Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/244317 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2021-14
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
How does intranational factor mobility shape the welfare effects of a trade shock? I provide evidence that during WWI, a demand shock emanated from belligerent countries and affected neutral Spain. Within Spain, labor predominantly reallocated locally, while the most affected provinces experienced drastic increases in wages and consumer prices. Embedding imperfect labor mobility in an economic geography model, I show that external demand shocks can improve allocative efficiency, but asymmetric shocks cause localized increases in wages and consumer prices instead of reallocation. Adjusting an aggregate gains of trade formula to take domestic reallocation into account more than triples the estimated welfare effects.
Subjects: 
gains from trade
labor mobility
economic geography
JEL: 
D5
F11
F12
F15
F16
N9
N14
R12
R13
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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