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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.

Suggested Citation

  • Marius Brulhart & Celine Carrere & Frederic Robert Nicoud, 2015. "Trade and Towns:Heterogeneous Adjustment to a Border Shock," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 15.07, Université de Lausanne, Faculté des HEC, DEEP.
  • Handle: RePEc:lau:crdeep:15.07
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    References listed on IDEAS

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    More about this item

    Keywords

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

    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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