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Trade costs in empirical New Economic Geography

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  • Maarten Bosker
  • Harry Garretsen

Abstract

Trade costs are a crucial element of New Economic Geography (NEG) models. Without trade costs there is no role for geography. In empirical NEG studies the unavailability of direct trade cost data calls for the need to approximate these trade costs by introducing a trade cost function. In doing so, hardly any attention is paid to the (implicit) assumptions and empirical consequences of the particular trade cost function used. Based on a meta-analysis of NEG market access studies as well as on the results of estimating the NEG wage equation for a uniform sample while using different trade costs functions, we show that the relevance of the key NEG variable, market access, depends nontrivially on the choice of trade cost function. Next, we propose an alternative way to approximate trade costs that does not require the specification of a trade cost function, the so called implied trade costs approach. Overall, our results stress that the specification of trade costs can matter a lot for the conclusions reached in any empirical NEG study. We therefore call for a much more careful treatment of trade costs in future empirical NEG studies. Copyright (c) 2010 the author(s). Journal compilation (c) 2010 RSAI.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Papers in Regional Science.

Volume (Year): 89 (2010)
Issue (Month): 3 (08)
Pages: 485-511

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Handle: RePEc:bla:presci:v:89:y:2010:i:3:p:485-511

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1056-8190

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Cited by:
  1. Stanislav Cernosa, 2011. "Openness to Trade, Migration and Foreign Direct Investments of the EU," WIFO Working Papers 401, WIFO.
  2. Georg Hirte & Christian Lessmann, 2014. "Trade, Integration, and Interregional Inequality," CESifo Working Paper Series 4799, CESifo Group Munich.
  3. Martijn J. Burger & Mark Thissen & Frank G. van Oort & Dario Diodato, 2014. "The Magnitude and Distance Decay of Trade in Goods and Services: New Evidence for European Countries," Tinbergen Institute Discussion Papers 14-031/VII, Tinbergen Institute.
  4. Bosker, Maarten & Brakman, Steven & Garretsen, Harry & Schramm, Marc, 2012. "Relaxing Hukou: Increased labor mobility and China’s economic geography," Journal of Urban Economics, Elsevier, vol. 72(2), pages 252-266.
  5. Fingleton, Bernard & Longhi, Simonetta, 2011. "The effects of agglomeration on wages: evidence from the micro-level," SIRE Discussion Papers 2011-35, Scottish Institute for Research in Economics (SIRE).
  6. B. Fingleton & P. Cheshire & H. Garretsen & D. Igliori & J. Le Gallo & P. McCann & J. McCombie & V. Monastiriotis & B. Moore & M. Roberts, 2011. "Editorial," Spatial Economic Analysis, Taylor & Francis Journals, vol. 6(4), pages 351-357, December.
  7. Steven Brakman & Harry Garretsen & Charles van Marrewijk & Abdella Oumer, 2011. "The Positive Border Effect of EU Integration," CESifo Working Paper Series 3335, CESifo Group Munich.
  8. Gordon Mulligan & Mark Partridge & John Carruthers, 2012. "Central place theory and its reemergence in regional science," The Annals of Regional Science, Springer, vol. 48(2), pages 405-431, April.

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