SMU SOE Seminar (Mar 7, 2018): The Geography of Consumption

We use detailed information from U.S. consumers' credit card purchases to provide the first large-scale description of the geography of consumption. We find that consumers' mobility is quite limited and document significant heterogeneity in the importance of gravity across sectors. Gravity is stronger in more frequently purchased sectors. Consumers actively manage the spatial dimension of their consumption choices: using daily rain precipitation from thousands of weather stations in U.S., we show that shocks to travel costs change the spatial distribution of expenditure, and they do so differentially across sectors. These choices matter for local equilibrium outcomes: using underlying geological variation across U.S. counties, we show that sectors with high storage costs respond with larger employment and denser stores to exogenous differences in population. This response is consistent with a model where consumers optimally choose to travel more frequently and for shorter distances for their purchases in higher storage costs sectors. Our results suggest that incorporating the demand-side is necessary to analyze the distributional consequences of local and aggregate shocks across regions. These results also suggest the demand-side is critical to understanding the location of firms and employment in the large and understudied service sector.

 

JEL Classification: R1, R2, F1, F14, L8

 

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