I believe Europe can fly – The SESAR program

I believe Europe can fly – The SESAR program

By Eszter Szücs

At the time when we in Hungary still cry about the collapse of our airline, the Malév, in the EU there is an ambitious new project about the union of the EU countries’ skies. This project is called SESAR, and it is developped to be the European air traffic control infrastructure modernisation programme. With the success of this programme, the EU will have a new generation of air management system which will correct the actual system’s problems.

There are three phases of the SESAR project, as we can see in the picture below.

The first part is the definition phase - it lasted from 2004-2008. It was an ATM (Air Traffic Management) master plan defining the content of the future’s airline system. The second part is the development phase, it began in 2008 and will end in 2013. In that part will be the new generation of technological system and components on the plans of the first phase. And the last phase, what will begin in 2014 called deployment phase, and will last for 2020. It this part of the programme will be the new infrasturcture in both Europe and in partner countries built.

But why is it good for us? Why is the SESAR such a big deal? Because air transport is more and more important in the countries’s economics, and the SESAR is not just a transport project, but a big, multinational system to will reform the Air Traffic Management as we know today. It will optimalise the air transportation what is thronged, but with the optimal organisation referring to the brochure of SESAR, we will have shorter flight times, with 50% fewer delays, more sustainable air travel through 10% in CO2 emissions, enchanced mobility through a better match between future demand and offer for air transport in line with economic growth, safer air travel, an overall increase in economic growth/ GDP, and the creation of new jobs. The number of those jobs will be 42000 if we can believe the official numbers. This new jobs can cause a growth in the GDP - but this will be not the only impact the project has on GDP - So if we count all the implementions, so direct, indirect and induced effects, in the period of 2013-2030 the SESAR would cause a 0,02 percentage point growth in the GDP.

It seems like air transportation has many effects on the economy of a country. We can find many studies about the regional economic benefits of air transport. They say that the most air transport employment is in the developed regions of the world, so the level of the air transportation in a country is related to a nation’s financial status. Buti n that case Hungary is not in the best position, but that is now an other topic.

So as we can see, if the SESAR turns into reality, with time it will have a very positive impact on the European air transportation and on the economy too. Europe in the time of the long.lasting crisis needs those new developments and investments to support innovation, mobility and economic growth.

But still we have to wait. The project needs too much circumstances, to give the wanted effect. First of all, one of the main points is central coordination. To build this new system in the EU, countries need good infrastructure, a synchronisation between each other, and for all these the project is in need of a lot of time. I hope, that for 2050 we will se the good impacts of that reform in the air on the ground too.

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The rise and fall (and rise?) of the Hartford Empire

The rise and fall (and rise?) of the Hartford Empire 

Attempts at reducing regional inequality in the greater Hartford area 

by Rozalia Kepes

The 20th century brought unseen inequality on Hartford county in Connecticut: by today, a ring of wealthy White suburbs surrounds an extremely poor, predominantly Black and Hispanic inner-city area. After years of unsuccessful interventions, downtown Hartford might stand a chance at regaining its once buzzing economic life thanks to a new set of regional policies. 


The state of Connecticut is a controversial one – while according to per capita income it is the 4th richest out of the 50 states in the U.S., its inequality, measured by the Gini coefficient, is the 2nd greatest. (No.1 is – who would have guessed? – New York). Inequality is even more pronounced in Hartford County, where the per capita income of the most affluent town is almost 4 times as big as that of the poorest: the state capital, Hartford. How did the 20th century reduce Hartford, once the richest city in America, to – in the words of New York Times columnist Paul Zielbauer – “the most destitute 17 square miles in the nation's wealthiest state”? And more importantly: is there any hope for recovery? 

The glory days of Hartford came to a sudden halt in the 1950s, when – because of a huge reduction in transportation costs due to an increase in car ownership – the wealthy white inhabitants started to move out of the city center. By today this trend has resulted in near-complete social stratification with low-income minorities living in tiny flats under appalling conditions in downtown Hartford, and the fortunate whites residing in grandiose mansions in the suburbs. The map below, showing the percentage of whites living in each Hartford region in 2010, illustrates this: the tendency is that the closer a region is to the center, the smaller the percentage of whites are. (The University of Connecticut offers a great tool where fascinated students can discover how racial segregation has evolved.)

