Conclusions - Geographical Economics and Income Disparities Across

Geographical Economics and Income Disparities Across

6. Conclusions

J. Lopez-Rodriguez, J.G. Sotomayor-Pereira

685

Estimation IV IV IV IV

R2 first stage 0.69 0.67 0.70 0.67

R2 0.13 0.12 0.12 0.12

aSargan´s test (and p-value)

0.87 [0.93]

0.82 [0.93]

0.86 [0.93]

0.89 [0.92]

Observations (regions/year)

105 (23/5)

105 (23/5) Note: Table displays coefficients and t-statistics for IV estimation. The dependent variable is the log of per capita income. The independent variable is the log of market potential (PMYAR) columns 1, 2 and log market potential (PMVYAR) columns 3 and 4. Instruments for PMYAR and PMVYAR in columns 1 and 3 (2 and 4) are based on the time dummies interaction with average distance to other provinces in kms (lorry travel times)^a Sargan´s overidentification test of all instruments. * and ** signify statistical significance at the10%

and 5% levels.

Geographical Economics and Income Disparities Across Ecuadorian Regions: Analysis for the period 2007-2014

686

estimations and distance matrix expressed in Kms. Our next concern was about the potential endogeneity of market potential. We have approached to this issue by instrumenting market potential a) with two different sets of instruments which consisted of interacting the sum of the distances of each Ecuadorian province to all other provinces with time dummies defined for each year. The results of the IV estimations delivered slope parameter estimates for market potential which were in the range 0.23-0.25 and b) using lagged values for market potential. In this last case the elasticity estimates of per capital income with respect to market potential is around 0.47.

Finally, another important step we took in the estimation of the baseline nominal wage equation was to disentangle the potential effects of human capital since there are reasons both from a theoretical side as well as from an empirical one that the accumulation of human capital across the Ecuadorian provinces is pretty much influenced by their relative access to markets. The results of the extended baseline estimations controlling for human showed that market potential keeps its importance with elasticity estimates in the range 0.13-0.15.

Acknowledgements:

This paper is based on the second chapter of Sotomayor-Pereira PhD thesis (Universidade da Coruña). The first author acknowledges the support received from the Spanish Ministry of Economics and Competitiveness through the project ECO2015-68597-P (MINECO/FEDER). The usual disclaimer applies

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