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Trade and the Topography of the Spatial Economy

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  • Treb Allen
  • Costas Arkolakis

Abstract

We develop a versatile general equilibrium framework to determine the spatial distribution of economic activity on any surface with (nearly) any geography. Combining the gravity structure of trade with labor mobility, we provide conditions for the existence, uniqueness, and stability of a spatial economic equilibrium and derive a simple set of differential equations which govern the relationship between economic activity and the geography of the surface. We then use the framework to estimate the topography of trade costs, productivities, amenities and the strength of spillovers in the United States. We find that geographic location accounts for 24% of the observed spatial distribution of income. Finally, we calculate that the construction of the interstate highway system increased welfare by 3.47%, roughly twice its cost.

Suggested Citation

  • Treb Allen & Costas Arkolakis, 2013. "Trade and the Topography of the Spatial Economy," NBER Working Papers 19181, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19181
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    References listed on IDEAS

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    1. Michal Fabinger, 2013. "Trade and Interdependence in a Spatially Complex World," 2013 Meeting Papers 874, Society for Economic Dynamics.
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    6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1231-1294.
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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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