise the BA lobby raised their voice against the issue.
Is to stop MÁV trains travelling to Schwechat useful? Yes it is useful for BA. Is it useful for the citizens? I have doubts. Supporting the airport is not equals with supporting the country. If people travel to Schwechat to take their plane there rather than to travel from Ferihegy this will deliver the evidence that MÁV project is useful for citizens. In very short run stopping that railway line can be useful if BA is on the edge of collapse, but in other cases it is not a good idea.

Reach the airport easier

There is a plan to build a fast train line from Keleti railway station to Ferihegy. State currently having the negotiations with the chinese constructor. May the investment doesn’t pay off but again think to spillover effects! If Hungary supports the project in a clever way it can have positive overall effects.

Develop airport services

A lot of people complaining about the rudeness of airport workers, about the lack of organisation in Ferihegy (for example airport buses) and about flights that are usually late. What about provide incentives to solve these problems? Or airport can introduce some yummy campaign based on the peolple’s psychological factors to attract them. The airplane museum next to terminal 2 is a good step.

Cope with transit

Pass through passengers and cargo should be served. Some experts say low cost airlines are not able to handle the transit traffic. What can we do? This question is not clear and need some consideration.

Is developing air traffic harm other means of transport? Which are the alternetives of air travel? Since air transport don’t have real alternative the stimulation effects economy and not just damages others. 
What do you think, attractive air travelling causes bustling business life or vica versa? How do you think state should stimulate the airtraffic? Do you have ideas? Share with us in comment below!

Dávid Réfi

Consumer dissatisfaction with Hungarian railways

It was 6 AM when I got on the train in a town called Cegléd, about 70 km from Budapest, the capital of Hungary. It was a cold morning in mid-January, so I was glad that the train arrived only 5 minutes late. The wagon was dimly lit, and without the sun it was hard to find my way to an empty seat, even though there were plenty of them. I did not bother with the cold on the train and quickly fell asleep.
When I woke up, the train stopped in a station and people were swarming into the wagon. It was overwhelmed in a second, full with the noise and odor of the early morning commuters, heading Budapest. Most of them were young adults and pupils. The vapor and thickness of the carriage was hard to bear. The wagon was way too small for all us, but it seemed that it was just the everyday routine, as I haven’t heard any complaints about the situation.
The delay, the cold, the lack of proper lights, the odor, the noise and all the other inconveniences were just regular for the notorious Hungarian railway company, the MÁV, which affects the everyday life of at least 700 thousand commuters around Budapest.

According to a study by Eboli & Mazzula (2010), there are ten crucial characteristics of a rail service that determines passenger satisfaction:
•             Timetable: frequency and travel time
•             Reliability: trains on time
•             Completeness: number of stops, station accessibility, etc.
•             Information: time table and price information
•             Comfort: journey experience, odor, noise
•             Cleanliness: both train and station
•             Safety: against accidents
•             Safety: of private property
•             Price
•             Other: environmental protection, etc.

I decided to create my own consumer satisfaction survey on the commuters’ preferences living in the outskirts of Budapest. The question that I wanted to answer was the following: „How could the MÁV enhance its consumers’ satisfaction effectively?

In March 2012, I have created a survey and sent it to the most famous MÁV blog ( , and posted it on the Facebook wall of the largest commuters’ towns near Budapest. Answerers had to show their preferences on a five-point scale. It worked reasonably well, as I have been able to reach 300 answerers, and half of them were real everyday commuters. The results are quite interesting.

There seems to be only a small difference between the views’ of commuters and rare-users. Commuters use train services everyday, and their most important needs are to get into town quickly, reliably and cheaply. Most of them are living on the outskirts of Budapest, getting up everyday early to arrive to work before 8 or 9 am, and travel home in the afternoon. They chose to buy a cheaper and greener house, but in turn they have to commute everyday, that consumes time and money.

In my sample, most of the rare-users travel only occasionaly, but several times a year. We may imagine them living in Budapest, but they regularly take the train to visit relatives or to go on holidays.

So, How could the MÁV enhance its consumers’ satisfaction effectively? – Results
Travel time, punctuality and cleanliness. By far these are the three most important factors that affect the whole sample. It is interesting that for the commuters, top3 are travel time, punctuality and the price of the journey. We can see that cleanliness of the train is not as important for them as the price of the service. An other, not surprising difference is that the frequency of the service is only important for the commuters. The most unimportant factor was environmental protection.

It is not enough to see how satisfied people are with a certain aspect of the service. The most important factor is how they feel about the importance of this aspect. I have also asked on a five-point scale how important they find these aspects, and I created the „relative dissatisfaction” of the most important factors. It shows how dissatisfied the answerers are, according to the factor’s importance (the larger the number, the more dissatisfied).

