The Origins of Regional Specialization

Joshua Morris-Levenson
Why do US states specialize in different sectors? We document that employment specialization is highly persistent, which suggests that specialization may deviate from natural advantage, and reallocation could increase aggregate output. We develop a quantitative spatial model in which workers move across state-by-sector labor markets in response to exogenous changes in local fundamentals and endogenous agglomeration, as well as mobility frictions and labor market-specific idiosyncratic skills. We quantify the model with historical Census microdata that...
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