We analyze the effects of local market size and accessibility on the spatial distribution of economic activity and wages in general equilibrium trade models with many asymmetric countries and costly trade for all goods. In models with a homogeneous sector, local market size is generally more strongly correlated with a country's industry share, whereas accessibility better explains a country's wage. We analytically show that result in a simplified case and then confirm it using simulations with random trading networks. In models with only differentiated sectors, both local market size and accessibility are highly correlated with wages. The impact of local market size on industry location is more robust than the impact of local market size on wages in economic geography models.

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Keywords Market size, Accessibility, Trading networks, Industry location, Wages
JEL Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (jel R12), Models of Trade with Imperfect Competition and Scale Economies (jel F12), Computational Techniques; Simulation Modelling (jel C63)
Persistent URL dx.doi.org/10.1016/j.regsciurbeco.2018.04.005, hdl.handle.net/1765/130916
Journal Regional Science and Urban Economics
Zofio Prieto, J.L, Barbero, J, & Behrens, T.W. (2018). Industry location and wages: The role of market size and accessibility in trading networks. Regional Science and Urban Economics, 71, 1–24. doi:10.1016/j.regsciurbeco.2018.04.005