IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/29101.html
   My bibliography  Save this paper

Dynamic Spatial General Equilibrium

Author

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

Abstract

We incorporate forward-looking capital accumulation into a dynamic discrete choice model of migration. We characterize the steady-state equilibrium; generalize existing dynamic exact-hat algebra techniques to incorporate investment; and linearize the model to provide an analytical characterization of the economy’s transition path using spectral analysis. We show that capital and labor dynamics interact to shape the economy’s speed of adjustment towards steady-state. We implement our quantitative analysis using data on capital stocks, populations and bilateral trade and migration flows for U.S. states from 1965-2015. We show that this interaction between capital and labor dynamics plays a central role in explaining the observed decline in the rate of income convergence across U.S. states and the persistent and heterogeneous impact of local shocks.

Suggested Citation

  • Benny Kleinman & Ernest Liu & Stephen J. Redding, 2021. "Dynamic Spatial General Equilibrium," NBER Working Papers 29101, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29101
    Note: ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w29101.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David H. Autor & David Dorn & Gordon H. Hanson, 2016. "The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 205-240, October.
    2. Anderson, James & Larch, Mario & Yotov, Yoto, 2015. "Growth and Trade with Frictions: A Structural Estimation Framework," School of Economics Working Paper Series 2015-2, LeBow College of Business, Drexel University.
    3. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    4. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 857-880.
    5. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
    6. Bryan, Gharad & Morten, Melanie, 2019. "The aggregate productivity effects of internal migration: evidence from Indonesia," LSE Research Online Documents on Economics 88177, London School of Economics and Political Science, LSE Library.
    7. Moretti, Enrico, 2011. "Local Labor Markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 14, pages 1237-1313, Elsevier.
    8. Gabriel M. Ahlfeldt & Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2015. "The Economics of Density: Evidence From the Berlin Wall," Econometrica, Econometric Society, vol. 83, pages 2127-2189, November.
    9. Treb Allen & Costas Arkolakis, 2014. "Trade and the Topography of the Spatial Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1085-1140.
    10. Bonadio, Barthélémy & Huo, Zhen & Levchenko, Andrei A. & Pandalai-Nayar, Nitya, 2021. "Global supply chains in the pandemic," Journal of International Economics, Elsevier, vol. 133(C).
    11. Stephen J. Redding & Daniel M. Sturm, 2008. "The Costs of Remoteness: Evidence from German Division and Reunification," American Economic Review, American Economic Association, vol. 98(5), pages 1766-1797, December.
    12. Redding, Stephen J., 2016. "Goods trade, factor mobility and welfare," Journal of International Economics, Elsevier, vol. 101(C), pages 148-167.
    13. Ravikumar, B. & Santacreu, Ana Maria & Sposi, Michael, 2019. "Capital accumulation and dynamic gains from trade," Journal of International Economics, Elsevier, vol. 119(C), pages 93-110.
    14. Pines,David & Sadka,Efraim & Zilcha,Itzhak (ed.), 1998. "Topics in Public Economics," Cambridge Books, Cambridge University Press, number 9780521561365, January.
    15. Erhan Artuc & Irene Brambilla & Guido Porto, 2022. "Patterns of Labour Market Adjustment to Trade Shocks with Imperfect Capital Mobility," The Economic Journal, Royal Economic Society, vol. 132(646), pages 2048-2074.
    16. Treb Allen & Costas Arkolakis & Xiangliang Li, 2020. "On the Equilibrium Properties of Network Models with Heterogeneous Agents," NBER Working Papers 27837, National Bureau of Economic Research, Inc.
    17. Ferdinando Monte & Stephen J. Redding & Esteban Rossi-Hansberg, 2018. "Commuting, Migration, and Local Employment Elasticities," American Economic Review, American Economic Association, vol. 108(12), pages 3855-3890, December.
    18. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    19. Warwick Mckibbin & Dominick Salvatore, 1995. "The global economic consequences of the Uruguay Round," Open Economies Review, Springer, vol. 6(2), pages 111-129, April.
    20. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    21. Enrico Moretti, 2014. "Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 275-331.
    22. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    23. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
    24. Rappaport, Jordan, 2007. "Moving to nice weather," Regional Science and Urban Economics, Elsevier, vol. 37(3), pages 375-398, May.
