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.

We evaluate two alternative models of international trade in differentiated products. An increasing returns model where varieties are linked to firms predicts home market effects: increases in a country's share of demand cause disproportionate increases in its share of output. In contrast, a constant returns model with national product differentiation predicts a less than proportionate increase. We examine a panel of U.S. and Canadian manufacturing industries to test the models. Although we find support for either model, depending on whether we estimate based on within or between variation, the preponderance of the evidence supports national product differentiation.

We model the decision to travel across an international border as a trade-off between benefits derived from buying a range of products at lower prices and the costs of travel. We estimate the model using microdata on Canada–United States travel. Price differences motivate cross-border travel; a 10% home appreciation raises the propensity to cross by 8% to 26%. The larger elasticity arises when the home currency is strong, a result predicted by the model. Distance to the border strongly inhibits crossings, with an implied cost of 87 cents per mile. Geographic differences can partially explain why American travel is less exchange rate responsive.

Combining data on locations with career and educational histories of mathematicians, we study how distance and ties affect citation patterns. The ties considered include coauthorship, past colocation, and relationships mediated by advisers and the alma mater. With fixed effects capturing subject similarity and article quality, we find linkages are strongly associated with citation. Controlling for ties generally halves the negative impact of geographic barriers on citations. Ties matter more for less prominent and more recent papers and have retained their quantitative importance in recent years. The impact of distance, controlling for ties, has fallen and is statistically insignificant after 2004.

Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment by Bruce A. Blonigen, Ronald B. Davies and Keith Head. Published in volume 93, issue 3, pages 980-994 of American Economic Review, June 2003