1932

Abstract

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.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-063016-103713
2017-08-02
2024-06-17
Loading full text...

Full text loading...

/deliver/fulltext/economics/9/1/annurev-economics-063016-103713.html?itemId=/content/journals/10.1146/annurev-economics-063016-103713&mimeType=html&fmt=ahah

Literature Cited

  1. Ahlfeldt GM, Redding SJ, Sturm DM, Wolf N. 2015. The economics of density: evidence from the Berlin Wall. Econometrica 83:62127–89 [Google Scholar]
  2. Albouy D. 2016. Are big cities bad places to live? Estimating quality of life across metropolitan areas. Unpublished manuscript, Univ. Illinois Urbana-Champaign: [Google Scholar]
  3. Allen T, Arkolakis C. 2014. Trade and the topography of the spatial economy. Q. J. Econ. 129:31085–140 [Google Scholar]
  4. Allen T, Arkolakis C, Li X. 2016. Optimal city structure. Unpublished manuscript, Yale Univ. New Haven, NJ: [Google Scholar]
  5. Allen T, Arkolakis C, Takahashi Y. 2015. Universal gravity. NBER Work. Pap. 20787 [Google Scholar]
  6. Alonso W. 1964. Location and Land Use. Cambridge, MA: Harvard Univ. Press [Google Scholar]
  7. Anderson JE, van Wincoop E. 2003. Gravity with gravitas: a solution to the border puzzle. Am. Econ. Rev. 93:1170–92 [Google Scholar]
  8. Anderson ML. 2014. Subways, strikes, and slowdowns: the impacts of public transit on traffic congestion. Am. Econ. Rev. 104:92763–96 [Google Scholar]
  9. Arkolakis C, Costinot A, Rodriguez-Clare A. 2012. New trade models, same old gains. Am. Econ. Rev. 102:194–130 [Google Scholar]
  10. Arkolakis C, Ramondo N, Rodriguez-Clare A, Yeaple S. 2014. Innovation and production in the global economy. NBER Work. Pap. 18792 [Google Scholar]
  11. Armington PS. 1969. A theory of demand for products distinguished by place of production. IMF Staff Pap. 16:1159–78 [Google Scholar]
  12. Artuç ES, Chaudhuri S, McLaren J. 2010. Trade shocks and labor adjustment: a structural empirical approach. Am. Econ. Rev. 100:31008–45 [Google Scholar]
  13. Arzaghi M, Henderson JV. 2008. Networking off Madison Avenue. Rev. Econ. Stud. 75:41011–38 [Google Scholar]
  14. Autor DH, Palmer CJ, Pathak PA. 2014. Housing market spillovers: evidence from the end of rent control in Cambridge, Massachusetts. J. Polit. Econ. 122:3661–717 [Google Scholar]
  15. Baldwin R, Forslid R, Martin P, Ottaviano GIP, Robert-Nicoud F. 2003. Economic Geography and Public Policy Princeton, NJ: Princeton Univ. Press [Google Scholar]
  16. Baldwin R, Okubo T. 2005. Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting. J. Econ. Geogr. 6:3323–46 [Google Scholar]
  17. Bartelme D. 2016. Trade costs and economic geography: evidence from the US. Unpublished manuscript, Univ. Mich., Ann Arbor [Google Scholar]
  18. Behrens K, Mion G, Murata Y, Südekum J. 2014. Spatial frictions. Düsseldorf Inst. Compet. Econ. Discuss. Pap. 160, Heinrich-Heine-Univ., Düsseldorf, Ger. [Google Scholar]
  19. Bernard L, Bird J, Venables AJ. 2016. The urban land market: a computable equilibrium model applied to Kampala City. Unpublished manuscript, Oxford Univ., Oxford, UK [Google Scholar]
  20. Bleakley H, Lin J. 2012. Portage and path dependence. Q. J. Econ. 127:587–644 [Google Scholar]
  21. Bosker M, Brakman S, Garretsen H, Schramm M. 2007. Looking for multiple equilibria when geography matters: German city growth and the WWII shock. J. Urban Econ. 61:1152–69 [Google Scholar]
  22. Bosker M, Brakman S, Garretsen H, Schramm M. 2008. A century of shocks: the evolution of the German city size distribution 1925–1999. Reg. Sci. Urban Econ. 38:4330–47 [Google Scholar]
  23. Brinkman J. 2016. Congestion, agglomeration, and the structure of cities. J. Urban Econ. 94:13–31 [Google Scholar]
