Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Trade Costs and Income in European Regions
() and Aurélien Fichet de Clairfontaine
Abstract: Using a New Economic Geography (NEG) model, this study
estimates the relationship between regional per capita income levels and
the proximity of regions to large markets. Market access cannot be observed
directly, so it has to be constructed. We follow a two-step-procedure of
Redding and Venables (2004) and use results of a spatially-filtered gravity
model to infer market access. To this end, we make use of a new dataset of
constructed bi-regional trade flows between (and within) 240 European
NUTS-2 regions (from 25 European countries excluding Bulgaria, Croatia and
Romania) for the year 2010 (Thissen et al. 2014, IPTS). In a second step we
test the hypothesis that access to large markets increases factor incomes.
We find robust evidence that supports this hypothesis on a regional level.
Controlling for a variety of factors that drive income differences, our
findings highlight the robustness of the role of market access in
explaining the uneven spatial distribution of income.
Keywords: Wage equation, Gravity, European regions, New Economic Geography; (follow links to similar papers)
JEL-Codes: F12,; F14; (follow links to similar papers)
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