Capital Deepening and Regional Inequality: An Empirical Analysis
M., Beeenstock, Felsenstein D., and Benzeev N. 2011. “Capital Deepening and Regional Inequality: An Empirical Analysis”. Annals of Regional Science 47 (3):599-617. Publisher's VersionAbstract

We present a simple reproducible methodology for constructing regional capital stock data, which we apply to Israel. We find that capital deepening has been sigma-convergent since 1985. This process is “inverted” since capital stocks and capital–labor ratios in the richer center have been catching-up with their counterparts in the poorer periphery. We explain this phenomenon in terms of fundamental changes in regional policy. Despite this, regional wages have not been sigma-convergent because other wage determinants have been sigma-divergent.

Gender and Job Chains in Local Economic Development
D., Felsenstein, and Persky J. 2011. “Gender and Job Chains in Local Economic Development”. Economic Development Quarterly 25 (2):172-181. Publisher's VersionAbstract

Over the past decade, the welfare evaluation of local economic development activities has become increasingly sophisticated. Projected or realized gains have been broken down by wage levels, household income levels, and race. However, relatively little attention has been paid to the distribution of gains by gender. In parallel, the gender literature has recognized the distribution of economic development activity by income group but not by vacancies. The authors present an evaluation approach—the job chains model—that combines the two. Occupations with a high proportion of women are identified and isolated at each wage level. The authors estimate the proportion of job chain vacancies induced by new “female” jobs and their welfare impacts. Findings suggest that women are underrepresented in welfare gains associated with both male and female high-wage jobs. The applicability of the authors’ approach for evaluating alternative industrial targets is demonstrated.

Land Use-Transportation Modeling with UrbanSim: Experiences and Progress (Special Issue)
Felsenstein, Daniel, Kay AXHAUSEN, and Paul Waddell. 2010.“Land Use-Transportation Modeling with UrbanSim: Experiences and Progress (Special Issue)”. in Journal of Transportation and Land Use, vol. 3 (2). Publisher's Version
Marshallian Theory of Regional Agglomeration
M., Beenstock, and Felsenstein D. 2010. “Marshallian Theory of Regional Agglomeration”. Papers in Regional Science 89 (1):155-172. Publisher's VersionAbstract

Most models of regional agglomeration are based on the new economic geography (NEG) model in which returns to scale are pecuniary. We investigate the implications for regional agglomeration of a ‘Marshallian’ model in which returns to scale derive from technological externalities. Workers are assumed to have heterogeneous ‘home region’ preferences. The model is designed to explain how ‘second nature’ determines regional wage inequality and the regional distribution of economic activity. We show that agglomeration is not a necessary outcome of Marshallian externalities. However, if centrifugal or positive externalities are sufficiently strong relative to their centripetal or negative counterparts, the model generates multiple agglomerating equilibria. These equilibria multiply if, in addition, there are scale economies in amenities. A dynamic version of the model is developed in which external economies and inter-regional labour mobility grow over time. Regional wage inequality overshoots its long run equilibrium and, there is more agglomeration in the long run.

Is Property Assessment Really Essential for Taxation? Evaluating the Performance of an 'Alternative Assessment' Method
R., Horne, and Felsenstein D. 2010. “Is Property Assessment Really Essential for Taxation? Evaluating the Performance of an 'Alternative Assessment' Method”. Land Use Policy 27 (4):1181-1189. Publisher's VersionAbstract

Many countries evade the formal valuation of real property for taxation purposes by using qualitative and spatial criteria in order to pursue an equitable distribution of burden. This paper evaluates the performance of a prototypical setup as such, by analyzing the relationship between property value, household income and the actual tax paid, in the exact framework of which the qualitative criteria are set to determine tax assessment. Drawing on detailed data from the Israeli Household Expenditure Surveys 1997–2005, the strong correlation between the three variables is evident. Yet, the limited differences in rates, compared with large variation in property value, make it regressive. Policy implications are relevant for many other countries using non-ad valorem taxation.

