Working Paper: CEPR ID: DP16466
Authors: Benny Kleinman; Ernest Liu; Stephen J. Redding
Abstract: We develop a dynamic spatial general equilibrium model with forward-looking investment and migration decisions. We characterize analytically the transition path of the spatial distribution of economic activity in response to shocks. We apply our framework to the reallocation of US economic activity from the Rust Belt to the Sun Belt from 1965-2015. We find slow convergence to steady-state, with US states closer to steady-state at the end of our sample period than at its beginning. We find substantial heterogeneity in the effects of local shocks, which depend on capital and labor dynamics, and the spatial and sectoral incidence of these shocks.
Keywords: spatial dynamics; economic geography; trade; migration
JEL Codes: F14; F15; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Spatial distribution of economic activity (R12) | Response to shocks (E32) |
| Shocks (E32) | State variables (C29) |
| Eigenvalues of transition matrix (C69) | Speed of convergence to steady state (C62) |
| Local shocks (D52) | Effects on convergence speed (F62) |
| Decline in migration (F22) | Geographic barriers to mobility (J61) |