This paper investigates the effect of the reduction of transport cost Oresundsbron has caused between the two subregions of the Oresund-region. The paper utilizes the the Helpman (1998) model and the procedure used by Hanson (2005) for estimating this equation. The paperbrings a clear inside into the method and thus provides an excellent start-ing position.

In this paper the Helpman-Hanson model is estimated using Swedish municipality level data. The Helpman-Hanson model builds on Krugman’s contributions to the NEG theory but makes use of a housing sector instead of the usual agricultural sector. The Helpman-Hanson equation is optimized both in levels and in first differences and the results confirm a positive relationship between wages and market potential, although the effect of transport costs on the distribution of wages turns out to be non-existent. Additionally, all of the estimated structural parameter values end up within the consistency ranges required by theory and most of them, except for a very large estimate for the elasticity of substitution, fall in line with previous research.