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Spoils of War: Trade Shocks and Segmented Labor Markets in Spain during WWI

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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.

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  • Simon Fuchs, 2021. "Spoils of War: Trade Shocks and Segmented Labor Markets in Spain during WWI," FRB Atlanta Working Paper 2021-14, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:92576
    DOI: 10.29338/wp2021-14
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    More about this item

    Keywords

    gains from trade; labor mobility; economic geography;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • N9 - Economic History - - Regional and Urban History
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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