International Trade and Local Labor Markets: Are Foreign and Domestic Shocks Created Differently?

Despite the attention given to international trade in discussion and analysis of the economic struggles of many regions across the U.S., it is unclear whether international trade shocks impact local economies more and differently than shocks originating from within the domestic economy, thus requiring special policy attention. Therefore, using U.S. county-level data for 1990-2010, this study carefully constructs demand shocks to local economies, isolating international import and export impacts to assess whether trade shocks have different effects from domestic demand shocks. We examine a variety of economic indicators including population growth, employment rates, wage rates and poverty rates. The results suggest that international trade shocks have some different effects than overall domestic shocks, though public perception of trade appears to be more negative than reality. We also find that domestic shocks dominate international trade shocks in explaining variation in regional labor market outcomes over the entire period.