Trade, wages and location

Much of the literature in international trade is concerned with intra-national adjustment to changes in international trading opportunities. Almost all of this research examines changes in specialisation across firms, sectors and factors of production. While such allocation effects are of undoubted importance, one dimension is strikingly absent from most of this literature: space. We aim to work towards closing this gap through empirical analysis of intra-national spatial adjustment patterns following an opening of international trade.
Such an analysis requires two essential ingredients: (a) spatially detailed data and (b) a context of exogenous, unanticipated trade opening. The experience of Austria over the last three decades provides a propitious natural experiment within which to explore the spatial impact of changes in trade orientation. In 1975, at the beginning of the period covered by the available data, Austria lay at the eastern edge of democratic, market-oriented Europe. By 2002, which marks the end of our sample period, it found itself at the geographical heart of a continent-wide market economy. This change in trade orientation was clearly exogenous, unanticipated and large.
The proposed analysis will be based region-sector-level measures of employment, wages and skill compositions, computed from the Austrian Social Security Database. We shall focus on two questions: (a) what is the effect of trade opening on regional changes in skill compositions and (b) what is the impact of pre-existing regional skill endowments on the nature of regions’ adjustment to external trade opening.