Michael Koch

Monday, April 17, 2023 — 12:00-01:00pm

Room 116, MSE

Globalization, Migration, and the Spatial Organization of Production

Michael Koch

(Aarhus University)

co-authored with Jackie M.L. Chan (Aarhus University) and Lin Ma (Singapore Management University)

In this paper, we investigate how international trade affects the spatial organization of production across sectors within a country and the internal migration of individuals. To do so, we develop a rich quantitative framework and estimate it using unique detailed data on individuals and firms in Denmark. In our multi-region multi-sector general equilibrium model, individuals have heterogeneous preferences for locations and sectors, and face migration frictions for moving between regions. They also choose to be either workers or entrepreneurs based on their entrepreneurial ability. The firms that entrepreneurs operate face a trade-off between the positive externalities of agglomeration that generate higher productivity and higher wages à la Gaubert (2018). The model is structurally estimated using Danish register-based data from 1999 to 2007. We do so by matching key moments of the firm-size distribution and value added across locations, as well as individual moments related to the dispersion of wages. We exploit the rise in import competition from China and Central and Eastern European Countries faced by Danish manufacturers, and study its impact on internal migration, the city size distribution, and sectoral output in manufacturing and services. We demonstrate that this has important implications for aggregate productivity, inequality, and welfare. Thus, we quantify the role of international trade for shaping economic activity and inequality within Denmark, during a period where the country experienced a transformation with notable growth rates in imports and exports and a remarkable change in internal migration flows.