Abstract
In this paper we find evidence that the new economic geography approach is able to describeand explain the spatial characteristics of an economy, in our case the German economy. UsingGerman district data we estimate the structural parameters of a new economic geographymodel as developed by Helpman (1998) and Hanson (1998) and we find confirmation for aspatial wage structure. The advantage of the Helpman-Hanson model is that it incorporates the fact that agglomeration of economic activity increases the prices of local (non-tradable) services, like housing. This model thereby provides an intuitively appealing spreading force that allows for less extreme agglomeration patterns than predicted by the bulk of new economic geography models. Based on different estimation strategies and taking a number of features of the re-unified German economy into account, we do not only test for the spatial distribution of wages but also for the spatial structure w.r.t. German unemployment, employment and land prices.
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