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Spatial development

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  • Klaus Desmet

    ()
    (Universidad Carlos III de Madrid and CEPR)

  • Esteban Rossi-Hansberg

    ()
    (Princeton University)

Abstract

We present a theory of spatial development. Manufacturing and services firms located in a continuous geographic area choose each period how much to innovate. Firms trade subject to transport costs and technology diffuses spatially across locations. The result is a spatial endogenous growth theory that can shed light on the link between the evolution of economic activity over time and space. We apply the model to study the evolution of the U.S. economy in the last few decades and find that the model can generate the reduction in the employment share in manufacturing, the increase in service productivity starting in the second part of the 1990s, the increase in the value and dispersion of land rents in the same period, as well as several other spatial and temporal patterns.

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Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2009-18.

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Date of creation: 16 Dec 2009
Date of revision: 28 May 2010
Handle: RePEc:imd:wpaper:wp2009-18

Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the PROCIUDAD-CM and the Bank of Spain Excellence Programmes
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  1. Boucekkine, Raouf & Camacho, Carmen & Zou, Benteng, 2009. "Bridging The Gap Between Growth Theory And The New Economic Geography: The Spatial Ramsey Model," Macroeconomic Dynamics, Cambridge University Press, vol. 13(01), pages 20-45, February.
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  7. Brock, William & Xepapadeas, Anastasios, 2008. "Diffusion-induced instability and pattern formation in infinite horizon recursive optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 32(9), pages 2745-2787, September.
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  9. Davis, Morris A. & Heathcote, Jonathan, 2007. "The price and quantity of residential land in the United States," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2595-2620, November.
  10. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
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  12. Diego Puga, 1996. "The rise and fall of regional inequalities," LSE Research Online Documents on Economics 20643, London School of Economics and Political Science, LSE Library.
  13. Esteban Rossi-Hansberg, 2005. "A Spatial Theory of Trade," American Economic Review, American Economic Association, vol. 95(5), pages 1464-1491, December.
  14. Klaus Desmet & Esteban Rossi-Hansberg, 2007. "Spatial Growth and Industry Age," NBER Working Papers 13302, National Bureau of Economic Research, Inc.
  15. Brock, William & Xepapadeas, Anastasios, 2010. "Pattern formation, spatial externalities and regulation in coupled economic-ecological systems," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 149-164, March.
  16. Danny Quah, 2002. "Spatial Agglomeration Dynamics," CEP Discussion Papers dp0521, Centre for Economic Performance, LSE.
  17. Quah, Danny, 2002. "Spatial Agglomeration Dynamics," CEPR Discussion Papers 3208, C.E.P.R. Discussion Papers.
  18. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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  20. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
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