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Market Potential and Development

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  • Thierry Mayer

Abstract

This paper provides evidence on the long-term impact of market potential on economic development. It derives from the New Economic Geography literature a structural stimation where the level of factors’ income of a country is related to its export capacity, labeled Market Access (MA) by Redding and Venables (2004), or Real Market Potential (RMP) by Head and Mayer (2004). The empirical part evaluates this market potential for all countries in the world with available trade data over the 1960-2003 period and relates it to income per capita. Overall results show that market potential is a powerful driver of increases in income per capita.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2009-24.

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Date of creation: Oct 2009
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Handle: RePEc:cii:cepidt:2009-24

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Keywords: MARKET POTENTIAL; ECONOMIC GEOGRAPHY; GRAVITY; DEVELOPMENT;

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References

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  1. Stephen Redding & Peter K Schott, 2003. "Distance, skill deepening and development : will peripheral countries ever get rich?," LSE Research Online Documents on Economics 207, London School of Economics and Political Science, LSE Library.
  2. Stephen Redding & Anthony J. Venables, 2001. "Economic Geography and International Inequality," CEP Discussion Papers dp0495, Centre for Economic Performance, LSE.
  3. Fally, Thibault & Paillacar, Rodrigo & Terra, Cristina, 2010. "Economic geography and wages in Brazil: Evidence from micro-data," Journal of Development Economics, Elsevier, vol. 91(1), pages 155-168, January.
  4. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  5. Head, Charles Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers 3455, C.E.P.R. Discussion Papers.
  6. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  7. Anne-Celia Disdier & Keith Head, 2008. "The puzzling persistence of the distance effect on bilateral trade," Working Papers 21709, Institut National de la Recherche Agronomique, France.
  8. Mion, Giordano & Naticchioni, Paolo, 2005. "Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms," CEPR Discussion Papers 5172, C.E.P.R. Discussion Papers.
  9. Laura Hering & Sandra Poncet, 2006. "Market Access Impact on Individual Wage: Evidence from China," Working Papers 2006-23, CEPII research center.
  10. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  11. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2004. "Spatial Wage Disparities: Sorting Matters!," CEPR Discussion Papers 4240, C.E.P.R. Discussion Papers.
  12. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
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Citations

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Cited by:
  1. Stephen Redding, 2009. "The Empirics of New Economic Geography," CEP Discussion Papers dp0925, Centre for Economic Performance, LSE.
  2. Nakhoda, Aadil, 2012. "The effect of foreign competition on product switching activities: A firm level analysis," MPRA Paper 39167, University Library of Munich, Germany.
  3. A'Hearn, Brian & Venables, Anthony J, 2011. "Internal Geography and External Trade: regional disparities in Italy, 1861-2011," CEPR Discussion Papers 8655, C.E.P.R. Discussion Papers.
  4. Calì, Massimiliano & te Velde, Dirk Willem, 2011. "Does Aid for Trade Really Improve Trade Performance?," World Development, Elsevier, vol. 39(5), pages 725-740, May.
  5. Natalia Vechiu & Farid Makhlouf, 2014. "Economic integration and specialization in production in the EU27: does FDI influence countries’ specialization?," Empirical Economics, Springer, vol. 46(2), pages 543-572, March.
  6. Stephen Redding, 2009. "Economic Geography: A Review of the Theoretical and Empirical Literature," CEP Discussion Papers dp0904, Centre for Economic Performance, LSE.
  7. Lederman, Daniel & Olarreaga, Marcelo & Payton, Lucy, 2010. "Export promotion agencies: Do they work?," Journal of Development Economics, Elsevier, vol. 91(2), pages 257-265, March.
  8. Lin, Faqin, 2013. "Are distance effects really a puzzle?," Economic Modelling, Elsevier, vol. 31(C), pages 684-689.
  9. Escobar Gamboa, Octavio Romano, 2009. "IDE entrants, exportations et productivité manufacturière : les différentes performances des régions mexicaines," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/3850 edited by Guillochon, Bernard.
  10. Octavio R. Escobar Gamboa, 2010. "The (un)lucky neighbour: Differences in export performance across Mexico's states," Papers in Regional Science, Wiley Blackwell, vol. 89(4), pages 777-799, November.
  11. Roberts, Mark & Deichmann, Uwe & Fingleton, Bernard & Shi, Tuo, 2010. "On the road to prosperity ? The economic geography of China's national expressway network," Policy Research Working Paper Series 5479, The World Bank.
  12. Lin, Faqin & Sim, Nicholas C.S., 2012. "Death of distance and the distance puzzle," Economics Letters, Elsevier, vol. 116(2), pages 225-228.

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