Regional imbalances and market potential in Brazil

Brazil presented in the last 30 years not only periods of economic growth but also crises and stagnation. The Brazilian regions’ performance (in face of the challenges and opportunities presented during this period) was not even at all, as we can see by the massive regional imbalances around the country. Various approaches have tried to understand this reality of economic activity spatial concentration. Among them, the emerging New Economic Geography (NEG). Could this theory comprehend and explain the regional unevenness on wages among Brazilian municipalities over the recent decades? Using 1980, 1991 and 2000 Brazilian Census data (at comparables municipalities areas), this paper aims to estimate the NEG wage equation, using panel data model with spatially correlated errors components. The results point to a strong relationship between market potential and wages, indicating that the NEG theoretical framework might be well fit to recent Brazilian municipalities’ reality.