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Regional wages and market potential in the enlarged EU: An empirical investigation

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  • Thomas Y. Mathä
  • Allison Shwachman

Abstract

This paper empirically analyses the link between market potential and regional wages in the enlarged EU. We extend previous studies of EU regions in several ways. 1) we analyze the link between market potential and wages for the EU27, 2) correct for spatial autocorrelation present in the data, showing that by neglecting spatial autocorrelation the strength of the relationship between market potential and wages may be underestimated, 3) decompose total market potential into several geographical components and analyze their respective contributions to explaining the geographical wage structure, and 4) explore which regions have gained the most from European integration by calculating counterfactual market potential if they could only trade with other regions within the same country.

Suggested Citation

  • Thomas Y. Mathä & Allison Shwachman, 2009. "Regional wages and market potential in the enlarged EU: An empirical investigation," BCL working papers 37, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp037
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    More about this item

    Keywords

    Market potential; market access; regional wages; distance; European Union;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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