Asia’s Geographic Development - 麻省理工学院人工智能研究专业

Asia’s Geographic Development
Klaus Desmet, Dávid Krisztián Nagy, 和
Esteban Rossi-Hansberg∗

This paper studies the impact of spatial
frictions on Asia’s long-term
spatial development. Using the framework provided in Desmet, Nagy, 和
Rossi-Hansberg (2016), we analyze the evolution of Asia’s economy and the
relative performance of speciﬁc regions and countries. We then perform a
number of counterfactual experiments and ﬁnd that a worldwide drop in
transport costs of 40% increases the present discounted value of real income by
70.7% globally and 78% in Asia. These ﬁgures are much larger than those found
in standard quantitative trade models because they include dynamic effects and
take into account intracountry transport costs. We also perform exercises in
which we upgrade Asia’s road network or relax migratory restrictions between
locations in Asia. These exercises emphasize the important role of spatial
frictions in the development of Asia’s economy.

关键词: economic geography, economy of Asia, growth and development,
international migration, quantitative trade models
JEL codes: F11, F22, F43, O10, O40, O53, R42

我. 介绍

Spatial frictions, such as trade costs and migratory restrictions, are key to
understanding geographic differences in income and welfare. Consumers residing
in the port of Mumbai pay much lower prices for imported goods than consumers
living in a small rural village in Kashmir. 相似地, ﬁrms in big cities on the eastern
seaboard of the People’s Republic of China (PRC) ﬁnd it much easier to reach a
large number of customers than ﬁrms in the remote western province of Xinjiang.
And while per capita income may be much higher in Japan than in the Lao People’s
Democratic Republic, people cannot freely move from one country to another. 甚至
within countries, migratory frictions persist in the form of moving costs, imperfect

∗Klaus Desmet (corresponding author): Ruth and Kenneth Altshuler Centennial Interdisciplinary Professor at
Southern Methodist University. 电子邮件: kdesmet@smu.edu; Dávid Krisztián Nagy: Junior Researcher at CREI,
Universitat Pompeu Fabra, and an Afﬁliated Professor at Barcelona Graduate School of Economics. 电子邮件:
dnagy@crei.cat; Esteban Rossi-Hansberg: Theodore A. Wells ’29 Professor of Economics at Princeton University.
电子邮件: erossi@princeton.edu. We would like to thank the participants at the Asian Development Review Conference
on Urban and Regional Development in Asia held in Seoul in July 2016, the managing editor, and an anonymous
referee for helpful comments and suggestions. The usual disclaimer applies.

Asian Development Review, 卷. 34, 不. 2, PP. 1–24

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2 Asian Development Review

信息, and even legal restrictions. As an example of the latter, the PRC’s
hukou (household registration) system makes it difﬁcult to move from poor, rural
areas in the western provinces to the burgeoning cities of the eastern PRC.

Spatial frictions that affect

the geographic distribution of people and
economic activity also affect productivity and its evolution. 有一个
well-established literature in urban and regional economics that emphasizes the
importance of agglomeration economies. The spatial concentration of economic
activity tends to have positive effects on productivity. 因此, keeping people from
moving to the PRC’s high-density megacities may reduce not just the level of per
capita income in those cities, but also aggregate per capita income in the PRC.
Perhaps even more important, the concentration of economic activity in geographic
space generates incentives to invest in and improve the production capabilities of
economic clusters. A larger market size makes ﬁrms more willing to invest in
technology since they can use these innovations more intensively. The replicability
of technology implies that a ﬁrm’s local market size (geographic concentration of
expenditure on its goods) affects its investment decisions. The aggregation of these
investment decisions across ﬁrms and locations determines local, 最终,
aggregate growth.

This logic suggests that spatial frictions should play a central role in any
theory of long-term growth and development. Policies or shocks that change
these spatial frictions are crucial determinants of the development process.
Examples include trade, 基础设施, and migration policies. They also include
technological improvements in transport, the information and communications
technology revolution, and the decline in global oil prices. Fully understanding
the complex relationship between spatial frictions and development requires a
spatial-dynamic model
that allows us to quantify this link and compute
counterfactual exercises. 在之前的工作中, we developed such a framework
(Desmet, Nagy, and Rossi-Hansberg 2016). 在本文中, we use this framework
to evaluate the long-term geographic development of Asia. 在这样做, we pay
special attention to the role played by transport costs and migratory restrictions.

Our benchmark analysis uses a calibrated version of Desmet, Nagy, 和
Rossi-Hansberg (2016) to predict the future spatial development of Asia under the
assumption that spatial frictions remain unchanged. 那是, we maintain today’s
trade and migration costs into the indeﬁnite future. We take a very long-term
方法, starting in the year 2000 and running the model forward to the year
2600.1 The model predicts that Asia, starting out with a higher growth rate in
real per capita income, eventually converges to the rest of the world, both in terms

1在本文中, Asia comprises the economies of “developing Asia” as deﬁned by the Asian Development
Bank. This grouping excludes the Russian Federation and Turkey; the Persian Gulf states; and Australia, 日本, 和
新西兰. For a complete list of developing Asian economies, see section III.

