TRADE AND TOWNS: DOES TRADE LIBERALISATION HURT THE ...
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Trade and Towns: Does Trade Liberalisation Hurt the Countryside?Brülhart, Carrère & Robert-Nicoud
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TRADE AND TOWNS:DOES TRADE LIBERALISATION HURT
THE COUNTRYSIDE?
Marius BrülhartUniversity of Lausanne and CEPR
Céline CarrèreUniversity of Geneva
Frédéric Robert-NicoudUniversity of Geneva
ETSG, Copenhagen, 9 September 2011
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MOTIVATION (1)
Intranational effects of international trade on:○ industries: Ricardo, Heckscher-Ohlin,...○ factors: Heckscher-Ohlin, Stolper-Samuelson,...○ firms: “new” and “new new” trade theories○ places: relatively underresearched
Questions:○ How does trade liberalisation impact on intranational
economic geographies?○ Are large regions/cities/towns affected differently
relative to small ones?
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MOTIVATION (2)
“The openness to trade and capital flow that makesmarkets more global also makes subnational disparities inincome larger and persist for longer [...]. Not all parts of acountry are suited for accessing world markets, andcoastal and economically dense places do better.”
World Bank, World Development Report 2009
Common perception among policy makers that tradeliberalization is more beneficial to cities than to ruralregions
Two dimensions: size/density, and proximity to foreignmarkets
We consider the size dimension, by exploring theimpact of an equal-sized trade shock on large andsmall towns
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PRIOR RESEARCH (1)
Regional effects of international trade: Theory
o “urban systems” models (Henderson, RSUE 1982):trade raises employment and wages in places thatspecialise in comparative-advantage good could cut either way for large/small towns
o “new economic geography”: trade raises employmentand wages in small region (Krugman & Livas, JDE1996) or in large region (Monfort & Nicolini, JUE 2000) could cut either way for large/small towns
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PRIOR RESEARCH (2)
Regional effects of international trade: Empirics
o Ades & Glaeser (QJE 1995), Henderson (JEGr 2003):cross-country panels trade reduces urban primacy
o Redding & Sturm (AER 2008): quasi-experimentalapproach trade disproportionally favours growth ofsmaller cities
points towards a spatially equalising effect of trade common perception among policy makers
Limitations
o Cross-country panels do not allow causal inferenceo Existing studies only look at quantity effects
(population)
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OUR APPROACH
Two-factor model of spatial wage and employmentadjustment to changes in external market access
Austria before/after the fall of the Iron Curtain in 1990as a natural experiment: border regions as treatmentgroup and interior regions as control group (Brülhart,Carrère & Trionfetti, JIE forthc.)
Estimate trade-induced employment changes andwage changes as a function of municipality size
Trade and Towns: Does Trade Liberalisation Hurt the Countryside?Brülhart, Carrère & Robert-Nicoud
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THE MODEL (1)
Multi-location economy with○ 2 factors: immobile workers H, mobile workers L○ constant returns to scale, identical C-D production
functions across locations j (“towns”)○ different producer prices across towns, pj, due to
differences in market access equilibrium town size (j Hj Lj) increases in Hj and
in pj
larger towns have a smaller share of mobile workers average wages, j, differ across towns
Trade liberalisation modelled as an increase in pj for all jinside a “border region”
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THE MODEL (2)
Trade liberalisation...○ ...increases size, j, as well as average wages, j, for
all affected towns○ ...increases j relatively more for small towns○ ...increases j relatively more for large towns Large towns have less elastic local labour supply than
small towns
This result is unchanged if we make the model more“urban” by adding non-traded endowments (housing)and/or town-level agglomeration economies that areexternal to firms
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EMPIRICAL SETTING: THE TREATMENTmerchandise imports + exports as share of total Austrian trade,1990 = 100
Czech/Slovak Rep.
Hungary
(former) Yugoslavia
Switzerland
Germany (East+West)
Italy
70
100
130
160
190
220
250
280
310
340
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
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A4
A6
A8
A25
A9
A1
A7
E56
E55
A22
A23
E59
E60
B 303
S33
A21
A2
A3
S31
S1
E58
S4
S6
A9
E59
A2
S36
A10
A11
E55
Slovenia
Hungary
Slovakia
Czech Republic
≤ 50≤ 25
Distance in kilometres
EMPIRICALSETTING:TREATMENTAND CONTROLGROUPS
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REGRESSION SPECIFICATIONS
Cumulative treatment effects on wage and employmentgrowth:
jt j t j tWage Size Fall Border Fall1 2
wagej j t j t jtBorder Size Fall d d3
jt j t j tEmpl Size Fall Border Fall1 2
emplj j t j t jtBorder Size Fall d d3
OLS with municipality-level error clustering Robustness to different definitions of treatment and
control groups
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DATA
Austrian Social Security Database: nominal wage andworkplace municipality of all Austrians in private-sectoremployment, quarterly 1975-2002 (>280 million records)o Size computed as municipal private-sector employment
in Q1 1989 in functional urban areas (Stadtregionen) 2,047 “towns”
o Wage computed as town-quarter median across maleworkers
Treatment towns defined as lying within...o 25 road kilometres of nearest border post (Border25),
oro 40/60 road kilometres of nearest Eastern city with
50,000 inhabitants (Border40, Border60)
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ΔWage ΔEmpl ΔWage ΔEmpl ΔWage ΔEmpl(1) (2) (3) (4) (3) (4)
Size x Fall 0.014** 0.002 0.015** -0.003 0.014** -0.0003(0.006) (0.006) (0.007) (0.007) (0.006) (0.006)
Border25 x Fall 0.232* 0.929***(0.128) (0.295)
Border40 x Fall 0.206 1.685**(0.261) (0.677)
Border60 x Fall 0.133 0.696**(0.139) (0.318)
Border25 x Size x Fall 0.181** -0.424***(0.082) (0.106)
Border40 x Size x Fall 6.350* -22.60*(3.780) (11.500)
Border60 x Size x Fall 0.136** -0.318***(0.060) (0.107)
No. obs. 218,505 218,505 218,505 218,505 218,505 218,505No. towns 2,047 2,047 2,047 2,047 2,047 2,047R² 0.059 0.185 0.059 0.185 0.059 0.185quarter fixed effects Yes Yes Yes Yes Yes Yesmunicipality fixed effects Yes Yes Yes Yes Yes Yes
Dependent variable:
Note: estimation with OLS; standard errors in parentheses: clustered by municipality; * : p=0.1, **: p=0.05,***: p=0.01
annual growth rate, quarter by quarter
BASELINE RESULTS
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CONCLUSIONS
Trade liberalisation boosts employment and nominalwages in border regions, both in small and large towns
Employment effect stronger in smaller towns, wage effectstronger in larger towns
larger towns have less elastic labour supply consistent with our model
Why?o industry composition?o skill composition?