We study the uneven effects of a commodity cycle, documenting its impact across workers based on their skill level and the region where they live. To this end, we develop a dynamic quantitative model of a multi-region economy featuring spatial linkages (interregional trade and migration) and downward wage rigidity. Empirically, we focus on Brazil’s experience during the commodity boom of the 2000s and subsequent bust of the 2010s. The skill premium falls during the boom, while the extent of downward wage rigidity determines whether it reverts or maintains its decline during the bust. In addition, there is substantial heterogeneity across Brazilian states in the gains from the commodity cycle. Finally, we build counterfactuals to show that both spatial linkages (interregional migration and interregional trade) and downward wage rigidity jointly shape the impact of the commodity cycle on the skill premium, real wages, unemployment, and spatial disparities.
We consider five models of international trade that belong to the class of models in which the trade elasticity and domestic trade share are sufficient statistics for the welfare cost of autarky. Three are fixed-variety models featuring increasing micro-level margins of adjustment: versions of the Armington model, the Ricardian model, and its variable-markup counterpart. Two are endogenous-variety models featuring monopolistic competition: versions of the Krugman model and the Melitz model. For the three fixed-variety models, we show theoretically that, although they imply the same mapping from the trade elasticity to welfare, they imply different mappings from the trade elasticity to observed order statistics of price gaps of identical goods across countries. This result implies that choosing the parameter that governs the elasticity of trade to match the same order statistics in the data differentially impacts each model’s measured welfare cost of autarky. We quantify these differences for all five models.
Labor market polarization is among the most important features in recent decades of advanced country labor markets. Yet key spatial aspects of this phenomenon remain under-explored. We develop four key facts that document the universality of polarization across cities, a city-size difference in the shock magnitudes, a skew in the types of middle-paid jobs lost, and the role of polarization in the great urban divergence of skills. Existing theories cannot account for these facts. Hence we develop a parsimonious theoretical account that does so by integrating elements from the literatures on labor market polarization and systems of cities with heterogeneous labor in spatial equilibrium.
This paper examines how offshoring shapes emissions leakage and global emissions in response to unilateral environmental policy. We use a general equilibrium offshoring model with heterogeneous firms, based on standard modeling assumptions, where firms allocate labor between production tasks and emissions abatement. We find that global emissions respond non-monotonically to a unilateral emissions tax increase: for small cross-country tax differentials, emissions fall; but as the difference widens, leakage exceeds 100%, raising global emissions due to a global technique effect. The cleanest domestic firms start offshoring and incumbent offshoring firms become dirtier under declining effective foreign taxes. We isolate the offshoring margin – one underexplored channel of leakage – and contrast our findings with comparable models of trade in final goods: the mode of globalization matters. Complementing the unilateral reform with a border carbon adjustment (BCA) prevents emissions leakage but may raise inequality between countries.