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Abstract:

Journal article
The global distribution of economic activity: Nature, history, and the role of trade
J. Vernon Henderson, Tim Squires, Adam Storeygard and David Weil February 2018

Quarterly Journal of Economics 133(1), 2018
DOI: 10.1093/qje/qjx030

We explore the role of natural characteristics in determining the worldwidespatial distribution of economic activity, as proxied by lights at night, observedacross 240,000 grid cells. A parsimonious set of 24 physical geography attributesexplains 47% of worldwide variation and 35% of within-country variation in lights.We divide geographic characteristics into two groups, those primarily importantfor agriculture and those primarily important for trade, and confront a puzzle.In examining within-country variation in lights, among countries that developedearly, agricultural variables incrementally explain over 6 times as much variationin 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 lightsare larger in absolute value, and those for trade smaller, for early developers thanfor late developers. We show that this apparent puzzle is explained by persis-tence and the differential timing of technological shocks in the two sets of coun-tries. For early developers, structural transformation due to rising agricultural productivity began when transport costs were still high, so cities were localizedin 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 developedearlier are more spatially equal in their distribution of education and economicactivity than late developers.JEL Codes:O13, O18, R12.

DOI: 10.1093/qje/qjx030