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Putting new economic geography to the test: free-ness of trade and agglomeration in the EU regions

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  • Brakman, Steven
  • Garretsen, Harry
  • Schramm, Marc

    (Groningen University)

Abstract

Based on a new economic geography model by Puga (1999), we use the equilibrium wage equation to estimate two key structural model parameters for the NUTS II EU regions. The estimation of these parameters enables us to come up with an empirically based free-ness of trade parameter. We then confront the empirically grounded free-ness of trade parameter with the theoretical relationship between this parameter and the degree of agglomeration. This is done for two versions of our model: one in which labor is immobile between regions, and one in which labor is mobile between regions. Overall, and in line with related studies, our main finding is that agglomeration forces still have only a limited geographical reach in the EU. Agglomeration forces appear to be rather localized

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Bibliographic Info

Paper provided by University of Groningen, CCSO Centre for Economic Research in its series CCSO Working Papers with number 200502.

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Date of creation: 2005
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Handle: RePEc:dgr:rugccs:200502

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