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Market size and urban hierarchy

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  • BEHRENS, Kristian

Abstract

We investigate the importance of market size as a determinant for industrial location patterns. In order to focus on a broad range of sectors,including the service industries, both traded and non-traded goods are taken into consideration. In our model, traded goods industries always exhibit a "home market effect" (HME), whereas the existence of such an effect for non-traded goods and services crucially hinges on the degree of product differentiation. High degrees of product differentiation generally support a HME, whereas a reverse HME may arise when products are sufficiently close substitutes. Our results point to the existence of some market size dependent "industrial urban" hierarchy: highly differentiated non-traded services are more sensitive to market size than manufacturingactivities and traded services, which in turn are more sensitive to market size than closely substitutable non-traded services.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2004029.

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Date of creation: 00 May 2004
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Handle: RePEc:cor:louvco:2004029

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Keywords: reverse home market effect; traded goods; non-traded goods; service industries; urban hierarchy;

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References

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  1. Keith Head & Thierry Mayer & John Ries, 2000. "On the Pervasiveness of Home Market Effects," Econometric Society World Congress 2000 Contributed Papers 0862, Econometric Society.
  2. Holmes, Thomas J. & Stevens, John J., 2004. "Spatial distribution of economic activities in North America," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 63, pages 2797-2843 Elsevier.
  3. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(2), pages 284-314, June.
  4. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  5. OTTAVIANO, Gianmarco & THISSE, Jacques-François, . "Agglomeration and economic geography," CORE Discussion Papers RP -1725, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Markusen, James R. & Venables, Anthony J., 1988. "Trade policy with increasing returns and imperfect competition : Contradictory results from competing assumptions," Journal of International Economics, Elsevier, vol. 24(3-4), pages 299-316, May.
  7. Jonathan Haskel & Holger C. Wolf, 2001. "The Law of One Price - A Case Study," CESifo Working Paper Series 428, CESifo Group Munich.
  8. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  9. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  10. Federico Trionfetti, 2001. "Using home-biased demand to test trade theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(3), pages 404-426, September.
  11. Ginsburgh, Victor & Papageorgiou, Yorgo & Thisse, Jacques-Francois, 1985. "On existence and stability of spatial equilibria and steady-states," Regional Science and Urban Economics, Elsevier, vol. 15(2), pages 149-158, June.
  12. Greenhut, Melvin L, 1981. "Spatial Pricing in the United States, West Germany and Japan," Economica, London School of Economics and Political Science, vol. 48(189), pages 79-86, February.
  13. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  14. Takatoshi Tabuchi & Kristian Behrens & Andrea R. Lamorgese, 2004. "Testing the Home Market Effects in a Multi-country World: The Theory," Econometric Society 2004 Far Eastern Meetings 595, Econometric Society.
  15. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
  16. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  17. Combes, Pierre-Philippe & Overman, Henry G., 2003. "The Spatial Distribution of Economic Activities in the EU," CEPR Discussion Papers 3999, C.E.P.R. Discussion Papers.
  18. Behrens, Kristian, 2004. "Agglomeration without trade: how non-traded goods shape the space-economy," Journal of Urban Economics, Elsevier, vol. 55(1), pages 68-92, January.
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