Simultaneous Modeling of Developer Behavior and Land Prices in UrbanSim
D., Felsenstein, and Ashbel E. 2010. “Simultaneous Modeling of Developer Behavior and Land Prices in UrbanSim”. Journal of Transportation and Land Use 3 (2):107-127. Publisher's VersionAbstract

A strong inter-dependence exists between the decision to develop land and the expected returns to be gained from that development. Current practice in UrbanSim modeling treats developer behavior and the emergence of land prices as independent processes. This assumes that land prices are exogenous to the interaction between buyers and sellers—an assumption that is difficult to sustain in urban economics and real estate research. This paper presents an attempt to model the two processes as occurring simultaneously. Using the UrbanSim model for metropolitan Tel Aviv, we compare the results of forecasts for densities (residential and non-residential) and land values for the period 2001–2020. Our results show that simultaneous estimation tends to produce more accentuated outcomes and volatile trends. The validity of these results and the implications of this approach in the wider context of land use modeling are discussed.

Spatial Error Correction and Cointegration in Non Stationary Panel Data: Regional House Prices in Israel
M., Beenstock, and Felsenstein D. 2010. “Spatial Error Correction and Cointegration in Non Stationary Panel Data: Regional House Prices in Israel”. Journal of Geographical Systems 12:189-206. Publisher's VersionAbstract

We “spatialize” residual-based panel cointegration tests for nonstationary spatial panel data in terms of a spatial error correction model (SpECM). Local panel cointegration arises when the data are cointegrated within spatial units but not between them. Spatial panel cointegration arises when the data are cointegrated through spatial lags between spatial units but not within them. Global panel cointegration arises when the data are cointegrated both within and between spatial units. Spatial error correction arises when error correction occurs within and between spatial units. We use nonstationary spatial panel data on the housing market in Israel to illustrate the methodology. We show that regional house prices in Israel are globally cointegrated in the long run and there is evidence of spatial error correction in the short run.

On the Suitability of Income Inequality Measures for Regional Analysis: Some Evidence from Simulation Analysis and Bootstrapping Tests
B.A., Portnov, and Felsenstein D. 2010. “On the Suitability of Income Inequality Measures for Regional Analysis: Some Evidence from Simulation Analysis and Bootstrapping Tests”. Socio-Economic Planning Sciences 44 (4):212-219. Publisher's VersionAbstract

The paper looks at the sensitivity of commonly used income inequality measures to changes in the ranking, size and number of regions into which a country is divided. During the analysis, several test distributions of populations and incomes are compared with a ‘reference’ distribution, characterized by an even distribution of population across regional subdivisions. Random permutation tests are also run to determine whether inequality measures commonly used in regional analysis produce meaningful estimates when applied to regions of different population size. The results show that only the population weighted coefficient of variation (Williamson’s index) and population-weighted Gini coefficient may be considered sufficiently reliable inequality measures, when applied to countries with a small number of regions and with varying population sizes.

J., Persky, Wiewel W., and Felsenstein D. 2008.“A Mid-Level Methodology for Evaluating Economic Development Projects”. in Rabin J, Munzenrider R. and Bartell S. (eds), Principles and Practices of Public Administration. NY: Marcell Dekker. Publisher's Version
Regional Heterogeneity, Conditional Convergence and Regional Inequality
M., Beenstock, and Felsenstein D. 2008. “Regional Heterogeneity, Conditional Convergence and Regional Inequality”. Regional Studies 42 (4):475-488. Publisher's VersionAbstract

The paper stresses the importance of accounting for regional heterogeneity in the dynamic analysis of regional economic disparities. Studies of regional growth mainly presume that regions are homogeneous in their socio-demographic composition. It is argued that the analysis of regional convergence needs to be tested conditionally, i.e. conditional upon the socio-demographic structure of the workers in the various regions. To this end, various measures of conditional regional earnings inequality are estimated using Israeli regional data for the period 1991–2002. The results show that about half of regional earnings inequality may be accounted for by the conditioning variables. Conditioning also makes a large difference to estimates of Gini and beta-convergence. Conditional beta and Gini mobility are about half their unconditional counterparts.

