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The Spatial Distribution of Wages:Estimating the Helpman-Hanson model for Germany

  • S. Brakman
  • H Garretsen
  • M. Schramm

Using German district data we estimate the structural parameters of a new economic geography model as developed by Helpman (1998) and Hanson (1998, 2001a). The advantage of the Helpman-Hanson model is that it incorporates the fact that agglomeration of economic activity increases the prices of local (non-tradable) services, like housing. This model thereby provides an intuitively appealing spreading force that allows for less extreme agglomeration patterns than predicted by the bulk of new economic geography models. Generalizing the Helpman-Hanson model, we also analyze the implications for the spatial distribution of wages once the assumption of real wage equalization is dropped. If we no longer assume real wage equalization we find support for a spatial wage structure as well as for the relevance of the structural parameters of the theoretical model.

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Paper provided by Utrecht School of Economics in its series Working Papers with number 03-09.

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Date of creation: Aug 2004
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Handle: RePEc:use:tkiwps:0309
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  1. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 1999. "Agglomeration and trade revisited," CORE Discussion Papers 1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
  3. Eaton, Jonathan & Eckstein, Zvi, 1997. "Cities and growth: Theory and evidence from France and Japan," Regional Science and Urban Economics, Elsevier, vol. 27(4-5), pages 443-474, August.
  4. Donald R. Davis & David E. Weinstein, 2001. "Bones, Bombs and Break Points: The Geography of Economic Activity," NBER Working Papers 8517, National Bureau of Economic Research, Inc.
  5. Glaeser, Edward L. & Shapiro, Jesse M., 2002. "Cities and Warfare: The Impact of Terrorism on Urban Form," Journal of Urban Economics, Elsevier, vol. 51(2), pages 205-224, March.
  6. Head, Keith & Mayer, Thierry, 2003. "The Empirics of Agglomeration and Trade," CEPR Discussion Papers 3985, C.E.P.R. Discussion Papers.
  7. Edward L. Glaeser & Joseph Gyourko, 2001. "Urban Decline and Durable Housing," NBER Working Papers 8598, National Bureau of Economic Research, Inc.
  8. Donald R. Davis & David E. Weinstein, 2004. "A Search for Multiple Equilibria in Urban Industrial Structure," NBER Working Papers 10252, National Bureau of Economic Research, Inc.
  9. Vernon Henderson & Duncan Black, 1999. "Spatial Evolution of Population and Industry in the United States," American Economic Review, American Economic Association, vol. 89(2), pages 321-327, May.
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