Eckhardt Bode, Institute for World Economy, Kiel, Germany
Urban Agglomeration, Land Prices, and the Size of Metropolitan Areas (assigned to theme
This paper quantifies the impact of urban agglomeration on land prices at both urban centers and urban hinterlands in West Germany, and provides estimates about the spatial scope of spillovers originating from urban centers. It starts from the premise that a metropolitan area were just another peripheral region, if there would not be some specific urban locational advantages that gave rise to city formation in the past, and laid the foundation for second-nature agglomeration economies. The land-price effects of first- and second-nature locational advantages are estimated simultaneously. The first-nature advantages which dominate in rural areas are estimated from strictly exogenous locational conditions. The second-nature advantages which are specific to metropolitan areas are estimated using a fairly general land price gradient model, assuming West Germany to be a polycentric system of locations. Two forms of spatial dependence are allowed for: First, direct, unidirectional spillovers of agglomeration economies from urban centers to the urban hinterlands, and second, bi-directional spatial (lag) dependence reflecting interdependencies of local land markets between any (urban or rural) areas. The results show, first, that, on average across all West German Landkreise (NUTS 3 regions) almost 60% of the land prices are attributable to specific urban locational advantages and second-nature agglomeration economies. Second, the effects of urbanization on land prices are highly localized. The direct spillovers of agglomeration economies originating from urban centers are subject to high distance decay. They do not extend across distances of more than 60 km. Third, the direct spillovers from urban centers trigger multiplier effects at the urban hinterlands that are quantitatively more important than the direct effects themselves. The indirect effects, working through spatial interdependencies of the local land markets, are estimated to account for 42% of the land prices on average, the direct effects for only 17%.
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