Since the early 1990s’ international trade analyses has emphasized how proximity to large markets determines economic development and shapes international trade patterns. Geography matters in a number of ways. Being close to large markets where firms can sell their products provides an advantage for increasing return to scale (IRS) industries. Moreover, the distance from countries supplying capital equipment and intermediate goods influences production cost and firms’ competitiveness.
Building on New Economic Geography models, empirical analyses have proposed meaningful estimates of each country’s proximity to world markets, usually labeled Market Potential. Redding and Venables (Journal of International Economic, 2004, 62: 53-82) estimate an indicator of market potential as a sum of expenditure of all countries in the world, weighted by bilateral trade costs. Head and Mayer (The Review of Economics and Statistics, 2004, 86(4): 959-972) propose a related but alternative methodology, adjusting the market potential measurement to take into account the impact of national borders on trade flows.
Mayer (CEPR DP 2008, N. 6798) evaluates these two measurements of market potential, for all countries in the world with available trade data over the 1960-2003 period. CEPII’s Market Potential database reports these indices synthesizing the evolution of countries’ economic geography. All details are given in Mayer (2008).
The database contains 6 distinct measures of Market Potential for a very large set of countries (between 152 and 205, depending of the year) and 44 years.
A companion dataset offering market potential measures at industrial level (27 industries) and covering a more limited period (1980-2003) is also available (rmp_ind.dta). It is based on TradeProd, a CEPII dataset matching trade at 3-digit ISIC Rev 2. The advantage of industry-specific market potentials is to present a more detailed picture of the evolution of countries’ economic geography that takes into account country specialization. A description of these measures is in the document World_NEG.pdf.
RMP_RV |
Real Market Potential computed using Redding and Venables (2004)’s method |
FMP_RV |
Foreign Market Potential computed using Redding and Venables (2004)’s method (i.e. Market Potential which does not include own demand of the country). |
RMP_HM |
Real Market Potential computed using Head and Mayer (2004)’s method |
FMP_HM |
Foreign Market Potential computed using Head and Mayer (2004)’s method (i.e. Market Potential which does not include own demand of the country). |
RMP_IV1 |
IV for Real Market Potential (instrument = Sum of bilateral distances) |
RMP_IV2 |
IV for Real Market Potential (instrument = Sum of estimated bilateral trade costs) |
CountRy codes can be found in geo_cepii.xls and geo_cepii.dta.
Source to mention for the use of the dataset:
Mayer T., Market Potential and Development CEPII working paper N° 2009-24. |
