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CEP discussion paper
Quantitative spatial economics
Stephen J. Redding and Esteban Rossi-Hansberg
October 2016
Paper No' CEPDP1452:
Full Paper (pdf)

JEL Classification: F10; F14; R12; R23; R41

Tags: agglomeration; cities; economic geography; quantitative models; spatial economics

The observed uneven distribution of economic activity across space is influenced by variation in exogenous geographical characteristics and endogenous interactions between agents in goods and factor markets. Until recently, the theoretical literature on economic geography had focused on stylized settings that could not easily be taken to the data. This paper reviews more recent research that has developed quantitative models of economic geography. These models are rich enough to speak to first-order features of the data, such as many heterogenous locations and gravity equation relationships for trade and commuting. Yet at the same time these models are sufficiently tractable to undertake realistic counterfactuals exercises to study the effect of changes in amenities, productivity, and public policy interventions such as transport infrastructure investments. We provide an extensive taxonomy of the different building blocks of these quantitative spatial models and discuss their main properties and quantification.