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The global distribution of economic activity: nature, history, and the role of trade

Henderson, Vernon, Squires, Tim, Storeygard, Adam and Weil, David (2018) The global distribution of economic activity: nature, history, and the role of trade. Quarterly Journal of Economics, 133 (1). pp. 357-406. ISSN 0033-5533

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Identification Number: 10.1093/qje/qjx030

Abstract

We explore the role of natural characteristics in determining the worldwide spatial distribution of economic activity, as proxied by lights at night, observed across 240,000 grid cells. A parsimonious set of 24 physical geography attributes explains 47% of worldwide variation and 35% of within-country variation in lights. We divide geographic characteristics into two groups, those primarily important for agriculture and those primarily important for trade, and confront a puzzle. In examining within-country variation in lights, among countries that developed early, agricultural variables incrementally explain over 6 times as much variation in lights as do trade variables, while among late developing countries the ratio is only about 1.5, even though the latter group is far more dependent on agriculture. Correspondingly, the marginal effects of agricultural variables as a group on lights are larger in absolute value, and those for trade smaller, for early developers than for late developers. We show that this apparent puzzle is explained by persistence and the differential timing of technological shocks in the two sets of countries. For early developers, structural transformation due to rising agricultural productivity began when transport costs were still high, so cities were localized in agricultural regions. When transport costs fell, these agglomerations persisted. In late-developing countries, transport costs fell before structural transformation. To exploit urban scale economies, manufacturing agglomerated in relatively few, often coastal, locations. Consistent with this explanation, countries that developed earlier are more spatially equal in their distribution of education and economic activity than late developers.

Item Type: Article
Official URL: https://academic.oup.com/qje
Additional Information: © 2017 The Authors
Divisions: Geography & Environment
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HF Commerce
S Agriculture > S Agriculture (General)
JEL classification: O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O18 - Regional, Urban, and Rural Analyses
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
Sets: Departments > Geography and Environment
Collections > Economists Online
Date Deposited: 02 Jun 2017 10:54
Last Modified: 20 Nov 2019 05:23
Funders: Department for International Development, World Bank Group
URI: http://eprints.lse.ac.uk/id/eprint/79709

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