Health, Labor and Development Seminar - Roland Hodler (University of St. Gallen)
Spatial Diffusion of Economic Shocks in Networks
This paper analyses, both theoretically and empirically, the role of geographic, ethnic and road networks in the spatial diffusion of local economic shocks. We develop a network model that describes how a district's level of prosperity is related to its position in the network. The network model's first order conditions are used to derive an econometric model of spatial spillovers that we estimate using a panel of 5,944 districts from 53 African countries over the period 1997/2013. To identify the causal effect of spatial diffusion, we exploit cross-sectional variation in the location of mines and time variation in world mineral prices. Our results show that road and ethnic connectivity are important factors for diffusing economic spillovers over longer distances. We then use the estimated parameters from the econometric model to calculate the key player centralities, which determine which districts are key in propagating local economic shocks across Africa.