Spatial Inequality, Geography and Economic Activity

38 Pages Posted: 18 Mar 2019

See all articles by Sandra Achten

Sandra Achten

Technology University of Braunschweig - Carl-Friedrich-Gauß-Fakultät

Christian Lessmann

Technology University of Braunschweig; Ifo Branch Dresden; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: 2019

Abstract

We study the effect of spatial inequality on economic activity. Given that the relationship is highly simultaneous in nature, we use exogenous variation in geographic features to construct an instrument for spatial inequality, which is independent from any man-made factors. Inequality measures and instruments are calculated based on grid-level data for existing countries as well as for artificial countries. In the construction of the instrumental variable, we use both a parametric regression analysis as well as a random forest classification algorithm. Our IV regressions show a significant negative relationship between spatial inequality and economic activity. This result holds if we control for country-level averages of different geographic variables. Therefore, we conclude that geographic heterogeneity is an important determinant of economic activity.

Keywords: regional inequality, spatial inequality, economic activity, development, geography, machine learning

JEL Classification: R120, O150

Suggested Citation

Achten, Sandra and Lessmann, Christian, Spatial Inequality, Geography and Economic Activity (2019). CESifo Working Paper No. 7547, Available at SSRN: https://ssrn.com/abstract=3352910

Sandra Achten (Contact Author)

Technology University of Braunschweig - Carl-Friedrich-Gauß-Fakultät ( email )

Abt-Jerusalem-Str. 7
Braunschweig, D-38106
Germany

Christian Lessmann

Technology University of Braunschweig ( email )

Abt-Jerusalem-Str. 7
Braunschweig, D-38106
Germany

Ifo Branch Dresden ( email )

Poschinger Str. 5
Munich, 01069
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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