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The effect of trade on the demand for skill - evidence from the interstate highway system

  • Guy Michaels

Since changes in trade openness are typically confounded with other factors, it has been difficult to identify the labor market consequences of increased international trade. The advent of the United States Interstate Highway System provides a unique policy experiment, which I use to identify the effect of reducing trade barriers on the relative demand for skilled labor. The Interstate Highway System was designed to connect major metropolitan areas, to serve national defence and to connect the United States to Canada and Mexico. As a consequence – though not an objective – many rural counties were also connected to the highway system. I find that these counties experienced an increase in trade-related activities, such as trucking and retail sales, by 7-10 percentage points per capita. Most significantly, by increasing trade the highways raised the relative demand for skilled manufacturing workers in counties with a high endowment of human capital and reduced it elsewhere, consistent with the predictions of the Heckscher-Ohlin model.

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File URL: http://eprints.lse.ac.uk/19767/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19767.

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Length: 62 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:ehl:lserod:19767
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/

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