Market Potential and the curse of distance in European regions

Bruna, Fernando and Faíña, Andrés and Lopez-Rodriguez, Jesus (2014): Market Potential and the curse of distance in European regions.

Abstract

In the context of the New Economic Geography (NEG) wage equation, the ‘curse of distance’ is the tendency of peripheral regions to have lower income because of being far from the main markets, as captured by a variable Market Potential. This pattern is consistent with the core-periphery spatial distribution of the European regional economic activity. Nevertheless, during the last decades, the European Union has been implemented active transport and regional policies, which should mitigate the consequences of peripherality. This paper analyzes the changes of the cross-sectional effects of Market Potential on the European regional income per capita during the sample period 1995-2008. The paper finds evidence that the cross-sectional elasticity of per capita income to Market Po-tential has been decreasing over the sample period. However, some results are sensitive to changes in the specification of the wage equation or the estimation method.

• Item Type: MPRA Paper
• Language: English
• Keywords: NEG, wage equation, distance, core-periphery, regional policy, European regions
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity

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