General Equilibrium Effects in Space: Theory and Measurement / Rodrigo Adão, Costas Arkolakis, Federico Esposito.

Format:

Book

Author/Creator:

Adão, Rodrigo.

Contributor:

National Bureau of Economic Research.

Arkolakis, Costas.

Esposito, Federico.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25544.

NBER working paper series no. w25544

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

How do international trade shocks affect spatially connected regional markets? We answer this question by extending shift-share empirical specifications to incorporate general equilibrium effects that arise in spatial models. In partial equilibrium, regional shock exposure has a shift-share structure: it is the average shock weighted by regional exposure shares in revenue and consumption. General equilibrium responses of employment and wages in each market are the sum, across all regions, of these shift-share measures times bilateral reduced-form elasticities determined by the economy's spatial links. We use this reduced-form representation of the model to efficiently estimate the bilateral elasticities exploiting exogenous variation in shock exposure across markets. Finally, we study the general equilibrium impact of the "China shock" on U.S. CZs using our model-consistent generalization of the specification in Autor et al. (2013). We find that indirect effects from the shock exposure of other markets reinforce the negative impact of the market's own shock exposure, leading to employment and wage losses that are significantly larger than those reported in the existing literature.

Notes:

Print version record

February 2019.