Matters got even worse after 1991, when the Governor changed the tax system in a way that was mostly favorable for investment income. This resulted in a great number of hedge funds moving to the state, which, among other things, changed the structure of labor demand rapidly. The manufacturing industry, which used to be happy to employ the cheap and unskilled immigrant workforce, were now going downhill, while skillful businessmen and insurance company agents were in great demand. This was a change to which most Hispanic immigrants could not adjust: with a general low level of education and the language barrier, inter-sectoral mobility was (and still is) extremely low in the area. The numbers need no further explanation: in 1999 poverty rate in Hartford County (which includes Hartford and its suburbs) was 9%, while that of Hartford itself was a shocking 30%.

Ever since the mid-1990s, policy makers and NGOs have been designing projects aimed at revitalizing downtown Hartford, such as residential improvements, or the building of a football stadium, with more or less success. Some projects, such as the Knowledge Corridor between Hartford (CT) and Springfield (MA), intended to attract and benefit from the rich human capital of the surrounding towns, which have an outstanding density of universities and hospitals. So far the most promising of these has been the launch of the grandiose Adriaen’s Landing project in 2001, which was a complex plan to breathe new life into the city center. This consisted of the Connecticut Convention Center, the greatest meeting space between New York City and Boston, to which was attached a huge hotel, the Connecticut Science Center, and Front Street, a passage full of retail and entertainment. Or at least this was the plan.

In reality, however, constructing big buildings is not – or not necessarily – enough. Regional economists call this the threshold effect: policy actions may or may not be effective depending on whether their amount surpasses a certain critical mass, which in turn depends on the initial point of the economy. Therefore, one of the reasons why so many expensive projects failed in their attempt to improve Hartford is that the city started from such a low economic level that it needs an unusually high amount of intervention before one can reach the break point.

The most recent initiative attempted to get a handle on the problem from the opposite direction by trying to improve the existing human capital of Hartford rather than to attract well-educated people. The “Social Justice Plan”, set in motion in 2012 by community activists, is aimed at reducing the health and economic inequalities as well as the achievement gap in education. As it is explained on their website, they encourage locals to get involved in any of their Task Forces, which are forums focusing on issues such as literacy education, afterschool programs, healthcare R&D, employment and entrepreneurship training, and child care subsidies.

Based on regional growth theory, such a project might be the cure Hartford has been longing for. The prosperity of a city is usually determined by its physical geography and by the policy measures taken. Hundreds of successful years are the proof that Hartford has great geographical endowments, but after these doomed decades it is in serious need of some policy enhancement. Luckily, by focusing on education, healthcare, and the building of the new convention center, it might on the right track, because investing in human capital is said to be the most robust way to promote growth. Still, while the increase in the city’s human capital can boost productivity – which in turn raises wages – these measures are advised to be complemented by improvements of infrastructure, innovation, and agglomeration. Therefore, the “Social Justice Plan”, combined with the planned 2015 opening of a Knowledge Corridor high-speed intercity rail line, has enormous potential for giving real meaning to Hartford’s nickname: “New England’s Rising Star”.

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Berlin airports economic effects

Berlin airports economic effects 

by Priksz Tamás

The numbers of Berlin’s airport is decreasing. By nowadays Berlin has only two airports – Tegel, Schönefeld - and in a longer perspective the aim is to build only one called Berlin Brandenburg Willy Brandt Airport. And the BER is starting to operate in one year from now, in 2013. The question is why this new airport is constructed what was the motivation to concentrate the aviation services and what kind of economic effects it already have and what effects are predictable for the future? I will investigate these questions from economic aspects.

Historical overview

By the mid 20th century Berlin possessed decent infrastructure for air traffic but due to the World War II. the city became occupied by the Soviets and Allies which divided the city to a western and an eastern zones. Each zone had its own airports. For West Berlin Tempelhof and Tegel, the former played a great rule during the Cold War in supply the western part, for the east part Schönefeld. During the Socialist era three airports were operating simultaneously. After the reunification in 1990 many things had changed, economic preferences have come into view.

