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Dynamic Spatial General Equilibrium

Author

Listed:
  • Redding, Stephen
  • Kleinman, Benny
  • Liu, Ernest

Abstract

We develop a dynamic spatial general equilibrium model with forward-looking investment and migration decisions. We characterize analytically the transition path of the spatial distribution of economic activity in response to shocks. We apply our framework to the reallocation of US economic activity from the Rust Belt to the Sun Belt from 1965-2015. We find slow convergence to steady-state, with US states closer to steady-state at the end of our sample period than at its beginning. We find substantial heterogeneity in the effects of local shocks, which depend on capital and labor dynamics, and the spatial and sectoral incidence of these shocks.

Suggested Citation

  • Redding, Stephen & Kleinman, Benny & Liu, Ernest, 2021. "Dynamic Spatial General Equilibrium," CEPR Discussion Papers 16466, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16466
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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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