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Spatial Economics

Paper Session

Friday, Jan. 6, 2023 8:00 AM - 10:00 AM (CST)

Hilton Riverside, Commerce
Hosted By: American Economic Association
  • Chair: Enrico Moretti, University of California Berkeley

Where is Standard of Living the Highest? Local Prices and the Geography of Consumption

Rebecca Diamond
,
Stanford University
Enrico Moretti
,
University of California-Berkeley

Abstract

Income differences across US cities are well documented, but little is known about the level of standard of living in each city - defined as the amount of market-based consumption that residents are able to afford. In this paper we provide estimates of the standard of living by commuting zone for households in a given income or education group, and we study how they relate to local cost of living. Using a novel dataset, we observe debit and credit card transactions, check and ACH payments, and cash withdrawals of 5% of US households in 2014 and use it to measure mean consumption expenditures by commuting zone and income group. To measure local prices, we build income-specific consumer price indices by commuting zone. We uncover vast geographical differences in material standard of living for a given income level. Low income residents in the most affordable commuting zone enjoy a level of consumption that is 74% higher than that of low income residents in the most expensive commuting zone. We then endogenize income and estimate the standard of living that low-skill and high-skill households can expect in each US commuting zone, accounting for geographical variation in both costs of living and expected income. We find that for college graduates, there is essentially no relationship between consumption and cost of living, suggesting that college graduates living in cities with high costs of living —including the most expensive coastal cities—enjoy a standard of living on average similar to college graduates with the same observable characteristics living in cities with low cost of living—including the least expensive Rust Belt cities. By contrast, we find a significant negative relationship between consumption and cost of living for high school graduates and high school drop-outs, indicating that expensive cities offer lower standard of living than more affordable cities.

The Political Economy of Transport Investments: Evidence from the California High-Speed Rail

Pablo Fajgelbaum
,
Princeton University
Cecile Gaubert
,
University of California-Berkeley
Nicole Gorton
,
University of California-Los Angeles
Eduardo Morales
,
Princeton University
Edouard Schaal
,
CREI and Pompeu Fabra University

Abstract

A large literature estimates the impact of transportation infrastructure investments on economic outcomes. What forces determine the allocation of such investments? In democratic environments, these decisions are partly shaped by the preferences of voters and may also reflect preferences of policymakers. In this paper, we ask: how important are voters’ and policy-makers’ preferences in shaping the transport investments that are implemented? To what extent are these preferences a function of political values relative to economic gains? We study these questions in the context of California’s High-Speed Rail (HSR). We combine detailed voting data with a quantitative spatial framework to estimate the importance of political preferences and economic effects in shaping constituents’ preferences for the HSR. We then study the extent to which these preferences can shape transportation infrastructure projects, as designed by policy makers.

Adoption of Foreign Products, Information Externalities, and Domestic Firm Networks

David Argente
,
Pennsylvania State University
Esteban Méndez-Chacón
,
Central Bank of Costa Rica
Diana Van Patten
,
Yale University

Abstract

We document a new channel through which firms learn about the local demand for foreign products. We leverage data on imports by individuals in Costa Rica to analyze how engagement with e-commerce diffuses across peers. A new foreign product purchased by a close neighbor significantly increases an individual’s own demand of the same product. This increase in demand can also trigger a response from the firms that are most exposed to clients who conduct online purchases abroad, in the form of retailers importing and selling the same product after perceiving it has high local demand. The presence of information externalities suggests that the gains from trade may be larger than previously documented.

Goods Trade and Capital Investments in the Global Economy

Benny Kleinman
,
Princeton University
Ernest Liu
,
Princeton University
Stephen Redding
,
Princeton University

Abstract

We develop a new theoretical framework for modelling this interaction between goods trade
and capital investments. Our framework rationalizes key features of the observed data. We allow
for a large number of asymmetric countries connected by a network of trade and capital investments. We provide microfoundations for gravity equations for trade and capital investments. We use our framework to examine the following questions: Are capital investments complements
or substitutes for goods trade? How much bigger are the gains from globalization when trade
integration is combined with international capital liberalization? How is the impact of China’s
economic growth on its East Asian neighbors altered when capital is free to move across borders
as well as goods? How much larger are the costs of Brexit for the United Kingdom when capital
is free to reallocate internationally? How does this reallocation of capital a ect the distributional consequences of trade disintegration? How much greater are the costs of international sanctions for targeting and targeted countries when restrictions on capital investments are combined with barriers to trade in goods? What are the global implications of a decoupling between China and the United States?
JEL Classifications
  • R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
  • F0 - General