Working Paper: NBER ID: w21087
Authors: Klaus Desmet; David Krisztin; Nagy Esteban Rossi-Hansberg
Abstract: We study the relationship between geography and growth. To do so, we first develop a dynamic spatial growth theory with realistic geography. We characterize the model and its balanced growth path and propose a methodology to analyze equilibria with different levels of migration frictions. We bring the model to the data for the whole world economy at a 1°×1° geographic resolution. We then use the model to quantify the gains from relaxing migration restrictions as well as to describe the evolution of the distribution of economic activity in the different migration scenarios. Our results indicate that fully liberalizing migration would increase welfare more than three-fold and would significantly affect the evolution of particular regions in the world. We then use the model to study the effect of a spatial shock. We focus on the example of a rise in the sea level and find that coastal flooding can have an important impact on welfare by changing the geographic-dynamic path of the world economy.
Keywords: migration; economic growth; coastal flooding; welfare; geography
JEL Codes: E2; F11; F18; F22; F43; O1; O4; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| migration restrictions (F22) | welfare (I38) |
| relaxing migration restrictions (F22) | productivity (O49) |
| relaxing migration restrictions (F22) | welfare gains (D69) |
| coastal flooding (Q54) | welfare (I38) |
| rise in sea level (Q54) | welfare losses (D69) |