Affiliation:
1. Department of Economics, Princeton University
2. Department of Economics and SPIA, Princeton University
Abstract
We incorporate forward‐looking capital accumulation into a dynamic discrete choice model of migration. We characterize the steady‐state equilibrium; generalize existing dynamic exact‐hat algebra techniques to incorporate investment; and linearize the model to provide an analytical characterization of the economy's transition path using spectral analysis. We show that capital and labor dynamics interact to shape the economy's speed of adjustment toward steady state. We implement our quantitative analysis using data on capital stocks, populations, and bilateral trade and migration flows for U.S. states from 1965–2015. We show that this interaction between capital and labor dynamics plays a central role in explaining the observed decline in the rate of income convergence across U.S. states and the persistent and heterogeneous impact of local shocks.
Funder
Princeton University
Centre for Economic Policy Research
Columbia University
Dartmouth College
National Bureau of Economic Research
London School of Economics and Political Science
Stanford University
Yale University
Subject
Economics and Econometrics
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