DP6798 Market Potential and Development

Author(s): Thierry Mayer
Publication Date: April 2008
Keyword(s): Development, Gravity, International Trade, Market Potential
JEL(s): F15, O11
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6798

This paper 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 export capacity, labelled Market Access (MA) by Redding and Venables (2004), or Real Market Potential (RMP) by Head and Mayer (2004). The empirical part evaluates this market potential for all countries in the world with available trade data over the 1960-2003 period and relates it to income per capita. Overall results show that market potential is a powerful driver of increases in income per capita.