The Shrinking Advantage of Market Potential

45 Pages Posted: 9 Dec 2019

See all articles by Marius Brülhart

Marius Brülhart

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)

Klaus Desmet

Southern Methodist University (SMU); Centre for Economic Policy Research (CEPR)

Gian-Paolo Klinke

Swiss Federal Statistical Office

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Date Written: December 2019

Abstract

How does a country's economic geography evolve along the development path? This paper documents recent employment growth in 18,961 regions in eight of the world's main economies. Overall, market potential is losing importance, and local density is gaining importance, as correlates of local growth. In mature economies, growth is strongest in low-market-potential areas. In emerging economies, the opposite is true, though the association with market potential is also weakening there. Structural transformation away from agriculture can account for some of the observed changes. The part left unexplained by structural transformation is consistent with a standard economic geography model that yields a bell-shaped relation between trade costs and the growth of centrally located regions.

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Suggested Citation

Brulhart, Marius and Desmet, Klaus and Klinke, Gian-Paolo, The Shrinking Advantage of Market Potential (December 2019). NBER Working Paper No. w26526. Available at SSRN: https://ssrn.com/abstract=3500644

Marius Brulhart (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
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HOME PAGE: http://www.hec.unil.ch/mbrulhar/

Klaus Desmet

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gian-Paolo Klinke

Swiss Federal Statistical Office ( email )

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