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Trade Costs, Market Access and Economic Geography: Why the Empirical Specification of Trade Costs Matters

  • Maarten Bosker
  • Harry Garretsen

Trade costs are a crucial in new economic geography (NEG) models. The unavailability of actual trade costs data requires the approximation of trade costs. Most NEG studies do not deal with the ramifications of the particular trade costs specification used. This paper shows that the specification of trade costs matters. Estimations of a NEG wage equation for a sample of 80 countries show how the relevance of the key NEG variable, market access, depends upon the trade costs specification. Our conclusion is that NEG needs to (re-)examine the sensitivity of its empirical findings to the handling of trade costs.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2071.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_2071
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  1. Pierre-Philippe Combes & Gilles Duranton & Henry Overman, 2005. "Agglomeration and the Adjustment of the Spatial Economy," CEP Discussion Papers dp0689, Centre for Economic Performance, LSE.
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  7. Redding, Stephen J. & Venables, Anthony J, 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
  8. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
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  10. McCann, Philip, 2001. "A proof of the relationship between optimal vehicle size, haulage length and the structure of distance-transport costs," Transportation Research Part A: Policy and Practice, Elsevier, vol. 35(8), pages 671-693, September.
  11. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  12. John F. Helliwell & Geneviève Verdier, 2001. "Measuring internal trade distances: a new method applied to estimate provincial border effects in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 1024-1041, November.
  13. Head, Keith & Mayer, Thierry, 2003. "The Empirics of Agglomeration and Trade," CEPR Discussion Papers 3985, C.E.P.R. Discussion Papers.
  14. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
  15. Philip McCann, 2005. "Transport costs and new economic geography," Journal of Economic Geography, Oxford University Press, vol. 5(3), pages 305-318, June.
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