Working Paper: NBER ID: w19181
Authors: 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.
Keywords: Trade; Spatial Economics; Economic Geography; Interstate Highway System
JEL Codes: F10; O18; R12; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Geographic location (R12) | Income levels (D31) |
| Interstate highway system (IHS) (L92) | Welfare (I38) |
| Geographic location (R12) | Trade costs (F19) |
| Geographic location (R12) | Productivity (O49) |