Mardi | 2011-05-24
Kristian BEHRENS – Giordano MION – Yasusada MURATA – Jens SÜDEKUM
The spatial structure of an economy is determined by the trade-off between agglomerationand dispersion forces. This trade-off crucially depends on spatial frictions – trade frictions for shipping goods across cities and urban frictions for concentrating people and firms in cities. Little is known to date about the quantitative importance of those frictions. To fill this gap, we develop a model that allows for the joint determination of city sizes and their aggregate productivities, wages, markups, and the distribution and number of firms. We quantify it structurally for the US using its general equilibrium conditions, a gravity equation for trade flows, and logit probabilities for consumers’ location choices. The quantified model is then used to assess the importance of trade and urban frictions for the US spatial distribution of economic activity, its productivity, and markups. Eliminating trade frictions leads to substantialaggregate productivity gains and markup reductions, while eliminating urban frictions leads to similar but smaller changes. In both cases, the gains are very unevenly spread across cities, and the city size distribution remains very stable despite population movements of about 4–10million people.