    25. Raven Molloy & Christopher L. Smith & Abigail Wozniak, 2011. "Internal Migration in the United States," Journal of Economic Perspectives, American Economic Association, vol. 25(3), pages 173-196, Summer.
    26. Moretti, Enrico & Hornbeck, Richard, 2018. "Who Benefits From Productivity Growth? Direct and Indirect Effects of Local TFP Growth on Wages, Rents, and Inequality," CEPR Discussion Papers 12953, C.E.P.R. Discussion Papers.
    27. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2019. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Econometrica, Econometric Society, vol. 87(3), pages 741-835, May.
    28. Adrien Auclert & Ludwig Straub & Matthew Rognlie, 2019. "Micro Jumps, Macro Humps: monetary policy and business cycles in an estimated HANK model," 2019 Meeting Papers 1449, Society for Economic Dynamics.
    29. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117, Elsevier.
    30. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    31. Lorenzo Caliendo & Fernando Parro & Esteban Rossi-Hansberg & Pierre-Daniel Sarte, 2018. "The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2042-2096.
    32. Ryan Kim & Jonathan Vogel, 2020. "Trade and Welfare (Across Local Labor Markets)," NBER Working Papers 27133, National Bureau of Economic Research, Inc.
    33. Erhan Artuç & Shubham Chaudhuri & John McLaren, 2010. "Trade Shocks and Labor Adjustment: A Structural Empirical Approach," American Economic Review, American Economic Association, vol. 100(3), pages 1008-1045, June.
    34. Benny Kleinman & Ernest Liu & Stephen J. Redding, 2024. "International Friends and Enemies," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(4), pages 350-385, October.
    35. Michael Amior & Alan Manning, 2018. "The Persistence of Local Joblessness," American Economic Review, American Economic Association, vol. 108(7), pages 1942-1970, July.
    36. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 581-608.
    37. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
    38. George-Marios Angeletos, 2007. "Uninsured Idiosyncratic Investment Risk and Aggregate Saving," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 1-30, January.
    39. Alvarez, Fernando, 2017. "Capital accumulation and international trade," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 1-18.
    40. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 1-44.
    41. Marimon, Ramon & Scott, Andrew (ed.), 1999. "Computational Methods for the Study of Dynamic Economies," OUP Catalogue, Oxford University Press, number 9780198294979.
    42. Kiminori Matsuyama, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 617-650.
    43. Chamna Yoon, 2017. "Estimating A Dynamic Spatial Equilibrium Model To Evaluate The Welfare Implications Of Regional Adjustment Processes: The Decline Of The Rust Belt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(2), pages 473-497, May.
    44. Rebecca Diamond, 2016. "The Determinants and Welfare Implications of US Workers' Diverging Location Choices by Skill: 1980-2000," American Economic Review, American Economic Association, vol. 106(3), pages 479-524, March.
    45. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    46. Henry Hyatt & Erika McEntarfer & Ken Ueda & Alexandria Zhang, 2018. "Interstate Migration and Employer-to-Employer Transitions in the United States: New Evidence From Administrative Records Data," Demography, Springer;Population Association of America (PAA), vol. 55(6), pages 2161-2180, December.
    47. Ganong, Peter & Shoag, Daniel, 2017. "Why has regional income convergence in the U.S. declined?," Journal of Urban Economics, Elsevier, vol. 102(C), pages 76-90.
    48. Brian K. Kovak, 2013. "Regional Effects of Trade Reform: What Is the Correct Measure of Liberalization?," American Economic Review, American Economic Association, vol. 103(5), pages 1960-1976, August.
    49. Rafael Dix-Carneiro & Brian K. Kovak, 2015. "Trade Liberalization and the Skill Premium: A Local Labor Markets Approach," American Economic Review, American Economic Association, vol. 105(5), pages 551-557, May.
    50. David N. DeJong & Chetan Dave, 2011. "Structural Macroeconometrics Second Edition," Economics Books, Princeton University Press, edition 1, number 9622.
    51. 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.
    52. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    53. Chamna Yoon, 2017. "Estimating A Dynamic Spatial Equilibrium Model To Evaluate The Welfare Implications Of Regional Adjustment Processes: The Decline Of The Rust Belt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58, pages 473-497, May.
    54. David Baqaee & Emmanuel Farhi, 2019. "Networks, Barriers, and Trade," NBER Working Papers 26108, National Bureau of Economic Research, Inc.
    55. Gharad Bryan & Melanie Morten, 2019. "The Aggregate Productivity Effects of Internal Migration: Evidence from Indonesia," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2229-2268.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Dynamic spatial general equilibrium
      by Christian Zimmermann in NEP-DGE blog on 2022-05-17 02:55:29