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Asia’s Geographic Development 3

of growth rates and level of development. This process is driven by the positive
relationship between population density and innovation. The calibrated version of
our theory predicts that as countries develop, the correlation between density and
productivity becomes stronger. Some Asian countries, such as India, start with high
levels of population density. This leads to more innovation, which in turn attracts
more people, fomenting further innovative activity. In terms of individual countries,
we ﬁnd that in the very long term, India and Indonesia become Asia’s economic
领导者, while the Republic of Korea surpasses Japan.

We then evaluate what would change if we were to reduce spatial frictions.
Our ﬁrst exercise focuses on trade costs. We ﬁnd that a worldwide drop in transport
costs by 40% would increase the present discounted value of real income by 70.7%
globally and by 78% in Asia. These ﬁgures are much larger than those found in
standard quantitative trade models because they include dynamic effects and take
into account intracountry transport costs. One reason for Asia’s slightly bigger gain
is the poor initial state of its transport infrastructure. Apart from estimating the
effect of a worldwide drop in transport costs by 40%, we also evaluate what would
occur if that decline only happened in Asia. We also run an additional counterfactual
policy experiment that upgrades all minor roads in Asia.

A second exercise focuses on the role of migratory restrictions. 我们发现
a worldwide reduction in the cost of migration by 25% would increase the present
discounted value of real income by 30.6% globally and by 9% in Asia. While in the
case of reducing trade costs Asia is predicted to gain more than the rest of the world,
in the case of reducing migration costs Asia is predicted to gain less than the rest of
世界. Lower migration costs imply that people would move from Asia to more
attractive locations. The reduction in the continent’s population density would have
a dampening effect on innovative activity, although on balance the continent still
gains because of trade and the diffusion of technology from the rest of the world. 如果
instead the 25% reduction in migration restrictions were only to happen in Asia, 这
results are different. The present discounted value of real income would decrease
经过 12.9% globally and by 3.7% in Asia. 然而, Asia’s welfare would increase by
7.9% as people would move to less congested and more desirable locations. 在
同时, world welfare would decline. The ﬁnding that the world becomes worse
off points to distortions deriving from liberalizing migration restrictions in some
places but not in others. Compared to a worldwide drop in migration costs, we no
longer have the effect of outmigration from Asia.

The rest of the paper is organized as follows. Section II provides a summary
of the framework developed in Desmet, Nagy, and Rossi-Hansberg (2016). 部分
III analyzes the geography of development in Asia under the assumption that
transport costs and migration restrictions remain unchanged. Section IV evaluates
the importance of trade costs and section V assesses the impact of migratory
restrictions on Asia’s spatial development. Section VI concludes.

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4 Asian Development Review

二. A Spatial Development Framework

To analyze how Asia’s economic geography is likely to evolve over the
next centuries, we need a spatial-dynamic growth model with a rich and realistic
geography that can be taken to the data. Desmet, Nagy, and Rossi-Hansberg (2016)
develop such a framework. Here we limit ourselves to brieﬂy describing the main
elements of the theory, giving an overview of how to solve the model, and showing
that the model is a reasonable approximation of reality.

Main elements of the model. The world consists of a continuum of locations
in two-dimensional space. Having a location characterized by both its latitude
and longitude is necessary to provide a link between the theory and the world’s
actual geography so that we can make predictions about particular places or
regions.2 Each location has ﬁrms that produce different goods and trade with other
locations, subject to transport and trade costs. Each location is unique in terms
of its productivity, amenities, 和地理. A location’s productivity is initially
给定, but it evolves over time because of innovation. We will provide more details
about innovation when we describe the dynamics of the model later in this section.
A location’s amenities are partly exogenous—such as a nice beach or a beautiful
mountain—but may suffer from congestion. A location’s geography refers to its
location relative to other markets. A well-connected place—either because of its
proximity to markets or lower transport costs—gives local consumers cheaper
access to goods and local ﬁrms easier access to other markets.

Individuals have idiosyncratic preferences with regard to different locations.
People generally prefer living in places with higher real incomes and superior
amenities, but there is heterogeneity across individuals. Although a temperate
climate may be superior to an arctic climate, some people may feel attracted to
Siberia for idiosyncratic reasons. This implies that, even if they could, not all
Siberians would want to move to a place with higher real income and better
amenities. 当然, another reason that keeps people in Siberia is the difﬁculty
to move to other places given mobility restrictions. One of our main interests in this
paper will be to see how Asia’s future spatial growth patterns might look different
depending on how easy or how difﬁcult it is for people to move across locations,
both within and across countries.

A location’s productivity depends partly on the productivity it inherits from
the previous period, both from itself and from the rest of the world through spatial
扩散; partly on static agglomeration economies as measured by local density;

2Previous spatial growth models either had two or three regions (看, 例如, Baldwin and Martin 2004)
or a continuum of locations in a one-dimensional space (看, 例如, Desmet and Rossi-Hansberg 2014). 尽管
the latter approach is useful to analyze issues that can be reduced to one spatial dimension, such as global warming
where distance to the equator is the main concern, general quantitative work in economic geography requires both
latitude and longitude. In a recent paper, Allen and Arkolakis (2014) developed a spatial model with a continuum of
locations in two-dimensional space, but without introducing dynamics and growth.

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Asia’s Geographic Development 5

and partly on local innovation. Locations that have easy access to more (和
preferably richer) customers innovate more because innovations can be applied
more intensively. Locations with high population density therefore beneﬁt from
dynamic agglomeration economies. The evolution of productivity over time and
space determines, 反过来, the distribution of people and utility over time and space.
当然, how many people move as a result of changing productivity levels
depends on mobility restrictions and on heterogeneity in locational tastes.

