Persistent Spatial Equilibria. Evidence from a Sudden River

Luke Heath Milsom

No 746865, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: This paper asks what impact a large, but temporary, productivity shock can have on the spatial distribution of economic activity across cities in the short and long run. To answer this question I use a dynamic quantitative spatial economics model and the natural experiment of a sudden river, the Zwin, that connected Bruges to the North Sea in the 12th century. I show that despite dramatic short-run impacts in Bruges and across the Low Countries during the period the Zwin was navigable as well as in the centuries after, this shock failed to alter the prevailing long-run spatial equilibrium. Simulating alternative shock magnitudes or locations also doesn’t result in a change in spatial equilibrium, but a permanent shock would have. However, convergence is slow, in 1800 some 300 years after the Zwin became impassable aggregate welfare remains on average 2% higher across the Low Countries as compared to the counterfactual world where the Zwin had never existed.

Pages: 36
Date: 2024-01
New Economics Papers: this item is included in nep-his and nep-ure
Note: paper number DPS 24.03
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Forthcoming in FEB Research Report Department of Economics

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