Economic geography and international inequality

This paper estimates a structural model of economic geography using cross-country data on per capita income, bilateral trade, and the relative price of manufacturing goods. More than 70% of the variation in per capita income can be explained by the geography of access to markets and to sources of supply of intermediate inputs. These results are robust to the inclusion of other geographical, social, and institutional characteristics. The estimated coefficients are consistent with plausible values for the structural parameters of the model. We find quantitatively important effects of distance, access to the coast, and openness on levels of per capita income.