Desmet, Nagy, and Rossi-Hansberg (2016) show that a solution to this
spatial-dynamic model exists and is unique if agglomeration forces are not too
strong compared to dispersion forces. In this model, agglomeration economies
come from both the direct effect of local density on local productivity and from the
indirect effect of local density on the returns to local innovation, while dispersion
forces come from decreasing returns to land, congestion that reduces the level of
amenities, and taste heterogeneity across locations. The intuition for the uniqueness
result is straightforward: if agglomeration forces are not strong enough to overcome
dispersion forces, the marginal product of labor in a given location continues
to be decreasing so that there is no reason for multiple equilibria to emerge.
Desmet, Nagy, and Rossi-Hansberg (2016) also show that if the spatial diffusion of
productivity is sufﬁciently strong, then this unique solution will lead to a balanced
growth path in which all locations grow at the same rate. 再次, the intuition for
this result is easy to understand. Since the densest locations innovate more, 他们
are likely to attract more people and become even more dense, thereby generating
more innovation. In the absence of spatial diffusion, economic activity would end
up concentrating in one location. 相比之下, if the productivity of high-productivity
locations diffuses, this extreme form of concentration will not occur and the
economy will converge to a balanced growth path. In a balanced growth path, 这
growth rate of real gross domestic product (GDP) per capita in the world economy
depends on the distribution of economic activity across locations.

Calibration and simulation. One advantage of the approach in Desmet,
Nagy, and Rossi-Hansberg (2016) is that the model can be solved by iterating
a system of equations that are guaranteed to converge to a spatial equilibrium
in any given period. Another advantage is that the data requirements are not
overwhelming. We discretize the world into 64,800 cells of 1° by 1°.3 Values
of structural parameters are partly taken from the literature and partly estimated
using a variety of data. 再次, we refer the reader to our original paper for a full
description of the quantiﬁcation of the model.

For the year 2000, we use data on the geographic distribution of population
and wages from G-Econ 4.0 and on bilateral transport costs to recover local

3At the equator, 1° by 1° corresponds to 111 kilometers (km) (latitude) 经过 111 km (longitude). At the 45th

parallel north or south of the equator, this corresponds to 111 km (latitude) 经过 79 km (longitude).

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6 Asian Development Review

productivity measures and local measures of the ratio of amenities to utility.4 In
a world with perfect mobility, having information on the initial distribution of
population and wages would be enough to recover local amenities. 例如,
if you had a low-productivity place with a high population density despite everyone
being free to move, we would conclude the location has good amenities. 当然,
in a world with mobility restrictions, such a low-productivity, high-density location
might also be a place that is hard to leave. This explains why the procedure we have
described so far only identiﬁes the ratio of amenities to utility.

To separate amenities from utility, we use data on subjective well-being
from the Gallup World Poll. Subjective well-being is measured on a scale from
0 到 10, 在哪里 0 represents the worst possible life and 10 the best possible life
an individual can imagine for himself. Deaton and Stone (2013) have found a
relationship between subjective well-being and the log of real income which is
very similar across countries and across states within the United States. We use
this relationship to transform subjective well-being into a cardinal measure of
公用事业. Together with the amenity-to-utility ratios identiﬁed above, this allows us
to determine the actual level of amenities for each cell of the world.

The one piece of information we still need before we can simulate the model
forward is migration costs. With initial technology, amenities, and utility, 我们用
the evolution of population between 2000 和 2005 to get estimates of the cost
of moving in and out of each location. We then identify mobility costs between
two locations as the product of an origin- and a destination-speciﬁc cost. 这个想法
of using population counts in two periods to estimate moving costs is easy to
understand. If a high-utility location experiences an increase in productivity due
to innovation but only a small increase in population, it must be a hard place to
move to. 相比之下, if a low-utility location experiences only a small decrease in
人口, it must be a difﬁcult place to leave.

Once we have estimates for all the parameters, migration costs, and trade
costs—as well as for the initial distributions of population, 技术, 公用事业, 和
amenities—we can simulate the model forward. We update the spatial distribution
of technology in every period and then solve by iteration for the spatial distributions
of population and utility that are consistent with existing migration costs. 这
allows us to analyze how the world’s economic geography changes over time.

When keeping migration costs unchanged, we ﬁnd that in the very long
学期, the world experiences a productivity reversal, with some of today’s poor,
high-density areas in sub-Saharan Africa, 南亚, and East Asia becoming
tomorrow’s productivity leaders. The driving force behind this reversal is the
increasing correlation between population density and productivity. That correlation

4As in Allen and Arkolakis (2014), bilateral trade costs between two locations are computed by assigning a
cost of crossing each of the 64,800 cells and then using an algorithm to calculate the least-cost route between any
two cells.

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Asia’s Geographic Development 7

goes from being negative at –0.4 today (both in the model and in the data) 到
becoming positive at around 0.6 in the balanced growth path. The driving force
for this change is the agglomeration economies that make high-density locations
innovate more. When keeping migration restrictions unchanged, today’s poor,
high-density regions in Africa and Asia retain their high populations in the future
and eventually become the world’s productivity leaders. 这些都是, 当然, 不是
short-term predictions; 相当, these effects are expected to play out over centuries.
相比之下, in a world with free mobility, no such productivity reversals
发生. If they were free to move, many people living in poor, high-density areas
would migrate to today’s high-productivity locations in North America and Europe
or to high-amenity places on the coast of Brazil. Although this would impose a
short-term cost on these regions, by accepting migrants they could ensure their
long-term technological leadership. 更重要的是, in terms of the present
discounted value of real per capita income, free mobility leads to a world gain of
125.8%. When taking into account amenities, the gain in welfare rises to 305.9%.

