Economic Geography and Wages

Amiti, Mary; Cameron, Lisa A.

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Economic Geography and Wages

39 Pages Posted: 27 Feb 2004

See all articles by Mary Amiti

Mary Amiti

International Monetary Fund (IMF) - Trade Unit; University of Melbourne - Department of Economics; Centre for Economic Policy Research (CEPR)

Lisa A. Cameron

University of Melbourne - Melbourne Institute: Applied Economic & Social Research; IZA Institute of Labor Economics; J-PAL

There are 2 versions of this paper

Date Written: February 2004

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.

Keywords: Agglomeration, vertical linkages, economic geography

JEL Classification: F10, L60, R10

Suggested Citation: Suggested Citation

Amiti, Mary and Cameron, Lisa A., Economic Geography and Wages (February 2004). Available at SSRN: https://ssrn.com/abstract=510043