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Industry location and wages: The role of market size and accessibility in trading networks

Listed author(s):
  • Barbero, Javier
  • Behrens, Kristian
  • Zofio, Jose L.

We investigate the geographical distribution of economic activity and wages in a general equilibrium model with many asymmetric regions and costly trade. As shown by extensive simulations on random networks, local market size better explains a region’s industry share, whereas accessibility better explains a region’s wage. The correlation between equilibrium wages and industry shares is low, thus suggesting that the two variables operate largely independently. The model replicates well the spatial distribution of industry using Spanish data, yet overpredict changes in that distribution due to changes in 'generalized transport costs'. The latter had only small impacts on changes in the geographical distribution of economic activity in Spain from 1980 to 2007.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 10411.

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Date of creation: Feb 2015
Handle: RePEc:cpr:ceprdp:10411
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  1. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
  2. Jordi Pons & Elisenda Paluzie & Javier Silvestre & Daniel A. Tirado, 2007. "Testing The New Economic Geography: Migrations And Industrial Agglomerations In Spain," Journal of Regional Science, Wiley Blackwell, vol. 47(2), pages 289-313.
  3. Zhihao Yu, 2005. "Trade, market size, and industrial structure: revisiting the home-market effect," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 255-272, February.
  4. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
  5. Dao-Zhi Zeng & Toru Kikuchi, 2009. "Home Market Effect And Trade Costs," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 253-270.
  6. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2009. "Beyond the home market effect: Market size and specialization in a multi-country world," Journal of International Economics, Elsevier, vol. 79(2), pages 259-265, November.
  7. Picard, Pierre M. & Zeng, Dao-Zhi, 2005. "Agricultural sector and industrial agglomeration," Journal of Development Economics, Elsevier, vol. 77(1), pages 75-106, June.
  8. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
  9. Elisenda Paluzie & Jordi Pons & Javier Silvestre & Daniel Tirado, 2009. "Migrants and market potential in Spain over the twentieth century: a test of the new economic geography," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(4), pages 243-265, December.
  10. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2007. "Changes in transport and non-transport costs: Local vs global impacts in a spatial network," Regional Science and Urban Economics, Elsevier, vol. 37(6), pages 625-648, November.
  11. Miguel Gómez-Antonio & Bernard Fingleton, 2012. "Analyzing The Impact Of Public Capital Stock Using The Neg Wage Equation: A Spatial Panel Data Approach," Journal of Regional Science, Wiley Blackwell, vol. 52(3), pages 486-502, 08.
  12. J. V. Henderson & J. F. Thisse (ed.), 2004. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, edition 1, volume 4, number 4.
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