Putting New Economic Geography to the Test: Free-ness of Trade and Agglomeration in the EU Regions

Based on a new economic geography (NEG) model by Puga (1999), the authors use the equilibrium wage equation to estimate two key structural model parameters for the NUTS II EU regions. These estimations enable the authors to come up with an empirically grounded free-ness of trade parameter. In line with NEG theory, the estimation results show that a spatial wage structure exists for the EU regions.