External validity of the model. The usefulness of this model in predicting
the future and conducting policy analysis depends on both the theoretical choices
made in its design and the parameters we use. To externally validate the model, 我们
followed a three-pronged approach in Desmet, Nagy, and Rossi-Hansberg (2016).
第一的, we took data from 2000 and instead of running the model forward, we ran
the model backward until 1870 to compare the predictions on the distribution of
population with the data. This exercise should be understood as an overidentiﬁcation
check of the model since we did not use past population data in the quantiﬁcation.
The correlations between country-level population in the data and in the model
are larger than 0.96 going back until 1950 and still stand at 0.68 在 1870. 这
correlations between growth rates are lower, but are still quite high. 例如, 这
correlation between the population growth rate in the model and the data between
1950 和 2000 是 0.74.

第二, recall that in the simulation of the model we do not use direct
measures of amenities. 反而, the entire structure of the model, together with our
use of subjective well-being as a way of measuring utility, identiﬁes a location’s
level of amenities. As an additional overidentiﬁcation check, we compared the
amenities (as estimated by the model) to commonly used measures of amenities
such as temperature, precipitation, and proximity to water. When doing so, 我们
generally found highly signiﬁcant correlations with the correct sign. 例如,
our estimates of amenities are positively correlated with proximity to water and with
温暖的, stable temperatures.

第三, one of the key predictions of our model is that the correlation between
density and productivity is greater in areas with higher levels of per capita income.
We analyzed these correlations across zip codes in the United States and across
cells in different areas of the world. The evidence is consistent with our model’s
预测. In the year 2000, using 1° by 1° cells as our geographic unit of

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8 Asian Development Review

观察, the correlation was –0.11 in Africa, 0.33 in western Europe, 和 0.5 在
北美.

三、. Asia over the Next Centuries

在这个部分, we analyze the model’s predictions for the evolution of Asia
over the next centuries, assuming there are no changes in spatial frictions. 那是,
we suppose that both migration costs and transport costs do not change over time.
尽管如此, because the world economy is not in its balanced growth path in the
年 2000 (our initial period), the world economy and therefore Asia’s economy
evolves over time until it reaches a balanced growth path with constant growth and
a stable distribution of population sometime around the year 2300. We use the exact
same calibration as in Desmet, Nagy, and Rossi-Hansberg (2016).

We start by looking at the world in the year 2000. Focusing on Asia, 这
left-hand panel in Figure 1 displays productivity in different regions. As already
提及, we use a resolution of 1° by 1°. 正如预期的那样, Japan and the Republic
of Korea show up as highly productive regions, as does the PRC’s eastern seaboard
and the largest cities in some of Asia’s poorer countries (例如, 德里).

Since in the following sections we evaluate how spatial frictions will affect
the future development of Asia, the right-hand panel of Figure 1 shows the
migration costs of entering different areas. These estimates suggest that countries
such as the PRC and India are easy to migrate to (或者, equivalently, are costly to
leave), while richer countries such as Japan and the Republic of Korea are hard
to migrate to (或者, equivalently, are easy to leave). Northern Siberia, 蒙古, 和
Tibet appear as places that are hard to migrate to, likely reﬂecting the difﬁculty for
immigrants to acclimatize to the high altitude of Tibet and the harsh climates of
Siberia and Mongolia. Although a challenging climate negatively affects amenities,
the effect is greater for immigrants than for the local population; this difference
manifests itself as a region being costly to move to.5

数字 2 shows the evolution of GDP per capita and utility in Asia and the
世界 (including Asia) over the next 600 years.6 The top two panels display growth
rates and the bottom two display average levels. Asia’s per capita real GDP growth is
faster than the world’s, especially in the ﬁrst 150 年, but it slows down over time

5We are likely overstating the cost of migrating to regions such as Siberia given that our measure of subjective
well-being is national, not local, and so the lack of migration ﬂows to these regions might partly be the result of lower
amenities than the ones we estimate (例如, due to undesirable temperatures and weather). This distinction is,
然而, of limited importance for this exercise: whether because of high migration costs or because of a lack of
amenities, few people decide to live in the northern part of the Russian Federation.

6Developing Asia includes the following regions and economies: Central Asia (Armenia, Azerbaijan,
乔治亚州, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan); 东亚 (香港, 中国;
Republic of Korea; 蒙古; People’s Republic of China; Taipei,中国); 南亚 (阿富汗, Bangladesh,
Bhutan, 印度, Maldives, Nepal, 巴基斯坦, 斯里兰卡); and Southeast Asia (Brunei Darussalam, Cambodia, 印度尼西亚,
Lao People’s Democratic Republic, Malaysia, 缅甸, 菲律宾, 新加坡, Thailand, Viet Nam). It also includes
Paciﬁc Islands such as the Federated States of Micronesia.

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Asia’s Geographic Development 9

数字 1. Productivity and Migrant Entry Costs in 2000

来源: 作者的计算.

