Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Mar, 2023, Volume 91, Issue 2

Dynamic Spatial General Equilibrium

https://doi.org/10.3982/ECTA20273
p. 385-424

Benny Kleinman, Ernest Liu, Stephen J. Redding

We incorporate forward‐looking capital accumulation into a dynamic discrete choice model of migration. We characterize 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 toward 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.


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Supplement to "Dynamic Spatial General Equilibrium"

Benny Kleinman, Ernest Liu, and Stephen J. Redding

Online Appendix

Supplement to "Dynamic Spatial General Equilibrium"

Benny Kleinman, Ernest Liu, and Stephen J. Redding

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