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Regional wage and employment responses to market potential in the EU

  • Head, Keith
  • Mayer, Thierry

In new economic geography 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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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 36 (2006)
Issue (Month): 5 (September)
Pages: 573-594

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Handle: RePEc:eee:regeco:v:36:y:2006:i:5:p:573-594
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  28. 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.
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