American Economic Review: Vol. 104 No. 4 (April 2014)


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Spatial Development

Article Citation

Desmet, Klaus, and Esteban Rossi-Hansberg. 2014. "Spatial Development." American Economic Review, 104(4): 1211-43.

DOI: 10.1257/aer.104.4.1211


We present a theory of spatial development. Manufacturing and services firms located in a continuous geographic area choose each period how much to innovate. Firms trade subject to transport costs and technology diffuses spatially. We apply the model to study the evolution of the US economy in the last half-century and find that it can generate the reduction in the manufacturing employment share, the increased spatial concentration of services, the growth in service productivity starting in the mid-1990s, the rise in the dispersion of land rents in the same period, as well as several other spatial and temporal patterns.

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Desmet, Klaus (U Carlos III de Madrid)
Rossi-Hansberg, Esteban (Princeton U)

JEL Classifications

J21: Labor Force and Employment, Size, and Structure
L16: Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
L60: Industry Studies: Manufacturing: General
L80: Industry Studies: Services: General
O33: Technological Change: Choices and Consequences; Diffusion Processes
R11: Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
R32: Other Spatial Production and Pricing Analysis

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