Market potential, increasing returns and geographic concentration |
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Authors: | Gordon H. Hanson |
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Affiliation: | University of California, San Diego, IR/PS 0519, 9500 Gilman Drive, La Jolla, CA 92093-0519, United States National Bureau of Economic Research, United States |
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Abstract: | In this paper, I examine the spatial correlation between wages and consumer purchasing power across U.S. counties to see whether regional demand linkages contribute to spatial agglomeration. First, I estimate a simple market-potential function, in which wages are associated with proximity to consumer markets. Second, I estimate an augmented market-potential function derived from the Krugman model of economic geography, parameter estimates for which reflect the importance of scale economies and transport costs. The estimation results suggest that demand linkages between regions are strong and growing over time, but quite limited in geographic scope. |
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Keywords: | F12 R12 |
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