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`Market Potential, Increasing Returns, and Geographic Concentration

Author

Listed:
  • Hanson, G.H.

Abstract

In this paper, I examine the spatial correlation of wages, employment, and consumer purchasing power across U.S. counties to see whether regional product-market linkages contribute to spatial agglomeration. First, I estimate a simple market-potential function, which is a reduced form for several economic geography models. This specification resembles a spatial labor demand function, as it is proximity to consumer markets that determines nominal wages and employment in a given location. The estimation results indicate how far demand linkages extend across space and how income shocks in one location affect other locations. Second, I estimate a more elaborate market-potential function derived from the Krugman model of economic geography. The parameter estimates reflect the importance of scale economies and transport costs, the stability of spatial agglomeration patterns, and how these features evolve over time.

Suggested Citation

  • Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
    • Handle: RePEc:mie:wpaper:439
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    Keywords

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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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