Market Potential: The Measurement of Domestic Market Size

Abstract

Influenced by the concept of the strength of a force in physics, access to markets has since the 1940s been evaluated by indicators of ‘potential’, measured as a sum of a distance-weighted of population or market size of foreign or external territories. Later development of the New Economic Geography (NEG) by Paul Krugman did not solve the problem of calculating internal market size in a way that can be used to add it to calculations for external market potential. This paper analyzes the consequences of geometrical justifications in measuring internal market potential. For a sample of European regions, the paper concludes that the literature should be more explicit about historical processes of agglomeration and methods of calculating internal market size.