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Spatial Development

  • Klaus Desmet
  • Esteban Rossi-Hansberg

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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File URL: http://www.nber.org/papers/w15349.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15349.

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Date of creation: Sep 2009
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Publication status: published as “ Spatial Development ” (with Desmet )  April 2014, American Economic Review , 104:4, 1211 - 1243
Handle: RePEc:nbr:nberwo:15349
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