To be there or not to be there: Centrality as a Measure of Closeness to Markets

Closeness to markets is a well-known determinant of firm location, with several studies focusing on the measurement of centrality. The ranking of the countries in terms of centrality derives simultaneously from economic and geographical factors. Additionally, internal and external dimensions are at play. Thus, four dimensions should be considered in empirical terms. We propose a centrality index and its disaggregation into four dimensions (internal economic, internal geographical, external geographical, external mixed). Each isolated dimension has a specific interpretation, allowing to verify the strongest and the weakest points of each country regarding its centrality level. We present an empirical example at the world-level covering 178 countries. To that end, we consider data from CEPII. Based on the overall centrality index and its decomposition, the conclusions emerging from this study provide guidance for policy intervention aiming to improve the specific dimension(s) in which the countries exhibit their worst position(s). The empirical evidence indicates that the most central countries are Belgium, the Netherlands, Luxembourg, and United Kingdom. We divide the countries under analysis into four groups. The first group – comprising the countries with the highest level of centrality – is composed by 11 countries, including 8 European countries and 3 from Asia. The second group includes 14 European countries, Japan, South Korea, Canada, and USA. In turn, the third group is heterogeneous, including countries from Central America, North Africa, Middle East, Eastern Europe, and Asia (China and India). The last group corresponds to the Southern Hemisphere. Additionally, the evidence makes clear the existence of different sources of centrality, corresponding to the dimensions identified in the decomposition method. The results obtained have important implications for policy action since they allow to identify the dimensions of centrality requiring intervention in each specific case. The interventions could be associated with: (i) the improvement of transports and communications at the national level, aiming to improve the internal accessibility; (ii) the promotion of economic growth and investment, with the objective of capturing a higher proportion of economic activity; (iii) the improvement of external connections; (iv) the formation of trading blocs.