SMU SOE Seminar Series (March 3, 2025): Mechanics of Spatial Growth

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ABSTRACT

This paper examines how internal migration and trade openness shape spatial and aggregate economic growth through knowledge diffusion. Using data from China’s rapid growth period, we provide causal evidence that regions attracting migrants, especially from more productive regions, and those more exposed to international trade, experience faster knowledge accumulation. We develop a dynamic spatial model in which idea flows, mediated by trade and migration, drive forward-looking factor accumulation (labor and capital) and endogenous productivity growth. Our quantitative analysis highlights the significant impact of initial spatial conditions on China’s long-term growth path and reveals that factor accumulation and idea diffusion vary in importance across different phases of its transition. Furthermore, our quantitative analysis highlights the crucial role of idea diffusion in explaining spatial growth heterogeneity.

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