Essays in Spatial Economics

A central concern in international economics and urban economics is explaining the distributions of economic assets and activity across space. This dissertation contains three essays examining the pattern of specialization across US cities. Chapter 1 investigates the determinants of quality specialization within products. A growing literature suggests that high-income countries export high-quality goods. Two hypotheses may explain such specialization, with different implications for welfare, inequality, and trade policy. Fajgelbaum, Grossman, and Helpman (2011) formalize the Linder (1961) conjecture that home demand determines the pattern of specialization and therefore predict that high-income locations export high-quality products. The factor-proportions model also predicts that skill-abundant, high-income locations export skill-intensive, high-quality products (Schott, 2004). Prior empirical evidence does not separate these explanations. I develop a model that nests both hypotheses and employ microdata on US manufacturing plants' shipments and factor inputs to quantify the two mechanisms' roles in quality specialization across US cities. Home-market demand explains at least as much of the relationship between income and quality as differences in factor usage. In Chapter 2, Donald R. Davis and I develop a theory to jointly explain the distributions of skills, occupations, and industries across cities. Our model incorporates a system of cities, their internal urban structures, and a high-dimensional theory of factor-driven comparative advantage. It predicts that larger cities will be skill-abundant and specialize in skill-intensive activities according to the monotone likelihood ratio property. We test the model using data on 270 US metropolitan areas, 3 to 9 educational categories, 22 occupations, and 21 manufacturing industries. The results provide support for our theory's predictions. Chapter 3 examines whether larger cities are attractive to consumers. Popular and academic discussions celebrate the virtues of large cities for consumption and leisure. But the standard spatial-equilibrium account says that the consumer attractions of larger cities cannot account for their higher nominal wages and more skilled populations. This chapter revisits that conclusion and shows that the consumption motive can play a first-order role in spatial variation in wage distributions when individuals are heterogeneous. I present a general-equilibrium model in which larger cities offer a greater variety of local goods and services, attracting higher-income individuals who value such variety relatively more. Despite the absence of production-related agglomeration economies, the equilibrium outcomes match a series of facts about spatial variation in wage distributions. I present evidence on the spatial choices of retirees, who consume but do not produce, that is consistent with consumption-driven agglomeration.