Airports have an important function in the aviation system. Airports take part in the process of transporting passengers and freight from one place to another. Airports increase the wealth of the region they are located in, providing new employment possibilities and bringing more tourists their region. In case of Berlin due to the greater scale of passengers and cargo volume all the three airports became overcrowded. It had two reasons, once these airports were designed with the demand of earlier times, second since 2003 with the start of Low Cost Carriers increased the number of passengers in a dynamic way. Two of the airports – Tempelhof, Tegel – had no opportunity for expansion. Tempelhof was situated close to the city center, in a high density residential area which prevented expansion. Tegel is also closely situated to the city and the expansion would highly increase noise pollution for the inhabitants. To solve this problem Berlin decided to expand the capacity of Schönefeld and build a new airport outside of Berlin in Brandenburg Province. This project based on the concentration of aviation services.

The economics of airport 

The idea of the Berlin Brandenburg Airport is based on increasing the efficiency of the aviation system since airport investment has an indivisible aspect. Land and runways are the most important factors in indivisibility since the cost of finding appropriate land area to construct an airport is quite high especially in large cities. Landing system, lights and terminal navigation systems are also the part of indivisibility. If there is an appropriate land for the airport it is much easier to increase the capacity of terminals so this is not the part of indivisibility. Looking at the characteristics of airports from the supply side brings that the concept of economies of scale plays a great role in industries with high fixed cost such as aviation. Runways had strong economies of scale but there can be diseconomies of scale in terminal facilities investments. Sunk cost is another economic factor is related to specific investments such as runways and transport connections with the city. These investments can only be recouped by appropriate level of passenger traffic. This is the reason why with the opening of BER the other airports of Berlin will be closed down. The economies of scale can be also investigated from the demand side. If passengers and airlines use only one airport in a city create benefit to both of them. Serving passengers in a concentrated way provides greater economies of scale both to airports and airlines which based on the theory of network benefit.

Berlin Brandenburg Airport

Berlin’s new airport is situated in a special geopolitical place called Schönefelder Kreuz which is a highway intersection. This region is one of the most dynamic economic areas in Central Europe. The completion of 4.2 billion euros project of the new airport enhances the economic growth in the region. Not just by creating 40,000 new jobs but with supplementing the Berlin-Potsdam growth axis to a triangle. 

From economic aspect the establishment of the new airport also provides better returns on the transport services between the city and the airport. The transportation investments in connection with BBI are based on the mentioned network benefit theory. That is why the missing part of the Highway A113 was finished and why will be the train lines integrated into the underground level of the terminal of BER. Moreover simple train lines, S-Bahn and ICE lines will also be integrated into the terminal. BER terminal is designed to 22-25 million passengers with the possible expansion to scale of 40 million.

As the north part of the city became quieter also losing some economic weight and accessibility. On the other hand the conversion and the reuse of the areas of closed airports are vague but provide many opportunities for utilization and new quarters of living. In the future we will see if these urban planning questions are solved successfully and whether BER brought greater economic prosperity to the area.

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The Great City and the new city model

The Great City and the new city model 

by Popper Dávid

A new city is planned to be built from scratch in China. The main goal of the project would be an environmentally friendly city model that also ensures all the services of modern city life. This article examines the emerging questions related this project.

In October 2012, a lot of online press website has dealt with the news, that in China a new city is planned to be built from scratch. The project is named Great City and it aims to enable the popular city life, the environmental protection and being near-natural at the same time.

According to the proposal the city would be built in the middle of China, next to the city of Chengdu. Many refer the new town as a car-free city, because due to the plans, although cars won’t be forbidden, the residents won’t need it, since everything will be accessible in 15 minutes with environmentally friendly public transport and short distances. The bunch of greenery let people to be in the nature in two minutes from any part of the city.

The city will be built-up the way, that the location of the buildings will allow the most efficient usage of wind energy. Thanks to the environmentally friendly solutions the Great City will use 48% less energy and 59% less water and will produce 89% less garbage than other cities with similar density of population.

