Linkages between international trade and urban economics

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Keith Head, Thierry Mayer, and Gianmarco Ottaviano have written a review of the latest Handbook of Regional and Urban Economics, published in 2015. The prior edition was published back in 2004. Part of their review looks at the interplay between international and urban economics:

The fourth volume of this series was published at the high point for the strand of research known as the New Economic Geography (NEG). It was a period when, united by interest in research by Paul Krugman, trade economists and spatial economists associated closely with each other. We attended the same conferences and worked on similar topics. We debated what was new and what was valuable about the NEG — and whether the two sets overlapped. The Nobel Prize received by Krugman in 2008 validated this line of research but also coincided with the time when it faded significantly from the priorities of urban economists.
Since then, with some prominent exceptions, trade and spatial economists have gone their separate ways.

This passage surprised me, since I see substantial overlap and collaboration between spatial and trade economists at the moment. Since I am a relatively young economist, I did not witness the previous peak or subsequent decline in collaboration.

Head, Mayer, and Ottaviano provide an explanation for the separation:

Spatial economists appear to us to have moved more in the direction of labor, both in terms of using similar worker-level data sets and in terms of greater focus on identification of treatment effects. Trade economists, on the other hand, have in some respects followed industrial organization, in terms of using firm- level data and in terms of tying in closely to theoretical models. Perhaps increased availability of micro data is a unified explanation for divergence as trade economists embraced firm-level customs data sets at the same time as urban economists embraced labor (and housing) data sets.
Though there are still some points of contact, the fifth volume of the handbook largely testifies this divergence since 2004. We would argue, however, that the stage is now set for renewed collaboration. Trade economists are increasingly using data on individual workers and urban economists have embraced structural models. Thus, the current separation between trade and spatial economics is probably mainly attributable to focus on different questions.

Another way to think about the linkages would be to look at co-authorships. For example, consider the Handbook chapter just mentioned: Matt Turner is an urban economist who teaches one of the few PhD courses in urban economics, and Steve Redding is the NBER International Trade and Investment program director.

You can also find individuals who span the spatial-trade divide. The Clark Medal committee describes Dave Donaldson as “an empirical trade economist”. The first two papers they mention are about the effects railroads in India and the United States on intranational trade.

Head, Mayer, and Ottaviano describe the separation in terms of research topics as opposed to toolkits:

Spatial economics has become… essentially intranational with virtually no international trade dimension… the model by Redding and Turner shares many properties with perfectly competitive stochastic trade models of “discrete choice” a la Eaton and Kortum (2002), which are the pillars of the recent wave of new quantitative models that are changing the way trade economists look ex ante at the possible implications of alternative policy scenarios. This shows once more that, whereas the questions of interest may have largely diverged between trade and spatial economics, methods have not.

Head, Mayer, and Ottaviano “are eager to see renewed linkages between international trade and urban economics” and somewhat optimistic about future research at this intersection. I am even more optimistic, since I already see many of the same people at both international economics and urban economics conferences.

Along those lines, Steve Redding and Esteban Rossi-Hansberg have written a survey of “Quantitative Spatial Economics,” which amounts to a new generation of work in spatial economics importing the tools developed in quantitative models of international trade. They’ve also issued a call for papers in Trade and Geography:

The endogenous location of economic agents relative to one another in space influences their consumption, production and investment decisions. It affects their pattern and volume of trade, the markets that they participate in, and the way they organize production processes across locations. As such, geography shapes the impact of local, regional, industry, and aggregate shocks, and the effects of national and local policies.

This Spring 2018 meeting of the NBER International Trade and Investment Program will focus on this set of issues. The meeting will welcome researchers interested in these topics from a variety of perspectives, including, but not limited to, international trade, regional and urban economics, labor, development, and macroeconomics. Both empirical and theoretical papers are welcome.

As someone who works at the intersection of international and urban economics, I may be prone to emphasizing the common features of these fields and the connections between them. But if we’re at the point where trade and urban have suffered a separation, I think the linkages are already renewing. I cannot wait to realize the fruits of greater collaboration.

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