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

  • Keith Head

    (University of British Columbia)

  • Thierry Mayer

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

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.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 86 (2004)
Issue (Month): 4 (November)
Pages: 959-972

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Handle: RePEc:tpr:restat:v:86:y:2004:i:4:p:959-972
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