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15:00 | Macro Research Seminar
Dávid Krisztián Nagy (Job Talk): “City Location and Economic Development”
Author: Dávid Krisztián Nagy
Abstract: I present a dynamic model of the U.S. economy with trade, labor mobility, endogenous growth and realistic geography to examine the relationship between spatial frictions, city formation, and aggregate development. In the model, a subset of locations endogenously specialize in innovative industries with economies of scale, which leads to the formation and development of cities. Spatial frictions affect innovation, thus aggregate growth, by shaping the locations and sizes of cities. I take the model to historical U.S. data at a 20 by 20 arc minute spatial resolution. I show that the model can quantitatively replicate the large population reallocation toward the West and the rapid urbanization in the 19th century, as well as various moments of the location and growth of newly forming cities. I use the model to quantify the effect of railroad construction and international trade on city formation, aggregate output, and growth. Results indicate that the growth rate of the U.S. economy before the Civil War would have been 23% lower in the absence of railroads, and 1.4% lower under autarky. Results also show that the formation and development of cities amplified the effect of railroads and international trade on real GDP by about 40%.
Full Text: “City Location and Economic Development”
