Working Paper

Local Ties in Spatial Equilibrium

Abstract: If someone lives in an economically depressed place, they were probably born there. The presence of people with local ties - a preference to live in their birthplace - leads to smaller migration responses. Smaller migration responses to wage declines lead to lower real incomes and make real incomes more sensitive to subsequent demand shocks, a form of hysteresis. Local ties can persist for generations. Place-based policies, like tax subsidies, targeting depressed places cause smaller distortions since few people want to move to depressed places. Place-based policies targeting productive places increase aggregate productivity, since they lead to more migration.

Keywords: Migration; Decline; Economic development, technological change, and growth; Labor and demographic economics; Local labor markets;

JEL Classification: J61; R23; E62; R58; H31; D61; J11;

https://doi.org/10.17016/FEDS.2019.080

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2019-11-18

Number: 2019-080

Pages: 71 pages