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Trade and the Topography of the Spatial Economy

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  • Treb Allen
  • Costas Arkolakis

Abstract

We develop a versatile general equilibrium framework to determine the spatial distribution of economic activity on any surface with (nearly) any geography. Combining the gravity structure of trade with labor mobility, we provide conditions for the existence, uniqueness, and stability of a spatial economic equilibrium and derive a simple set of differential equations which govern the relationship between economic activity and the geography of the surface. We then use the framework to estimate the topography of trade costs, productivities, amenities and the strength of spillovers in the United States. We find that geographic location accounts for 24% of the observed spatial distribution of income. Finally, we calculate that the construction of the interstate highway system increased welfare by 3.47%, roughly twice its cost.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19181.

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Date of creation: Jun 2013
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Handle: RePEc:nbr:nberwo:19181

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  1. Treb Allen, 2012. "Information Frictions in Trade," 2012 Meeting Papers, Society for Economic Dynamics 125, Society for Economic Dynamics.
  2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  3. Ellison, G. & Glaeser, E.L., 1994. "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," Working papers 94-27, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Redding, Stephen J & Sturm, Daniel M, 2005. "The Costs of Remoteness: Evidence from German Division and Reunification," CEPR Discussion Papers 5015, C.E.P.R. Discussion Papers.
  5. Guy Michaels, 2007. "The effect of trade on the demand for skill - evidence from the interstate highway system," LSE Research Online Documents on Economics 3268, London School of Economics and Political Science, LSE Library.
  6. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  7. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  8. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," NBER Working Papers 8460, National Bureau of Economic Research, Inc.
  9. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  10. Esteban Rossi-Hansberg & Mark L. J. Wright, 2007. "Establishment Size Dynamics in the Aggregate Economy," American Economic Review, American Economic Association, vol. 97(5), pages 1639-1666, December.
  11. Gordon H. Hanson, 1998. "Market Potential, Increasing Returns, and Geographic Concentration," NBER Working Papers 6429, National Bureau of Economic Research, Inc.
  12. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  13. Costas Arkolakis & Svetlana Demidova & Peter J. Klenow & Andrés Rodríguez-Clare, 2008. "Endogenous Variety and the Gains from Trade," NBER Working Papers 13933, National Bureau of Economic Research, Inc.
  14. Anthony Shorrocks, 2013. "Decomposition procedures for distributional analysis: a unified framework based on the Shapley value," Journal of Economic Inequality, Springer, vol. 11(1), pages 99-126, March.
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Cited by:
  1. Pierre-Daniel G. Sarte & Esteban Rossi-Hansberg & Fernando Parro & Lorenzo Caliendo, 2013. "The impact of regional and sectoral productivity changes on the U.S. economy," Working Paper, Federal Reserve Bank of Richmond 13-14, Federal Reserve Bank of Richmond.
  2. A. Kerem Coşar & Pablo D. Fajgelbaum, 2013. "Internal Geography, International Trade, and Regional Specialization," NBER Working Papers 19697, National Bureau of Economic Research, Inc.
  3. A. Kerem Cosar & Banu Demir, 2014. "Domestic Road Infrastructure and International Trade: Evidence from Turkey," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1406, Koc University-TUSIAD Economic Research Forum.
  4. Trevor Tombe & Jennifer Winter, 2014. "What's Inside Counts: Migration, Taxes, and the Internal Gains from Trade," Working Papers 2013-28, Department of Economics, University of Calgary, revised 05 May 2014.
  5. Karayalcin, Cem & Yilmazkuday, Hakan, 2014. "Trade and cities," Policy Research Working Paper Series 6913, The World Bank.
  6. Pablo Fajgelbaum & Stephen J. Redding, 2014. "External Integration, Structural Transformation and Economic Development: Evidence from Argentina 1870-1914," NBER Working Papers 20217, National Bureau of Economic Research, Inc.
  7. Stephen J. Redding & Matthew A. Turner, 2014. "Transportation Costs and the Spatial Organization of Economic Activity," CEP Discussion Papers dp1277, Centre for Economic Performance, LSE.
  8. Ferdinando Monte, 2014. "Local Transmission of Trade Shocks," Working Papers 2014-001, Human Capital and Economic Opportunity Working Group.
  9. Pablo Fajgelbaum & Stephen J. Redding, 2014. "External Integration, Structural Transformation and Economic Development: Evidence From Argentina," CEP Discussion Papers dp1273, Centre for Economic Performance, LSE.

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