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The Geography of Development: Evaluating Migration Restrictions and Coastal Flooding

Klaus Desmet, Dávid Krisztián Nagy, Esteban Rossi-Hansberg

NBER Working Paper No. 21087
Issued in April 2015
NBER Program(s):Economic Fluctuations and Growth Program, International Trade and Investment Program

We study the relationship between geography and growth. To do so, we first develop a dynamic spatial growth theory with realistic geography. We characterize the model and its balanced growth path and propose a methodology to analyze equilibria with different levels of migration frictions. We bring the model to the data for the whole world economy at a 1°×1° geographic resolution. We then use the model to quantify the gains from relaxing migration restrictions as well as to describe the evolution of the distribution of economic activity in the different migration scenarios. Our results indicate that fully liberalizing migration would increase welfare more than three-fold and would significantly affect the evolution of particular regions in the world. We then use the model to study the effect of a spatial shock. We focus on the example of a rise in the sea level and find that coastal flooding can have an important impact on welfare by changing the geographic-dynamic path of the world economy.

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Document Object Identifier (DOI): 10.3386/w21087

Published: Klaus Desmet & Dávid Krisztián Nagy & Esteban Rossi-Hansberg, 2018. "The Geography of Development," Journal of Political Economy, vol 126(3), pages 903-983.

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