I have also performed some more advanced methods to enhance precision. These results show that if the MÁV would be able to increase the average answerer’s travel time satisfaction with 10%, the average overall consumer satisfaction could increase with 3,7%. Punctuality could have 3,5%, price of the journey 2,5% and cleanliness 2%. We can see that all of these improvements have small effects on the overall satisfaction of consumers.

A possible improvement could be the broader use of new suburban trains, like the FLIRT electric regional train (on the photo). On those lines where these new models are running, the average passenger is significantly more satisfied, both with the overall performance of MÁV and the comfort of the journey.

How could the MÁV enhance its consumers’ satisfaction effectively? – what could the MÁV do?
Travel time and punctuality are strongly related to the quality of the rail network. Experts on this topic also stressed out that the most important improvement would be the modernisation of the network, taking into consideration the 21th century needs of a commuter. That takes a lot of time, money and effort; therefore, at best this process would yield results after long years.

But comfort and cleanliness are easier and cheaper to achieve with a new, more effective cleaning company. The frequency of the trains could be enhanced by new, well-organised time tables. For that, the attitude of this state-owned company has to be changed.
Csaba Gábor Pogonyi

The story of Liverpool

Beatles, Everton FC, Lusitania and River Mersey; they are all hallmarks of Liverpool and made it once famous. But the question is whether or not Liverpool connects to and fits into the world of new economic geography and if so, then how. Furthermore, can Liverpool be one of the famous textbook examples of agglomeration forces and trade like Chicago? Concerning these questions, I will do my best to show that the story of Liverpool is far more intriguing than one thinks at first and it is worth to be taught since it has strong links to theory.
Once upon a time, the place of Liverpool was a muddy, fishermen’s village, until all of a sudden King John decided to make a new borough with a new port on it to trade with Ireland. The port was a kind of agglomeration force; a couple of settlers arrived and settled down. Thus the village grew but after some time it reached a steady state and stayed unimportant compared to the nearby centre, Chester. The economy has been in a stable equilibrium for centuries with a population around 1000 people.
Then an accident happened again, the location of Liverpool became more valuable when trade evolved with the 13 British Colonies of America. To preserve this preciousness the first commercial wet port was built here, which allowed the ships to be unloaded and uploaded anytime of the day regardless of the tide. Of course, this invention attracted more and more ships, which is a good example of cumulative causation: the wet port was established in Liverpool because there were many ships as a result of trade with the colonies and more and more ships arrived to Liverpool because the wet port was there. Later, a large amount of profit was realised by the local merchants due to slave trade in the 18th century. The slave trade line was in fact a triangle connecting Liverpool, Africa, and America. In spite of its success, the business with the colonies was suddenly terminated when the American War of Independence broke out. Interestingly, this shock – that is losing one of the most important trade partners – could have led to the end of the golden days of the city, yet, it did not happen. Liverpool also kept its major position even when the slave trade was abolished, as the trade of tobacco, cotton, sugar, and other goods easily substituted it.
Steam ships were invented in the 19th century and eventually became common on the seas. The docks of Liverpool – since they were not deep enough – were not appropriate for these ships. In answer to this, the city quickly overcame the technological shock by establishing new ports to be able to serve steam ships. From this time on, hundreds of people travelled to North America from Ireland and Eastern Europe via Liverpool, which was at this time the second largest port in the country.
In the First World War Liverpool docks were very busy building ships, and the city itself was still very vivid. In contrast, between the two world wars, world trade declined and so did Liverpool. A few years later, in the Second World War, the location of the city became favourable again: troops, food and weapons arrived from the USA to Liverpool. Unfortunately, its importance made the city a major target of the German air force, which bombed it several times.
After the war, Liverpool never recovered. Containerisation was then the new wave in shipping and there was not any dock where these containerships could port until the 1970s so the city soon found itself on the margin. Furthermore, United Kingdom enhanced trade with the European Union, joining it in 1973, thus ports on the Southern and Eastern coast of the country benefitted, and for the first time, Liverpool was on the wrong side of the country. The companies, once located near Liverpool moved closer to the centre of the EU thus the agglomeration force in the city declined. Since that time, the economy of Liverpool reached an equilibrium again, but at a lower level, with a population of 435 000 people.
Focusing on the future: will the story be a fairytale? Certainly, nothing can be declared, but the Objective One Merseyside program of the European Union between 1994 and 2008 probably enforced the agglomeration forces of the city with its projects. Moreover, a new container dock is planned for extra huge containerships. However, it is still doubtful whether these projects can offset the handicap of being far from most of the EU members.
To give you an overview of the last centuries, here states a graph of the population of Liverpool.

