Thierry Mayer

The Empirics of Agglomeration and Trade

This chapter examines empirical strategies that have been or could be used to evaluate the importance of agglomeration and trade models. This theoretical approach, widely known as “New Economic Geography” (NEG), emphasizes the interaction between transport costs and firm-level scale economies as a source of agglomeration. NEG focuses on forward and backward trade linkages as causes of observed spatial concentration of economic activity. We survey the existing literature, organizing the papers we discuss under the rubric of five interesting and testable hypotheses that emerge from NEG theory. We conclude the chapter with an overall assessment of the empirical support for NEG and suggest some directions for future research.

Non-Europe: The Magnitude and Causes of Market Fragmentation in the EU

Non-Europe: The Magnitude and Causes of Market Fragmentation in the EU. — In 1985 the European Commission diagnosed its member states as suffering from excessive market fragmentation, later referred to as “Non-Europe.” The authors examine the empirical basis for the Commission’s diagnosis using a trade model derived from monopolistic competition. They then investigate the links between the initial size and subsequent evolution of border effects within the EU. The findings support the view that European consumers act as if imports from other members were subject to high nontariff barriers. However, there appears to be almost no relationship between market fragmentation and the barriers that were identified and removed by Europe’s Single Market Programme.Zusammenfassung“Non-Europe”: Grö\e und Ursachen von Marktzersplitterung in der EU. — Im Jahre 1985 stellte die EuropÄische Kommission fest, dass ihre Mitgliedstaaten unter erheblicher Marktzersplitterung litten, spÄter auch “Non-Europe” genannt. Die Verfasser überprüfen die empirische Grundlage für die Diagnose der Kommission und benutzen dazu ein Handelsmodell, das aus monopolistischer Konkurrenz abgeleitet ist. Sie untersuchen für die EU-LÄnder, wieviel auslÄndische Güter die Verbraucher im VerhÄltnis zu inlÄndischen Gütern bei gleicher Entfernung von den Produktionsstandorten nachgefragt haben und wie sich dieses VerhÄltnis im Laufe der Zeit verÄndert hat. Ihre Ergebnisse stützen die Ansicht, dass die europÄischen Verbraucher sich so verhalten, als seien die Importe aus anderen Mitgliedstaaten hohen nichttarifÄren Handelshemmnissen unterworfen. Allerdings scheint so gut wie keine Beziehung zwischen der Marktzersplitterung und den Hemmnissen zu bestehen, die durch Europas Programm des Einheitlichen Binnenmarktes identifiziert und beseitigt wurden.

Gravity Equations: Workhorse, Toolkit, and Cookbook

This chapter focuses on the estimation and interpretation of gravity equations for bilateral trade. This necessarily involves a careful consideration of the theoretical underpinnings since it has become clear that naive approaches to estimation lead to biased and frequently misinterpreted results. There are now several theory-consistent estimation methods and we argue against sole reliance on any one method and instead advocate a toolkit approach. One estimator may be preferred for certain types of data or research questions but more often the methods should be used in concert to establish robustness. In recent years, estimation has become just a first step before a deeper analysis of the implications of the results, notably in terms of welfare. We try to facilitatediffusion of best-practice methods by illustrating their application in a step-by-step cookbook mode of exposition.

Notes on CEPII’s Distances Measures: The GeoDist Database

GeoDist makes available the exhaustive set of gravity variables used in Mayer and Zignago (2005). GeoDist provides several geographical variables, in particular bilateral distances measured using citylevel data to assess the geographic distribution of population inside each nation. We have calculated different measures of bilateral distances available for most countries across the world (225 countries in the current version of the database). For most of them, different calculations of “intra-national distances” are also available. The GeoDist webpage provides two distinct files: a country-specific one (geo_cepii)and a dyadic one (dist_cepii) including a set of different distance and common dummy variables used in gravity equations to identify particular links between countries such as colonial past, common languages, contiguity. We try to improve upon the existing similar datasets in terms of geographical coverage, quality of measurement and number of variables provided.

The happy few: the internationalisation of European firms. New facts based on firm-level evidence

Policymakers tend to view the internationalisation of firms from the perspective of export, import and FDI statistics. A lack of statistical information at the firm level has so far prevented the systematic inclusion of firm-level analysis in the policymakers standard toolbox. Some firm-level datasets are now available, however, and their analysis reveals some new facts that are simply unobservable at the aggregate level.

What separates us? Sources of resistance to globalization

With increasing sophistication, economists have been estimating gravity equations for five decades. Robust evidence shows that borders and distance impede trade by much more than tariffs or transports costs can explain. We therefore advocate investigation of other sources of resistance, despite the greater difficult involved in measuring and modelling them. From our selective review of recent findings, a unifying explanation emerges. A legacy of historical isolation and conflict forged a world economy in which neither tastes nor information are homogeneously distributed. Cultural difference and inadequate information manifest themselves most strongly at national borders and over distance.

Trade in the Triad: How Easy Is the Access to Large Markets?

In this paper, we measure market access between the United States, the EU, and Japan (the Triad), using the effect of national borders on trade patterns. We investigate overall and industry-level trends of bilateral trade openness and provide explanations for those using proxies for bilateral observed protection (tariffs and NTBs), home bias of consumers, product differentiation, and levels of FDI. The explanations related to actual protection, home bias and substitutability of goods put together explain a large part of the border effect between blocs of the Triad, although they do not explain the whole of the border effect puzzle.

Spatial Cournot competition and heterogeneous production costs across locations

The model developed in this paper extends the strategic location framework under Cournot competition in order to allow for different production costs across locations. The subgame perfect equilibria where two firms choose first a location and then quantities is analyzed under general production cost distributions. It appears that central agglomeration (the equilibrium under the uniform production costs distribution) only arises in the particular case where the center of the segment yields the minimal production cost. If the production cost distribution is globally convex, an agglomerated equilibrium exists at an intermediary point between the locations minimizing production cost and transport cost, respectively. The conditions are also derived for the existence of symmetric dispersed location equilibria. Two specific production cost distributions are analyzed: the linear and the inverted U one. It is demonstrated that the unique equilibrium in the linear distribution case is an agglomerated equilibrium and that the inverted U distribution yields a symmetric location of firms in equilibrium.

Policy Coherence for Development

Meeting international commitments to development co-operation such as the Millennium Development Goals, the Monterrey Consensus on financing for development and the Gleneagles G8 summit agreements to increase aid by around

Multinational Firms’ Location and the New Economic Geography

50 billion per year by 2010 will require not only increased resources, but also their judicious use. In this context policymakers and others cannot limit their attention to the effectiveness of foreign aid alone; they must broaden the discussion to include the development-related impacts of a spectrum of rich-country policies, including those related to investment, trade, and international migration (...).