Spatial Structural Change
We develop a quantitative theory of spatial structural change in which economic growth, sectoral reallocation, and regional development are jointly determined in equilibrium. We show that sectoral reallocation inherently disadvantages regions specialized in the declining sector. Yet spatial forces—such as technology diffusion, trade, and migration—can offset or even reverse this bias. These forces are crucial to understand the first structural transformation of the US. Between 1880 and 1920, GDP per capita doubled and the agricultural employment share fell from 50% to 25%. Yet wages rose fastest in agriculture-intensive regions. Calibrated to this period, our model shows that productivity catch-up through technology diffusion enabled rural America to benefit from structural change; in its absence, rural regions would not have stagnated—they would have fallen further behind.
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