Source: Liverpool Core Strategy Preferred Options 2010
All in all, location matters. What seemed to be a perfect position for centuries can become a disadvantage after all, due to some accidents of history, just as in the case of Liverpool. Some events do not even have an effect, but some affect the economy very intensively and move it to a new equilibrium. And if the agglomeration forces deteriorate, the size of the particular city will decrease. Good luck, Liverpool.

Andrea Kiss

Lambert, T. (2012). A Brief History of Liverpool.
ScouseTimes (2011, February 13). Special Lost Dock ofLiverpool

America and the mass migration in the late 19th century

In secondary school one of my favorite topics in history was the age of the European mass migration. It must have been so wonderful to sit on a huge steamship and cross the ocean to a country, where even a peasant could reach his dreams and where it was so easy to  buy land and start a whole new life. In the late 19th century millions of Europeans made the journey to the New World, and it was possible exactly because of the steamships.
Compared to the early days of transatlantic trade, the travel costs sunk incredibly thanks to the appearance of steamships by the end of the 19th century.  The price of a ticket to the States became cheaper relative to the European wages, but more importantly, the travel time declined from five to less than two weeks and besides, the steamships offered a safer voyage than any sail ship before them. The decline in the travel costs (both money and time) caused another phenomenon, which was that not all the immigrants stayed forever in the US, but more and more European returned to the Old World after some years of migration. This type of movement was very rear before the steamship became the most important vehicle between the two continents. Another important change was that at the end of the 19th century, the bulk of the migrants were unskilled young people, so they had no superfluous knowledge, which on the one hand was useless in the US, and on the other hand took a lot of time and money to acquire in the home country. In other words the new migrants did not invest unnecessarily in their human capital, so it was easier for them to find suitable jobs in the New World.
Graph - Gross intercontitnental emigration from Europe, 1846-1939, annual averages; source: Chiswick & Hatton

If we put on the glasses of economics, the story of the mass migration to America may be more interesting. Looking through the lenses of geographical economics, we can say that the decline in the travel costs (both time and money) is actually a decline in transportation costs, and by the way the lack of knowledge on the side of the new immigrants can be considered as such too. This latter reduction, however, was possible before the time of the steamship, but come to a major role only from the end of the 19th century.
On the first place, the decrease in transport costs meant that the economic competition between America and Europe could increase, which actually happened because the prices started to equalize between the continents. We can also put the steamships and their consequences on the migration in the context of the New Economic Geography. According to this theory there are two possible equilibria for an economy with two regions. Spreading is the one, when there are equal activities in both regions and agglomeration is the other, when all the activities are concentrated in one of the two regions. The most important factor which determines the equilibrium is the transportation cost. In case the transport costs are high, the spreading equilibrium will hold, because it is easier to produce in both regions instead of trading between them. We can say that this was the situation before the steamships: there was some migration, but the travel costs were so high, that even the higher wages of America were not big enough to attract more immigrants and to reach agglomeration. As steamships appeared and became able to cross the ocean, the agglomeration force grew stronger; the number of immigrants to the States soared. The smaller transportation cost meant that the wage differential between the New and the Old world became larger; therefore it was more tempting to travel to the US and work there. However, no total agglomeration could happen, because as the transportation costs declined, the prices started to equalize, which was also true for wages. The equalization of wages weakened the emerging agglomeration forces, which means that although the migration to America was huge at the end of the 19th century, it could not approach the total agglomeration, because at the same time the force for spreading started to work.
All in all, we can claim, that the prediction of the New Economic Geography (that the decline in transport costs leads to agglomeration) was sort of true here, for a short period, but we have to treat this conclusion with suspicion. It is questionable if we can treat North-America and Europe as to regions, because it is highly unlikely that total agglomeration can ever happen in any of them. To find the truth behind the New Economic Geography in the time of the mass migration, we should rather focus on smaller parts of the receiver and sender areas. However, this is a tale for another post.

Fruzsina Mayer


Chiswick, B. R. & Hatton, T. J. (2005.) International Migration and the Integration of Labor Markets. In Globalization in Historic Perspective, edited by M. D. Bordo, A. M. Taylor and J. G. Williamson. 65-12. p. Chicago: University of Chicago Press

O'Rourke, K.H. & Williamson, J.G. (1999.) The Heckscher-Ohlin Model Between 1400 and 2000: When it Explained Factor Price Convergence, Ehen it Did not, and Why. Papers 99/25, College Dublin, Department of Political Economy.

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