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

Keith Head; Thierry Mayer

doi:10.1162/0034653043125257

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

Keith Head¹; Thierry Mayer^2,3,4,5

¹ University of British Columbia · ² Center for Economic and Policy Research · ³ Université Paris Cité · ⁴ Centre d'Etudes Prospectives et d'Informations Internationales · ⁵ Université Paris 1 Panthéon-Sorbonne

The Review of Economics and Statistics 2004

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.

DOI: 10.1162/0034653043125257
Volume: 86 (4)
Pages: 959-972
Language: en
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