  24. Brülhart M, Carrère C, Trionfetti F. 2012. How wages and employment adjust to trade liberalization: quasi-experimental evidence from Austria. J. Int. Econ. 86:68–81 [Google Scholar]
  25. Bryan G, Morten M. 2015. Economic development and the spatial allocation of labor: evidence from Indonesia. Unpublished manuscript, Stanford Univ., Stanford, CA [Google Scholar]
  26. Busso M, Gregory J, Kline P. 2013. Assessing the incidence and efficiency of a prominent place based policy. Am. Econ. Rev. 103:2897–947 [Google Scholar]
  27. Caliendo L, Dvorkin M, Parro F. 2015. Trade and labor market dynamics. NBER Work. Pap. 21149 [Google Scholar]
  28. Caliendo L, Parro F, Rossi-Hansberg E, Sarte PD. 2014. The impact of regional and sectoral productivity changes on the US economy. NBER Work. Pap. 20168 [Google Scholar]
  29. Combes P, Duranton G, Gobillon L. 2016. The costs of agglomeration: land prices in French cities. Unpublished manuscript, Wharton Sch., Univ. Pa., Philadelphia [Google Scholar]
  30. Combes P, Duranton G, Gobillon L, Roux S. 2010. Estimating agglomeration economies with history, geology, and worker effects. Agglomeration Economies EL Glaeser 16–66 Chicago: Chicago Univ. Press [Google Scholar]
  31. Comin D, Dmitriev M, Rossi-Hansberg E. 2013. The spatial diffusion of technology Unpublished manuscript, Princeton Univ., Princeton, NJ [Google Scholar]
  32. Coşar AK, Fajgelbaum PD. 2016. Internal geography, international trade, and regional specialization. Am. Econ. J. Microecon. 8:124–56 [Google Scholar]
  33. Costinot A, Donaldson D, Kyle M, Williams H. 2016. The more we die the more we sell: a simple test of the home-market effect Unpublished manuscript, Stanford Univ., Stanford, CA [Google Scholar]
  34. Davis DR, Dingel JI. 2015. The comparative advantage of cities Unpublished manuscript, Columbia Univ., New York [Google Scholar]
  35. Davis DR, Weinstein DE. 1999. Economic geography and regional production structure: an empirical investigation. Eur. Econ. Rev. 43:379–407 [Google Scholar]
  36. Davis DR, Weinstein DE. 2002. Bones, bombs, and break points: the geography of economic activity. Am. Econ. Rev. 92:51269–89 [Google Scholar]
  37. Davis DR, Weinstein DE. 2003. Market access, economic geography and comparative advantage: an empirical assessment. J. Int. Econ. 59:11–23 [Google Scholar]
  38. Davis DR, Weinstein DE. 2008. A search for multiple equilibria in urban industrial structure. J. Reg. Sci. 48:129–65 [Google Scholar]
  39. Davis MA, Ortalo-Magné F. 2011. Housing expenditures, wages, rents. Rev. Econ. Dyn. 14:2248–61 [Google Scholar]
  40. Dekle R, Eaton J, Kortum S. 2007. Unbalanced trade. Am. Econ. Rev. 97:2351–55 [Google Scholar]
  41. Desmet K, Henderson JV. 2015. The geography of development within countries. See Duranton et al. 2015 1457–517
  42. Desmet K, Nagy DK, Rossi-Hansberg E. 2016. The geography of development. J. Polit. Econ. In press [Google Scholar]
  43. Desmet K, Rossi-Hansberg E. 2013. Urban accounting and welfare. Am. Econ. Rev. 103:62296–327 [Google Scholar]
  44. Desmet K, Rossi-Hansberg E. 2014. Spatial development. Am. Econ. Rev. 104:41211–43 [Google Scholar]
  45. Desmet K, Rossi-Hansberg E. 2015. On the spatial economic impact of global warming. J. Urban Econ. 88:16–37 [Google Scholar]
  46. Diamond R. 2016. The determinants and welfare implications of US workers’ diverging location choices by skill: 1980–2000. Am. Econ. Rev. 106:3479–524 [Google Scholar]
  47. Donaldson D. 2016. Railroads of the Raj: estimating the impact of transportation infrastructure. Am. Econ. Rev. In press [Google Scholar]
  48. Donaldson D, Hornbeck R. 2016. Railroads and American economic growth: a “market access” approach. Q. J. Econ. 131:2799–858 [Google Scholar]
  49. Downs A. 1962. The law of peak-hour expressway congestion. Traffic Q. 16:3393–409 [Google Scholar]
