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Regional Wage and Employment Responses to Market Potential in the EU

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Author Info

  • Keith Head

    (Sauder School of Business, University of British Columbia)

  • Thierry Mayer

    (Department of Economics, Sciences Po; Centre d'études prospectives et d'informations internationales (CEPII), Centre for Economic Policy Research (CEPR))

Abstract

Recent theoretical work on economic geography emphasizes the interplay of transport costs and plant-level increasing returns. In these models, the spatial distribution of demand is a key determinant of economic outcomes. In one strand, it is argued that higher demand gives rise to a more than proportionate increase in production, a result known as the home market effect. Another strand emphasizes the effects of market sizes on factor prices. We highlight the theoretical connection between these two strands. Using data on 57 European regions, we show how wages and employment respond to differentials in what we call real market potential, a discounted sum of demands derived from the theory.

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Bibliographic Info

Paper provided by European Economic Studies Department, College of Europe in its series Bruges European Economic Research Papers with number 3.

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Length: 26 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:coe:wpbeer:3

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Keywords: public-private partnership; economic regulation; water utilities JEL codes: L22; L33; L95;

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References

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