Market Potential and the Rise of US Productivity Leadership

Dan Liu, Christopher M. Meissner

NBER Working Paper No. 18819
Issued in February 2013
NBER Program(s):Development of the American Economy

The US advantage in per capita output, apparent from the late 19th century, is frequently attributed to its relatively large domestic market. We construct market potential measures for the US and 26 other countries between 1880 and 1913 based on a general equilibrium model of production and trade. When compared to other leading economies in 1900, the year around which the US overtakes Britain in productivity leadership, the US does not have the overwhelming lead in market potential that it has in GDP per capita. Still, market potential is positively related to the cross-country distribution of income per capita, but the impact of market potential is likely to be very heterogeneous. We illustrate this in a quantitative calculation of the welfare gains from removing international borders in 1900 within a parsimonious general equilibrium trade model. While there are gains from trade for all nations, the largest European countries do not close their per capita income gaps with the US after this hypothetical rise in market potential. On the other hand, many small countries could have done so.

download in pdf format
   (525 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18819

Published: Journal of International Economics Volume 96, Issue 1, May 2015, Pages 72–87 Cover image Market potential and the rise of US productivity leadership Dan Liua, b, , Christopher M. Meissnerc, d, , citation courtesy of

Users who downloaded this paper also downloaded* these:
Aghion, Akcigit, and Howitt w18824 What Do We Learn From Schumpeterian Growth Theory?
Huberman, Meissner, and Oosterlinck w20851 Technology and Geography in the Second Industrial Revolution: New Evidence from the Margins of Trade
Meissner w18814 Capital Flows, Credit Booms, and Financial Crises in the Classical Gold Standard Era
Burstein and Gopinath w18829 International Prices and Exchange Rates
Michaillat and Saez w18826 Aggregate Demand, Idle Time, and Unemployment
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us