Spatial Structural Change

Abstract This paper studies the spatial implications of structural change. By shifting demand towards non-agricultural goods, the structural transformation benefits workers in urban centers and hurts rural locations. At the aggregate level, the economy can respond either through a reallocation of labor from rural to urban areas or through a reduction in agricultural employment within a given location. Using detailed spatial data for the U.S. between 1880 and 2000, we show that spatial reallocation accounts for almost none of the aggregate decline in agricultural employment. We interpret this fact through the lens of a novel quantitative theory of spatial structural change, and show that the absence of the spatial reallocation channel is primarily due to regional productivity shocks, which almost entirely offset the urban bias of the structural transformation. Frictions to labor mobility meanwhile are quantitatively unimportant. The model implies that spatial welfare differences declined substantially during the United States' structural transformation and that the spatial reallocation of factors can account for about 15% of aggregate growth since 1880.