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Do Migrants Follow Market Potentials? An Estimation of a New Economic Geography Model

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  • Matthieu Crozet

    ()
    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - CNRS : UMR8059 - Université Paris I - Panthéon-Sorbonne)

Abstract

New Economic Geography models describe a cumulative process of spatial agglomeration: Firms tend to cluster in locations with good access to demand, and similarly, workers are drawn to regions where market potential is high because the price index is lower there. This paper provides an empirical assessment of this forward linkage that relates labour migrations to the geography of production through real wage differentials. In the spirit of Hanson (1998), we use bilateral migration data for five European countries over the 1980s and 1990s to perform quasi-structural estimations of a new economic geography model derived from Krugman (1991). The results show strong evidence in favor of this model. As expected, migrants do follow market potential. Moreover, we provide estimates for all key parameters of the model. These estimates suggest that a sudden emergence of a core-periphery pattern is unlikely within European countries: centripetal forces are too limited in geographical scope, and mobility costs are too high.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00096277.

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Date of creation: Aug 2004
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Publication status: Published, Journal of Economic Geography, 2004, 4, 4, 439-458
Handle: RePEc:hal:cesptp:halshs-00096277

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00096277
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Keywords: Agglomeration; economic geography; European regions; migration.;

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  1. Faini, Riccardo & Galli, Giampaolo & Gennari, Pietro & Rossi, Fulvio, 1997. "An empirical puzzle: Falling migration and growing unemployment differentials among Italian regions," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 571-579, April.
  2. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, Elsevier, vol. 67(1), pages 1-24, September.
  3. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 31(1), pages 21-49, February.
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  5. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  6. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
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  8. Puga, Diego, 1999. "The rise and fall of regional inequalities," European Economic Review, Elsevier, Elsevier, vol. 43(2), pages 303-334, February.
  9. Matthieu Crozet & Thierry Mayer & Jean-Louis Mucchielli, 2004. "How do firms agglomerate? A study of FDI in france," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  10. J. Peter Neary, 2000. "Of Hype and Hyperbolas - Introducing the new Economic Geography," Working Papers, School Of Economics, University College Dublin 200019, School Of Economics, University College Dublin.
  11. Greenwood, Michael J, 1975. "Research on Internal Migration in the United States: A Survey," Journal of Economic Literature, American Economic Association, vol. 13(2), pages 397-433, June.
  12. Michael Devereux & Rachel Griffith, 1996. "Taxes and the location of production: evidence from a panel of US multinationals," IFS Working Papers, Institute for Fiscal Studies W96/14, Institute for Fiscal Studies.
  13. Head, Charles Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3455, C.E.P.R. Discussion Papers.
  14. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, American Economic Association, vol. 91(4), pages 858-876, September.
  15. Federico Trionfetti, 2001. "Using home-biased demand to test trade theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 137(3), pages 404-426, September.
  16. Donald R. Davis & David E. Weinstein, 1998. "Economic geography and regional production structure: an empirical investigation," Staff Reports, Federal Reserve Bank of New York 40, Federal Reserve Bank of New York.
  17. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, Elsevier, vol. 53(1), pages 1-27, February.
  18. Borjas, George J., 1999. "The economic analysis of immigration," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 28, pages 1697-1760 Elsevier.
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