We incorporate forward‐looking capital accumulation into a dynamic discrete choice model of migration. We characterize the steady‐state equilibrium; generalize existing dynamic exact‐hat algebra techniques to incorporate investment; and linearize the model to provide an analytical characterization of the economy's transition path using spectral analysis. We show that capital and labor dynamics interact to shape the economy's speed of adjustment toward steady state. We implement our quantitative analysis using data on capital stocks, populations, and bilateral trade and migration flows for U.S. states from 1965–2015. We show that this interaction between capital and labor dynamics plays a central role in explaining the observed decline in the rate of income convergence across U.S. states and the persistent and heterogeneous impact of local shocks.

This paper develops a new framework for examining the determinants of wage distributions that emphasizes within-industry reallocation, labor market frictions, and differences in workforce composition across firms. More productive firms pay higher wages and exporting increases the wage paid by a firm with a given productivity. The opening of trade enhances wage inequality and can either raise or reduce unemployment. While wage inequality is higher in a trade equilibrium than in autarky, gradual trade liberalization first increases and later decreases inequality.

This paper develops a quantitative model of internal city structure that features agglomeration and dispersion forces and an arbitrary number of heterogeneous city blocks. The model remains tractable and amenable to empirical analysis because of stochastic shocks to commuting decisions, which yield a gravity equation for commuting flows. To structurally estimate agglomeration and dispersion forces, we use data on thousands of city blocks in Berlin for 1936, 1986 and 2006 and exogenous variation from the city’s division and reunification. We estimate substantial and highly localized production and residential externalities. We show that the model with the estimated agglomeration parameters can account both qualitatively and quantitatively for the observed changes in city structure. We show how our quantitative framework can be used to undertake counterfactuals for changes in the organization of economic activity within cities in response for example to changes in the transport network.