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Regional wages and market potential in the enlarged EU: An empirical investigation

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  • Thomas Y. Mathä

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  • Allison Shwachman

Abstract

This paper empirically analyses the link between market potential and regional wages in the enlarged EU. We extend previous studies of EU regions in several ways. 1) we analyze the link between market potential and wages for the EU27, 2) correct for spatial autocorrelation present in the data, showing that by neglecting spatial autocorrelation the strength of the relationship between market potential and wages may be underestimated, 3) decompose total market potential into several geographical components and analyze their respective contributions to explaining the geographical wage structure, and 4) explore which regions have gained the most from European integration by calculating counterfactual market potential if they could only trade with other regions within the same country.

Suggested Citation

  • Thomas Y. Mathä & Allison Shwachman, 2009. "Regional wages and market potential in the enlarged EU: An empirical investigation," BCL working papers 37, Central Bank of Luxembourg.
  • Handle: RePEc:bcl:bclwop:bclwp037
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    References listed on IDEAS

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    1. Steven Brakman & Harry Garretsen & Marc Schramm, 2004. "The Spatial Distribution of Wages: Estimating the Helpman-Hanson Model for Germany," Journal of Regional Science, Wiley Blackwell, vol. 44(3), pages 437-466.
    2. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
    3. Head, Keith & Mayer, Thierry, 2006. "Regional wage and employment responses to market potential in the EU," Regional Science and Urban Economics, Elsevier, vol. 36(5), pages 573-594, September.
    4. Knaap, Thijs, 2006. "Trade, location, and wages in the United States," Regional Science and Urban Economics, Elsevier, vol. 36(5), pages 595-612, September.
    5. Mion, Giordano, 2004. "Spatial externalities and empirical analysis: the case of Italy," Journal of Urban Economics, Elsevier, vol. 56(1), pages 97-118, July.
    6. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    7. Schürmann, Carsten & Talaat, Ahmed, 2002. "The European peripherality index," ERSA conference papers ersa02p224, European Regional Science Association.
    8. 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.
    9. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    10. Annekatrin Niebuhr, 2006. "Market access and regional disparities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 40(2), pages 313-334, June.
    11. Laura Hering & Sandra Poncet, 2007. "Economic Geography, Spatial Dependence and Income Inequality in China," Working Papers 2007-22, CEPII research center.
    12. Michael Roos, "undated". "Wages and Market Potential in Germany," Discussion Papers in Economics 00_09, University of Dortmund, Department of Economics.
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    Cited by:

    1. Picard, Pierre M. & Tabuchi, Takatoshi, 2013. "On microfoundations of the city," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2561-2582.

    More about this item

    Keywords

    Market potential; market access; regional wages; distance; European Union;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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