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The Shrinking Advantage of Market Potential

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  • Marius Brülhart
  • Klaus Desmet
  • Gian-Paolo Klinke

Abstract

How does a country's economic geography evolve along the development path? This paper documents recent employment growth in 18,961 regions in eight of the world's main economies. Overall, market potential is losing importance, and local density is gaining importance, as correlates of local growth. In mature economies, growth is strongest in low-market-potential areas. In emerging economies, the opposite is true, though the association with market potential is also weakening there. Structural transformation away from agriculture can account for some of the observed changes. The part left unexplained by structural transformation is consistent with a standard economic geography model that yields a bell-shaped relation between trade costs and the growth of centrally located regions.

Suggested Citation

  • Marius Brülhart & Klaus Desmet & Gian-Paolo Klinke, 2019. "The Shrinking Advantage of Market Potential," NBER Working Papers 26526, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26526
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    More about this item

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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