NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Economic Geography and Reginal Production Structure: An Empirical Investigation

Donald R. Davis, David E. Weinstein

NBER Working Paper No. 6093
Issued in July 1997
NBER Program(s):   ITI

There are two principal theories of why countries or regions trade: comparative advantage and increasing returns to scale. Yet there is virtually no empirical work that assesses the relative importance of these two theories in accounting for production structure and trade. We use a framework that nests an increasing returns model of economic geography featuring market effects trade models to account for the structure of regional production in Japan. We find support for the existence of economic geography effects in eight of nineteen manufacturing sectors, including such important ones as transportation equipment, iron and steel, electrical machinery, and chemicals. Moreover, we find that these effects are economically very significant. The latter contrasts with the results of Davis and Weinstein (1997), which found scant economic significance of economic geography for the structure of OECD production. We conclude that while economic geography may explain little about the international structure of production, it is very important for understanding the regional structure of production.

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Document Object Identifier (DOI): 10.3386/w6093

Published: with R. Forslid and J. Haaland, The World Economy, Vol.19, no.6 (1996): 635-659. European Economic Review (February 1999). citation courtesy of

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