Working Paper: NBER ID: w22145
Authors: J. Vernon Henderson; Tim L. Squires; Adam Storeygard; David N. Weil
Abstract: We study the distribution of economic activity, as proxied by lights at night, across 250,000 grid cells of average area 560 square kilometers. We first document that nearly half of the variation can be explained by a parsimonious set of physical geography attributes. A full set of country indicators only explains a further 10%. When we divide geographic characteristics into two groups, those primarily important for agriculture and those primarily important for trade, we find that the agriculture variables have relatively more explanatory power in countries that developed early and the trade variables have relatively more in countries that developed late, despite the fact that the latter group of countries are far more dependent on agriculture today. We explain this apparent puzzle in a model in which two technological shocks occur, one increasing agricultural productivity and the other decreasing transportation costs, and in which agglomeration economies lead to persistence in urban locations. In countries that developed early, structural transformation due to rising agricultural productivity began at a time when transport costs were still relatively high, so urban agglomerations were localized in agricultural regions. When transport costs fell, these local agglomerations persisted. In late developing countries, transport costs fell well before structural transformation. To exploit urban scale economies, manufacturing agglomerated in relatively few, often coastal, locations. With structural transformation, these initial coastal locations grew, without formation of more cities in the agricultural interior.
Keywords: Economic Activity; Spatial Distribution; Trade; Agriculture
JEL Codes: O13; O18; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| early structural transformation (O14) | agricultural productivity (Q11) |
| agricultural productivity (Q11) | urbanization (R11) |
| transport costs (L91) | urbanization (R11) |
| agricultural productivity (Q11) | economic activity (E20) |
| transport costs (L91) | economic activity (E20) |
| early structural transformation (O14) | economic concentration (D30) |
| reduction in transport costs (R49) | economic activity (E20) |
| agricultural productivity (Q11) | economic activity distribution (D39) |
| trade factors (F10) | economic activity distribution (D39) |