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Gravity, market potential and economic development

Author

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  • Keith Head

    (Sauder - Sauder School of Business [British Columbia] - UBC - University of British Columbia)

  • Thierry Mayer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article provides evidence on the long-term impact of market potential on economic development. It derives from the New Economic Geography literature a structural estimation where the level of factors' income of a country is related to its proximity to large markets, referred to as 'market potential'. The empirical part evaluates this market potential for all countries in the world with available trade data over the 1965-2003 period and relates it to income per capita. Overall results show that market potential is a powerful driver of increases in income per capita.

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  • Keith Head & Thierry Mayer, 2011. "Gravity, market potential and economic development," SciencePo Working papers Main hal-01024204, HAL.
    • Handle: RePEc:hal:spmain:hal-01024204
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01024204
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