In a regional and urban development point of view not the environmentally friendly deserves attention but the questions which occurs from the case of a city built-up from scratch. The model is destined to be (one-to-one) applicable and can be built in elsewhere in China. So the question arises, if there might be such as functioning city model, which could be built anywhere in the world to provide a more environmental living. And if it exists, in which size could it be materialized? The Great City however has been plant as a town for 80000 people, so the infrastructure and the urban structure were evolved correspondingly.

As can be seen on the plan of the city, its structure is profoundly planned. Although it’s first of all environmentally friendly, basic conceptions of city planning can be detected. The farmland that can be used for agricultural activities is placed on the edge of the city. This area connects with the city centre through developed electric transport lines. In the city centre are concentrated all the services that an inhabitant could need: education, medical care, entertainment services etc. The residential area will be between the city centre and the rural land. This structure is in harmony with the consequences of the Von Thünen model.

The question emerges whether a system caused by human decisions made during a long period can be artificially planned. The procedure is in this case reverse than normally. So far the theories of city planning used hypotheses and models to explain the structure of existing cities. Now a whole new city is planned to be built from scratch using the theoretical and empirical results of former researches of city planning. Since there is a given structure of the city, the change of it in the future is slightly possible. The question will be that a city built based on models could fit to all the expectations of the inhabitants. This can be answered after the first years of the Great City.

If the Great City functions well, it could be considered whether this city model can be realised in greater size. Can we build an environmentally friendly city which ensures all the needed services and functions for one million inhabitants? Could be realised such a project with modern infrastructure so that it is still payable for the further inhabitants? Is there enough demand for it or is it just the game of some rich investors and enthusiastic designers?

As living near the nature and the protection of the environment are popular subjects nowadays, in my opinion there would be demand for such projects. But under such economic circumstances only the most privileged people could afford to start such investments. Because of the narrow supply the real estate prices would be very high in these new cities. As consequences of them I assume that this new city model won’t be used widespread in the following years, not even if the prototype is successful.

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Highway to heaven? – Regional effects of the Hungarian M6 motorway

Highway to heaven? – Regional effects of the Hungarian M6 motorway

by Pass Dániel

On 31st March 2010, M6, the newest motorway of Hungary was opened to the traffic by the prime minister. It was more than two and a half year ago, so we can answer the question whether it has been a good investment? Or was it a mistake to waste a lot of money to this enourmos project?

The M6 motorway is a north-south motorway in Hungary connecting the capital Budapest with Pécs. Its first 58 km part between Érd and Dunaújváros was opened to the public in 2006 and the building of following parts (Dunaújváros-Szekszárd, Szekszárd-Bóly) was finished in 2010. The direct connection between the M6 motorway and Pécs is provided by the M60 between Bóly and the seat of county Baranya.

In an economic perspective, the construction of such a long motorway like M6 (193 km) always means a huge decrease in the transaction costs beacause of the faster and safer road network. As follows, it would have to connect more little towns into the inland and maybe to into the foreign trade, too.

Thanks to the highway development, the length of the travel between Pécs and the capital reduces with one hour. It’s very significant if we pay respect to the fact that the two cities are approximately 200 km from each other. This is related to the other bigger cities along the M6 motorway like (in order, from north to south) Dunaújváros, Paks, Szekszárd, Mohács, Bóly.

But have these cities really realized profit from the closeness of the M6 motorway as it was opened? Can we see a significant development in the economical position of the towns and cities located in the area of the motorway?

After two years, the economist in county Baranya are disaapointed about the results. According to them, only several cities could gain by the M6 motorway, the most of settlements could not profit on it.

The wine region of Villány has won from the investment. Wine regions and tourism are highle interconnected, so if Villány can be reached faster than more people will go there. And this is what we can see. The same has happened in Harkány which is famous for its thermal spa – the turnover has increased by 15%.

The biggest winner of the new M6 motorway has been definitely Bóly. The industry park of the town is 55 hectare large and still growing. It provides 800 workplace to the citizens. The unemployment rate in Bóly has been 6.9% in this year which is far the best in the region.

