Essays on Geography and Trade

Abstract

I study the effects of trade on welfare and the distribution of economic activity across sectors and regions within a country as well as the relative importance of the underlying economic mechanisms. Chapter 1, coauthored with Eduardo A. Haddad, studies the impact of China’s productivity growth on the Brazilian economy during the period of 2000–2008 using a quantitative spatial general equilibrium model. We find that the international trade shock led to a further specialization into commodities that triggered a migration process from manufacturing areas toward resource-abundant regions. Overall, welfare increased 0.03%. The transportation infrastructure improvement that the government has planned for the upcoming decades would increase welfare by 8.7%, but the welfare gain from the China shock would have only increased to 0.034% had the program already been in place. Chapter 2 studies the implications of both interregional and international trade for the Brazilian economy using the same framework. I find that the welfare gains from interregional trade (26.12%) are 6.5 times as large as the welfare gains from international trade (4%). International trade reallocates economic activity from remote and underdeveloped regions toward developed areas along the coast and resource-abundant regions. In contrast, interregional trade generates a larger reallocation, away from developed coastal areas, making economic activity more geographically dispersed. Chapter 3 studies the impact of the mining boom on local economic activity in Australia during the period of 2001–2011 by exploiting the sharp increase in global commodity prices along with regional variation in natural resource abundance. I find that the resource boom translated into significant local economic growth, with labor reallocating toward resource-abundant regions. Although the expansion of the mining activities crowded out the rest of the local sectors in the initial stage of the boom, the manufacturing and services sectors grew during the height of it, which implies that there was no sign of Dutch Disease.