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

Keith Head and Thierry Mayer

Posted Online March 13, 2006
https://doi.org/10.1162/0034653043125257

Review of Economics and Statistics

Volume 86 | Issue 4 | November 2004
p.959-972
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Market Potential and the Location of Japanese Investment in the European Union

Keith Head and Thierry Mayer
https://doi.org/10.1162/0034653043125257
Received: June 06, 2002
Accepted: January 06, 2004
Published Online: March 13, 2006
Abstract

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.

Keith Head
University of British Columbia
Thierry Mayer
Université de Paris I (TEAM), CEPII, CERAS-ENPC, and CEPR
https://doi.org/10.1162/0034653043125257
Abstract

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.

Keith Head
University of British Columbia
Thierry Mayer
Université de Paris I (TEAM), CEPII, CERAS-ENPC, and CEPR
Download Options

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

Keith Head and Thierry Mayer
https://doi.org/10.1162/0034653043125257
Received: June 06, 2002
Accepted: January 06, 2004
Published Online: March 13, 2006
Abstract

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.

Keith Head
University of British Columbia
Thierry Mayer
Université de Paris I (TEAM), CEPII, CERAS-ENPC, and CEPR
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