  50. Duranton G, Henderson JV, Strange WC,. 2015. Handbook of Regional and Urban Economics, Vol. 5: Handbook of Regional and Urban Economics Amsterdam: Elsevier [Google Scholar]
  51. Duranton G, Puga D. 2004. Micro-foundations of urban agglomeration economies. See Henderson & Thisse 2004 2063–117
  52. Duranton G, Turner MA. 2011. The fundamental law of road congestion: evidence from U.S. cities. Am. Econ. Rev. 101:62616–52 [Google Scholar]
  53. Eaton J, Kortum S. 2002. Technology, geography, and trade. Econometrica 70:51741–79 [Google Scholar]
  54. Ehrlich M, Seidel T. 2015. The persistent effects of place-based policy: evidence from the West German Zonenrangebiet Unpublished manuscript, Univ. Bern, Switz. [Google Scholar]
  55. Ellison G, Glaeser EL, Kerr WR. 2010. What causes industry agglomeration? Evidence from coagglomeration patterns. Am. Econ. Rev. 100:31195–213 [Google Scholar]
  56. Epple D, Gordon B, Sieg H. 2010. A new approach to estimating the production function for housing. Am. Econ. Rev. 100:3905–24 [Google Scholar]
  57. Fajgelbaum PD, Morales E, Suárez Serrato JC, Zidar O. 2015. State taxes and spatial misallocation NBER Work. Pap. 21760 [Google Scholar]
  58. Fajgelbaum PD, Redding SJ. 2014. External integration, structural transformation and economic development: evidence from Argentina 1870–1914 NBER Work. Pap. 20217 [Google Scholar]
  59. Fortheringham S, O'Kelly M. 1989. Spatial Interaction Models: Formulations and Applications Dordrecht, Neth.: Kluwer [Google Scholar]
  60. Fujimoto T, Krause U. 1985. Strong ergodicity for strictly increasing nonlinear operators. Linear Algebra Appl. 71:1101–12 [Google Scholar]
  61. Fujita M, Krugman P, Venables AJ. 1999. The Spatial Economy: Cities, Regions and International Trade Cambridge, MA: MIT Press [Google Scholar]
  62. Fujita M, Ogawa H. 1982. Multiple equilibria and structural transformation of non-monocentric urban configurations. Reg. Sci. Urban Econ. 12:2161–96 [Google Scholar]
  63. Fujita M, Thisse JF. 2002. The Economics of Agglomeration Cambridge, UK: Cambridge Univ. Press [Google Scholar]
  64. Galle S, Rodriguez-Clare A, Yi M. 2015. Slicing the pie: quantifying the aggregate and distributional consequences of trade Unpublished manuscript, Univ. Calif., Berkeley [Google Scholar]
  65. Gaubert C. 2015. Firm sorting and agglomeration Unpublished manuscript, Univ. Calif., Berkeley [Google Scholar]
  66. Greenstone M, Hornbeck R, Moretti E. 2010. Identifying agglomeration spillovers: evidence from winners and losers of large plant openings. J. Polit. Econ. 118:3536–98 [Google Scholar]
  67. Grogger J, Hanson G. 2011. Income maximization and the selection and sorting of international migrants. J. Dev. Econ. 95:142–57 [Google Scholar]
  68. Hanson GH. 1996. Localization economies, vertical organization, and trade. Am. Econ. Rev. 86:51266–78 [Google Scholar]
  69. Hanson GH. 1997. Increasing returns, trade, and the regional structure of wages. Econ. J. 107:113–33 [Google Scholar]
  70. Hanson GH. 2005. Market potential, increasing returns, and geographic concentration. J. Int. Econ. 67:11–24 [Google Scholar]
  71. Head K, Mayer T. 2014. Gravity equations: workhorse, toolkit, and cookbook. Handbook of International Economics 4 G Gopinath, E Helpman, K Rogoff 131–95 Amsterdam: Elsevier [Google Scholar]
  72. Helpman E. 1998. The size of regions. Topics in Public Economics: Theoretical and Applied Analysis D Pines, E Sadka, I Zilcha 33–54 Cambridge, UK: Cambridge Univ. Press [Google Scholar]
  73. Henderson JV. 1974. The sizes and types of cities. Am. Econ. Rev. 64:4640–56 [Google Scholar]
  74. Henderson JV, Thisse J-F. 2004. Handbook of Regional and Urban Economics, Vol. 4: Cities and Geography Amsterdam: Elsevier [Google Scholar]
