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New economic geography in Germany : testing the Helpman-Hanson model

  • Brakman, Steven
  • Garretsen, Harry
  • Schramm, Marc

In this paper we find evidence that the new economic geography approach is able to describe and explain the spatial characteristics of an economy, in our case the German economy. Using German district data we estimate the structural parameters of a new economic geography model as developed by Helpman (1998) and Hanson (1998) and we find confirmation for a spatial wage structure. 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. Based on different estimation strategies and taking a number of features of the re-unified German economy into account, we do not only test for the spatial distribution of wages but also for the spatial structure with respect to German unemployment, employment and land prices.

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Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 172.

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Date of creation: 2002
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Handle: RePEc:zbw:hwwadp:26183
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Web page: http://www.econstor.eu/handle/10419/20
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  1. Puga, Diego, 1997. "The Rise and Fall of Regional Inequalities," CEPR Discussion Papers 1575, C.E.P.R. Discussion Papers.
  2. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
  3. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  4. Anas, Alex & Arnott, Richard & Small, Kenneth A., 1997. "Urban Spatial Structure," University of California Transportation Center, Working Papers qt835049q3, University of California Transportation Center.
  5. Sinn, Hans-Werner, 2002. "Germany's Economic Unification: An Assessment after Ten Years," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 113-28, February.
  6. David G. Blanchflower & Andrew J. Oswald, 1989. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc.
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  7. Anthony J. Venables, 1993. "Equilibrium Locations of Vertically Linked Industries," CEP Discussion Papers dp0137, Centre for Economic Performance, LSE.
  8. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 857-80, November.
  9. Brakman, Steven & Garretsen, Harry, 1993. "The Relevance of Initial Conditions for the German Unification," Kyklos, Wiley Blackwell, vol. 46(2), pages 163-81.
  10. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  11. Krugman, Paul & Venables, Anthony J., 1996. "Integration, specialization, and adjustment," European Economic Review, Elsevier, vol. 40(3-5), pages 959-967, April.
  12. Paul Krugman, 1998. "Space: The Final Frontier," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 161-174, Spring.
  13. J. Peter Neary, 2000. "Of Hype and Hyperbolas - Introducing the new Economic Geography," Working Papers 200019, School of Economics, University College Dublin.
  14. Gordon H. Hanson, 2000. "Scale Economies and the Geographic Concentration of Industry," NBER Working Papers 8013, National Bureau of Economic Research, Inc.
  15. Michael Roos, . "Wages and Market Potential in Germany," Discussion Papers in Economics 00_09, University of Dortmund, Department of Economics.
  16. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
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