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The Empirical Relevance of the New Economic Geography: Testing for a Spatial Wage Structure in Germany

  • Steven Brakman
  • Harry Garretsen
  • Marc Schramm

In this paper we want to shed some light on the empirical relevance of the new economic geography. Using one of the central features of the core new economic geography models, namely that wages have the tendency to fall the further one moves away from centres of economic activity, we investigate the existence of a spatial wage structure for post-unification Germany. We find support for a spatial wage structure for German city-district wages, and hence indirectly for the relevance of a new economic geography model for Germany. We also find that demand linkages in Germany are strongly localised and that the “old” border still matters to the extent that economic interactions between western and eastern Germany are still limited compared to the situation within these two parts of Germany.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 395.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_395
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  1. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  2. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
  3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  4. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  5. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  6. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  7. Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," NBER Working Papers 5706, National Bureau of Economic Research, Inc.
  8. Guy Dumais & Glenn Ellison & Edward Glaeser, 1997. "Geographic Concentration as a Dynamic Process," NBER Working Papers 6270, National Bureau of Economic Research, Inc.
  9. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
  10. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  11. Glenn Ellison & Edward L. Glaeser, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," Harvard Institute of Economic Research Working Papers 1862, Harvard - Institute of Economic Research.
  12. Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
  13. Vernon Henderson & Duncan Black, 1999. "Spatial Evolution of Population and Industry in the United States," American Economic Review, American Economic Association, vol. 89(2), pages 321-327, May.
  14. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  15. Paul R. Krugman, 1991. "First Nature, Second Nature, and Metropolitan Location," NBER Working Papers 3740, National Bureau of Economic Research, Inc.
  16. Brakman, Steven & Garretsen, Harry, 1993. "The Relevance of Initial Conditions for the German Unification," Kyklos, Wiley Blackwell, vol. 46(2), pages 163-81.
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