  75. Holmes TJ. 2005. The location of sales offices and the attraction of cities. J. Polit. Econ. 113:3551–81 [Google Scholar]
  76. Holmes TJ. 2011. The diffusion of Walmart and the economies of density. Econometrica 79:1253–302 [Google Scholar]
  77. Holmes TJ, Sieg H. 2015. Structural estimation in urban economics. See Duranton et al. 2015 69–114
  78. Hornbeck R, Keniston D. 2014. Creative destruction: barriers to urban growth and the Great Boston Fire of 1872 Unpublished manuscript, Chicago Booth Sch. Bus., Univ. Chicago [Google Scholar]
  79. Jaffe AB, Trajtenberg M, Henderson R. 1993. Geographic localization of knowledge spillovers as evidenced by patent citations. Q. J. Econ. 108:3577–98 [Google Scholar]
  80. Kennan J, Walker JR. 2011. The effect of expected income on individual migration decisions. Econometrica 79:1211–51 [Google Scholar]
  81. Kline P, Moretti E. 2014a. Local economic development, agglomeration economies, and the big push: 100 years of evidence from the Tennessee Valley Authority. Q. J. Econ. 129:1275–331 [Google Scholar]
  82. Kline P, Moretti E. 2014b. People, places, and public policy: some simple welfare economics of local economic development policies. Annu. Rev. Econ. 6:629–62 [Google Scholar]
  83. Krugman PR. 1991a. Geography and Trade Cambridge, MA: MIT Press [Google Scholar]
  84. Krugman PR. 1991b. Increasing returns and economic geography. J. Polit. Econ. 99:3483–99 [Google Scholar]
  85. Krugman PR, Venables AJ. 1995. Globalisation and the inequality of nations. Q. J. Econ. 60:857–80 [Google Scholar]
  86. Lucas RE. 2000. Externalities and cities. Rev. Econ. Dyn. 4:2245–74 [Google Scholar]
  87. Lucas RE, Rossi-Hansberg E. 2002. On the internal structure of cities. Econometrica 70:41445–76 [Google Scholar]
  88. Marshall A. 1920. Principles of Economics London: Macmillan [Google Scholar]
  89. McFadden D. 1974. The measurement of urban travel demand. J. Public Econ. 3:4303–28 [Google Scholar]
  90. Melo PC, Graham DJ, Noland RB. 2009. A meta-analysis of estimates of urban agglomeration economies. Reg. Sci. Urban Econ. 39:3332–42 [Google Scholar]
  91. Michaels G, Rauch F. 2016. Resetting the urban network: 117–2012. Econ. J. In press [Google Scholar]
  92. Miguel E, Roland G. 2011. The long-run impact of bombing Vietnam. J. Dev. Econ. 96:1–15 [Google Scholar]
  93. Mills ES. 1967. An aggregative model of resource allocation in a metropolitan centre. Am. Econ. Rev. 57:2197–210 [Google Scholar]
  94. Monte F. 2015. The local incidence of trade shocks Unpublished manuscript, Georgetown Univ., Washington, DC [Google Scholar]
  95. Monte F, Redding SJ, Rossi-Hansberg E. 2015. Commuting, migration and local employment elasticities NBER Work. Pap. 21706 [Google Scholar]
  96. Moretti E. 2011a. Local labor markets. Handbook of Labor Economics 4B D Card, O Ashenfelter 1238–303 Amsterdam: Elsevier [Google Scholar]
  97. Moretti E. 2011b. Local multipliers. Am. Econ. Rev. 100:21–7 [Google Scholar]
  98. Morten M, Oliveira J. 2016. Paving the way to development: costly migration and labor market integration Unpublished manuscript, Stanford Univ., Stanford, CA [Google Scholar]
  99. Muth R. 1969. Cities and Housing Chicago: Univ. Chicago Press [Google Scholar]
  100. Nagy DK. 2016. City location and economic development Unpublished manuscript, Princeton Univ., Princeton, NJ [Google Scholar]
  101. Nakajima K. 2008. Economic division and spatial relocation: the case of postwar Japan. J. Jpn. Int. Econ. 22:3383–400 [Google Scholar]
  102. Neumark D, Simpson H. 2014. Place-based policies. See Duranton et al. 2015 1197–1287
  103. Overman HG, Redding SJ, Venables AJ. 2003. The economic geography of trade, production and income: a survey of empirics. Handbook of International Trade E Kwan-Choi, J Harrigan 353–87 Oxford, UK: Basil Blackwell [Google Scholar]
