Market potential, spatial theories and spatial trends

Abstract

[Abstract] Previous literature on European regions has shown that structural estimation of New Economic Geography (NEG) wage-type equations obtains results similar to those obtained using old regional economics techniques. I show that this similarity is due to the presence of global spatial trends in the variables (first-order non-stationarity), which produce spuri-ous regressions. Formal tests and graphical models confirm that any variable displaying a core-periphery spatial pattern produces similar predictions for European regional per cap-ita income. Empirical tests of spatial theories should thus pay attention to the geographical features of the administrative units and the global spatial trends of the variables analyzed.