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lennox, James, 2023. "Spatial economic dynamics in transport project appraisal," Economic Modelling, Elsevier, vol. 127(C).
    2. Busso, Matías & Fentanes, Oscar, 2024. "Building Up Local Productivity: Infrastructure and Firm Dynamics in Mexico," IDB Publications (Working Papers) 13759, Inter-American Development Bank.
    3. Stephen J. Redding, 2022. "Suburbanization in the USA, 1970–2010," Economica, London School of Economics and Political Science, vol. 89(S1), pages 110-136, June.
    4. Takeda, Kohei, 2022. "The geography of structural transformation: effects on inequality and mobility," LSE Research Online Documents on Economics 118050, London School of Economics and Political Science, LSE Library.
    5. Maximiliano Dvorkin, 2023. "Heterogeneous Agents Dynamic Spatial General Equilibrium," Working Papers 2023-005, Federal Reserve Bank of St. Louis.
    6. Bruno Conte, 2022. "Climate Change and Migration: The Case of Africa," CESifo Working Paper Series 9948, CESifo.
    7. Yang, Han, 2024. "Dynamic trade, education and intergenerational inequality," Journal of International Economics, Elsevier, vol. 151(C).
    8. Bocquet, L., 2024. "The Network Origin of Slow Labor Reallocation," Janeway Institute Working Papers 2427, Faculty of Economics, University of Cambridge.
    9. Wang, Yixuan, 2024. "Urban Redevelopment and Gentrification: Evidence from the Atlanta BeltLine," 2024 Annual Meeting, July 28-30, New Orleans, LA 343550, Agricultural and Applied Economics Association.
    10. Maximiliano Dvorkin & Brian Greaney, 2024. "The geography of wealth: shocks, mobility, and precautionary savings," Working Papers 2024-033, Federal Reserve Bank of St. Louis, revised 30 Sep 2024.
    11. Henderson, J. Vernon & Thisse, Jacques-François, 2024. "Urban and spatial economics after 50 years," LSE Research Online Documents on Economics 125675, London School of Economics and Political Science, LSE Library.
    12. Alan Feng & Haishi Li & Yulin Wang, 2023. "We Are All in the Same Boat: Cross-Border Spillovers of Climate Shocks through International Trade and Supply Chain," CESifo Working Paper Series 10402, CESifo.
    13. Ma, Lin & Tang, Yang, 2024. "The distributional impacts of transportation networks in China," Journal of International Economics, Elsevier, vol. 148(C).
    14. Allen, Treb & Donaldson, Dave, 2022. "Persistence and path dependence: A primer," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    15. Kohei Takeda & Atsushi Yamagishi, 2024. "The economic dynamics of city structure: Evidence from Hiroshima's recovery," CEP Discussion Papers dp1988, Centre for Economic Performance, LSE.
    16. Thomas J. Sargent & John Stachurski, 2024. "Dynamic Programming: Finite States," Papers 2401.10473, arXiv.org.
    17. Bocquet, L., 2024. "The Network Origin of Slow Labor Reallocation," Cambridge Working Papers in Economics 2465, Faculty of Economics, University of Cambridge.
    18. Marcel Henkel, Eunjee Kwon, Pierre Magontier, 2022. "The Unintended Consequences of Post-Disaster Policies for Spatial Sorting," Diskussionsschriften credresearchpaper37, Universitaet Bern, Departement Volkswirtschaft - CRED.
    19. Piribauer, Philipp & Glocker, Christian & Krisztin, Tamás, 2023. "Beyond distance: The spatial relationships of European regional economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 155(C).
    20. Trouvain, Florian, 2024. "Technology Adoption, Innovation, and Inequality in a Global World," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302377, Verein für Socialpolitik / German Economic Association.
