Simon Fuchs (Dartmouth Visiting PhD Student) will present:
"Shifting the Spatial Equilibrium - Evidence from a Natural Experiment"
at 12:15pm on Tuesday, October 31, 2017 in (051 Buchanan) Volanakis - TUCK
Lunch will be served at noon.

If you will be attending the Lunch Seminar and have not already done so, please RSVP to Doreen Aher at TUCK so she can order the appropriate amount of food.
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ABSTRACT:

How does an external shock affect economic development within a country? And what is the role for geography and sectoral specialization in determining this effect? This paper exploits a trade shock to the Spanish Economy due to the participation of Spain's key trading partners in World War 1 (1914-18) as a natural experiment to examine the importance of geography boty for the input and output market in determining sector specific dynamics. I collected a novel dataset combining detailed information on geographically separated sectoral labor markets before and after the War with trade data. Constructing a theoretically consistent exposure measure, I find that provinces in the top quartile of exposure experience 4 percent faster population growth compared to the lowest quartile. I then use this variation to estimate a quantitative economic geography model, where labor demand is determined by multi-sectoral trade partially driven by sectoral scale economies, and labor supply is based on a discrete choice framework where workers may reallocate across space and sectors subject to switching costs, making employment sticky. The resulting labor supply curve is upward sloping and depends on the initial spatial distribution of labor, emphasising the importance of geographical frictions in both the output and input market. Using the trade shock and geography as an instrument, I show how to leverage the structure of the model to obtain novel estimates for key elasticities that determine trade patterns, scale economies and labor mobility. The estimated model is then used to simulate Spain in the absence of the WW1 trade shock. Compared to this counterfactual the data shows substantial reallocation across sectors and provinces. Contrary to traditional models that abstract from labor stickiness, the model points towards the importance of the initial geographical distribution of labor and its interaction with the initial comparative advantage of individual provinces.

Paper not available at this time.



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