NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Market Access, Economic Geography, and Comparative Advantage: An Empirical Assessment

Donald R. Davis, David E. Weinstein

NBER Working Paper No. 6787
Issued in November 1998
NBER Program(s):   ITI

The increasing returns revolution in trade is incomplete in an important respect there exists no compelling empirical demonstration of the role of increasing returns in determining production and trade structure. One reason is that trade patterns of the canonical increasing returns models are a consequence simply of specialization, which all theories permit. Krugman (1980) shows that increasing returns models with costs of trade economic geography do allow a simple test: home market effects of demand on production. Davis and Weinstein (1996) reject the simple Krugman (1980) model on OECD data. Here we pair the model with a richer geography structure and find evidence of the importance of increasing returns, in combination with comparative advantage, in affecting OECD manufacturing production structure. The results underscore the importance of market access in implementing models of economic geography.

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Document Object Identifier (DOI): 10.3386/w6787

Published: Davis, Donald R. and David E. Weinstein. "Economic Geography And Regional Production Structure: An Empirical Investigation," European Economic Review, 1999, v43(2,Feb), 379-407.

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