After the empirics, we should make an inquiry to the causes.

First, we cannot disregard the fact that there is a crisis and an economic downturn in Hungary. The general investment mood and the activity of investors are not impressive – the hungarian economy has not been growing for three years. On the other hand, the region’s leader town, Bóly could have shown an improve in spite of the crisis.

Second, the construction of the new motorway was rather political than professional decision. Pécs won the title Capital of Europe 2010 and had a successful lobby to win this project, although according to specialists the M7 motorway is very close to M6 and that is why the latter does not have any added value to the inland road network.

Third, M6 connects Budapest only with Pécs, and does not have a connection to the neighbour countries. The original plan was to continuing the construction of the M6 motorway to the CroatiAn border and connect with the Croatian A5 motorway , but this is not in the development strategy of the next years.

Fourth, the effect of the motorway could be also reversed. According to regional statistics, we can establish that in the last two years more people from the region have applied a job in a wealthier region, in the capital or abroad. They have exploited the lower transaction costs to choose a better alternative and probably earn more money. That is a totally rational decision of that people and it is socially positive.

To sum up, we can say that the successfulness of the M6 highway is unassured. There are many positive effects of the project, but it is not very impressive in view of the volume of the investment. We should hope that the picture will be better in long run.

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How should we imagine the industry clusters of Europe 30 years later?

How should we imagine the industry clusters of Europe 30 years later? 

by Ferenc Nyakas

The industry of the world is going to change in the next decades – what should we expect for our continent?

The decision makers of Europe have to face up with the challenge of the current crisis, but they also have to care about the further future and competitiveness of the continent. The competitiveness can be raised by more effective activities in the industry and continuous research and development processes. As competitive advantage replaced comparative advantage by the 1990’s (Porter), clusters in the economy are the most effective tools to reach the above mentioned purposes.

The basic idea of clustering goes back to the second half of the 19th century when Alfred Marshall was inquiring of why the firms of the same industry are located geographically close each other? His answer was there is something in the air, what indicates new and new ideas.

Nowadays the advantages of clustering can be summarized in four main points. Firstly, the close location of similar companies can be explained both by first and second nature reasons, like common sources of raw materials or easy access to transportation hubs, like train centres. Secondly, if companies with similar activities and demand for labour force are concentrated geographically, it creates a pool of specialized labour, and it makes easier the search and matching process for both the employers and employees. Thirdly, the bigger demand for special inputs can raise a supplier network for the members of the cluster, thus it can be easier to find and use the most appropriate inputs. Finally, the observation of Marshall is right – in this atmosphere it is more likely to get the latest information of the branch, to get new ideas and develop them. (The Economist)

The leaders of Europe had recognized the benefits of clustering, and since 2006 there is a framework to encourage the creation of world class clusters in the European Union (Communication from the European Commission), therefore the intention of the governing institutions is serious, but it says almost nothing about the industrial area of the future clusters. A public research was carried out in 2010 by a business consultant company, aiming to find the key areas of industry clusters around 2040. (Research of PricewaterhouseCoopers) 

The industry clusters of the world in 2040

The authors of the Macro Consulting group examined five key areas of industry - like pharmaceuticals, automobile assembly, asset management, filmed entertainment and tertiary education - to find out what kind of shifts going to take place in the future. 

Europe, especially London will be able to maintain its role in the production of pharmaceuticals, asset management and tertiary education, but the continent will lose the one of its most important clusters, namely the automobile assembly in Germany. It is interesting, because the automotive cluster of Stuttgart is among the oldest ones in the world, but as it can be seen, its advantage from tradition is not going to be enough to compete with the new centres of the branch in South-America and Asia. In the field of tertiary education, the present clusters are likely to be able to retain their primacy, therefore Europe is going to play an important role in the next decades, but regarding the intensity of investments in this field in developing countries, it is likely that their universities going to get almost as well qualified as the former ones. Down to linkages to the leading academic institutions of the world, pharmaceutical clusters in London and New York can retain their present role, but the growing population of Asia going to fuel the rising up of a new cluster in Shanghai. Despite the tighter and tighter regulations, asset management clusters of Europe going to play important role, but the importance of Singapore is likely to get much higher in the following years. Finally, filmed entertainment clusters in Europe are week nowadays, and both in the future in comparison with Mumbai, Shanghai or Hollywood. To sum up the main message of the post, the importance of clusters in ensuring the future competitiveness of the EU is quite high and also we have to prepare for the challenges against the traditional areas, like automobile assembly, and we must concentrate on asset management, tertiary education and pharmaceuticals. It is important to emphasize that this article is focusing on industry, but for a deeper insight into the topic of competitiveness, the examination of services and information and communications technologies is also unavoidable.