数字 2. Growth in Asia versus the World

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GDP = gross domestic product.
来源: 作者的计算.

10 Asian Development Review

数字 3. Benchmark Calibration, 2000 和 2200

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来源: 作者的计算.

and converges to the world’s per capita real GDP growth rate by 2200. The faster
growth is due to Asia’s higher population density, which over time increases market
size and the incentives for local innovation. This attracts more people to Asia,
leading to a dynamic agglomeration effect: a virtuous circle between density and
生长. 然而, increasing density also means more congestion, which eventually
puts a break on growth. Compared to real per capita income, it takes longer for
Asia’s growth in utility to converge to the world’s. By the year 2100, Asia’s GDP per
capita and utility levels are already very similar to the world’s. In the very long term,
Asia slightly outperforms the world as a whole: by the year 2600, Asia’s real GDP
per capita and utility levels are predicted to be 111% 和 110% of the world average.
数字 3 shows a world map of the evolution of population density and real
per capita income between 2000 和 2200. Today’s high-density locations in South
and East Asia further increase their population densities over the next 200 年.
Their real per capita income relative to that of North America, and to a lesser extent
relative to Europe, 增加. 相比之下, some of the medium-density places in
Japan experience population decline. As explained above, the model predicts that

数字 4. Benchmark Calibration—Levels and Growth Rates in Individual Countries

Asia’s Geographic Development 11

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GDP = gross domestic product.
来源: 作者的计算.

the correlation between population density and per capita income becomes stronger
随着时间的推移. Many of today’s high-density locations have low per capita incomes;
but because higher density implies more innovation, these high-density locations
eventually improve their productivity, and hence their income levels. 这解释了,
例如, why India’s real per capita income improves relative to that of North
美国.

When comparing the growth rates of real per capita income of individual
国家, 数字 4 shows how Indonesia and India grow faster than the PRC,
though over time their growth rates converge. As can be seen in Table 1, 印度尼西亚
is predicted to overtake the PRC before the year 2200, while India’s per capita
income converges to the PRC’s. 在 2600, India and Indonesia will have become
the richest of the large countries in Asia, surpassing both the PRC and Japan. 这
Republic of Korea is also poised to overtake Japan, although it falls behind some
of the other major Asian countries. Starting as a medium-density country in 2000,
Japan experiences relatively slow productivity growth, leading to future population
loss and slower long-term growth.

12 Asian Development Review

桌子 1. Real Income per Capita and Welfare (World = 100)
2200

2600

2000

PDV

World = 100

Developing Asia

PRC
印度
印度尼西亚
Republic of Korea

日本

GDP pc Welfare GDP pc Welfare GDP pc Welfare GDP pc Welfare

31
32
19
30
268
426

22
12
6
17
361
85

109
112
109
131
259
287

90
71
41
93
721
138

111
99
116
114
101
93

110
84
53
104
477
83

78
81
70
91
321
426

57
42
23
56
604
126

GDP pc = gross domestic product per capita, PDV = present discounted value, PRC = People’s Republic of China.
笔记: PDV is based on the years 2000–2600 with a discount factor of 3.5%.
来源: 作者的计算.

Why is it that in the very long term India is predicted to become Asia’s leader,
surpassing the PRC? One reason is the country’s higher population density. 其他
is India’s better connectivity, as the western PRC suffers from being landlocked.
These predictions are, 当然, for the very long term. In present discounted value
条款, Japan is still by far the richest country in Asia, followed by the Republic of
Korea and (much farther behind) by Indonesia and the PRC.

In terms of welfare, the picture looks quite different. Recall that any
difference between real per capita income and utility comes from amenities. 桌子 1
shows that both in 2000 and in the very long term, the Republic of Korea is the
country with the highest welfare. Although it loses positions in terms of per capita
收入, its attractive amenities and relatively low congestion ensure that the country
sustains a high level of utility.7 In spite of becoming Asia’s richest country in
the very long term, India’s welfare improves only marginally during the period of
investigation because of a combination of high density and poor amenities. 高的
population density is a double-edged sword: on one hand, it incentivizes innovation
和成长, but on the other hand, it causes congestion, lowering the utility that
residents derive from already-poor amenities.

IV. Reducing Trade Costs

This paper aims to study the role of spatial frictions in shaping the world’s
发展, with a focus on Asia. 在这个部分, we analyze how a drop in
运输 (or trade) costs changes the spatial evolution of the world economy in
general and of Asia in particular. To that end, we evaluate the effects of three
different changes: (我) a worldwide reduction in transport costs by 40%, (二) A
reduction in transport costs by 40% that is limited to Asia, 和 (三、) a policy that
upgrades all minor roads to major roads in Asia.

7Subjective well-being is substantially higher in the Republic of Korea than in Japan. This translates into a
large utility difference between the two countries. Given that real income is not higher in the Republic of Korea, 这
model interprets this difference as reﬂecting better exogenous amenities.

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Asia’s Geographic Development 13

数字 5. Lowering Worldwide Trade Costs by 40%

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GDP = gross domestic product.
来源: 作者的计算.

