Transmission Mechanisms of Trade Shocks This project studies how the productivity and welfare consequences of international trade shocks spread within a country, from the industries in which they first hit to the whole economy. The transmission of productivity and wage changes implied by a larger export propensity or import penetration follow paths of least resistance determined jointly by (a) sector-specific techology, (b) correlation across different types of knowledge in the workers` population, and (c) spatial relations across locations. The first element influences which types of occupations are relatively more affected by trade shocks initially; the second element determines the adjustments in relative wages vs. quantities across the workers' knowledge space; the third element defines local scarcity of different types of knowledge, i.e. the elasticities of local labor demand and supply functions for different occupations. Given initial conditions on each of these components, shocks diffuse with predictable patterns across workers, firms, and locations. The evidence on these issues will be provided by twenty years of data from an employer-employee matched dataset representative of the French employment. From this data, the PI's can extract occupational choices, infer commuting patterns at a very fine geographical detail (around 37,000 French towns) and match these outcomes with domestic and export behavior of establishments. These data provide a truly unique opportunity for studying the geographical and occupational diffusion of trade shocks. This study develops the conjecture that workers' choices, along the occupation and job location margin, at the same time (a) act as a transmission mechanism and (b) allow (or hinder) the gains in productivity through reallocation emphasized by well established development in the international trade theory. A clear understanding of how trade shocks unfold is essential to identifying the disruptive and productive consequences of trade. This research will develop an empirical methodology to (a) quantify the speed and deepness of the geographic diffusion process, (b) assess the relative importance of adjustments in wages, employments and occupation, (c) measure local and aggregate gains in productivity through factors'reallocation, and (d) emphasize the geographic component of heterogeneity in these adjustments. These advancements will contribute to give sounder estimates of the magnitude and distribution across workers of gains and losses from trade, and comes at a time where micro-level data on workers and firms choices and locations is increasingly available for developed and developing countries. This project will provide a firmer basis for counterfactual trade policy analysis for the application of old trade policies to new environments, or the implementation of completely new policies, providing a bridge between the theory of international trade, the literature on program evaluation, and the real-life consequences of policy choices.
The consequences of international trade on the welfare of citizens of a country are very often subject of intense public debate. While relatively much is known about these consequences in the long run, the discipline has comparatively little to say about the short run adjustment that the economy undergoes when international trade is larger. This project wants to dig deeper on these consequences focusing on one particular aspect of this adjustment: how the consequences of larger trade integration spread across the country through changes in the job and commuting pattern of individual workers. It is well known, in fact, that industries are concentrated in space, rather than being evenly spread across the territory of a country. Moreover, locations are specialized only in some industries: in any given region only some industries are present. The first fact implies that if, say, the importance of imports of textile increases, this only reduces the production of textile (and demand for labor) in some locations. The second fact implies that this decrease can hit very hard workers in those locations, which may not have many alternatives. In search for different opportunities, displaced workers may find job in neighboring locations, thus increasing supply of labor (and possibly driving down wages) there. In this fashion, shocks that initially hit only some sectors and location may spread far away through the actions of individual workers. We rely on recent advances in economic theory that make this sort of analysis feasible, and work to extend them and incorporate more details on the geographic features of countries. To study empirically the importance of this mechanism, we gather data on the commuting pattern of French workers, the degree of penetration of imports across different sectors, and the composition by industry of different locations, in the period 1996-2006. We compute the exposure of each location to international competition by looking at the industries which are present there, and at how much imports penetrated in those industry in our period. We find that locations where the change in this exposure was larger also are the locations where employment grew less, consistent with our expectations. While more work is in progress to establish the consequences of these changes on neighboring locations and to quantify the impact of these forces on employment and wages, we believe these and other preliminary results emphasize the importance of considering this mechanism when assessing the short run impact of international trade integration.
