Spoils of war: Trade shocks and segmented labor markets in Spain during WWI

Arbeitspapier

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.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2021-14

Classification and Topics

• Classification: Wirtschaft ; Neoclassical Models of Trade ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Economic Integration ; Trade and Labor Market Interactions ; Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Europe: 1913- ; Size and Spatial Distributions of Regional Economic Activity ; General Equilibrium and Welfare Economic Analysis of Regional Economies
• Subject: gains from trade ; labor mobility ; economic geography

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fuchs, Simon
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Atlanta
• (where): Atlanta, GA
• (when): 2021

Further information

• DOI: doi:10.29338/wp2021-14
• Handle: http://hdl.handle.net/10419/244317