The Global Spatial Distribution of Economic Activity: Nature, History, and the Role of Trade

79 Pages Posted: 11 Apr 2016

See all articles by J. Vernon Henderson

J. Vernon Henderson

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER)

Tim Squires

Amazon.com

Adam Storeygard

Tufts University

David N. Weil

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

Date Written: April 2016

Abstract

We study the distribution of economic activity, as proxied by lights at night, across 250,000 grid cells of average area 560 square kilometers. We first document that nearly half of the variation can be explained by a parsimonious set of physical geography attributes. A full set of country indicators only explains a further 10%. When we divide geographic characteristics into two groups, those primarily important for agriculture and those primarily important for trade, we find that the agriculture variables have relatively more explanatory power in countries that developed early and the trade variables have relatively more in countries that developed late, despite the fact that the latter group of countries are far more dependent on agriculture today. We explain this apparent puzzle in a model in which two technological shocks occur, one increasing agricultural productivity and the other decreasing transportation costs, and in which agglomeration economies lead to persistence in urban locations. In countries that developed early, structural transformation due to rising agricultural productivity began at a time when transport costs were still relatively high, so urban agglomerations were localized in agricultural regions. When transport costs fell, these local agglomerations persisted. In late developing countries, transport costs fell well before structural transformation. To exploit urban scale economies, manufacturing agglomerated in relatively few, often coastal, locations. With structural transformation, these initial coastal locations grew, without formation of more cities in the agricultural interior.

Suggested Citation

Henderson, J. Vernon and Squires, Tim and Storeygard, Adam and Weil, David Nathan, The Global Spatial Distribution of Economic Activity: Nature, History, and the Role of Trade (April 2016). NBER Working Paper No. w22145. Available at SSRN: https://ssrn.com/abstract=2762096

J. Vernon Henderson (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tim Squires

Amazon.com ( email )

Seattle, WA 98144
United States

Adam Storeygard

Tufts University ( email )

Medford, MA 02155
United States

David Nathan Weil

Brown University - Department of Economics ( email )

Box B
Providence, RI 02912
United States
401-863-1754 (Phone)
401-863-1970 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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