The Impact of Market Potential on Income Distribution

This paper analyses income inequalities through the perspective of spatial geography. Constructing for 2004 and 2012 the Market Potential thanks to the gravity equation, we attempt in linking spatial geography with inequalities within countries, measured by the Gini index. We propose that the direction of the relationship depends on a specific combination between the wage ratio skilled-unskilled workers and the share of the skilled workers in total population. The results show that the relation is non-linear: globally negative for the entire sample and slightly negative for advanced economies. Disentangling the effect, this difference might come from a higher share of skilled workers and a higher degree of mobility in advanced economies.