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Sex and the city

Sex and the city

by Péter Lukács 

Young women seem to outnumber men in the western cities lately. This phenomenon is controversial however, since cities require more skilled workers which could only explain the higher proportion of male inhabitants. One paper argues that attractive marriage markets appear to draw women into the cities.

Numbers prove that in the western world young women outnumber young man in urban areas. According to several studies cities offer better labor market for skilled workers then rural areas. It would then predict a surplus of young men in the cities, since we also know that in average man are more skilled than women. What explains the counterfactual balance of the sex-ratio then? What is so attractive in the cities for young women? One paper with the same title argues that it is the marriage market. But how?

According to the paper we can assume that men value characteristics associated with female fecundity which we could simply describe as young women. Since youth is a scarce “good” in the market, young women then tend to have a choice. If we also assume that women value financial security, richer men stand better chances. If rich men are located in urban areas indeed, that could explain the greater proportion of women.

We could then ask why marriage market doesn’t attract man and women symmetrically so that the sex ratio would balance. The paper answers this question by supposing that there is asymmetry in the marriage market and men pay women for marriage, meaning that men’s only way of achieving better chances in getting married is getting a high wage job, but women can chose between a high wage job career and a marriage as another income source. Thus such high paying areas (most likely cities) can support women more than men, since women have a choice between the income sources of a job or a man. 

Municipality sex ratio bye male average annual income, Sweden

Source: Edlund, L. (2005). Sex and the City. The Scandinavian Journal of Economics,107(1), pp.35.

The paper examines its assumptions on the date of Swedish municipality data. The hypothesis that young women match with rich men was a clear result. It also turned out that younger women are pricier indeed. However, there is also a merely plausible evidence that the male to female ratio is positively correlated with the women’s wages, in other words women are drown to areas with lower female income. The explanation is not obvious: when male incomes are low women tend to work more. Firstly, because in case of marriage the father’s low income must be made up and secondly, because in case of low male incomes, women are less likely to get married anyway so they rather concentrate on their wage income. Since it also turned out that municipalities with male surplus often have a low marriage rate it becomes clearer that this tendency cannot be explained by low availability of men but the low income of the men available.

But what does this really tell us about our world today? In cities, young women are attracted to rich man, whereas in rural areas they (comparing to cities) tend to choose working over marrying a lower income man. Clearly, money plays central role in our life, and no one can really be blamed for setting it high at the priorities, even when finding a partner. Financial insecurity might be many people’s nightmare. Many argues that extended families might not always stand behind us anymore when it’s about childbearing or that in this alienated word one cannot easily decide who is good for us, while the information about a man with high wage probably imply other good qualities other than richness. However, many people probably couldn’t accept this financial wellbeing as the main goal, especially not in the case of finding our love of life. They can only hope for other “positive” explanatory characteristics in these models which could outweigh the earning one.

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Tropicalisation at Its Best – Copycats Stealing Venture Capital

Tropicalisation at Its Best – Copycats Stealing Venture Capital 

Innovation without innovation 

by Teodora Lang

Copycats are rapidly becoming popular in the eyes of venture capital investors, shifting the whole business towards emerging “tropical” areas. The smell of speedy success is tempting; the question is how fast it will start to stink…

Innovation clusters such as Silicon Valley are facing serious competition when it comes to attracting venture capital: emerging markets created their very own development technique which leads to the phenomenon of “tropicalisation”. According to a recent Economist article, the term refers to the practice of backing start-ups that adapt existing business models to emerging markets by becoming copycats. The concept is quite simple; while the original company may not have the expertise to enter new regions so quickly; copycats have an advantage to access those markets faster.