  104. Overman HG, Winters LA. 2006. Trade shocks and industrial location: the impact of EEC accession on the UK Discuss. Pap. 588, Centre Econ. Perform., London Sch. Econ., London [Google Scholar]
  105. Puga D. 1999. The rise and fall of regional inequalities. Eur. Econ. Rev. 43:303–34 [Google Scholar]
  106. Redding SJ. 2010. The empirics of new economic geography. J. Reg. Sci. 50:1297–311 [Google Scholar]
  107. Redding SJ. 2011. Economic geography: a review of the theoretical and empirical literature. Palgrave Handbook of International Trade D Bernhofen, R Falvey, D Greenaway, U Kreickemeier 497–531 London: Palgrave Macmillan [Google Scholar]
  108. Redding SJ. 2016. Goods trade, factor mobility and welfare. J. Int. Econ. 101:148–67 [Google Scholar]
  109. Redding SJ, Sturm DM. 2008. The costs of remoteness: evidence from German division and reunification. Am. Econ. Rev. 98:51766–97 [Google Scholar]
  110. Redding SJ, Sturm DM. 2016. Estimating neighborhood effects: evidence from war-time destruction in London Unpublished manuscript, Princeton Univ., Princeton, NJ [Google Scholar]
  111. Redding SJ, Sturm DM, Wolf N. 2011. History and industrial location: evidence from German airports. Rev. Econ. Stat. 93:3814–31 [Google Scholar]
  112. Redding SJ, Turner M. 2015. Transportation costs and the spatial organization of economic activity. Handbook of Urban and Regional Economics 5 G Duranton, JV Henderson, W Strange 1339–98 Amsterdam: Elsevier [Google Scholar]
  113. Redding SJ, Venables A. 2004. Economic geography and international inequality. J. Int. Econ. 62:153–82 [Google Scholar]
  114. Reyes-Heroles R. 2016. The role of trade costs in the surge of trade imbalances Unpublished manuscript, Princeton Univ., Princeton, NJ [Google Scholar]
  115. Roback J. 1982. Wages, rents, and the quality of life. J. Polit. Econ. 90:1257–78 [Google Scholar]
  116. Rosen S. 1979. Wages-based indexes of urban quality of life. Current Issues in Urban Economics P Mieszkowski, M Straszheim 74–104 Baltimore: Johns Hopkins Univ. Press [Google Scholar]
  117. Rosenthal SS, Strange WC. 2004. Evidence on the nature and sources of agglomeration economics. See Henderson & Thisse 2004 2119–71
  118. Rosenthal SS, Strange WC. 2008. The attenuation of human capital spillovers. J. Urban Econ. 64:2373–89 [Google Scholar]
  119. Rossi-Hansberg E. 2005. A spatial theory of trade. Am. Econ. Rev. 95:51464–91 [Google Scholar]
  120. Rossi-Hansberg E, Sarte P, Owens RI. 2010. Housing externalities. J. Polit. Econ. 118:3485–535 [Google Scholar]
  121. Shoven JB, Whalley J. 2005. Applying General Equilibrium Cambridge, UK: Cambridge Univ. Press [Google Scholar]
  122. Simonovska I, Waugh ME. 2014. The elasticity of trade: estimates and evidence. J. Int. Econ. 92:134–50 [Google Scholar]
  123. Tirado DA, Paluzie E, Pons J. 2002. Economic integration and industrial location: the case of Spain before WWI. J. Econ. Geogr. 2:3343–63 [Google Scholar]
  124. Waugh M. 2010. International trade and income differences. Am. Econ. Rev. 100:52093–124 [Google Scholar]
  125. Wolf N. 2007. Endowments versus market potential: What explains the relocation of industry after the Polish Reunification in 1918?. Explor. Econ. Hist. 44:122–42 [Google Scholar]
  126. Young A. 2013. Inequality, the urban-rural gap, and migration. Q. J. Econ. 128:1727–85 [Google Scholar]
  127. Zabreyko P, Koshelev A, Krasnoselskii M, Mikhlin S, Rakovshchik L, Stetísenko V. 1975. Integral Equations: A Reference Text Leiden, Neth.: Noordhoff Int. Publ. [Google Scholar]
/content/journals/10.1146/annurev-economics-063016-103713
Loading
/content/journals/10.1146/annurev-economics-063016-103713
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error