Geographic Fragmentation in a Knowledge Economy 

Speaker: Jiao Yang, Fudan University

Discussant: Lu Dan, Chinese University of Hong Kong

Time: July 2, 2020    09:00 AM    (GMT+8:00)

Abstract:

We investigate how the rise in cross-city joint productions or “domestic fragmentation”— facilitated by the advancement in information and communications technology (ICT)—shapes the spatial distribution of skills in the US. Motivated by the observations that big cities had become disproportionately skill intensive over the period of 1980 to 2013, and industries that are more likely to fragment had seen a larger increase in its spatial skill dispersion during the same period, we propose a quantifiable spatial equilibrium model with multi-city production and heterogeneous skills to study how production fragmentation affects the spatial skill distribution domestically. In addition to delivering the observed facts, the model further predicts that local ICT improvements increase the share of high-skill labor in larger cities, while reducing it in smaller ones. Through a novel instrumental variable approach, we provide empirical validation to this prediction. Finally, our quantitative evaluation of the model shows that the proposed mechanism—domestic production fragmentation driven by ICT improvements—accounts for the majority of the observed spatial redistribution of skills across US cities. In addition, the impact on all agents’ welfare is positive and sizable. 

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