TY - JOUR AU - Adão, Rodrigo AU - Arkolakis, Costas AU - Esposito, Federico TI - General Equilibrium Effects in Space: Theory and Measurement JF - National Bureau of Economic Research Working Paper Series VL - No. 25544 PY - 2019 Y2 - February 2019 DO - 10.3386/w25544 UR - http://www.nber.org/papers/w25544 L1 - http://www.nber.org/papers/w25544.pdf N1 - Author contact info: Rodrigo Adão Booth School of Business University of Chicago 5807 South Woodlawn Avenue Chicago, IL 60637 E-Mail: rodrigo.adao@chicagobooth.edu Costas Arkolakis Department of Economics Yale University, 28 Hillhouse Avenue P.O. Box 208268 New Haven, CT 06520-8268 Tel: 203/432-3527 Fax: 203/432-6323 E-Mail: costas.arkolakis@yale.edu Federico Esposito Department of Economics Tufts University 8 Upper Campus Road Medford, MA 02155 USA E-Mail: federico.esposito@tufts.edu AB - How do international trade shocks affect spatially connected regional markets? We answer this question by extending shift-share empirical specifications to incorporate general equilibrium effects that arise in spatial models. In partial equilibrium, regional shock exposure has a shift-share structure: it is the average shock weighted by regional exposure shares in revenue and consumption. General equilibrium responses of employment and wages in each market are the sum, across all regions, of these shift-share measures times bilateral reduced-form elasticities determined by the economy's spatial links. We use this reduced-form representation of the model to efficiently estimate the bilateral elasticities exploiting exogenous variation in shock exposure across markets. Finally, we study the general equilibrium impact of the “China shock” on U.S. CZs using our model-consistent generalization of the specification in Autor et al. (2013). We find that indirect effects from the shock exposure of other markets reinforce the negative impact of the market's own shock exposure, leading to employment and wage losses that are significantly larger than those reported in the existing literature. ER -