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The shrinking advantage of market potential

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  • Brülhart, Marius
  • Desmet, Klaus
  • Klinke, Gian-Paolo

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 as a correlate of local growth, while local employment density is gaining importance. 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.

Suggested Citation

  • Brülhart, Marius & Desmet, Klaus & Klinke, Gian-Paolo, 2020. "The shrinking advantage of market potential," Journal of Development Economics, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:deveco:v:147:y:2020:i:c:s0304387820301048
    DOI: 10.1016/j.jdeveco.2020.102529
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    More about this item

    Keywords

    Regional growth; Market potential; Structural transformation; Economic development;
    All these keywords.

    JEL classification:

    • 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)
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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