Forecasting Regional Investment in the Hotel Industry: An Input-Output Approach
D., Freeman, and Felsenstein D. 2008. “Forecasting Regional Investment in the Hotel Industry: An Input-Output Approach”. Journal of Regional Analysis and Policy 37 (3):243-256. Publisher's VersionAbstract

The tourism industry is characterized by severe shifts in demand that play havoc with forecasting future investment. Within the tourism industry, the need for large-scale initial capital investment in the hotel sector, make the latter particularly vulnerable to the vagaries of the tourism market. Given an up-turn in demand, the hotel industry cannot always respond immediately and its' response is likely to vary across regions. There is therefore a need for a forecasting tool that can estimate the magnitude of the demand 'push' that can stimulate the hotel sector into new investment and the extent to which this response is regionally differentiated. Using a multi-regional input output (MRIO) augmented by an investment matrix, this paper demonstrates the capabilities of such an approach. Regional hotel industry outputs for four classes of hotels in the six regions of Israel are estimated. Expected regional rates of return to hotel investment are compared with actual (reported) rates of return and the discrepancy between the two explained. Regional hotel (per room) capacity coefficients are also estimated and regional responses to an increase in demand of 100,000 extra tourists are calculated in terms of additional hotel rooms and capital investment.

Job Chains and Wage Curves: Worker Mobility and Marshallian Surpluses in Evaluating Regional Employment Growth
J., Persky, and Felsenstein D. 2008. “Job Chains and Wage Curves: Worker Mobility and Marshallian Surpluses in Evaluating Regional Employment Growth”. Journal of Regional Science 48 (5):921-940. Publisher's VersionAbstract

In theory, new regional jobs yield two distinct sources of welfare gains to workers: (1) mobility gains achieved by workers as they move up job chains and (2) traditional Marshallian surpluses enjoyed by all workers as labor markets tighten. In the past, we have argued that the second channel is likely to be small relative to the first. This paper integrates a chain model (using PSID job change data) with a modified-Marshallian model based on “wage curves” (estimated from CPS data) to formalize and test that argument. High wage jobs with modest wage–unemployment elasticities show Marshallian effects only 10 percent to 20 percent the size of mobility effects. Low wage jobs with somewhat higher elasticities show Marshallian effects from 40 percent to 70 percent the size of mobility effects.

Multipliers, Mark-Ups and Mobility Rents: In Defense of 'Chain Models' in Urban and Regional Analysis
J., Persky, and Felsenstein D. 2008. “Multipliers, Mark-Ups and Mobility Rents: In Defense of 'Chain Models' in Urban and Regional Analysis”. Environment and Planning A 40 (12):2930-2948. Publisher's VersionAbstract

Social scientists have long used ‘chain’ metaphors, yet their methodological justification remains somewhat hazy. This paper offers a rationale for using chains to measure changes in economic welfare in urban and regional contexts. In contrast to the Marshallian surplus, which well describes situations in which price changes generate rents in a single market, chains are especially useful in markets where changes lead to the transmission of demand or supply through a series of markets characterized by sticky prices and markups. This argument is illustrated by reference to chain-driven analyses of local production, labor, and housing markets. The institutional structures that underpin chain models are stressed.

Microsimulation of Metroplitan EmploymentDeconcentration: Application of the UrbanSim Model in the Tel Aviv Region
D., Felsenstein, Ashbel E., and Ben-Nun A. 2007.“Microsimulation of Metroplitan EmploymentDeconcentration: Application of the UrbanSim Model in the Tel Aviv Region”. Pp. 199-218 in Koomen E., Bakema A., Stillwell J and Schloten H. (eds), Modelling Land Use Change. Berlin: Springer. Publisher's VersionAbstract

Employment deconcentration has become a major issue on the policy and planning agenda in many metropolitan areas throughout the western world. In recent years, growing evidence indicates that in many developed countries, the deconcentration of employment - particularly of retail centres and offices - has become a key planning issue. This chapter uses the UrbanSim forecasting and simulation model in order to investigate some of the projected changes in land use, land value and sociodemographic characteristics of metropolitan areas undergoing employment deconcentration. The process of model application in the Tel Aviv metropolitan context is described. Two land-use scenarios of very different scales are simulated: a macro-level scenario relating to the imposition of an ‘urban growth boundary’ and a micro-level scenario simulating the effects of a shopping mall construction in different parts of the metropolitan area. The results are discussed in terms of the potential and constraints of microsimulation for analyzing metropolitan growth processes.

