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From the Regional Economy to the Macroeconomy


  • Santiago Pinto

    (Federal Reserve Bank of Richmond)

  • Pierre-Daniel G. Sarte

    (Federal Reserve Bank of Richmond)


This chapter describes how two fields that traditionally evolved mostly separately, regional economics and macroeconomics, have increasingly come together over the past decade and a half to yield new insights into the relevance of regional forces for the macroeconomy. This chapter gives an overview to the basic question: why should macroeconomists care about the spatial allocation of economic activity or spatial models? There are no simple spatial aggregation theorems that give rise to an aggregate production function, and this chapter describes the variety of ways in which granular considerations and shocks that are regional in nature shape aggregate outcomes and motivate a need for policy. The macroeconomics literature is increasingly heading in the direction of unpacking the exact nature of granular forces in a way that leaves the representative agent and firm framework with aggregate shocks as an early and poor approximation to how actual economies work.

Suggested Citation

  • Santiago Pinto & Pierre-Daniel G. Sarte, 2020. "From the Regional Economy to the Macroeconomy," GRU Working Paper Series GRU_2020_014, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
  • Handle: RePEc:cth:wpaper:gru_2020_014

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    Agglomeration; Externalities; Aggregation; Region; Nation;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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