We start by analyzing the impact of a 40% drop in transport costs across
全球. The top left-hand panel of Figure 5 displays the growth rates of real
GDP per capita in Asia and the world, comparing the baseline to the case of lower
transport costs. In Asia, lower transport costs increase growth in the short term,
but slightly decrease growth in the medium and the long term. In the world as a
whole, the result is similar. There are several forces at work. Lower transport costs
have a direct positive effect because fewer resources are devoted to transport and
ﬁrms and consumers gain greater market access. This causes a positive level effect
at impact that is noticeable in the bottom left-hand panel of Figure 5. 然而,
lower transport costs also change the spatial distribution of economic activity, 因此
affecting productivity and innovation. Locations that become more dense will gain,
while those that become less dense will lose. How exactly these different forces
play out over time and space determines the evolution of growth rates in Asia and
世界.

When looking at the level of real per capita income in the bottom left-hand
panel of Figure 5, the overall effect is clearly positive. 实际上, a decline in transport

14 Asian Development Review

桌子 2. Increase in Real per Capita Income and Welfare under Different Counterfactuals

Increase in PDV of
real GDP per capita
compared to baseline

世界

亚洲

PRC

印度

印度尼西亚

共和国
of Korea

日本

1. 40% lower trade costs

70.7% 78.0% 79.1% 81.9%

78.1%

65.1% 61.3%

在世界上

2. 40% lower trade costs

38.5% 73.8% 74.7% 77.3%

72.9%

57.2% −0.5%

in Asia

3. Upgrade minor roads
to major roads in Asia
4. 25% lower migration
costs in the world
5. 25% lower migration

costs in Asia

2.8%

7.2% 10.3%

3.5%

6.0%

4.9%

0.0%

30.6%

9.0%

3.9%

6.9%

4.6%

−0.7% −1.3%

−12.9% −3.7% −8.3% −6.2%

−7.9%

−11.0%

2.5%

GDP = gross domestic product, PDV = present discounted value, PRC = People’s Republic of China.
笔记: PDV is based on the years 2000–2600 with a discount factor of 3.5%.
来源: 作者的计算.

costs by 40% increases the present discounted value of the world’s real GDP per
capita by 70.7%. The gain in Asia is even larger: real GDP per capita increases
78% in present discounted value terms. These gains are much larger than those
found in standard quantitative international trade models. 例如, Costinot and
Rodríguez-Clare (2014) estimate that eliminating a worldwide tariff of 40% 会
increase welfare by just around 3%.8 Two reasons explain the greater gains we ﬁnd.
第一的, the reduction in transport costs affects both international and domestic trade.
In countries that comprise large land masses—such as Australia, 印度, 和
Russian Federation—this additional effect is substantial. 第二, the reduction in
trade costs not only has static effects, it also has dynamic effects on market size
and agglomeration. Giving ﬁrms easier market access increases their incentive to
innovate. 此外, regions that gain density will innovate more, though there
will of course be other regions that lose density and hence innovate less. 给定
that in equilibrium, and due to the replicability and diffusion of technology, 这
level of local innovation is always suboptimal, this redistribution in general leads
to dynamic gains. 此外, the gain from a worldwide drop in transport costs
is greater in Asia than in the world as a whole. One reason is that Asia starts with
relatively poor transport infrastructure, therefore a 40% improvement would have a
big effect. 相似地, 桌子 2 reports that among the largest countries in developing
Asia the one that gains the most is India, the country with arguably the region’s
worst transport infrastructure, and the one that gains the least is the Republic of
韩国, the country with arguably the best transport infrastructure.

数字 6 shows how a worldwide drop in trade costs by 40% affects the
changes in population density and real per capita income across the globe. 不是

8In another exercise that assesses the welfare gains of removing all international trade frictions, they ﬁnd
effects between 4% 和 40%, depending on the particular model used and whether tariffs are reduced and rebated or

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Asia’s Geographic Development 15

数字 6. Reducing Worldwide Trade Costs by 40%, 2000 和 2200

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来源: 作者的计算.

出奇, lower trade costs increase population density in some of the world’s
landlocked areas such as Central Asia and the interior of Australia. At a more local
等级, we see that population density in the hinterlands of large cities such as Delhi
and Bangkok declines, but the densities of large cities themselves do not. 什么时候
transport costs are lower, proximity to large cities buys less in terms of market
使用权, though large cities continue to beneﬁt from local agglomeration economies.
因此, exurbs decline, while cities themselves thrive. 不出所料, 这
same areas that gain in terms of population density are also the ones that gain in
terms of real per capita income. 一般来说, the interior of countries gain per capita
income relative to the coasts. This effect is especially apparent in those areas that
experience large increases in population density.

We now assess the effect of reducing trade costs by 40% only in Asia.9 The
results are displayed in Figures 7 和 8. 当然, many of the results are similar

actual physical costs are reduced. Independently, all these numbers are substantially lower than the ones we calculate
in this exercise.

9We do so by reducing the cost of trading between any two cells belonging to developing Asia by 40%.

16 Asian Development Review

数字 7. Lowering Asia’s Trade Costs by 40%

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GDP = gross domestic product.
来源: 作者的计算.

