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Market Potential and the Location of Japanese Investment in the European Union

Author

Listed:
  • Keith Head

    (University of British Columbia)

  • Thierry Mayer

    (Université de Paris I (TEAM), CEPII, CERAS-ENPC, and CEPR)

Abstract

This paper develops a theoretical model of location choice under imperfect competition to formalize the notion that firms prefer to locate "where the markets are." The profitability of a location depends on a term that weights demand in all locations by accessibility. Using a sample of Japanese firms' choices of regions within European countries, we compare the theoretically derived measure of market potential with the standard form used by geographers. Our results show that market potential matters for location choice but cannot account entirely for the tendency of firms in the same industry to agglomerate. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
    • Handle: RePEc:tpr:restat:v:86:y:2004:i:4:p:959-972
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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