Trade and Towns: Heterogeneous Adjustment to a Border Shock

40 Pages Posted: 20 Oct 2015

See all articles by Marius Brülhart

Marius Brülhart

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)

Céline Carrère

University of Geneva

Frederic Robert-Nicoud

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 2015

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.

Keywords: city size, natural experiment, spatial adjustment, trade liberalization

JEL Classification: F15, R11, R12

Suggested Citation

Brulhart, Marius and Carrère, Céline and Robert-Nicoud, Frederic L., Trade and Towns: Heterogeneous Adjustment to a Border Shock (October 2015). CEPR Discussion Paper No. DP10886, Available at SSRN: https://ssrn.com/abstract=2676592

Marius Brulhart (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 692 3471 (Phone)
+41 21 692 3365 (Fax)

HOME PAGE: http://www.hec.unil.ch/mbrulhar/

Céline Carrère

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Frederic L. Robert-Nicoud

University of Geneva - Department of Political Economics ( email )

40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41 22 379 8272 (Phone)
+41 22 379 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/staff/robert/home.html

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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