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Spatial development

  • Klaus Desmet


    (Universidad Carlos III de Madrid and CEPR)

  • Esteban Rossi-Hansberg


    (Princeton University)

We present a theory of spatial development. Manufacturing and services firms located in a continuous geographic area choose each period how much to innovate. Firms trade subject to transport costs and technology diffuses spatially across locations. The result is a spatial endogenous growth theory that can shed light on the link between the evolution of economic activity over time and space. We apply the model to study the evolution of the U.S. economy in the last few decades and find that the model can generate the reduction in the employment share in manufacturing, the increase in service productivity starting in the second part of the 1990s, the increase in the value and dispersion of land rents in the same period, as well as several other spatial and temporal patterns.

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Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2009-18.

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Date of creation: 16 Dec 2009
Date of revision: 28 May 2010
Handle: RePEc:imd:wpaper:wp2009-18
Note: This paper is included in the IMDEA Social Sciences Working Paper Series through the PROCIUDAD-CM and the Bank of Spain Excellence Programmes
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