Abstract
How much of the spatial distribution of economic activity today is determined by history rather than by geographic fundamentals? How long should we expect temporary local shocks to persist in their effects on local economic concentration? When will such shocks have permanent (i.e. path-dependent) consequences? This paper develops a simple dynamic model of economic geography—with many heterogeneous locations interacting through trade, migration, agglomeration externalities, and endogenous fertility—that delivers tractable answers to these questions. Our results highlight an important distinction between agglomeration spillovers that endogenously affect productivity (or amenities) contemporaneously and those that do so with a lag.
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