We develop a quantitative spatial model that incorporates a rich geography of trade costs and labor mobility with heterogeneous worker preferences across locations. We provide comparative statics for ...the unique equilibrium with respect to the primitives of the model. We show how the model can be used to undertake counterfactuals using only data in an initial equilibrium. In these counterfactuals, the welfare gains from trade depend on changes in both domestic trade shares and reallocations of population across locations. We show that factor mobility introduces quantitatively relevant differences in the counterfactual predictions of constant and increasing returns to scale models.
We provide theory and evidence that the elasticity of local employment to a labor demand shock is heterogeneous depending on the commuting openness of the local labor market. We develop a ...quantitative general equilibrium model that incorporates spatial linkages in goods markets (trade) and factor markets (commuting and migration). We quantify this model to match the observed gravity equation relationships for trade and commuting. We find that empirically-observed reductions in commuting costs generate welfare gains of around 3.3 percent. We provide separate quasi-experimental evidence in support of the model’s predictions using the location decisions of million dollar plants.
We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homogeneous firm models). Under some parameter restrictions, the trade ...elasticity is constant and is a sufficient statistic for welfare, along with the domestic trade share. However, even small deviations from these restrictions imply that trade elasticities are variable and differ across markets and levels of trade costs. In this more general setting, the domestic trade share and endogenous trade elasticity are no longer sufficient statistics for welfare. Additional empirically observable moments of the micro structure also matter for welfare.
Quantitative Spatial Economics Redding, Stephen J; Rossi-Hansberg, Esteban
Annual review of economics,
01/2017, Letnik:
9, Številka:
1
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The observed uneven distribution of economic activity across space is influenced by variation in exogenous geographical characteristics and endogenous interactions between agents in goods and factor ...markets. Until the past decade, the theoretical literature on economic geography had focused on stylized settings that could not easily be taken to the data. This article reviews more recent research that has developed quantitative models of economic geography. These models are rich enough to speak to first-order features of the data, such as many heterogeneous locations and gravity equation relationships for trade and commuting. At the same time, these models are sufficiently tractable to undertake realistic counterfactual exercises to study the effect of changes in amenities, productivity, and public policy interventions such as transport infrastructure investments. We provide an extensive taxonomy of the different building blocks of these quantitative spatial models and discuss their main properties and quantification.
We examine conventional approaches to evaluating the economic impact of protectionist trade policies. We illustrate these conventional approaches by applying them to the tariffs introduced by the ...Trump administration during 2018. In the wake of this increase in trade protection, the United States experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and the complete pass-through of the tariffs into domestic prices of imported goods. Therefore, the full incidence of the tariffs has fallen on domestic consumers and importers so far, and our estimates imply a reduction in aggregate US real income of $1.4 billion per month by the end of 2018. We see similar patterns for foreign countries that have retaliated with their own tariffs against the United States, which suggests that the trade war has also reduced the real income of these other countries.
We provide new theory and evidence on the role of external and internal integration in structural transformation and economic development, using Argentina’s integration into the world economy in the ...late nineteenth century. Our theoretical model provides microfoundations for a spatial Balassa-Samuelson effect, in which locations closer to world markets have higher population densities, urban population shares, relative prices of nontraded goods, and land prices relative to wages, as well as specializing in traded goods that are transport-cost sensitive. We estimate the model’s parameters, provide evidence in support of this spatial Balassa-Samuelson mechanism, and find substantial effects of both external and internal integration on economic development.
Abstract Using newly constructed spatially disaggregated data for London from 1801 to 1921, we show that the invention of the steam railway led to the first large-scale separation of workplace and ...residence. We show that a class of quantitative urban models is remarkably successful in explaining this reorganization of economic activity. We structurally estimate one of the models in this class and find substantial agglomeration forces in both production and residence. In counterfactuals, we find that removing the whole railway network reduces the population and the value of land and buildings in London by up to 51.5% and 53.3% respectively, and decreases net commuting into the historical center of London by more than 300,000 workers.
QUANTIFYING THE SOURCES OF FIRM HETEROGENEITY Hottman, Colin J.; Redding, Stephen J.; Weinstein, David E.
The Quarterly journal of economics,
08/2016, Letnik:
131, Številka:
3
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We develop and structurally estimate a model of heterogeneous multiproduct firms that can be used to decompose the firm-size distribution into the contributions of costs, “appeal” (quality or taste), ...markups, and product scope. Using Nielsen barcode data on prices and sales, we find that variation in firm appeal and product scope explains at least four fifths of the variation in firm sales. We show that the imperfect substitutability of products within firms, and the fact that larger firms supply more products than smaller firms, implies that standard productivity measures are highly dependent on implicit demand system assumptions and probably dramatically understate the relative productivity of the largest firms. Although most firms are well approximated by the monopolistic competition benchmark of constant markups, we find that the largest firms that account for most of aggregate sales depart substantially from this benchmark, and exhibit both variable markups and substantial cannibalization effects.
This paper develops a quantitative model of internal city structure that features agglomeration and dispersion forces and an arbitrary number of heterogeneous city blocks. The model remains tractable ...and amenable to empirical analysis because of stochastic shocks to commuting decisions, which yield a gravity equation for commuting flows. To structurally estimate agglomeration and dispersion forces, we use data on thousands of city blocks in Berlin for 1936, 1986, and 2006 and exogenous variation from the city's division and reunification. We estimate substantial and highly localized production and residential externalities. We show that the model with the estimated agglomeration parameters can account both qualitatively and quantitatively for the observed changes in city structure. We show how our quantitative framework can be used to undertake counterfactuals for changes in the organization of economic activity within cities in response, for example, to changes in the transport network.
Quantitative Urban Models Redding, Stephen J.
The Journal of economic perspectives,
04/2023, Letnik:
37, Številka:
2
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Economic activity is highly unevenly distributed within cities, as reflected in the concentration of economic functions in specific locations, such as finance in the Square Mile in London. The extent ...to which this concentration reflects natural advantages versus agglomeration forces is central to a range of public policy issues, including the impact of local taxation and transport infrastructure improvements. This paper reviews recent quantitative urban models, which incorporate both differences in natural advantages and agglomeration forces, and can be taken directly to observed data on cities. We show that these models can be used to estimate the strength of agglomeration forces and evaluate the impact of transportation infrastructure improvements on welfare and the spatial distribution of economic activity.
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