First of all, they do not have to worry about the success of a new business project, since they are copying ideas that already convinced investors and consumers. There are well-known examples, just think about the Chinese version of eBay called Alibaba.com or Sonico which was once the Facebook of Latin-America. Secondly, the original firm lacks the inside knowledge about local habits at fresh markets and copycats can easily profit from their familiarity to the area. Former Amazon.com employees took full advantage of their local knowledge and designed Flipkart (the reproduction of Amazon services) to the Indian demand -- where credit cards are less common -- by offering the option of payment on the date of delivery.

These replica businesses have a significant impact on emerging market economies via drawing the attention of venture capitalists to the region. In the presence of venture capital start-ups are more likely to emerge, boosting growth and attracting other firms to establish in the area. This happened in the case of Silicon Valley, where the advantageous combination of education (Stanford University) and industry resulted in the leading hub of innovation and technology. According to a recent National Venture Capital Association study, approximately 1/3 of the total venture capital investment flows to Silicon Valley, but the area is facing significant competition from India, China and Brazil.




Albeit they seem to be substitutes, emerging markets (in the sense of “innovation” clusters) and Silicon Valley are quite different. While in California research and development are the inputs of innovation, copycats -- by definition -- are not creating anything new or revolutionary. If we follow the economic theory, namely that innovation clusters are centers for growth, some serious concerns arise regarding emerging market hubs. There is no doubt that copycats can easily lose their funding share when the original company (in time) enters the local market. Just as it happened with Sonico when Facebook crossed the Latin-American borders. A representative of a Brazilian venture firm summarized the issue as follows: “With innovation you have a global upside, but with copycat innovation you have geographical limits.” So, what remains for emerging hubs? Are they gonna lose their attractiveness eventually or there is hope in the air? The current trend indicates that copycat-strategy is gaining even more popularity. The main question is whether these regions start to create and implement new ideas or continue to be content with replicas. Changing to the innovative attitude would be closer to the “spirit of venture capital” which is supposed to financially support creativity instead of imitations. In time, markets will decide if the copycat-behavior is creative enough in itself…

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The impact of CERN

The impact of CERN 

by Kozics György

It has been more almost 60 years since the foundation of CERN (European Organization for Nuclear Research), and now we can ask the question: how much impact did it have on the economy of the Geneva region?

This summer, me and my friends spent one day in Geneva. While wandering the streets, suddenly a tram occurred with a label: „14 CERN”. While running after the tram to see the place where thousands of scientists work, one of my friend said: „Unbelievable, I thought the CERN is 10km from here!” When we arrived, we were surprised: after leaving the city and 10 minutes of traveling out of the city, we saw huge buildings, vast parking places and even a gas station.

CERN was founded in 1954 for the sole purpose of the studying and experimenting particle physics. Now, it employs 2,400 full-time employees, 1,500 part-time employees and over 10,000 visiting scientists, who visit the facility regularly. This article’s purpose is to study the impact of CERN and its huge number of researchers on the local economy.

First, let’s examine the direct impact of CERN. As it is quite far from Geneva, and Geneva being a very expensive city (4th most expensive city in the world in 2008), most of the 4000 employees doesn’t live in Geneva. Instead, they live in Meyrin, which is the closest village to the facility. Originally it was a small agricultural village, with a small population, but after the start of the construction, it grew rapidly, as seen on the chart below. 

What we see, is that the population of the village increased by 12,000, which is more than 600%, just because of the foundation of CERN. It means that the employees of CERN attracted very much people, who don’t work for the laboratory, but work in the manufacturing or the service sector. It is also obvious, that the 10.000 of visiting scientists attracted transportation companies. These people need a transportation system to be able to get to the facility, therefore the tram line 14 has been built. Probably not solely of the CERN, the Geneva Airport is the headquarters of number of airlines, and the airport started to construct a new terminal.

