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

Author

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  • Barbero, Javier
  • Behrens, Kristian
  • Zofio, Jose L.

Abstract

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.

Suggested Citation

  • Barbero, Javier & Behrens, Kristian & Zofio, Jose L., 2015. "Industry location and wages: The role of market size and accessibility in trading networks," CEPR Discussion Papers 10411, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10411
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    References listed on IDEAS

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    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.
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    Cited by:

    1. repec:eee:wdevel:v:103:y:2018:i:c:p:72-87 is not listed on IDEAS
    2. Álvarez, Inmaculada C. & Barbero, Javier & Rodríguez-Pose, Andrés & Zofío, José L., 2018. "Does Institutional Quality Matter for Trade? Institutional Conditions in a Sectoral Trade Framework," World Development, Elsevier, vol. 103(C), pages 72-87.
    3. Proost, Stef & Thisse, Jacques-François, 2015. "Skilled Cities, Regional Disparities, and Efficient Transport: The state of the art and a research agenda," CEPR Discussion Papers 10790, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    generalized transport costs; industry location; size; trading networks; wages;

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • 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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