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Trade and Towns: Heterogeneous Adjustment to a Border Shock

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  • Brülhart, Marius
  • Carrère, Céline
  • Robert-Nicoud, Frédéric

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.

Suggested Citation

  • Brülhart, Marius & Carrère, Céline & Robert-Nicoud, Frédéric, 2015. "Trade and Towns: Heterogeneous Adjustment to a Border Shock," CEPR Discussion Papers 10886, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10886
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    More about this item

    Keywords

    city size; natural experiment; spatial adjustment; trade liberalization;

    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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