From the regional economy to the macroeconomy

Santiago Pinto (santiago.pinto@rich.frb.org) and Pierre-Daniel G. Sarte

Chapter 13 in Handbook of Real Estate and Macroeconomics, 2022, pp 338-358 from Edward Elgar Publishing

Abstract: This chapter describes how two fields that traditionally evolved mostly separately, regional economics and macroeconomics, have increasingly come together over the past decade and a half to yield new insights into the relevance of regional forces for the macroeconomy. This chapter gives an overview to the basic question: why should macroeconomists care about the spatial allocation of economic activity or spatial models? There are no simple spatial aggregation theorems that give rise to an aggregate production function, and this chapter describes the variety of ways in which granular considerations and shocks that are regional in nature shape aggregate outcomes and motivate a need for policy. Moreover, understanding the role of frictions and spatial externalities in determining where individuals and firms locate, and, in general, how they affect the spatial distribution of resources, is also relevant for macroeconomists. The macroeconomics literature is increasingly heading in the direction of unpacking the exact nature of granular forces in a way that leaves the representative agent and firm framework with aggregate shocks as an early and poor approximation to how actual economies work.

Keywords: Asian Studies; Economics and Finance; Urban and Regional Studies (search for similar items in EconPapers)
Date: 2022
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Working Paper: From the Regional Economy to the Macroeconomy (2020)
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