Working Paper: CEPR ID: DP10411
Authors: Javier Barbero; Kristian Behrens; Jose L. Zofio
Abstract: We investigate the geographical distribution of economic activity and wages in a general equilibrium model with many asymmetric regions and costly trade. As shown by extensive simulations on random networks, local market size better explains a region?s industry share, whereas accessibility better explains a region?s wage. The correlation between equilibrium wages and industry shares is low, thus suggesting that the two variables operate largely independently. The model replicates well the spatial distribution of industry using Spanish data, yet overpredict changes in that distribution due to changes in 'generalized transport costs'. The latter had only small impacts on changes in the geographical distribution of economic activity in Spain from 1980 to 2007.
Keywords: Generalized Transport Costs; Industry Location; Size; Trading Networks; Wages
JEL Codes: C63; F12; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absolute local market size (measured by population) (R23) | region's wage (J31) |
| accessibility (measured by centrality in the trading network) (R12) | region's wage (J31) |
| relative local market size of industries (measured by consumer expenditure shares) (R12) | region's industrial composition (R15) |
| equilibrium wages (J31) | industry shares (G24) |