policymakers demonstrate

Regional Disparities and Efficient Transport Policies 337
HME still holds. Nevertheless, the mechanism that selects firms differs from the
sorting of workers. Indeed, the gathering of the more productive firms renders
competition very tough in the North, which leads inefficient firms to locate far
apart to avoid the devastating effects of competition with efficient firms. This
sparks a productivity gap between regions, which is exacerbated when the size
difference between regions increases. Using US data on the concrete industry,
Syverson (2004) observes that inefficient firms barely survive in large competitive
markets and tend to leave them. This result is confirmed by the literature
that follows Syverson.
To sum up, large markets tend to offer more and better opportunities to firms
and workers.
Care is Needed
Can the HME help explain strong regional disparities? First of all, the above
results were obtained using specific models so their robustness remains an open
question. Second, the share of the manufacturing sector has shrunk dramatically
in developed economies. So one may wonder what the HME becomes when we
consider the location of nontradable services. In this case, the HME still holds
if the North is sufficiently large to overcome the competition effect. Otherwise,
the larger region no longer provides a sufficiently big outlet to host a more-thanproportionate
share of firms. In this case, the smaller region accommodates a
larger share of firms (Behrens, 2005).
Third, and last, the HME is studied in a two-region setting. Unfortunately, it
cannot readily be extended to multi-regional set-ups because there is no obvious
benchmark against which to measure the ‘more-than-proportionate’ share
of firms. A multi-regional setting brings about a new fundamental ingredient –
the variability in regions’ accessibility to spatially dispersed markets. In other
words, the relative position of a region within the network of exchanges (which
also involves cultural, linguistic, and political proximity) matters. Any global
(local) change in this network, such as market integration or the construction
of major transport links, is likely to trigger complex effects that vary in nontrivial
ways with the properties of the graph representing the transport network
(Behrens and Thisse, 2007). For example, in a multi-regional setting, the greater
specialization of a few regions in one sector does not necessarily mean that
this sector becomes more agglomerated, and vice versa. Therefore, it is hardly
shocking that empirical evidence regarding the HME is mixed (Davis and Weinstein,
2003, Head and Mayer, 2004).
However, intuitively, it is reasonable to expect the forces highlighted by the
HME to be at work in many real-world situations. 4 But how can we check this?
There are two possible ways. First, since there is no hope of deriving general
results for multi-regional economies, it is reasonable to try to solve numerically
spatial general equilibrium models where transport networks are selected