Working Paper: NBER ID: w15349
Authors: Klaus Desmet; Esteban Rossi-Hansberg
Abstract: 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.
Keywords: spatial development; endogenous growth; innovation; employment; productivity
JEL Codes: E32; O11; O18; O33; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| initial manufacturing productivity (L23) | employment reallocation (J63) |
| employment reallocation (J63) | service sector productivity (O49) |
| manufacturing and service sector dynamics (O14) | land rents (R21) |
| service productivity stagnation (O49) | manufacturing concentration (L69) |
| increased employment density (R23) | service productivity (O49) |
| service productivity (O49) | employment density (J69) |