DP10544 | The Geography of Development

Publication Date

12/04/2015

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Abstract

We study the relationship between geography and growth. To do so, we first develop a dynamic spatial growth theory with realistic geography. We characterize the model and its balanced-growth path and propose a methodology to analyze equilibria with different levels of migration frictions. Different migration scenarios change local market size and therefore innovation incentives and the evolution of technology. We bring the model to the data for the whole world economy at a 1º x 1º geographic resolution. We then use the model to quantify the gains from relaxing migration restrictions as well as to describe the evolution of the distribution of economic activity under different migration scenarios. Our results indicate that fully liberalizing migration would increase welfare about three-fold and would significantly affect the evolution of particular regions of the world.