Why Are Population Flows So Persistent? Jordan Rappaport November 1999 Last Revised: July 2004 RWP 99-13 Research Division  Federal Reserve Bank of Kansas City

Abstract A neoclassical model of local growth is developed by integrating the static equilibrium underlying compensating differential theory as the steady state of a neoclassical growth model. Numerical results show that even very small frictions to labor and capital mobility along with small changes in local productivity or local quality of life suffice to cause highly persistent population flows. Wages and house prices, in contrast, jump most of the way to their new steady state. The model suggests that cross-sectional regressions of local population growth can help to identify past and present changes in the determinants of representative-agent welfare. More generally, it provides a framework for interpreting observed local growth rates. Jordan Rappaport is a semior economist at the Federal Reserve Bank of Kansas City. The author wishes to thank the following for advice and feedback: Alberto Alesina, Robert Barro, Jan Brueckner, Chris Foote, Ed Glaeser, Jill Holman, Matt Kahn, David Laibson, Philip Lane, John McHale, Taisuke Nakata, Jong-Wha Lee, Dani Rodrik, Jeff Sachs, David Weil, several anonymous referees, and seminar participants at the Federal Reserve Bank of Kansas City, the 1999 Federal Reserve System Regional Meeting, Harvard University, Brown University, the University of Maryland, and the University of Wisconsin. Thank you for financial support to the Center for International Development at Harvard University and the National Science Foundation. Scott Benolkin, Jason Martinek and Taisuke Nakata provided excellent research assistance. Taisuke Nakata additionally provided excellent editorial assistance. The views expressed herein are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of Kansas City or the Federal Reserve System. Supplemental materials to the paper are available from www.kc.frb.org/Econres/staff/jmr.htm. Jordan e-mail: jordan.m.rappaport@kc.frb.org Back to top                RWP home