STEG Working Paper Series

Dynamic Spatial General Equilibrium

Benny Kleinman, Ernest Liu, and Stephen J. Redding

DynamicSpatialGeneralEquilibrium.jpeg

We incorporate forward-looking capital accumulation into a dynamic discrete choice model of migration. We characterize the existence and uniqueness of the steady-state equilibrium; generalize existing dynamic exact-hat algebra techniques to incorporate investment; and linearize the model to provide an analytical characterization of the economy’s transition path using spectral analysis. We show that capital and labor dynamics interact to shape the economy’s speed of adjustment towards steady-state. We implement our quantitative analysis using data on capital stocks, populations and bilateral trade and migration flows for U.S. states from 1965-2015. We show that this interaction between capital and labor dynamics plays a central role in explaining the observed decline in the rate of income convergence across U.S. states and the persistent and heterogeneous impact of local shocks.

Related content

STEG Working Paper Series

Misallocation and Product Choice

Stepan Gordeev, Sudhir Singh • Research Theme 3: Agricultural Productivity and Sectoral Gaps
STEG Working Paper Series

Financing Costs and Development

Tiago Cavalcanti, Joseph P. Kaboski, Bruno Martins, Cezar Santos • Research Theme 0: Data, Measurement, and Conceptual Framing
STEG Working Paper Series

Paternalistic Discrimination

Nina Buchmann, Carl Meyer, Colin D. Sullivan • Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy
STEG Working Paper Series

Self-employment Within the Firm

Vittorio Bassi, Jung Hyuk Lee, Alessandra Peter, Tommaso Porzio, Ritwika Sen, Esau Tugume • Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy
STEG Working Paper Series

Worker Mobility in Production Networks

Marvin Cardoza, Francesco Grigoli, Nicola Pierri, Cian Ruane • Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy
STEG Working Paper Series

The Great Upgrade

Alexandros Ragoussis, Jonathan Timmis • Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy
STEG Project Policy Brief

Paternalistic Discrimination

Nina Buchmann, Carl Meyer, Colin D. Sullivan • Research Theme 0: Data, Measurement, and Conceptual Framing