AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
The Linear Algebra of Economic Geography Models
AEA Papers and Proceedings
vol. 114,
May 2024
(pp. 328–33)
Abstract
We provide sufficient statistics for nominal and real wage exposure to productivity shocks in a constant elasticity economic geography model. These exposure measures summarize the first-order general equilibrium elasticity of nominal and real wages in each location with respect to productivity shocks in all locations. They are readily computed using commonly available trade data and the values of trade and migration elasticities. They have an intuitive interpretation in terms of underlying economic mechanisms. Computing these measures for all bilateral pairs of locations involves a single matrix inversion and therefore remains computational efficient even with an extremely high-dimensional state space.Citation
Kleinman, Benny, Ernest Liu, and Stephen J. Redding. 2024. "The Linear Algebra of Economic Geography Models." AEA Papers and Proceedings, 114: 328–33. DOI: 10.1257/pandp.20241043Additional Materials
JEL Classification
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- R12 Size and Spatial Distributions of Regional Economic Activity
- R15 General Regional Economics: Econometric and Input-Output Models; Other Models
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics