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General Equilibrium Effects in Space: Theory and Measurement
(Forthcoming Article) - We examine the general-equilibrium effect of the China shock on US regions. We demonstrate that spatial linkages intensify the shock’s negative impact on employment across regions, leading to differential effects that are substantially larger than predictions from existing quantitative models. To address this disconnect, we develop a reduced-form representation of the impact of trade shocks in spatial models. Regional responses combine the direct effect of local shock exposure and its indirect spatial effects. Our approach extends shift-share empirical strategies and indicates that employment losses were amplified by strong agglomeration forces, large employment sensitivity to wages, and spatial and production linkages.