Now, we can examine the secondary effect of the foundation of CERN. More than 10,000 of physicists and engineers could attract other research laboratories or schools, and the facility is always in need of new equipment which can attract many different industries. While it is true that some electronic and telecommunication companies came to Geneva, and in 1970 a new industrial park appeared near CERN, we cannot say for sure, that they came because of it. Some may work for CERN, but they aren’t dedicated for it, and they also don’t work together with it.

The reason for the failure to attract other firms that can work for or work with the CERN is simple. It could be beneficial, if a factory that produces devices for CERN move close to it. However, the investment costs of it would be very high, and the firm couldn’t make enough profit compared to the costs, moreover CERN already has its supplier. The other reason is the following: working together with CERN has very low transport costs. Most of workers examine data, so it can be easily sent via internet, therefore someone who wants to work for CERN can do it anywhere in the world, if he has access to internet.

In conclusion, CERN attracted a lot of people and firms that serve the people who works there, but it didn’t attract similar companies as working together with CERN has very low transportation costs.

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Does history matter? – A tale of the 1879’s great flood of Szeged

Does history matter? – A tale of the 1879’s great flood of Szeged 

by Szilléry Mirjam

The 1879’s great flood of Szeged is a case where it can be tested whether history played a role in spatial distribution or not. By examining what changed after the reconstruction it can be found that the location of the city is rather determined by first geography factors while the location of certain institutions within the city can be explained with historical effects.

In the spring of 1879, one of the most tragic events of Szeged’s history happened, when a dam of the River Tisza burst and the flood destroyed almost every building in the city. There were about 6000 houses before, but only 265 remained. After the disaster, Emperor Francis Joseph visited the city and promised to help. His words became well known: “Szeged will be even more beautiful than it was”. His words didn’t remain empty promises; the reconstruction began with great forces.

Let’s look at this story as an illustration of the New Economic Geography Theory. One statement of this model is that spatial distribution is also determined by history. In other words, it is possible that there are two areas with different spatial distribution (one is spatially concentrated, while the other is dispersed) and we observe that they are similar in every relevant factor expect for their pasts. This can happen because in this dynamic model subsequent states of an area also determine the current one. If we want to prove the statement that history matters, we can consider a case when an exogenous shock erases the importance of history. In our example this exogenous shock is when water swept away the city of Szeged. If history matters, than the new outcome can be completely different from the original equilibrium.

Firstly, we should take a look at the population change. From that time, we have less precise data sets than those we use nowadays, but we have an estimated growth rate of every decade. Between 1860 and 1870 there is a growth rate of 10,9%, while between 1870 and 1890 the population only increases by 3,7%. In the three subsequent decades the growth rate is 16%, 17% and 15%. Lacking the annual data we can only make assumptions, but is seems logical to believe that the disaster made some families move out of the city, but then they started to move back to Szeged. Therefore, by analyzing the population change we cannot observe a permanent impact of the exogenous shock.

However, there are some aspects in which the city has changed dramatically. Instead of the original one, a wholly new city-structure came to life. This new structure was characterized by a small and a big semi-circle shaped boulevard, starting from the banks of the Tisza. With the reconstruction many new public buildings were also established. 

By looking at these contradictory facts, we might think it is time to give up searching for connections with the theory, but in my opinion these facts can be explained with the concept of Economic Geography. If we take into account first geography, it becomes clear why the city remained an important one after such a disaster. Located at the meeting point of Tisza and Maros, the city could benefit from the shipping opportunities. Thus we can assume that the location of the city was not determined by historical accident but by permanent first geography factors. Now turning to the structure of the city, we might find a better ground for an illustration of the importance of history. The location of certain institutions within the city could have been affected by historical factors and when starting off fresh new locations became optimal. 

As we have seen from the illustration, it is important to highlight the importance of first geography in localization while we can also see some evidence of historical determination. It is important to mention that we should treat these conclusions with some suspicion, as in the model of New Economic Geography the outcome is the equilibrium of many actors’ behavior, while in this case the reconstruction was also a policy decision and it is hard to separate the effects.

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