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Are there Border Effects in the EU Wage Function?

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  • Peter Huber
  • Michael Pfaffermayr
  • Yvonne Wolfmayr

Abstract

We estimate a linear approximation of the market potential function for Europe as derived in geography and trade models. Using a spatial econometric estimation approach, border effects are identified by a differential impact of other regions purchasing power, depending on whether two regions are located within the EU15 or outside the EU15. We find that intra EU15-borders have an insignificant but external borders a significant effect on regional wage structures. We illustrate the magnitude of EU external border effects by simulating the enlargement of the EU in May 2004. Our results suggest a large impact of the border for new member states, but a relatively small one for old members.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1880.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1880

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Keywords: market potential; border effects; spatial econometrics;

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References

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  1. Henry Overman & Diego Puga, 1999. "Unemployment Clusters Across European Regions and Countries," CEP Discussion Papers, Centre for Economic Performance, LSE dp0434, Centre for Economic Performance, LSE.
  2. Thijs Knaap, 2005. "Trade, Location, and Wages in the United States," Working Papers, Utrecht School of Economics 05-30, Utrecht School of Economics.
  3. Chen, Natalie, 2004. "Intra-national versus international trade in the European Union: why do national borders matter?," Journal of International Economics, Elsevier, Elsevier, vol. 63(1), pages 93-118, May.
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  5. Peter Huber & Michael Pfaffermayr & Yvonne Wolfmayr, 2011. "Are There Border Effects in the EU Wage Function?," DANUBE: Law and Economics Review, European Association Comenius - EACO, European Association Comenius - EACO, issue 2, pages 23-41, June.
  6. Redding, Stephen J & Venables, Anthony J., 2000. "Economic Geography and International Inequality," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2568, C.E.P.R. Discussion Papers.
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  10. De Bruyne, Karolien, 2009. "Explaining the Location of Economic Activity. Is there a Spatial Employment Structure in Belgium?," Working Papers, Hogeschool-Universiteit Brussel, Faculteit Economie en Management 2009/28, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
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  15. Gordon H. Hanson, 1998. "Market Potential, Increasing Returns, and Geographic Concentration," NBER Working Papers 6429, National Bureau of Economic Research, Inc.
  16. Engel, Charles & Rogers, John H., 2001. "Deviations from purchasing power parity: causes and welfare costs," Journal of International Economics, Elsevier, Elsevier, vol. 55(1), pages 29-57, October.
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  19. Keith Head & Thierry Mayer, 2005. "Regional Wage and Employment Responses to Market Potential in the EU," Bruges European Economic Research Papers, European Economic Studies Department, College of Europe 3, European Economic Studies Department, College of Europe.
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  22. Annekatrin Niebuhr, 2005. "The Impact of EU Enlargement on European Border Regions," ERSA conference papers ersa05p114, European Regional Science Association.
  23. Pedro E. Moncarz, 2007. "Regional employment and wages. The effects of transport costs and market potential. An application for Argentina," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(1), pages 75-108, January.
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Citations

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Cited by:
  1. Moritz, Michael, 2008. "Spatial effects of open borders on the Czech labour market," Discussion Papers, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics 59, Friedrich-Alexander-University Erlangen-Nuremberg, Chair of Labour and Regional Economics.
  2. Sona Schovankova, 2013. "Determinants of the Spatial Distribution of Foreign Empolyees on Different Skilled Positions: The Case of the Czech Republic," DANUBE: Law and Economics Review, European Association Comenius - EACO, European Association Comenius - EACO, issue 2, pages 115-139, June.
  3. Peter Huber & Michael Pfaffermayr & Yvonne Wolfmayr, 2011. "Are There Border Effects in the EU Wage Function?," DANUBE: Law and Economics Review, European Association Comenius - EACO, European Association Comenius - EACO, issue 2, pages 23-41, June.

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