The spatial distribution of economic activity : natural advantage, market access and politics
This dissertation addresses the two questions of how economic activity is distributed across space, and what are the factors that determine this distribution. The introductory chapter sets the scene. This is followed by three substantive chapters which cover three different aspects of economic location: the size distribution of cities, factor endowments, and political economy. A final chapter concludes. Chapter 2 assesses the empirical validity of Zipf's Law for cities, which states that the size distribution of cities follows a Pareto distribution with shape parameter equal to 1. New data on 73 countries is used. We reject Zipf's Law far more often than we would expect based on random chance. Variations in the value of the Pareto exponent are better explained by political economy variables than by economic geography variables. Chapter 3 explores the relationship between factor endowments, technology, and the location of industrial production, using a panel dataset on Indian industries across states and over time. Factor endowments and technology play important roles in explaining the share of an industry in GDP. This finding is robust to the inclusion of controls for the policy environment and market access. The liberalisation of the economy beginning in 1985 and 1991 represents a clear structural break in the relationship between industry share, factor endowments, and technology. Chapter 4 develops and tests a political economy model of campaign contributions and electoral competition, extended to consider the implications for factor mobility and hence the structure of production. There are two main predictions. First, countries with more capital stock tend to implement more pro-capital policies. Second, the more different are countries' policies, the more different will be the set of goods which they produce. These predictions are confirmed using panel data on cross-state differences in policies and economic outcomes in India.