    21. Fischer, Thomas, 2023. "Spatial inequality and housing in China," Journal of Urban Economics, Elsevier, vol. 134(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Redding, Stephen, 2020. "Trade and Geography," CEPR Discussion Papers 15268, C.E.P.R. Discussion Papers.
    2. Rodrigo Adão & Costas Arkolakis & Federico Esposito, 2019. "General Equilibrium Effects in Space: Theory and Measurement," NBER Working Papers 25544, National Bureau of Economic Research, Inc.
    3. 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.
    4. Stephen J. Redding & Esteban Rossi-Hansberg, 2017. "Quantitative Spatial Economics," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 21-58, September.
    5. Benny Kleinman & Ernest Liu & Stephen J. Redding, 2024. "International Friends and Enemies," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(4), pages 350-385, October.
    6. Ferdinando Monte & Stephen J. Redding & Esteban Rossi-Hansberg, 2018. "Commuting, Migration, and Local Employment Elasticities," American Economic Review, American Economic Association, vol. 108(12), pages 3855-3890, December.
    7. Stephan Heblich & Stephen J Redding & Daniel M Sturm, 2020. "The Making of the Modern Metropolis: Evidence from London," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 2059-2133.
    8. Krebs, Oliver & Pflüger, Michael, 2023. "On the road (again): Commuting and local employment elasticities in Germany," Regional Science and Urban Economics, Elsevier, vol. 99(C).
    9. Stef Proost & Jacques-François Thisse, 2019. "What Can Be Learned from Spatial Economics?," Journal of Economic Literature, American Economic Association, vol. 57(3), pages 575-643, September.
    10. Redding, Stephen, 2021. "Suburbanization in the United States 1970-2010," CEPR Discussion Papers 16174, C.E.P.R. Discussion Papers.
    11. Redding, Stephen J., 2016. "Goods trade, factor mobility and welfare," Journal of International Economics, Elsevier, vol. 101(C), pages 148-167.
    12. Blouri, Yashar & Ehrlich, Maximilian V., 2020. "On the optimal design of place-based policies: A structural evaluation of EU regional transfers," Journal of International Economics, Elsevier, vol. 125(C).
    13. Stephen J. Redding, 2022. "Suburbanization in the USA, 1970–2010," Economica, London School of Economics and Political Science, vol. 89(S1), pages 110-136, June.
    14. Allen, Treb & Donaldson, Dave, 2022. "Persistence and path dependence: A primer," Regional Science and Urban Economics, Elsevier, vol. 94(C).
    15. Heitor Pellegrina & Sebastian Sotelo, 2019. "Migration, Specialization and Trade: Evidence from the Brazilian March to the West," 2019 Meeting Papers 863, Society for Economic Dynamics.
    16. Lorenzo Caliendo & Luca David Opromolla & Fernando Parro & Alessandro Sforza, 2021. "Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement," Journal of Political Economy, University of Chicago Press, vol. 129(12), pages 3491-3545.
    17. Hsu, Wen-Tai & Ma, Lin, 2021. "Urbanization policy and economic development: A quantitative analysis of China's differential hukou reforms," Regional Science and Urban Economics, Elsevier, vol. 91(C).
    18. Brooks, Leah & Gendron-Carrier, Nicolas & Rua, Gisela, 2021. "The local impact of containerization," Journal of Urban Economics, Elsevier, vol. 126(C).
    19. Pablo D Fajgelbaum & Eduardo Morales & Juan Carlos Suárez Serrato & Owen Zidar, 2019. "State Taxes and Spatial Misallocation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 333-376.
    20. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:29101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.