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Market potential and global growth over the long twentieth century

Jacks, David S. and Novy, Dennis (2018) Market potential and global growth over the long twentieth century. CEP Discussion Papers (CEPDP1560). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

We examine the evolution of market potential and its role in driving economic growth over the long twentieth century. Theoretically, we exploit a structural gravity model to derive a closed-form solution for a widely-used measure of market potential. We are thus able to express market potential as a function of directly observable and easily estimated variables. Empirically, we collect a large dataset on aggregate and bilateral trade flows as well as output for 51 countries. We find that market potential exhibits an upward trend across all regions of the world from the early 1930s and that this trend significantly deviates from the evolution of world GDP. Finally, using exogenous variation in trade-related distances to world markets, we demonstrate a significant causal role of market potential in driving global income growth over this period.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2018 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
JEL classification: F - International Economics > F1 - Trade
N - Economic History > N7 - Transport, International and Domestic Trade, Energy, Technology, and Other Services
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 11 Jan 2019 10:20
Last Modified: 20 Feb 2019 04:08
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/91681

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