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Trade and Towns:Heterogeneous Adjustment to a Border Shock

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  • Marius Brulhart
  • Celine Carrere
  • Frederic Robert Nicoud

Abstract

We study the effects of changes in trade openness on wages and employment of different-sized towns. To this end, we develop a multi-region model of intra-national adjustment to trade shocks. In equilibrium, small towns have more elastic labor-force responses than large towns. We test this prediction using fine-grained regional data for Austria and the fall of the Iron Curtain as a quasi-experimental setting for the exploration of trade-induced spatial effects. We find improved access to foreign markets to boost both employment and nominal wages, but large towns tend to have larger wage responses and smaller employment responses than small towns. The welfare gains of immobile factors are estimated to be 40% higher in border towns compared to interior towns.

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  • Marius Brulhart & Celine Carrere & Frederic Robert Nicoud, 2015. "Trade and Towns:Heterogeneous Adjustment to a Border Shock," Cahiers de Recherches Economiques du Département d'économie 15.07, Université de Lausanne, Faculté des HEC, Département d’économie.
  • Handle: RePEc:lau:crdeep:15.07
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    Cited by:

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    2. Brülhart, Marius & Carrère, Céline & Robert-Nicoud, Frédéric, 2018. "Trade and towns: Heterogeneous adjustment to a border shock," Journal of Urban Economics, Elsevier, vol. 105(C), pages 162-175.
    3. Mitze, Timo & Breidenbach, Philipp, 2023. "The complex regional effects of macro-institutional shocks: Evidence from EU economic integration over three decades," Ruhr Economic Papers 1007, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. David Krisztián Nagy, 2020. "Trade and urbanization: Evidence from Hungary," Economics Working Papers 1858, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Vermeulen, Wessel N., 2022. "Stuck outside the single market; Evidence from firms in central and eastern Europe," Journal of Comparative Economics, Elsevier, vol. 50(2), pages 415-434.
    6. Kentaro Nakajima & Tetsuji Okazaki, 2018. "The expanding Empire and spatial distribution of economic activity: the case of Japan's colonization of Korea during the prewar period," Economic History Review, Economic History Society, vol. 71(2), pages 593-616, May.
    7. Meng, Lina & Peng, Lu & Zhou, Yinggang, 2023. "Do housing booms reduce fertility intentions? Evidence from the new two-child policy in China," Regional Science and Urban Economics, Elsevier, vol. 101(C).
    8. Eberhard-Ruiz, Andreas & Moradi, Alexander, 2019. "Regional market integration in East Africa: Local but no regional effects?," Journal of Development Economics, Elsevier, vol. 140(C), pages 255-268.
    9. Fernihough, Alan, 2024. "Economic Geography and the Irish Border: A Market Access Approach," QBS Working Paper Series 2024/02, Queen's University Belfast, Queen's Business School.
    10. Ketevani Kapanadze, 2021. "Checkmate! Losing with Borders, Winning with Centers. The Case of European Integration," CERGE-EI Working Papers wp716, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    Keywords

    trade liberalization; city size; spatial adjustment; natural experiment;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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