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Market Potential and Border Effects in Europe

  • Michael Pfaffermayr

    (WIFO)

  • Peter Huber

    (WIFO)

  • Yvonne Wolfmayr

    (WIFO)

We estimate a linear approximation of the market potential function for Europe as derived in geography and trade models. Using a spatial econometric estimation approach, border effects are identified by a differential impact of nearby regions' purchasing power, depending on whether two regions are located within the EU15 or outside the EU15. Our results reveal substantial market potential effects on nominal wage rates. We also find significant border effects between EU15 and non-EU15 countries. Our estimation results suggest that the enlargement of the EU in May 2004 may lead to pronounced wage effects in the new member states, but to relatively small ones for the existing members and that regional disparities within new member states will increase.

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Paper provided by WIFO in its series WIFO Working Papers with number 235.

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Date of creation: 15 Nov 2004
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Handle: RePEc:wfo:wpaper:y:2004:i:235
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  1. Gordon H. Hanson, 1998. "Market Potential, Increasing Returns, and Geographic Concentration," NBER Working Papers 6429, National Bureau of Economic Research, Inc.
  2. Crozet, Matthieu & Brülhart, Marius & Koenig, Pamina, 2004. "Enlargement and the EU Periphery : The Impact of Changing Market Potential," HWWA Discussion Papers 270, Hamburg Institute of International Economics (HWWA).
  3. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
  4. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  5. Combes, Pierre-Philippe & Lafourcade, Miren, 2001. "Transport Cost Decline and Regional Inequalities: Evidence from France," CEPR Discussion Papers 2894, C.E.P.R. Discussion Papers.
  6. Patrick A. Puhani, 2001. "Labour Mobility: An Adjustment Mechanism in Euroland? Empirical Evidence for Western Germany, France and Italy," German Economic Review, Verein für Socialpolitik, vol. 2(2), pages 127-140, 05.
  7. Annekatrin Niebuhr, 2006. "Market access and regional disparities," The Annals of Regional Science, Springer, vol. 40(2), pages 313-334, June.
  8. Annekatrin Niebuhr, 2005. "The Impact of EU Enlargement on European Border Regions," ERSA conference papers ersa05p114, European Regional Science Association.
  9. Brakman, Steven & Garretsen, Harry & Schramm, Marc, 2002. "New economic geography in Germany : testing the Helpman-Hanson model," HWWA Discussion Papers 172, Hamburg Institute of International Economics (HWWA).
  10. H Garretsen & M. Schramm & S. Brakman, 2003. "The Spatial Distribution of Wages: Estimating the Helpman-Hanson model for Germany," Working Papers 03-09, Utrecht School of Economics.
  11. Raul Livas Elizondo & Paul Krugman, 1992. "Trade Policy and the Third World Metropolis," NBER Working Papers 4238, National Bureau of Economic Research, Inc.
  12. Giuseppe De Arcangelis & Giordano Mion, 2002. "Spatial Externalities and Empirical Analysis: The case of Italy," series 0006, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Jan 2002.
  13. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
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