The Impact of Regional and Sectoral Productivity Changes on the US Economy

50 Pages Posted: 1 Oct 2013

See all articles by Lorenzo Caliendo

Lorenzo Caliendo

Yale University - School of Management

Esteban Rossi-Hansberg

Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Fernando Parro

Federal Reserve Board

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Date Written: September 16, 2013

Abstract

We study the impact of regional and sectoral productivity changes on the U.S. economy. To that end, we consider an environment that captures the effects of interregional and intersectoral trade in propagating disaggregated productivity changes at the level of a sector in a given U.S. state to the rest of the economy. The quantitative model we develop features pairwise interregional trade across all 50 U.S. states, 26 traded and non-traded industries, labor as a mobile factor, and structures and land as an immobile factor. We allow for sectoral linkages in the form of an intermediate input structure that matches the U.S. input-output matrix. Using data on trade flows by industry between states, as well as other regional and industry data, we calibrate the model and carry out a variety of counterfactual experiments that allow us to gauge the impact of regional and sectoral productivity changes. We find that such changes can have dramatically different effects depending on the sectors and regions affected. In extreme cases, increases in productivity can have negative effects on real GDP (although welfare effects remain positive).

Suggested Citation

Caliendo, Lorenzo and Rossi-Hansberg, Esteban Alejandro and Parro, Fernando and Sarte, Pierre-Daniel, The Impact of Regional and Sectoral Productivity Changes on the US Economy (September 16, 2013). FRB Richmond Working Paper No. 13-14. Available at SSRN: https://ssrn.com/abstract=2333756 or http://dx.doi.org/10.2139/ssrn.2333756

Lorenzo Caliendo

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

HOME PAGE: http://faculty.som.yale.edu/lorenzocaliendo

Esteban Alejandro Rossi-Hansberg

Princeton University - Department of Economics ( email )

Princeton, NJ
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Fernando Parro

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Pierre-Daniel Sarte (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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