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Regional wage and employment responses to market potential in the EU

Listed author(s):
  • Keith Head

    (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia)

  • Thierry Mayer

    (PJSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

In new economic geography models, the spatial distribution of demand is a key determinant of economic outcomes. In one strand, it is argued that higher demand gives rise to a more than proportionate increase in production, a result known as the home market effect. Another strand emphasizes the effects of market sizes on factor prices. We highlight the theoretical connection between these two strands. Using data on 57 European regions, we show how wages and employment respond to differentials in what we call real market potential, a discounted sum of demands derived from the theory.

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Paper provided by HAL in its series Post-Print with number halshs-00754132.

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Date of creation: Sep 2006
Publication status: Published in Regional Science and Urban Economics, Elsevier, 2006, 36 (5), pp.573-594. 〈10.1016/j.regsciurbeco.2006.06.002〉
Handle: RePEc:hal:journl:halshs-00754132
DOI: 10.1016/j.regsciurbeco.2006.06.002
Note: View the original document on HAL open archive server: https://hal-pjse.archives-ouvertes.fr/halshs-00754132
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