Industry Location and Wages: The Role of Market Size and Accessibility in Trading Networks

44 Pages Posted: 10 Feb 2015

See all articles by Javier Barbero

Javier Barbero

Universidad Autónoma de Madrid

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics

José L. Zofío

Universidad Autónoma de Madrid; Erasmus Research Institute of Management (ERIM)

Date Written: February 2015

Abstract

We investigate the geographical distribution of economic activity and wages in a general equilibrium model with many asymmetric regions and costly trade. As shown by extensive simulations on random networks, local market size better explains a region's industry share, whereas accessibility better explains a region's wage. The correlation between equilibrium wages and industry shares is low, thus suggesting that the two variables operate largely independently. The model replicates well the spatial distribution of industry using Spanish data, yet overpredict changes in that distribution due to changes in 'generalized transport costs'. The latter had only small impacts on changes in the geographical distribution of economic activity in Spain from 1980 to 2007.

Keywords: generalized transport costs, industry location, size, trading networks, wages

JEL Classification: C63, F12, R12

Suggested Citation

Barbero, Javier and Behrens, Kristian and Zofío, Jose L., Industry Location and Wages: The Role of Market Size and Accessibility in Trading Networks (February 2015). CEPR Discussion Paper No. DP10411, Available at SSRN: https://ssrn.com/abstract=2562976

Javier Barbero (Contact Author)

Universidad Autónoma de Madrid ( email )

Campus Cantoblanco
C/Kelsen, 1
Madrid, Madrid 28049
Spain

Kristian Behrens

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Jose L. Zofío

Universidad Autónoma de Madrid ( email )

Francisco Tomás y Valiente, 5
Madrid, Madrid 28049
Spain
914972406 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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