Discussion Paper Details

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Title: Economic Geography and Wages

Author(s): Mary Amiti and Lisa Cameron

Publication Date: February 2004

Keyword(s): agglomeration, economic geography and vertical linkages

Programme Area(s): International Trade and Regional Economics

Abstract: This Paper estimates the agglomeration benefits that arise from vertical linkages between firms. The analysis is based on international trade and economic geography theory developed by Krugman and Venables (1995). We identify the agglomeration benefits of the spatial variation in firm level nominal wages. Unusually detailed intermediate input data allow us to capture more accurately spatial input/output linkages than in previous studies. We take account of the location of input suppliers to estimate cost linkages; and the location of demand from final consumers and other firms to estimate demand linkages. The results show that the externalities that arise from demand and cost linkages are quantitatively important and highly localized. An understanding of the extent and strength of spatial linkages is crucial in shaping policies that seek to influence regional development.

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Bibliographic Reference

Amiti, M and Cameron, L. 2004. 'Economic Geography and Wages'. London, Centre for Economic Policy Research.