Regional Wage and Employment Responses to Market Potential in the EU

Thierry Mayer and Keith Head

No 4908, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Recent theoretical work on economic geography emphasizes the interplay of transport costs and plant-level increasing returns. In these models, the spatial distribution of demand is a key determinant of economic outcomes. In one strand, it is argued that higher demand gives rise to a more than proportionate increase in production, a result known as the home market effect. Another strand emphasizes the effects of market sizes on factor prices. In this paper we highlight the theoretical connection between these two strands. We use data on 57 European regions to show how wages and employment respond to differentials in what we call real market potential, a discounted sum of demands derived from the theory.

Keywords: Home market effects; Wage equation; Gravity equation; New economic geography (search for similar items in EconPapers)
JEL-codes: F12 F15 R11 R12 (search for similar items in EconPapers)
Date: 2005-02
New Economics Papers: this item is included in nep-eec, nep-geo, nep-lab and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Regional wage and employment responses to market potential in the EU (2006)
Working Paper: Regional Wage and Employment Responses to Market Potential in the EU (2006)
Working Paper: Regional Wage and Employment Responses to Market Potential in the EU (2006)
Working Paper: Regional Wage and Employment Responses to Market Potential in the EU (2006)
Working Paper: Regional wage and employment responses to market potential in the EU (2006)
Working Paper: Regional Wage and Employment Responses to Market Potential in the EU (2006)
Working Paper: Regional Wage and Employment Responses to Market Potential in the EU (2005)
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