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to those we found when evaluating a worldwide drop in transport costs. Asia’s
coastal regions lose relative to the interior regions, while overall there are substantial
gains from lowering transport costs: world real per capita income increases 38.5%
compared with a gain in Asia of 73.8%. Among the countries of developing Asia,
桌子 2 shows India gaining the most and the Republic of Korea gaining the least.
But there are also notable differences when compared to a global drop in transport
成本. The long-term growth effects, both in Asia and in the rest of the world, 是
now positive. Lowering trade costs in Asia attracts more people to Asia, compared
to a worldwide drop in trade costs. This has the advantage of increasing population
density in areas that already had high density, leading to greater long-term growth
in Asia. This positive effect extends to the world as a whole. One reason is that
Asia is physically large and expands its share of the world economy over time.
Another is that technology diffusion from fast-growing regions eventually beneﬁts
everyone. An exception is Japan, where real per capita income drops 0.5% in present

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Asia’s Geographic Development 17

数字 8. Reducing Asia’s Trade Costs by 40%, 2000 和 2200

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来源: 作者的计算.

discounted value terms. Since Japan is not part of developing Asia, 它不是
experience a direct beneﬁt from reduced transport costs in developing Asia. 反而,
it loses population and initially has little to gain from higher productivity in the rest
of Asia.

A reduction in transport costs by 40% could be due to several reasons,
including trade liberalization, improvements in transport technologies, reductions in
gas prices, or improvements in road infrastructure. When focusing on infrastructure,
improving transport equally across all locations may not be the most natural or
efﬁcient policy. It is easy to use our framework to estimate the impact of more
focused alternative policies, such as upgrading all minor roads in Asia to major
roads. 数字 9 displays the decline in transport costs across Asia given the
upgrading of existing roads. Areas with a dense network of minor roads—such as
the eastern PRC (excluding the seaboard itself) and some of the interior regions of
Cambodia, 巴基斯坦, and Thailand—gain the most.

数字 10 shows that, 毫不奇怪, these are also the regions that gain
in terms of population density and real per capita income. The overall increase in

18 Asian Development Review

数字 9. Upgrading Minor Roads to Major Roads in Asia
(Transport costs after upgrading relative to before upgrading)

来源: 作者的计算.

world real GDP per capita is 2.8% in present discounted value terms; this number
rises to 7.2% in the case of Asia. Although we have no direct estimate of the
cost of upgrading roads, this investment is likely to be more proﬁtable than an
across-the-board uniform improvement in transport infrastructure. One of the key
differences with a uniform improvement is that many of the regions that beneﬁt
are already in close proximity to developed areas. This is the case with the
parts of the PRC located near its eastern seaboard. 相比之下, the western PRC
beneﬁts less from the improvement of minor roads, but this is an area where the
cost–beneﬁt analysis of infrastructure investment is likely to be less favorable
反正. 当然, some areas exhibit small or even negative gains, 虽然
there might be large returns to infrastructure investment. One possible example is
the interior of India, where the absence of gains may simply reﬂect the absence of
minor roads. What is needed in this case is new roads, rather than upgrading existing
roads.

V. Liberalizing Migration Costs

In addition to transport costs, restrictions on the free movement of people
represent another key spatial friction. 在这个部分, we analyze how lowering
migratory restrictions changes the spatial evolution of Asia’s economy and the
world economy. We start by analyzing the effects of a worldwide reduction in
mobility restrictions by 25%. This reduction implies that 21% of the total population

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Asia’s Geographic Development 19

数字 10. Upgrading Minor Roads to Major Roads in Asia, 2000 和 2200

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来源: 作者的计算.

migrates in the year 2000 when the policy is ﬁrst implemented.10 Figure 11 报告
the effect on real per capita income and on utility in Asia and the world. 数字
12 shows maps that display the changes in population density and real per capita
income across the world’s geography.

When lowering worldwide migration restrictions, we ﬁnd that in Asia the
growth of per capita income is slower in the ﬁrst 100 年, faster in the next 200
年, and slower again in the very long term. 相比之下, growth in per capita
income in the world as a whole is faster in the ﬁrst 50 years and then slower
over the remainder of the period of investigation. This positive short-term effect
is more drawn out when focusing on utility: the world growth rate is higher during
第一个 200 年, reﬂecting the additional positive effects of people moving to
high-amenity places.

10When discussing the inﬂux of migrants, adaptation costs might also be considered. In as far as those
adaptation costs are borne by migrants, they are implicitly included in migratory barriers. 这, 当然, implies
that completely eliminating migration costs may be impossible.

20 Asian Development Review

数字 11. Lowering Worldwide Migration Restrictions by 25%

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GDP = gross domestic product.
来源: 作者的计算.

These complex dynamic effects are the outcome of the conﬂuence of
different forces. 一方面, reduced migratory frictions allow people to move
to high-productivity or high-amenity locations. This may enhance innovation in
locations that are already highly productive. 另一方面, as can be seen
图中 12, some of this spatial reallocation may lower the overall geographic
concentration of economic activity. Population density increases in Australia,
northern Canada, and Scandinavia, while it decreases in India and most of the PRC.
This lower degree of spatial concentration dampens innovation. In Asia, which loses
population in the short term, this negative effect dominates initially.

Since these different forces pull in opposite directions, it is important to
evaluate the overall effect in present discounted value terms. Lowering worldwide
migration costs by 25% increases the present discounted value of the world’s real
GDP per capita by 30.6%. The gain in Asia is only one-third as large at 9%.
While Asia’s gain was greater than the world’s in the case of reducing transport
成本, here we ﬁnd the opposite. Greater mobility lowers Asia’s population density.
This weakens local agglomeration economies and slows innovation, which explains

数字 12. Lowering Worldwide Migration Restrictions by 25%, 2000 和 2200

Asia’s Geographic Development 21

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来源: 作者的计算.

