Welfare analysis of regional population distribution in Turkey

Abstract

Rapid urbanization in the last century has been accompanied with growing number of studies on spatial economics. Determining which factors affect households’ location choices is one of the most prominent topics that has been worked on in the literature. The aim of this thesis is to analyze region-specific characteristics and to examine their relative importance on location choices of households in Turkey at NUTS2 level. The thesis contributes to the current literature by providing model-based estimates for the importance of region-specific characteristics on the population allocation and welfare in Turkey, which are also used for conducting counterfactual exercises. For this purpose, a stylized spatial macroeconomic model as postulated by Desmet and Rossi-Hansberg (2013) is utilized. In the model households make consumption, investment, work and location choices by assessing three region-specific characteristics, namely regional productivity levels, amenities and excessive frictions. The counterfactual exercises, which involve eliminating one or more of the differences in characteristics across regions, result in modest increases in welfare (about 1%-2%), but large population reallocations across regions.