Integrating this approach with international trade models has allowed Arkolakis to explore spatial outcomes between and within countries. A paper with Arnaud Costinot and Andrés Rodríguez-Clare, for instance, used spatial models to identify a set of common underlying principles that help explain the economic benefits of being open to trade. A key variable, they found, is how responsive – or “elastic” – trade is to any increase or decrease in spatial frictions, like tariffs or geographic barriers. These findings have been used by various researchers to measure the welfare implications of trade in various environments and in different countries.
Arkolakis applies these ideas to the US-China trade relationship in a new paper with Rodrigo Adão and Federico Esposito – specifically the “China shock” experienced by US labor markets in recent decades. Developing a methodology for aggregating this shock across different regions, Arkolakis and his coauthors estimate that the US lost approximately 3.4 to 4.8 million jobs to China between 1990 and 2007 – half of which were due to the indirect effects of spatial linkages within the US economy.
Reflecting on the implications of these findings, Arkolakis underscores the importance of rigorously analyzing the likely winners and losers from any trade policy.
“During the wave of globalization, countries opened without fully understanding the effects it would have on regions and people,” he said. “We shouldn’t blindly accept that openness will work for everyone – first we need to make sure it works for most people, then use tools to support the losers through other means.”
Spatial frictions can also affect the flow of people – including through immigration restrictions. In a recent paper with fellow EGC affiliates Sun Kyoung Lee and Michael Peters, Arkolakis analyzed the effect of European immigration on US economic growth between 1880 and 1920. Linking data from census records, patent filings, and millions of immigration records, they found that immigrants were on average more prolific innovators than non-immigrants – sparking new ideas and economic growth throughout the economy. They also estimated large losses from immigration restrictions, which likewise rippled through the economy.
Clearly, spatial economics offers a powerful and highly versatile toolbox for exploring a range of economic issues. To share these insights with Yale students, Arkolakis has designed a new course: "The Economics of Space," which teaches undergraduates how to analyze spatial data to explore the role of geography on economic outcomes. He also collaborates extensively with doctoral students.
Governments are starting to take notice, as well: Arkolakis and his coauthored Treb Allen are engaged with the US Department of Transportation on efforts to update their analytical models, and he and a team of economists have presented a related detailed analysis to the Greek government. The latter experience was personally meaningful for Arkolakis.
“Traditionally, economics was not considered as a rigorous field of science in Greece,” he said. “I always hoped to make a difference in that aspect – to provide data, theories, and advice to the government on economic issues.”
Arkolakis has been awarded numerous grants from the National Science Foundation, most recently for his work with Conor Walsh, and in 2013 received the NSF’s prestigious Faculty Early Career Development Program (CAREER) award. In 2017, he received the Bodossaki Foundation Distinguished Young Scientists Award – awarded annually to Greek scholars under the age of 45 for distinguished accomplishments in their fields.
Arkolakis hopes that he and his colleagues’ efforts continue to be taken up by researchers and policymakers, in Greece and beyond.
“These models and tools can produce amazing insights about growth and equity of distribution,” he said. “Eventually, they can help us think systematically about different policy options, in developed as well as developing countries.”
Greg Larson is a consultant and writer focused on economics, public policy, and social impact. Photos by Vestal McIntyre for EGC.