The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy

59 Pages Posted: 15 Oct 2014

See all articles by Lorenzo Caliendo

Lorenzo Caliendo

Yale University - School of Management

Fernando Parro

Federal Reserve Board

Esteban Rossi-Hansberg

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

Pierre-Daniel G. Sarte

Federal Reserve Bank of Richmond

Multiple version iconThere are 3 versions of this paper

Date Written: October 7, 2014

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 obtain the aggregate, regional and sectoral elasticities of measured TFP, GDP, and employment to regional and sectoral productivity changes. We find that such elasticities can vary significantly depending on the sectors and regions affected and are importantly determined by the spatial structure of the US economy. We highlight the role of these elasticities by tracing out the effects of productivity gains in California in the Computers and Electronics industry between 2002 and 2007 on all other U.S. sectors and regions.

Keywords: Interregional Trade, Intersectoral Linkages, Total Factor Productivity, Gross Domestic Product, Factor Mobility

JEL Classification: F10, F11, O40, O47, R12, R13

Suggested Citation

Caliendo, Lorenzo and Parro, Fernando and Rossi-Hansberg, Esteban Alejandro and Sarte, Pierre-Daniel, The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy (October 7, 2014). FRB International Finance Discussion Paper No. 1119. Available at SSRN: https://ssrn.com/abstract=2508008 or http://dx.doi.org/10.2139/ssrn.2508008

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

Fernando Parro (Contact Author)

Federal Reserve Board ( email )

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

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

Pierre-Daniel Sarte

Federal Reserve Bank of Richmond ( email )

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

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