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The global spatial distribution of economic activity:nature, history and the role of trade

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  • Henderson, J. Vernon
  • Squires, Tim
  • Storeygard, Adam
  • Weil, David

Abstract

We study the distribution of economic activity, as proxied by lights at night, across 250,000 grid cells of average area 560 square kilometres. We first document that nearly half of the variation can be explained by a parsimonious set of physical geography attributes. A full set of country indicators only explains a further 10%. When we divide geographic characteristics into two groups, those primarily important for agriculture and those primarily important for trade, we find that the agriculture variables have relatively more explanatory power in countries that developed early and the trade variables have relatively more in countries that developed late, despite the fact that the latter group of countries are far more dependent on agriculture today. We explain this apparent puzzle in a model in which two technological shocks occur, one increasing agricultural productivity and the other decreasing transportation costs, and in which agglomeration economies lead to persistence in urban locations. In countries that developed early, structural transformation due to rising agricultural productivity began at a time when transport costs were still relatively high, so urban agglomerations were localized in agricultural regions. When transport costs fell, these local agglomerations persisted. In late developing countries, transport costs fell well before structural transformation. To exploit urban scale economies, manufacturing agglomerated in relatively few, often coastal, locations. With structural transformation, these initial coastal locations grew, without formation of more cities in the agricultural interior.

Suggested Citation

  • Henderson, J. Vernon & Squires, Tim & Storeygard, Adam & Weil, David, 2016. "The global spatial distribution of economic activity:nature, history and the role of trade," LSE Research Online Documents on Economics 66538, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:66538
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    File URL: http://eprints.lse.ac.uk/66538/
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    References listed on IDEAS

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    1. Broadberry,Stephen & O'Rourke,Kevin H., 2010. "The Cambridge Economic History of Modern Europe," Cambridge Books, Cambridge University Press, number 9780521708395, December.
    2. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    3. Broadberry,Stephen & O'Rourke,Kevin H. (ed.), 2010. "The Cambridge Economic History of Modern Europe 2 Volume Paperback Set," Cambridge Books, Cambridge University Press, number 9780521128247, December.
    4. Broadberry,Stephen & O'Rourke,Kevin H. (ed.), 2010. "The Cambridge Economic History of Modern Europe 2 Volume Hardback Set," Cambridge Books, Cambridge University Press, number 9780521199179, December.
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    More about this item

    Keywords

    agriculture; physical geography; development;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics
    • N0 - Economic History - - General

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