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

38 Pages Posted: 10 Nov 2005

See all articles by Steven Brakman

Steven Brakman

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

Harry Garretsen

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

Marc Schramm

Utrecht University - Faculty of Law

Date Written: October 2005

Abstract

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.

JEL Classification: F12, J31, R12

Suggested Citation

Brakman, Steven and Garretsen, Harry and Schramm, Marc, Putting New Economic Geography to the Test: Free-Ness of Trade and Agglomeration in the EU Regions (October 2005). CESifo Working Paper Series No. 1566. Available at SSRN: https://ssrn.com/abstract=844665

Steven Brakman (Contact Author)

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

Harry Garretsen

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)

Marc Schramm

Utrecht University - Faculty of Law ( email )

Janskerkhof 3
Utrecht, 3512 BK
Netherlands

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