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Persistence and Path Dependence in the Spatial Economy

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  • Treb Allen
  • Dave Donaldson

Abstract

How much of the spatial distribution of economic activity today is determined by history rather than by geographic fundamentals? And if history matters for spatial allocations, does it also matter for overall efficiency? This paper develops a forward-looking dynamic framework for the theoretical and empirical study of such questions. We derive conditions on the strength of agglomeration externalities under which equilibria are unique and yet temporary historical shocks can have particularly persistent, or even permanent (i.e. path-dependent) consequences. When estimated using U.S. data from 1800-2000, this model displays multi-century persistence from small and temporary shocks as well as path dependence (with large aggregate welfare effects) throughout much of our estimated parameter range.

Suggested Citation

  • Treb Allen & Dave Donaldson, 2020. "Persistence and Path Dependence in the Spatial Economy," NBER Working Papers 28059, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28059
    Note: DAE EFG ITI
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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • F1 - International Economics - - Trade
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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