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Local Transmission of Trade Shocks

Author

Listed:
  • Ferdinando Monte

    (Johns Hopkins University, Carey Business School)

Abstract

This paper studies theoretically and empirically the geographic transmission of trade shocks over the territory of a country. Increases in labor demand in a location raise local wages and draw workers away from employment in neighboring locations: those locations experience a reduction in labor supply and an increase in prevailing wages even if not initially affected, or not engaged in the production of tradeable goods; adjustment in their wages affect in turn other close-by locations. In addition, increases in prevailing wages in a location affect all the industries producing there: other locations active in the same industries gain then market shares and experience an increase in labor demand even when they are far apart. I develop a model capable of incorporating realistic geographic features and isolate theoretically the different components of this diffusion. The model is general enough to also allow the study of transmission of localized immigration and productivity shocks. I estimate its main components with data on US commuting patterns and sectoral employment. I illustrate the impact of reductions in trade frictions in a sector on locations active and inactive in it, and the consequences of productivity growth on nominal wages of workers vs. real wages of residents. The model delivers insights on the consequences of ignoring commuting ?flows in analyses of local labor markets.

Suggested Citation

  • Ferdinando Monte, 2014. "Local Transmission of Trade Shocks," Working Papers 2014-001, Human Capital and Economic Opportunity Working Group.
  • Handle: RePEc:hka:wpaper:2014-001
    Note: MIP
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    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Monte_2013_local-transmission-trade-shocks.pdf
    File Function: First version, 12/13/2013
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    References listed on IDEAS

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    Cited by:

    1. Deiana, C, 2016. "Local Labour Market Effects of Unemployment on Crime Induced by Trade Shocks," Economics Discussion Papers 16529, University of Essex, Department of Economics.
    2. Stumpner, Sebastian, 2019. "Trade and the geographic spread of the great recession," Journal of International Economics, Elsevier, vol. 119(C), pages 169-180.
    3. Park, Jooyoun & Reynolds, C.L. & Rohlin, Shawn M., 2014. "The impact of import-related displacement on local business activity," Regional Science and Urban Economics, Elsevier, vol. 48(C), pages 94-109.

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    More about this item

    Keywords

    trade; commuting; local labor markets; geography;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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