SMU SOE Seminar (Apr 13, 2018): Growth and Trade in a World of Cities

Cities have traditionally been locations that host both production and trading activities. This paper documents recent technological changes in the shipping industry which have led to a significant reallocation of economic activity across cities and the formation of cities that serve as large trading hubs. To quantify how improvements in transportation technology have affected the allocation of economic activity across cities and aggregate growth, we build a quantitative model in which endogenous investment in trading infrastructure interacts with standard agglomeration forces. The model matches the key patterns in the data.