Do migrants follow market potentials? An estimation of a new economic geography model

New Economic Geography models describe a cumulative process of spatial agglomeration. Firms tend to cluster in locations with good access to demand, and similarly, workers are drawn to regions with good access to sources of supply. This paper provides an empirical assessment of this forward linkage that relates labour migrations to the geography of production through real wage differentials. In the spirit of Hanson (1998), we use bilateral migration data for five European countries over the 1980 s and 1990 s to perform quasi-structural estimations of a new economic geography model derived from Krugman (1991). The results show strong evidence in favor of this model. As expected, migrants do follow market potentials that measure the access to sources of supply. Moreover, we provide estimates for all key parameters of the model. These estimates suggest that a sudden emergence of a core-periphery pattern is unlikely within European countries; centripetal forces are too limited in geographical scope, and mobility costs are too high.