Evaluating Local Job Creation: A 'Job Chains' Perspective
D., Felsenstein, and Persky J. 2007. “Evaluating Local Job Creation: A 'Job Chains' Perspective”. Journal of the American Planning Association 73 (1):23-34. Publisher's VersionAbstract

This article introduces economic development planners to a new approach to evaluating local job creation efforts, an approach that explicitly considers the chains of employment vacancies that open up when new jobs are created. This “job chains” model is an analytic framework for assessing the employment impacts associated with economic development programs and the social value of those impacts. The approach focuses on measuring the wage gains to job changers and placing realistic values on jobs for those not previously employed in the area. It explicitly considers both efficiency and distributional effects of job creation. We discuss the simple mechanics of the technique and present an example relating to the establishment of a large auto plant in a major Midwestern city. We conclude with practical ground rules for planners carrying out a job chains analysis of an economic development effort.

Mobility and Mean Reversion in the Dynamics of Regional Inequality
M., Beenstock, and Felsenstein D. 2007. “Mobility and Mean Reversion in the Dynamics of Regional Inequality”. International Regional Science Review 30 (4):335-361. Publisher's VersionAbstract

The literature on regional growth convergence and economic disparities has tended to confound four interwoven measurement phenomena: 1) mean reversion (so-called beta convergence)—richer regions move towards the average from above and poorer regions from below; 2) diminishing inequality (so called sigma convergence)—the horizontal or spatial distribution of income becomes more equal; 3) mobility—the rank of a region in the overall distribution of income changes either upwards or downwards; and 4) leveling—the richer regions become poorer (leveling-down) or the poorer regions become richer (leveling-up). We use a new statistical methodology that treats these four phenomena on an integrated basis. The methodology is applied to Israeli regional earnings. We show that regional earnings are Gini divergent, but after adjusting earnings for regional cost-of-living differential, this picture is reversed. In the absence of genuine cost-of-living data, a simple and practical method is proposed, whereby regional house price data are used to proxy regional cost-of-living differentials.

Spatial Vector Autoregressions
M., Beenstock, and Felsenstein D. 2007. “Spatial Vector Autoregressions”. Spatial Economic Analysis 2 (2):167-196. Publisher's VersionAbstract

A spatial vector autoregressive model (SpVAR) is defined as a VAR which includes spatial as well as temporal lags among a vector of stationary state variables. SpVARs may contain disturbances that are spatially as well as temporally correlated. Although the structural parameters are not fully identified in SpVARs, contemporaneous spatial lag coefficients may be identified by weakly exogenous state variables. Dynamic spatial panel data econometrics is used to estimate SpVARs. The incidental parameter problem is handled by bias correction rather than more popular alternatives such as generalised methods of moments (GMM). The interaction between temporal and spatial stationarity is discussed. The impulse responses for SpVARs are derived, which naturally depend upon the temporal and spatial dynamics of the model. We provide an empirical illustration using annual spatial panel data for Israel. The estimated SpVAR is used to calculate impulse responses between variables, over time, and across space. Finally, weakly exogenous instrumental variables are used to identify contemporaneous spatial lag coefficients.

Terror, Fear and Behavior in the Jerusalem Housing Market
S., Hazam, and Felsenstein D. 2007. “Terror, Fear and Behavior in the Jerusalem Housing Market”. Urban Studies 44 (13):2529-2546. Publisher's VersionAbstract

This paper tests the hypothesis that fear is a central factor in understanding human behaviour in the face of terror. This claim is addressed in the context of behaviour in the Jerusalem housing market over the terror-stricken years in the city, 1999—2004. Using a unique data source and the tools of spatial data analysis, the paper provides support for this hypothesis in three respects. First, patterns of terror in the city are shown to be increasingly deconcentrated over the period studied. Secondly, the types of terror having the sharpest effect on residential property prices are those most associated with randomness. Thirdly, the effect of terror is less on purchasing prices than on rental prices. The former represent revealed long-term behaviour less affected by fear and the latter, short-term behaviour more likely to be influenced by such disutility. The paper concludes with some of the policy implications arising from these findings.

Felsenstein, Daniel. 2006.“Computer Models in Israeli Planning (Special Issue)”. in Tichnun - Journal of the Israeli Planning Association (Hebrew).
Linking Supply and Demand in Local Labor Markets (Special Issue)
Felsenstein, Daniel, and Ron McQuaid. 2006.“Linking Supply and Demand in Local Labor Markets (Special Issue)”. in Annals of Regional Science, vol. 40 (2). Publisher's Version