Andrei Victor Potlogea
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Essays on International Trade and Economic Geography Andrei Victor Potlogea TESI DOCTORAL UPF / ANY 2016 DIRECTOR DE LA TESI Vasco M. Carvalho i Giacomo A.M. Ponzetto Departament d’Economia i Empresa To Susannah iii Acknowledgements Like any big project, the completion of this thesis would not have been possible without the advice and support of many others. Here I want to take the opportunity to thank all of those who have helped me along the journey of PhD research, making it both pro- ductive and enjoyable. First of all, I would like to thank my advisors Giacomo Ponzetto and Vasco Car- valho. They have not only provided me with important insights and taught me more about economics than anyone else, but through a finely tuned combination of emotional support, honest feedback and timely pressure have guided me past my early (and late) struggles. I owe special thanks to Gino Gancia and Jaume Ventura. Their ability to separate the essential from the superfluous and their constant focus on the big picture has taught me a great deal. Special thanks are also due to Juanjo Ganuza, for allowing me to par- ticipate in his research project on “Information, Markets and Social Decisionmaking: Theory and Applications”. Among the many other professors at UPF that have provided me with important in- sights or sound advice at various stages during my studies, I would like to single out Julian di Giovanni, Fernando Broner, Fabrizio Germano, Larbi Alaoui, Albrecht Glitz, Alessandro Tarozzi, Kurt Schmidheiny, Filippo Ippolito, Isaac Baley, Manuel Garcia- Santana, Sandro Shelegia and Massimo Motta. I would like to also thank Marta Araque and Laura Agusti, who have been instru- mental in helping me deal with the administrative complexities of PhD student life, particularly during the job market and my long research stays at Cambridge and LSE. Among my peers, a first special thanks goes out to Stephan Maurer. Stephan has not only co-authored the third chapter of this thesis, but has been a constant source of sup- port throughout the ups and downs of PhD life during the past five years. A big thank you is also due for Wenya Cheng, my collaborator on the second chapter of this thesis. I also want to express my gratitude towards fellow PhD students at UPF, many of whom became good friends: Tom, Tanya, Oriol, Ciccio, Bruno, Stefan, Hrvoje, Thomas, Federica, Fernando, Andrea, Mrdjan, Jagdish, Emma, Gene, Felipe, Miguel Karlo and Chris. A special mention goes to Michael, who will be missed by all of us. For my final set of thanks words are not quite enough. I would like to thank my par- ents, for continuing to provide the unconditional support they have offered throughout v my life. Finally, I would like to thank my wife Susannah, for reminding me that there’s a big world out there. vi Abstract This thesis provides an investigation of the effects of trade, technology and natural resource shocks on local economies and local labor markets. In the first chapter, I explore theoretically the impact of recent improvements in communication technology on the configuration of eco- nomic geography at multiple levels of spatial disaggregation. I show that a simple model of the organization of global supply chains can rationalize several salient stylized facts concerning the recent evolution of the spatial economy. In the second chapter, I empirically investigate the impact of changes in US trade policy triggered by China’s WTO accession on Chinese local economies. I find that improvements in US market access had an important impact on local economic outcomes and on the spatial configuration of economic activity within China. In the third chapter I investigate the impact of large oilfield discoveries on local labor markets, with a particular focus on the effects on the economic prospects of women. I find that while large mineral endowments do not slow the process of women joining the labor force, they do lead to a higher gender wage gap. Resumen En esta tesis se lleva a cabo la investigacion´ de los efectos de comercio internacional, tec- nolog´ıa y recursos naturales sobre las econom´ıas y los mercados laborales locales. En el primer cap´ıtulo, examino teoricamente´ el impacto de las recientes mejoras en las tecnolog´ıas de la tele- comunicacion´ sobre la configuracion´ economico-geogr´ afica´ en varios niveles de desagregacion.