Market Potential and the Location of Japanese Firms in the European Union

Keith Head (1) , Thierry Mayer (2)

1 Sauder - Sauder School of Business [British Columbia]
2 ECON - Département d'économie (Sciences Po)

This paper develops a theoretical model of location choice under imperfect competition to formalize the notion that firms prefer to locate "where the markets are." The profitability of a location depends on a term that weights demand in all locations by accessibility. Using a sample of Japanese firms' choices of regions within European countries, we compare the theoretically derived measure of market potential with the standard form used by geographers. Our results show that market potential matters for location choice but cannot account entirely for the tendency of firms in the same industry to agglomerate.

Domains: Economics and Finance

Keith Head, Thierry Mayer. Market Potential and the Location of Japanese Firms in the European Union. Review of Economics and Statistics, 2004, 86 (4), pp.959-972. ⟨hal-01020551⟩