Is the wage equation spatial enough? Evidence from a novel regional trade dataset

Aurélien Fichet de Clairfontaine and Christoph Hammer ()

Review of International Economics, 2018, vol. 26, issue 3, 610-633

Abstract: This study focuses on the market accessibility of European regions and its relationship to income per capita, summarized in the new economic geography (NEG) “wage equation”. In a first step, we make use of a novel dataset of bilateral trade flows for 254 European nomenclature of territorial units for statistics (NUTS‐2) regions (for 26 European countries excluding Bulgaria and Romania) in order to estimate trade costs and ultimately construct a regional measure of access to markets. In a second step, we test the hypothesis that access to domestic as well as to foreign markets increases income per capita. We find that, in spite of its spatial formulation, the wage equation is not able to capture local spatial patterns of the distribution of European regional income per capita.

Date: 2018
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