NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Geography of Consumption

Sumit Agarwal, J. Bradford Jensen, Ferdinando Monte

NBER Working Paper No. 23616
Issued in July 2017
NBER Program(s):EFG, IO, ITI

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. We develop a simple model of consumer behavior, emphasizing the role of the durability/storability of products, to organize the main stylized facts. Heterogeneity in the storability of products across sectors generates a positive correlation between the strength of gravity and the frequency of transactions at the sector level; this correlation is a clear feature of the data. 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: hence, the level and heterogeneity of travel costs shape the level and elasticity of any merchant's demand. This evidence suggests that incorporating the demand-side is essential to analyzing 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.

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Document Object Identifier (DOI): 10.3386/w23616

 
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