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Testing Nonlinear New Economic Geography Models

  • Bode, Eckhardt

    (Kiel Institute for the World Economy, Kiel, Germany)

  • Mutl, Jan

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

We test a New Economic Geography (NEG) model for U.S. counties, employing a new strategy that allows us to bring the full NEG model to the data, and to assess selected elements of this model separately. We find no empirical support for the full NEG model. Regional wages in the U.S. do not respond to local wage shocks in the way predicted by the model. We show that the main reason for this is that the model does not predict either the migration patterns induced by local wage shocks or the repercussions of this migration for regional wages correctly.

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File URL: http://www.ihs.ac.at/publications/eco/es-253.pdf
File Function: First version, 2010
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 253.

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Length: 41 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:ihs:ihsesp:253
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  1. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
  2. Matthieu Crozet, 2004. "Do Migrants Follow Market Potentials? An Estimation of a New Economic Geography Model," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00096277, HAL.
  3. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
  4. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Reginal Production Structure: An Empirical Investigation," NBER Working Papers 6093, National Bureau of Economic Research, Inc.
  5. Brakman,Steven & Garretsen,Harry & van Marrewijk,Charles, 2009. "The New Introduction to Geographical Economics," Cambridge Books, Cambridge University Press, number 9780521875325, November.
  6. TABUCHI, Takatoshi & THISSE, Jacques-François, 2001. "Taste heterogeneity, labor mobility and economic geography," CORE Discussion Papers 2001044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. 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.
  8. Dirk Stelder, 2005. "Where Do Cities Form? A Geographical Agglomeration Model for Europe," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 657-679.
  9. Stephen Redding & Anthony J. Venables, 2001. "Economic geography and international inequality," LSE Research Online Documents on Economics 3714, London School of Economics and Political Science, LSE Library.
  10. Stephen Redding & Daniel M. Sturm, 2005. "The Costs of Remoteness: Evidence from German Division and Reunification," CEP Discussion Papers dp0688, Centre for Economic Performance, LSE.
  11. Rappaport, Jordan, 2007. "Moving to nice weather," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 375-398, May.
  12. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  13. Mion, Giordano, 2003. "Spatial Externalities and Empirical Analysis: The Case of Italy," ZEW Discussion Papers 03-38, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  14. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert Nicoud, 2003. "Economic Geography and Public Policy," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00179815, HAL.
  15. repec:hal:journl:halshs-00096277 is not listed on IDEAS
  16. 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, 05.
  17. Ottaviano, Gianmarco I.P. & Pinelli, Dino, 2006. "Market potential and productivity: Evidence from Finnish regions," Regional Science and Urban Economics, Elsevier, vol. 36(5), pages 636-657, September.
  18. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 205-259, 04.
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