´ Muestro que un modelo sencillo de la organizacion´ global de las cadenas de suministros puede racionalizar varios hechos estilizados relacionados con la evolucion´ reciente de la econom´ıa es- pacial. En el segundo cap´ıtulo, investigo emp´ıricamente el impacto de los cambios en la pol´ıtica de comercio exterior de los EEUU, desencadenados por la adhesion´ de China a la OMC, sobre las econom´ıas locales en China. Encuentro que el mejor acceso al mercado estadounidense tuvo un impacto importante sobre las econom´ıas locales y sobre la configuracion´ geografica´ de la actividad economica´ en China. En el tercer cap´ıtulo, examino el impacto de descubrimientos de grandes yacimientos petrol´ıferos sobre las econom´ıas locales, centrandome´ particularmente en las perspectivas economicas´ de las mujeres. Encuentro que aunque grandes yacimiento min- erales no retrasan el proceso de adhesion´ femenina al mercado de trabajo, s´ı llevan a mayores diferenciales salariales entre los hombres y mujeres. vii Preface This doctoral thesis consists of three essays at the intersection of international trade, economic geography, urban economics and labor economics. The connecting thread that runs between these three essays is the focus on the analysis of the impact of various economic shocks (trade, technology and the discovery of natural resources) on local economies and local labor markets. In the first chapter, I develop a model that explains several of the recent shifts in the location of economic activity, both across and within countries, as consequences of globalization brought about by technical progress. In the model, declining costs of long-distance communication induce a reallocation of economic activity across space. This process accounts for three key trends in the data. First, cross-country inequality has declined as many developing countries have grown rapidly. Second, economic ge- ography has instead grown more unequal within countries. Third, rising intra-national inequality reflects the disproportionate success of skilled cities. My model explains the faster population and output growth of skilled cities, as well as their tendency to augment their initial skill advantage. Consistent with the evidence, my theory features a non-monotonic path of urban growth in developed countries. The model predicts a future shift in worldwide urban hierarchies as some developing-world cities overtake unskilled cities in industrialized countries along global supply chains. In the second chapter, co-authored with Wenya Cheng, we study the effect of im- provements in foreign market access brought by China’s WTO accession on Chinese local economies. We exploit cross-city variation in these improvements stemming from initial differences in sectoral specialization and exogenous cross-industry differences in US trade liberalization that originate from the elimination of the threat of a return to Smoot-Hawley tariffs for Chinese imports. We find that Chinese cities that experience greater improvement in their access to US markets following WTO accession exhibit faster population, output and employment growth as well as increased investment and FDI inflows. The benefits of WTO membership for Chinese local economies are aug- mented by significant local spillovers. These spillovers operate both from the tradable to the non-tradable sector and within the tradable sector. Within the tradable sector, spillovers are transmitted primarily via labor market linkages. We find important local demand linkages from the tradable to the non-tradable sector. Most local service sectors ix benefit from trade liberalization. In particular, our evidence suggests that increased in- vestment demand caused by trade liberalization drives financial sector growth. We find little effect of trade liberalization on local wages. Alongside our results on population and employment, this indicates that local labor supply elasticities are high in our set- ting. Our findings can be explained by a Lewis model of urbanization that combines geographic mobility with an abundant reserve of labor. Finally, in the third chapter of my thesis, co-authored with Stephan Maurer, we use the discovery of major oil fields in the Southern US between 1900 and 1940 to test whether resource-based specialization is detrimental to women’s labor market out- comes. Consistent with this hypothesis, oil discoveries are found to lead to a higher gender wage gap. However, we find no evidence that oil wealth lowers female labor force participation or has any impact on local marriage and fertility patterns. While our results indicate that oil discoveries limit female labor market opportunities in some sectors, this effect is compensated by the higher availability of service sector jobs. x Contents Index of figures xv Index of tables xix 1 GLOBALIZATION AND THE SKILLED CITY 1 1.1 Introduction . .1 1.2 Reviewing the Facts . .6 1.3 Model . .9 1.3.1 Basic Setup . .9 1.3.2 Equilibrium Definitions . 14 1.3.3 Key Assumptions and Discussion . 15 1.3.4 Spatial Equilibrium and Main Results . 16 1.4 A History of the Location of Economic Activity . 23 1.4.1 The Past and Present . 24 1.4.2 The Future . 31 1.5 Conclusion . 34 1.6 Appendix A: Key Assumptions . 36 1.6.1 Preliminaries and Clarifications . 36 1.6.2 Formal Statements of Assumptions . 37 1.7 Appendix B: Proofs . 40 1.7.1 Preliminaries: Solving the Model . 40 1.7.2 Proof of Proposition 1 ...................... 43 1.7.3 Comparative statics of threshold Tmax .............. 51 1.7.4 Proof of Propositions 2 to 6 ..................