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Market Potential and Development

  • Thierry Mayer

This paper provides evidence on the long-term impact of market potential on economic development. It derives from the New Economic Geography literature a structural estimation where the level of factors' income of a country is related to its export capacity, labelled Market Access (MA) by Redding and Venables (2004), or Real Market Potential (RMP) by Head and Mayer (2004). The empirical part evaluates this market potential for all countries in the world with available trade data over the 1960-2003 period and relates it to income per capita. Overall results show that market potential is a powerful driver of increases in income per capita.

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Paper provided by Sciences Po in its series Sciences Po publications with number 6798.

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Date of creation: Apr 2008
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Handle: RePEc:spo:wpmain:info:hdl:2441/10146
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  1. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  2. Stephen Redding & Peter K. Schott, 2003. "Distance, Skill Deepening and Development: Will Peripheral Countries Ever Get Rich?," NBER Working Papers 9447, National Bureau of Economic Research, Inc.
  3. Thibault Fally & Rodrigo Paillacar & Cristina Terra, 2010. "Economic geography and wages in Brazil: Evidence from micro-data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00429718, HAL.
  4. Redding, Stephen J. & Venables, Anthony J, 2000. "Economic Geography and International Inequality," CEPR Discussion Papers 2568, C.E.P.R. Discussion Papers.
  5. Anne-Célia Disdier & Keith Head, 2004. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," Development Working Papers 186, Centro Studi Luca d'Agliano, University of Milano.
  6. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2008. "Spatial Wage Disparities: Sorting Matters!," Post-Print halshs-00754296, HAL.
  7. Head, Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers 3455, C.E.P.R. Discussion Papers.
  8. Laura Hering & Sandra Poncet, 2006. "Market Access Impact on Individual Wage: Evidence from China," Working Papers 2006-23, CEPII research center.
  9. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  10. Mion, Giordano & Naticchioni, Paolo, 2005. "Urbanization Externalities, Market Potential and Spatial Sorting of Skills and Firms," CEPR Discussion Papers 5172, C.E.P.R. Discussion Papers.
  11. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, March.
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