REGIONAL DIVERGENCE, IMPORT COMPETITION, AND THE RISE OF THE SKILLED CITY
JAVIER QUINTANA GONZALEZ
FEBRUARY 10, 2020
Abstract: This paper analyzes the contribution of import competition to the divergence among US metropolitan areas over recent decades. I document that the sharp rise of imports of Chinese manufacturing goods had a significant effect on the spatial skill polarization and the divergence of wages and skill premium among American cities. Although the average effect of the China shock on the spatial skill polarization and returns to skills was not significant, the effects were systematically different depending on the skill intensity of local services. Among highly educated cities, a higher exposure to import competition increases the college-educated workforce and the wages for skilled workers. I show that the contribution of the trade shock operates through the reallocation of workers across sectors and cities. Using a novel measure of ‘labor market’ exposure to the China shock, I document that service industries expand when their local manufacturing sector faces import competition. High human capital regions exposed to the China shock undergo a faster transition from manufacturing to skill-intensive service industries. The negative effects of the China shock concentrate in exposed regions with a low density of college-educated workers.