Asia’s smaller gains. The overall effect is still positive though because some regions
in Asia become more agglomerated and because productivity spillovers from the
rest of the world ensure that Asia beneﬁts from the world’s increased growth.

We now look at the impact of lowering migratory restrictions by 25% 仅有的
in Asia. The results are shown in Figures 13 和 14. Since this makes it easier to
move to Asia, it has the effect of attracting more people to Asia. Given the positive
link between density and innovation, we would expect higher population density to
be good for Asia’s GDP. 然而, growth declines and real per capita income drops
经过 3.7% in Asia in present discounted value terms. One reason is that the reduction
in migratory restrictions not only makes it easier to enter Asia, it also facilitates
migration within Asia, especially toward those regions that were costly to migrate
to previously. 因此, the decline in mobility costs attracts people to places such
as Central Asia, 蒙古, and Tibet. This may have the unintended consequence
of hurting some of the highly innovative regions of Asia, thus lowering long-term
生长. Another reason is that higher innovation in regions such as Mongolia and
Tibet is slow to compensate for the initial drop in real per capita income due to their

22 Asian Development Review

数字 13. Lowering Asia’s Migration Restrictions by 25%

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GDP = gross domestic product.
来源: 作者的计算.

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initial low levels of technology. As can be seen in Figure 14, even after 200 年,
real per capita income is lower in Mongolia and Tibet relative to the benchmark.
全面的, 然而, the population reallocation within Asia implies that agents prefer
to locate in less congested areas, compensating for the negative effect on GDP. 作为
一个结果, welfare in Asia increases by 7.9%.

The effect on global real GDP of reducing migratory restrictions in Asia is
also negative: the world’s real per capita income drops by 12.9%. 数字 13 节目
that world growth increases, however.11 The overall negative effect on real income
is the result of a negative level effect at impact. The reallocation of people toward
Asia has the immediate effect of lowering average market access. World welfare also
drops. This example illustrates that regional liberalization may introduce distortions
and lead to local welfare gains but aggregate welfare losses.

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11The world growth rate initially increases because Asia makes up a larger share of the world economy and

its growth rate is larger than that of the rest of the world.

Asia’s Geographic Development 23

数字 14. Lowering Asia’s Migration Restrictions by 25%, 2000 和 2200

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六、. Concluding Remarks

This paper has analyzed the spatial evolution of Asia over the next centuries,
focusing on the role of spatial frictions in shaping Asia’s future economic geography
and development. Five results stand out. 第一的, if spatial frictions remain unchanged,
Asia’s development stands to converge to the global average and eventually slightly
overtake the rest of the world. 第二, within Asia, India and Indonesia do
particularly well in the very long term, with Japan falling behind. 第三, 减少
trade and transport costs could lead to huge gains in per capita income and welfare.
This is especially true in Asia, where transport infrastructure is still poor. Isolated
and landlocked locations improve the most, often at the expense of coastal areas.
By taking into account dynamics and domestic trade costs, the gains are more than
an order of magnitude larger than those found in static quantitative trade models.
第四, lowering worldwide migration barriers also leads to important gains, 但
less so in Asia than in the rest of the world. Greater mobility reduces density in Asia,
dampening long-term productivity gains. 第五, unilaterally reducing migration

24 Asian Development Review

barriers in Asia is likely to beneﬁt the continent (although not in terms of output)
and hurt the world. A multilateral transition to a world with fewer migration
restrictions is more desirable.

Our results illustrate that spatial frictions have a potentially huge impact
in shaping Asia’s future economic geography. Not only do they affect where
development happens, but they are also a key determinant of aggregate growth.
This underscores the importance of understanding the role of physical space
for both local and global development. Compared to more developed countries,
which have well-established road and transport networks, Asia is at an earlier
stage of development in which many of the big infrastructure investments still
have to happen. Since differences in per capita income are on the rise in Asia,
migration is also likely to become a more pressing concern. Having a spatial-
dynamic quantitative framework that allows counterfactual policy analysis should
prove useful to policy makers intent on shaping Asia’s spatial development. 尽管
we have provided examples of the type of policy experiments that can be pursued,
our framework is amenable to evaluating a variety of other, more speciﬁc, 政策
concerns in different countries.

参考

艾伦, Treb, and Costas Arkolakis. 2014. “Trade and the Topography of the Spatial Economy.”

Quarterly Journal of Economics 129 (3): 1085–140.

Baldwin, Richard E., and Philippe Martin. 2004. “Agglomeration and Regional Growth.” In
Handbook of Regional and Urban Economics, 体积 4, edited by J. Vernon Henderson
and Jacques F. Thisse, 2671–711. 阿姆斯特丹: 爱思唯尔.

Costinot, Arnaud, and Andrés Rodríguez-Clare. 2014. “Trade Theory with Numbers: Quantifying
the Consequences of Globalization.” In Handbook of International Economics, 体积 4,
edited by Gita Gopinath, Elhanan Helpman, and Kenneth Rogo, 197–261. 阿姆斯特丹:
爱思唯尔.

Deaton, Angus, and Arthur A. Stone. 2013. “Two Happiness Puzzles.” American Economic

审查 103 (3): 591–97.

Desmet, Klaus, David Nagy, and Esteban Rossi-Hansberg. 2016. “The Geography of

Development.” Journal of Political Economy. (Forthcoming).

_____. 2014. “Spatial Development.” American Economic Review 104 (4): 1211–43.

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