Geography in Reduced Form
Working Papers from U.S. Census Bureau, Center for Economic Studies
Geography models have introduced and estimated a set of competing explanations for the persistent relationships between firm and location characteristics, but cannot identify these forces. I introduce a solution method for models in arbitrary geographies that generates reduced-form predictions and tests to identify forces acting through geographic linkages. This theoretical approach creates a new strategy for spatial empirics. Using the correct observables, the model shows that geographic forces can be taken into account without being directly estimated; establishment and employment density emerge as sufficient statistics for all geographic forces. I present two applications. First, the model can be used to evaluate whether geographic linkages matter and when simplified models suffice: the mono-centric model is a good fit for business services firms but cannot capture the geography of manufactures. Second, the model generates reduced-form tests that distinguish between spillovers and firm sorting and finds evidence of sorting.
New Economics Papers: this item is included in nep-geo and nep-ure
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https://www2.census.gov/ces/wp/2017/CES-WP-17-10.pdf First version, 2017 (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:17-10
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