Putting New Economic Geography to the Test: Free-Ness of Trade and Agglomeration in the EU Regions

By S. Brakman, H. Garretsen, Marc Schramm. Social Science Research Network, 2005

182 citations recorded by the source corpus.

Based on a new economic geography (NEG) model by Puga (1999), we use the equilibrium wage equation to estimate two key structural model parameters for the NUTS II EU regions. These estimations enable us to come up with an empirically grounded free-ness of trade parameter. In line with NEG theory, the estimation results show that a spatial wage structure exists for the EU regions. By going back to the theoretical model we then analyze the implications of the free-ness of trade parameter for the degree of agglomeration. Our main findings suggest that agglomeration forces still have only a limited spatial reach in the EU. Agglomeration forces appear to be rather localized. At the same time, confronting our empirical results with the underlying new economic geography model also brings out the limitations of empirical research in new economic geography.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/23cc76c390e5983e670a45f27cacf19878d004a4

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Citations in the corpus

Adding geography to the new economic geography : bridging the gap between theory and empirics (2010, methodology): “24 The above results in case of interregional labour mobility are different from the findings in Stelder (2005) and Brakman et al. (2006) (the latter is also based on Stelder’s model but starting the simulations from the actual distribution instead of an equal distribution of labour across regions).”