This paper posits a new approach to the 'wage equation' of the New Economic Geography (NEG). On one side, it is shown that the NEG provides a spatial explanation of marginal costs, instead of wages. On the other side, and focusing on the statistical properties of the data, it is explained why...

We propose a new methodology to recover firm-time varying financial constraints from firms' production behavior. We model financial constraints as the profitability that firms forgo when budget constraints on production inputs bind, impeding them from using the optimal level of inputs and...