The Final Frontier? Border Effects and German Regional Wages

34 Pages Posted: 3 Dec 2002

See all articles by Harry Garretsen

Harry Garretsen

Utrecht University - School of Economics; CESifo (Center for Economic Studies and Ifo Institute); Radboud University Nijmegen - Department of Economics

Steven Brakman

University of Groningen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Marc Schramm

Utrecht University - Faculty of Law

Date Written: 2002

Abstract

Recent studies of border effects have focused on the intra-country and inter-country comparison of trade flows. It is found that borders have a negative impact on the size of cross-border trade. In order to estimate border effects on a regional level one needs not only data on inter-country but also on intra-country trade. For many countries (regional) data on intra-country trade are simply lacking, which makes an analysis of border effects and border regions cumbersome. In this paper we take a different approach to measure the impact of borders. We estimate a market potential function for German regional wages and by analysing whether German border regions can be distinguished from the other regions in terms of their wages. We use a market potential function because its basic idea (regional wages fall the further one moves away from economic centers) can be grounded on different trade theories and also because the resulting wage equation is related to border effect studies based on trade flows. We use a data set for 441 German districts for the years 1992 and 1995. In general, we find some evidence that is consistent with the existence of border effects but this evidence is probably better looked upon as an indication of a strong localisation of demand spillovers on regional wages in general. Even though border effects can not be ruled out, the overriding outcome is that of a strong localization of demand spill-overs for all German regions.

Keywords: economic geography, empirical estimation, Germany

JEL Classification: R10, R12, R23

Suggested Citation

Garretsen, Harry and Brakman, Steven and Schramm, Marc, The Final Frontier? Border Effects and German Regional Wages (2002). HWWA Discussion Paper No. 197. Available at SSRN: https://ssrn.com/abstract=330121 or http://dx.doi.org/10.2139/ssrn.330121

Harry Garretsen (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 0 30 253 9810 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Radboud University Nijmegen - Department of Economics ( email )

Nijmegen, 6500 HK
Netherlands
+31 24 361 5889 (Phone)
+31 24 361 1846 (Fax)

Steven Brakman

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 50 363 3746 (Phone)
+31 50 363 3730 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Marc Schramm

Utrecht University - Faculty of Law ( email )

Janskerkhof 3
Utrecht, 3512 BK
Netherlands

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