Doctoral dissertation Research: Transmission Mechanisms of Trade Shocks

University Of Chicago, Chicago IL

Investigators

Abstract

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.