Persistence and Path Dependence in the Spatial Economy

Treb Allen and Dave Donaldson

No 28059, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How much of the spatial distribution of economic activity today is determined by history rather than by geographic fundamentals? And if history matters for spatial allocations, does it also matter for overall efficiency? This paper develops a forward-looking dynamic framework for the theoretical and empirical study of such questions. We derive conditions on the strength of agglomeration externalities under which equilibria are unique and yet temporary historical shocks can have particularly persistent, or even permanent (i.e. path-dependent) consequences. When estimated using U.S. data from 1800-2000, this model displays multi-century persistence from small and temporary shocks as well as path dependence (with large aggregate welfare effects) throughout much of our estimated parameter range.

JEL-codes: C33 C62 F1 R11 R13 R23 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-geo, nep-gro, nep-his and nep-ure
Note: DAE EFG ITI
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Citations: View citations in EconPapers (48)

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