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Gravity, market potential and development

  • Keith Head

    (Sauder School of Business [British Columbia])

  • Thierry Mayer

    (Département d'économie)

This article 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 proximity to large markets, referred to as ‘market potential’. The empirical part evaluates this market potential for all countries in the world with available trade data over the 1965–2003 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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File URL: http://spire.sciencespo.fr/hdl:/2441/c8dmi8nm4pdjkuc9g8mb6c01j/resources/j-econ-geogr-2011-head-281-94.pdf
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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/c8dmi8nm4pdjkuc9g8mb6c01j.

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Date of creation: 2011
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Publication status: Published in Journal of Economic Geography, 2011, vol. 11, pp.281-294
Handle: RePEc:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8mb6c01j
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  1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  2. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
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  4. H. Hanson, Gordon, 2005. "Market potential, increasing returns and geographic concentration," Journal of International Economics, Elsevier, vol. 67(1), pages 1-24, September.
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  17. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
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  19. Laura Hering & Sandra Poncet, 2006. "Market Access Impact on Individual Wage: Evidence from China," Working Papers 2006-23, CEPII research center.
  20. Gilles Duranton & Vassilis Monastiriotis, 2002. "Mind the Gaps: The Evolution of Regional Earnings Inequalities in the U.K., 1982-1997," Journal of Regional Science, Wiley Blackwell, vol. 42(2), pages 219-256.
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