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The Linear Algebra of Economic Geography Models

Author

Listed:
  • Benny Kleinman
  • Ernest Liu
  • Stephen J. Redding

Abstract

We provide sufficient statistics for nominal and real wage exposure to productivity shocks in a constant elasticity economic geography model. These exposure measures summarize the first-order general equilibrium elasticity of nominal and real wages in each location with respect to productivity shocks in all locations. They are readily computed using commonly available trade data and the values of trade and migration elasticities. They have an intuitive interpretation in terms of underlying economic mechanisms. Computing these measures for all bilateral pairs of locations involves a single matrix inversion and therefore remains computational efficient even with an extremely high-dimensional state space.

Suggested Citation

  • Benny Kleinman & Ernest Liu & Stephen J. Redding, 2024. "The Linear Algebra of Economic Geography Models," AEA Papers and Proceedings, American Economic Association, vol. 114, pages 328-333, May.
    • Handle: RePEc:aea:apandp:v:114:y:2024:p:328-33
    DOI: 10.1257/pandp.20241043
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    References listed on IDEAS

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    1. Rodrigo Ad'o & Costas Arkolakis & Federico Esp'sito, 2019. "Spatial Linkages, Global Shocks, and Local Labor Markets: Theory and Evidence," Cowles Foundation Discussion Papers 2163, Cowles Foundation for Research in Economics, Yale University.
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    Cited by:

    1. Amine C-L. Ouazad, 2024. "Equilibrium Multiplicity: A Systematic Approach using Homotopies, with an Application to Chicago," Papers 2401.10181, arXiv.org.

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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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